Ecclesiastl.8fe Regulatory News (ELLA)

RNS Number : 0593J

Ecclesiastical Insurance Office PLC

23 March 2010

 

ECCLESIASTICAL INSURANCE OFFICE PLC

 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2009

 

The Company has now approved its annual report and accounts for 2009.

 

This Annual Financial Report announcement contains the information required to comply with the Disclosure and Transparency Rules, and extracts of the 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 2009. The annual report and accounts will be available from 24 March 2010 on the Company's website at www.ecclesiastical.com. Copies of the audited financial statements are also available from the registered office at Beaufort House, Brunswick Road, Gloucester GL1 1JZ.

 

 

Directors' Report

 

 

Total gross written premiums increased by 11.0% in 2009. General business premiums increased by 11.2% and long term business premiums increased by 6.4%.

 

Group profit before tax was £79.0m (2008: £22.5m loss), and is our second best result ever. General business underwriting contributed a £27.0m profit (2008: £1.9m loss), with an improved global combined operating ratio of 89.6% (2008: 100.8%).

 

Total net investment return for the group (including investment income and net fair value movements) was a gain of £122.1m (2008: £52.6m loss), of which £65.3m profit is directly attributable to the shareholders (2008: £8.4m loss).

 

Group profit after tax was £56.2m (2008: £15.4m loss).

 

Shareholders' equity increased to £392.8m (2008: £342.3m).

 

The underlying strength of the business in terms of solvency margins and combined operating ratio is such that we are able to increase our ordinary grant to Ecclesiastical's charitable owner Allchurches Trust to £8.5m from £7.0m in 2008. This represents our biggest ordinary grant ever.

 

Our presence and profile in our core commercial insurance niches around the world - care, charity, education, faith and heritage - grew in 2009. All general insurance business units provided profits with combined operating ratios hitting or significantly bettering our long term target of 98%. Our customers weren't hit as hard with claims in 2009. Metal theft from churches eased - although it continues to be a problem - and we didn't face any widespread dramatic weather events in our core UK business.

 

The rating agencies Standard & Poor's and A M Best both affirmed our rating which is quite an achievement in these difficult economic conditions.

 

The economic environment remains extremely uncertain. As quantitative easing passes, the effects of having to reduce public sector borrowing, possible higher tax and interest rates and, as many commentators suggest, increasing inflation are spectres to consider. We remain vigilant and cautious.

 

Stepping back, there is no doubt that 2009's results are very positive. We should be extremely encouraged by our progress. In recent years we have achieved a lot. However, we also should not be complacent and 2010 may well be a more demanding year. The more improvements and changes we make, the more challenges there are to confront; web technology for example is evolving at a rapid pace.

 

Greater challenges are ahead of us. But the energy and enthusiasm we have built up is more than enough to take them on. We are no ordinary financial services company and really do stand out from the crowd. Our charitable ownership underpins what kind of company we are and it drives us forward in a unique way.

 

The group has considerable financial resources and, as a consequence, the directors believe the group is well placed to manage its business risks successfully and continue in operational existence for the foreseeable future, despite the current uncertain economic outlook. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

 

 

Michael Tripp

Group Chief Executive

 

 

 

Principal Activity

 

The principal activity of the group is the transaction of most forms of general and long term insurance in the United Kingdom and overseas.

 

Ownership

 

At 23 March 2010 all the issued Ordinary share capital of the company and 9.0% of the issued 8.625% Non-Cumulative Irredeemable Preference shares were owned by Ecclesiastical Insurance Group plc. In turn, the entire equity capital of Ecclesiastical Insurance Group plc was owned by Allchurches Trust Limited.

 

Directors

 

The directors of the company at this date:

 

*	W. M. Samuel BSc, FCA Chairman
*	Sir Philip Mawer DLitt, LLD Deputy Chairman
*	The Rt. Revd. N. Baines BA Bishop of Croydon
*	D. Christie BA, BSc (Econ) Dip. Ed.
*	M. D. Couve BComm, LLM, MA Law, Solicitor
	M. C. J. Hews BSc, FIA Chief Financial Officer
*	J. F. Hylands FFA
*	A. P. Latham ACII
*	The Venerable Dr. N. Peyton MA, BD, STM, Phd Archdeacon of Newark
	M. H. Tripp BSc, ARCS, FIA Group Chief Executive
	S. A. Wood BSc, FCII Managing Director, UK & Ireland

 

* Non - executive directors

 

Mr M. D. Couve and Mr M. H. Tripp retire by rotation and, being eligible, offer themselves for re-election. Bishop Baines retires by rotation and does not seek re-election at the annual general meeting.

 

Mr M. C. J. Hews was appointed as director on 2 June 2009 and will offer himself for election at the annual general meeting in accordance with the company's articles.

 

The group has made qualifying third party indemnity provisions for the benefit of its directors, which were in place throughout the year and remain in force at the date of this report.

 

Neither the directors nor their connected persons held any beneficial interest in any shares or debentures of the group during the year ended 31 December 2009. There has been no change in these interests since the end of the financial year to the date of this report. No contract of significance subsisted during or at the end of the financial year in which a director was or is materially interested.

 

Dividends						2009		2008
Dividends paid were as follows:						£000		£000
Irredeemable Preference shares						5,731		5,731

 

The directors do not recommend a final dividend on the Ordinary shares (2008: £nil), and no interim dividend was made in respect of either the current or prior year.

 

Charitable and political donations

 

Charitable donations paid and provided for by the Ecclesiastical group in the year amounted to £9.8 million (2008: £8.0 million).

 

During the last ten years, a total of £69.2 million (2008: £63.7 million) has been provided by group companies for church and charitable purposes.

 

It is the group's policy not to make political donations.

 

Employees

 

The group recognises the importance of employee communication and aims to keep employees informed about its affairs through the use of briefing groups, group newsletters and the annual publication of financial reports. Regular meetings are held between management and employees and discussion encouraged. It is the group's policy to give full consideration to applications for employment by disabled persons. Appropriate training is arranged for disabled persons, including retraining for alternative work of employees who become disabled, to promote their career development within the organisation.

 

The group considers a number of key performance indicators in the assessment of its people strategy. In addition to numeric measures, such as staff turnover and absenteeism, the group pays particular attention to the outcome of its annual staff satisfaction surveys, and has developed measures for assessing the success of its leadership and succession planning programmes.

 

Policy on payment of creditors

 

It is the group's policy to pay creditors promptly and fully, in accordance with the terms of their contracts. The group has not adopted any particular external code. The number of days' purchases represented by the amounts due to trade creditors of the group at 31 December 2009 was 23 days (2008: 27 days).

 

Principal risks and uncertainties

 

The principal risks and uncertainties, together with details of the financial risk management objectives and policies of the group and company, are disclosed in notes 3 and 4 to the financial statements and are set out later in this announcement.

 

Directors Responsibilities

 

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

 

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the parent company financial statements under IFRSs as adopted by the EU. Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, International Accounting Standard 1 requires that directors:

 

-	properly select and apply accounting policies;
-	present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
-	provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
-	make an assessment of the company's ability to continue as a going concern.

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Directors' Responsibility Statement

 

The following statement is extracted from page 14 of the 2009 annual report and accounts, and is repeated here for the purposes of the Disclosure and Transparency Rules. The statement relates solely to the Company's 2009 annual report and 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 directors' report extract above.

 

The directors confirm to the best of their knowledge:

 

-

the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

-

the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

 

 

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2009

 

 

 

for the year ended 31 December 2009
									2009		2008
									£000		£000
Revenue
Gross written premiums									447,821		403,608
Outward reinsurance premiums									(160,335)		(140,043)
Net change in provision for unearned premiums									(10,557)		(2,300)
Net earned premiums									276,929		261,265
Fee and commission income									48,354		38,764
Net investment return									122,134		(52,584)
Total revenue									447,417		247,445
Expenses
Claims and change in insurance liabilities									(225,167)		(252,451)
Reinsurance recoveries									52,482		71,608
Fees, commissions and other acquisition costs									(84,646)		(74,582)
Other operating and administrative expenses									(76,587)		(66,645)
Change in provisions for investment contract liabilities									(10,546)		13,893
Change in net asset value attributable to unitholders									(18,171)		14,749
Total operating expenses									(362,635)		(293,428)
Operating profit/(loss)									84,782		(45,983)
Finance costs									(185)		(460)
Transfers (to)/from the unallocated divisible surplus									(5,615)		23,962
Profit/(loss) before tax									78,982		(22,481)
Tax (expense)/credit									(22,792)		7,088
Profit/(loss) attributable to equity holders of the parent									56,190		(15,393)

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2009

 

						2009			2008
						£000			£000
Net fair value losses on property						(422)			(28)
Gain on currency translation differences						6,670			6,396
Net income recognised directly in equity						6,248			6,368
Profit/(loss) for the year after tax						56,190			(15,393)
Total comprehensive income attributable to equity holders of the parent						62,438			(9,025)

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2009

 

	Share	Share	Equalisation	Revaluation	Translation	Retained
	capital	premium	reserve	reserve	reserve	earnings	Total
	£000	£000	£000	£000	£000	£000	£000
At 1 January 2009	80,477	4,632	18,012	1,402	11,826	225,961	342,310
Total comprehensive income attributable to equity holders of the parent	-	-	-	(422)	6,670	56,190	62,438
Dividends	-	-	-	-	-	(5,731)	(5,731)
Net charitable grant to ultimate parent	-	-	-	-	-	(6,120)	(6,120)
Group tax relief in excess of standard rate	-	-	-	-	-	(77)	(77)
Reserve transfers	-	-	3,662	-	-	(3,662)	-
At 31 December 2009	80,477	4,632	21,674	980	18,496	266,561	392,820
At 1 January 2008	80,477	4,632	21,285	1,430	5,430	248,797	362,051
Total comprehensive income attributable to equity holders of the parent	-	-	-	(28)	6,396	(15,393)	(9,025)
Dividends	-	-	-	-	-	(5,731)	(5,731)
Net charitable grant to ultimate parent	-	-	-	-	-	(4,945)	(4,945)
Group tax relief in excess of standard rate	-	-	-	-	-	(40)	(40)
Reserve transfers	-	-	(3,273)	-	-	3,273	-
At 31 December 2008	80,477	4,632	18,012	1,402	11,826	225,961	342,310

 

The equalisation reserve is not distributable and must be kept in compliance with the solvency capital 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.

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2009

 

						2009		2008
						£000		£000
Assets
Goodwill and other intangible assets						26,421		26,419
Deferred acquisition costs						38,298		34,048
Deferred tax assets						3,373		2,589
Pension assets						27,495		24,974
Property, plant and equipment						9,933		11,094
Investment property						24,732		24,561
Financial investments						1,054,202		954,425
Reinsurers' share of contract provisions						193,891		198,921
Current tax recoverable						110		538
Other assets						122,402		106,606
Cash and cash equivalents						193,584		146,009
Total assets						1,694,441		1,530,184
Equity
Share capital						80,477		80,477
Share premium account						4,632		4,632
Retained earnings and other reserves						307,711		257,201
Total shareholders' equity						392,820		342,310
Liabilities
Insurance contract provisions						979,318		956,146
Investment contract liabilities						51,822		40,943
Unallocated divisible surplus						21,489		15,874
Finance lease obligations						1,696		1,586
Provisions for other liabilities						14,230		13,589
Retirement benefit obligations						6,115		5,021
Deferred tax liabilities						41,127		32,358
Current tax liabilities						7,458		2,914
Deferred income						20,637		18,200
Other liabilities						52,865		44,401
Net asset value attributable to unitholders						104,864		56,842
Total liabilities						1,301,621		1,187,874
Total shareholders' equity and liabilities						1,694,441		1,530,184

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2009

										2009		2008
										£000		£000
Profit/(loss) before tax										78,982		(22,481)
Adjustments for:
Depreciation of property, plant and equipment										2,584		2,159
Loss on disposal of property, plant and equipment										14		88
Amortisation of intangible assets										1,967		1,694
Loss on disposal of intangible assets										91		-
Net fair value (gains)/losses on financial instruments & investment property										(69,358)		123,164
Dividend and interest income										(48,950)		(69,286)
Finance expense										185		460
Changes in operating assets and liabilities:
Net increase in insurance contract provisions										4,037		28,705
Net decrease/(increase) in reinsurers' share of contract provisions										11,453		(4,871)
Net increase/(decrease) in investment contract liabilities										10,878		(13,976)
Net increase in deferred acquisition costs										(3,209)		(1,300)
Net increase in other assets										(12,230)		(675)
Net increase in operating liabilities										6,999		2,067
Net increase/(decrease) in other liabilities										55,520		(37,137)
Cash generated by operations										38,963		8,611
Dividends received										12,730		16,023
Interest received										37,763		41,665
Interest paid										(185)		(460)
Tax paid										(6,902)		(2,229)
Net cash from operating activities										82,369		63,610
Cash flows from investing activities
Purchases of property, plant and equipment										(1,638)		(2,138)
Proceeds from the sale of property, plant and equipment										55		48
Purchases of intangible assets										(1,505)		(2,392)
Acquisition of subsidiaries, net of cash acquired										(200)		(20,781)
Purchases of financial investments & investment properties										(138,950)		(492,376)
Sale of financial instruments										122,737		412,323
Net cash used by investing activities										(19,501)		(105,316)
Cash flows from financing activities
Payment of finance lease liabilities										(339)		(424)
Payment of group tax relief in excess of standard rate										(59)		(72)
Dividends paid to company's shareholders										(5,731)		(5,731)
Donations paid to ultimate parent undertaking										(7,000)		(4,000)
Net cash used by financing activities										(13,129)		(10,227)
Net increase/(decrease) in cash and cash equivalents										49,739		(51,933)
Cash and cash equivalents at beginning of year										146,009		181,003
Exchange (losses)/gains on cash and cash equivalents										(2,164)		16,939
Cash and cash equivalents at end of year										193,584		146,009

 

 

NOTES TO THIS ANNUAL FINANCIAL REPORT ANNOUNCEMENT OF RESULTS

for the year ended 31 December 2009

 

1 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 2009 as prepared under International Financial Reporting Standards (IFRS) as adopted for use in the EU.

 

2 General Information

 

Whilst the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (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 23 March 2010.

 

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2009 or 2008, but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 will be submitted in due course. The auditors have reported on those accounts; their reports were unqualified, did not draw attention 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 23 March 2010.

 

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 Beaufort House, Brunswick Road, Gloucester GL1 1JZ.

 

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 2009.

 

Principal Risks and Uncertainties - Insurance Risk

 

 

The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is unpredictable and difficult to quantify with certainty.

 

The principal risk that the group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities, which may occur if the frequency or severity of claims and benefits are greater than estimated. Insurance events are unpredictable and the actual level of claims and benefits may vary from year to year from the estimates established using statistical techniques.

 

Factors that typically aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical spread and type of customer covered.

Experience shows that the larger and more diversified the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. The group's insurance underwriting strategy aims to diversify the type of insurance risks accepted in order to reduce the variability of the expected outcome.

 

General business risks

General insurance business classes written include property and liability. Property cover mainly compensates the policyholder for damage suffered to their properties or for the value of property lost. Property may also include cover for pecuniary loss through the inability to use damaged insured commercial properties. Liability insurance contracts protect policyholders from the liability to compensate injured employees (employers' liability) and third parties (public liability). Motor policies provide both property and liability cover for the insured. Injury, death or incapacity as a result of an unforeseen event is covered by the accident class of business.

In all operations pricing controls are in place, underpinned by sound statistical analysis and market expertise and appropriate external consultant advice. The group manages risks to limit severity through its underwriting strategy, a comprehensive reinsurance programme and proactive claims handling. Net retention limits are in place and the group arranges catastrophe reinsurance cover to protect against aggregations of losses.

 

Frequency and severity of claims

Property classes

 

For property insurance contracts, including the property element of motor contracts, the number of claims made can be affected by weather events, changes in climate and crime rates. Individual claims can vary in amount since the property insured is diverse in both size and nature. The cost of repairing property varies according to the extent of damage, cost of materials and labour charges.

 

Climate change may give rise to more frequent and severe extreme weather events, such as river flooding, hurricanes and drought, and their consequences, for example, subsidence claims.

 

The maximum claim payable is limited to the sum insured. The group has the right to re-price the risk on renewal. It also has the ability to impose deductibles, reject fraudulent claims and pursue third parties for payment of some or all costs. These contracts are underwritten on a reinstatement basis or repair and renovation basis as appropriate. Costs of rebuilding properties, of replacement or indemnity for contents and time taken to restart operations for business interruption are the key factors that influence the level 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 weather or recession related events.

 

Liability classes

For liability insurance contracts, including the liability element of motor contracts, the frequency and severity of claims can be affected by several factors. The most significant are the increasing level of awards for damages suffered and the increase in the number of cases that were latent for a long period of time. Inflation, from these and other sources, is a significant factor due to the long period typically required to settle these claims.

 

The group has the right to re-price the risk on renewal. It also has the ability to impose deductibles, reject fraudulent claims and pursue third parties for payment of some or all costs. The severity of bodily injury claims is highly influenced by the value of loss of earnings and the future cost of care.

 

Concentrations of risk

The underwriting strategy is designed to ensure that the underwritten risks are well diversified in terms of type and amount of risk and geographical spread. The group protects its gross underwriting exposure through the use of a comprehensive programme of reinsurance. The concentration of insurance risk for the financial year before and after reinsurance by territory in relation to the type of risk accepted is summarised below, with reference to written premiums:

 

 

 

2009				Type of risk
				Property		Liability		Motor		Accident				Total
				£000		£000		£000		£000				£000
Territory
United Kingdom		Gross		220,595		64,346		20,407		6,833				312,181
		Net		119,047		57,103		18,987		6,551				201,688
Australia and New Zealand		Gross		56,271		15,182		8,545		541				80,539
		Net		19,706		12,897		8,239		456				41,298
Canada		Gross		17,599		6,016		-		-				23,615
		Net		11,482		5,509		-		-				16,991
Other overseas		Gross		7,034		4,275		8		46				11,363
		Net		4,630		3,942		7		44				8,623
Total		Gross		301,499		89,819		28,960		7,420				427,698
		Net		154,865		79,451		27,233		7,051				268,600
2008				Type of risk
				Property		Liability		Motor		Accident				Total
				£000		£000		£000		£000				£000
Territory
United Kingdom		Gross		202,698		62,130		20,975		6,816				292,619
		Net		109,947		55,145		19,419		6,476				190,987
Australia and New Zealand		Gross		44,440		11,808		8,382		428				65,058
		Net		16,491		10,065		8,099		377				35,032
Canada		Gross		13,132		4,315		-		-				17,447
		Net		9,070		3,897		-		-				12,967
Other overseas		Gross		5,941		3,584		5		39				9,569
		Net		3,845		3,299		5		37				7,186
Total		Gross		266,211		81,837		29,362		7,283				384,693
		Net		139,353		72,406		27,523		6,890				246,172

 

Sources of uncertainty in the estimation of future claim payments

 

Property classes

 

The property classes, including property damage under motor contracts, give rise to a variety of different types of claims including fire, business interruption, weather damage, subsidence, accidental damage to insured vehicles and theft. There can be variability in both the number of claims in each period and the size of those claims. If a weather event happens near the end of the financial year, then 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.

 

Claims payment on average occurs within a year of the claim event, however there is variability around this average with larger claims typically taking longer to settle.

 

Subsidence claims are difficult to predict because the damage is often not apparent for some time. Changes in soil moisture conditions can give rise to changes in claim volumes over time. The ultimate settlements can be small or large with a greater risk of a settled claim being re-opened at a later date.

 

Liability classes

 

The settlement value of claims arising under public and employers' liability and the liability element of motor contracts is particularly difficult to predict. There is uncertainty as to whether any payments will be made and, if they are, the amount and timing of the payments. 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 makes 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 develop which has a consequent impact on the uncertainty as to the length of the claims settlement process and the ultimate settlement amounts.

 

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, where uncertainty is higher. Therefore, claims for industrial diseases are less common for the group than injury claims such as slips, trips and back injuries.

Claims payment, on average, occurs about three years after the event that gives rise to the claim. However, there is significant variability around this average.

 

Note 28 in 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.

 

Sources of uncertainty

The ultimate settlement cost of incurred general insurance claims is inherently uncertain. Such uncertainty includes:

 

-

whether a claim event has occurred or not and how much it will ultimately settle for;

-

variability in the speed with which claims are notified and in the time taken to settle them, especially complex cases resolved through the courts;

-

changes in the business portfolio affecting factors such as the number of claims and their typical settlement costs, which may differ significantly from past patterns;

-

new types of claim, including latent claims, which arise from time to time;

-

changes in legislation and court attitudes to compensation, which may apply retrospectively;

-

the way in which certain reinsurance contracts (principally liability) will be interpreted in relation to unusual/latent claims where aggregation of claimants and exposure over time are issues; and

-

whether all such reinsurances will remain in force over the long term.

 

Prudence in the provisions for outstanding claims

 

The group has taken into account the uncertain nature of claims reporting and settlement when provisioning for outstanding claims.

 

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. The group has taken a prudent approach to reflect this uncertainty and believes that it holds adequate reserves for latent claims that may result from exposure periods up to the reporting date.

 

Long term business fund

Frequency and severity of claims

The group provides a range of life insurance products, which are summarised in the table below:

 

 

								With-profit		Non-profit
								fund		fund		Total
								£000		£000		£000
Long term business provision at 31 December 2009
Life assurance								61,938		54,403		116,341
Pensions assurance								37,104		-		37,104
Pensions annuities in payment								-		77,080		77,080
Life annuities in payment								-		8,827		8,827
Permanent health insurance								-		309		309
Total								99,042		140,619		239,661
Investment products								-		51,822		51,822
Total technical provisions excluding outstanding claims, net of reinsurance								99,042		192,441		291,483
Long term business provision at 31 December 2008
Life assurance								67,666		45,318		112,984
Pensions assurance								37,656		-		37,656
Pensions annuities in payment								-		69,192		69,192
Life annuities in payment								-		11,203		11,203
Permanent health insurance								-		380		380
Total								105,322		126,093		231,415
Investment products								-		40,943		40,943
Total technical provisions excluding outstanding claims, net of reinsurance								105,322		167,036		272,358

 

Long term insurance contracts

For contracts where death is the insured risk, the most significant factors that could increase the overall frequency of claims are epidemics or widespread changes in lifestyle resulting in more or fewer claims than expected. For contracts where survival is the insured risk, the most significant factor is continued improvement in medical science and social conditions that would increase longevity.

 

For non-profit contracts with fixed and guaranteed benefits and fixed future premiums, there are no mitigating terms and conditions that reduce the insurance risk accepted.

 

The group manages these risks through its underwriting strategy and reinsurance arrangements. Industry standard tables are used to price products. No allowance is made for the group's own claims experience as it is not statistically significant. The group's exposure is limited by reinsurance arrangements that restrict exposure on a single risk. Both yearly renewable term and original terms reinsurance arrangements are used.

 

Both pension and life annuities in payment provide a defined income stream to the policyholder which is commonly contingent on survival. The primary risks on these contracts are the level of future investment returns on the assets backing the liability and the longevity of the policyholders. The investment risk has been largely mitigated by holding fixed interest assets of a similar term to the expected longevity profile. The longevity risk is retained by the group and directly impacts shareholders' equity.

 

Both with-profit life and pensions assurance products provide a combination of guaranteed and discretionary benefits for policyholders. The principal risks associated with these contracts are interest rate and equity price risk. In the first instance these risks are borne by the unallocated divisible surplus, which is available for allocation to policyholders as discretionary benefits.

 

There are no material concentrations of risk in respect of life assurance or annuity business.

The non-profit fund bears any difference between future administration expenses and the specified fees charged to the with-profit fund. The reserves in the non-profit fund for with-profit life and pension contracts reflect a shortfall between the forecast fees receivable and forecast expenses.

 

Insurance risk for contracts disclosed in this note is also affected by the policyholders' right to pay reduced or no future premiums, or to terminate the contract completely. As a result, the amount of insurance risk is also subject to policyholder behaviour. The group has considered the impact of policyholders' behaviour in the calculation of these liabilities.

 

Group life yearly renewable contracts

These contracts are mainly issued to employers to insure their commitments to their employees in terms of their pension fund and other employee benefit plans. The risk is affected by the nature of the industry in which the employer operates, in addition to the factors noted above.

 

The group does have a higher than average concentration of risk in the clergy, but otherwise there is no bias to any particular industry. It is believed that the mortality and morbidity of the clergy does not depart significantly from experience for the United Kingdom population as a whole.

 

Reinsurance arrangements are in place to mitigate the group's exposure to these risks. The net exposure for any one risk is limited.

 

Sources of uncertainty in the estimation of future benefit payments and premium receipts

Long term insurance contracts

Uncertainty in the estimation of future benefit payments and premium receipts for long term insurance contracts arises from the unpredictability of long term changes in overall levels of mortality and the variability in policyholder behaviour.

 

The group uses appropriate base tables of standard industry mortality according to the type of contract being written. For contracts that insure survival, an adjustment is made for future mortality improvements based on trends identified in the mortality investigations performed by independent actuarial bodies.

 

Group life yearly renewable contracts

There is no need to estimate mortality rates or morbidity rates for future years because these contracts have short duration. However, for incurred disability income claims, it is necessary to estimate the length of the term over which payments will continue to be made. It has been assumed that payments will continue for the remaining term of the policy with no allowance for either mortality or recovery.

 

Options and guarantees

All material financial options and guarantees are in the with-profit fund and the cost of meeting them is currently covered by the unallocated divisible surplus. These options and guarantees have the potential, depending on the behaviours of financial variables such as interest rates and equity returns, to increase the value of benefits paid to policyholders.

 

Further details of the material options and guarantees are given below, including the variables that determine the amount payable and the potential effect of adverse changes in market conditions. In line with the measurement of the with-profit policyholder liabilities, a deterministic methodology has been used to measure the options and guarantees and so they are not measured at fair value or using a market-consistent asset model.

 

With-profit maturity and surrender value guarantees

Substantially all of the conventional with-profit policies have minimum guaranteed benefits on maturity consisting of the sums assured plus previously declared regular bonuses. In addition, a small proportion of endowment policyholders have minimum guaranteed benefits on surrender after a certain time, consisting of a fixed proportion of the sums assured plus previously declared regular bonuses. The main variable that determines the amount payable under the guarantees is the level of regular bonuses added to the policy.

 

The difference between the guaranteed benefits and the value of the assets deemed to be allocated to the policies (their asset share) at maturity or at the point of surrender, represents the net cost of the guarantees. For maturities in 2010, this net cost is expected to total £1.8 million (2008: £0.6 million expected for 2009) and for surrenders it is expected to total £0.2 million (2008: £0.1 million expected for 2009). The discounted value of these amounts is included within the with-profit policyholder liabilities for the relevant policies.

 

The cost of the guarantees is most affected by a fall in equity returns and if returns were 10% lower than anticipated, the above costs would increase to £2.3 million (2008: £1.4 million) and £0.3 million (2008: £0.2 million) respectively.

 

No market value reduction (MVR) guarantees

For the with-profit bond and the deposit administration group pension contracts, there are circumstances when it is guaranteed that no MVR will apply in determining benefits, ie:

 

-

on partial withdrawals of the bond not exceeding 7.5% per annum of the original amount invested;

-

on withdrawals from the deposit administration contract for the purchase of immediate annuities for individual members; and

-

on withdrawal of all benefits over a 10 year period.

 

The cost of the guarantee is determined by the relationship between the total benefits on the contract and the total asset share when applied to the amount of the withdrawal. If withdrawals were made on all contracts up to the maximum level for the no MVR guarantee, then the total cost in 2010 is expected to total £0.2 million (2008: £0.7 million expected for 2009). This is allowed for in determining the liabilities for the contracts.

 

The cost of the guarantee is most affected by a fall in equity returns, and if returns were 10% lower than anticipated, the cost would increase to £0.4 million (2008: increase to £0.9 million).

 

With-profit guaranteed regular bonus rates

Until 31 December 2009, the deposit administration group pension contracts had a guaranteed regular bonus rate of 3% per annum. It was not deemed necessary to hold additional reserves in excess of the basic policyholder liabilities for this guarantee.

 

Principal Risks and Uncertainties - Financial Risk

 

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 and investment contracts. The most important components of financial risk are interest rate risk, credit risk, currency risk and equity price risk.

 

There has been no change from the prior period in the nature of financial risks that the group is exposed to. The group's management and measurement of financial risks is informed by either stochastic modelling or stress testing techniques.

 

Categories of financial instruments

		Financial assets						Financial liabilities
		Designated		Held for		Loans and		Designated		Held for		At amortised		Other assets
		at fair value		trading		receivables*		at fair value		trading		cost		and liabilities			Total
		£000		£000		£000		£000		£000		£000		£000			£000
At 31 December 2009
Financial Investments		1,028,066		2,596		23,540		-		-		-		-			1,054,202
Other assets		-		-		119,138		-		-		-		3,264			122,402
Cash and cash equivalents		-		-		193,584		-		-		-		-			193,584
Investment contract liabilities		-		-		-		(51,822)		-		-		-			(51,822)
Other liabilities		-		-		-		-		(1,196)		(44,216)		(7,453)			(52,865)
Net other		-		-		-		-		-		-		(872,681)			(872,681)
Total		1,028,666		2,596		336,262		(51,822)		(1,196)		(44,216)		(876,870)			392,820
At 31 December 2008
Financial Investments		921,304		4,081		29,040		-		-		-		-			954,425
Other assets		-		-		103,367		-		-		-		3,239			106,606
Cash and cash equivalents		-		-		146,009		-		-		-		-			146,009
Investment contract liabilities		-		-		-		(40,943)		-		-		-			(40,943)
Other liabilities		-		-		-		-		(999)		(36,762)		(6,640)			(44,401)
Net other		-		-		-		-		-		-		(779,386)			(779,386)
Total		921,304		4,081		278,416		(40,943)		(999)		(36,762)		(782,787)			342,310

 

 

 

* Cash and cash equivalents have been presented with loans and receivables.

 

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 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 equities, including investments in venture capital, and suspended securities.

 

Current market conditions have given rise to reduced liquidity of financial instruments. This has led to a number of debt securities being classified as Level 2, with fair values based on quoted prices in markets that are less active than historically experienced, or where prices are less current.

 

 

Analysis of fair value measurement bases
										Fair value measurement at the
										end of the reporting period based on:
										Level 1		Level 2		Level 3		Total
At 31 December 2009										£000		£000		£000		£000
Financial assets at fair value through the income statement:
Financial investments:
Equity securities										363,990		5,343		19,966		389,299
Debt securities										631,068		9,708		587		641,363
										995,058		15,051		20,553		1,030,662
Financial liabilities at fair value through the income statement:
Investment contract liabilities										-		51,822		-		51,822
Other liabilities:
Derivative liabilities										1,196		-		-		1,196
										1,196		51,822		-		53,018

 

 

Fair value measurements based on level 3

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

 

									Financial assets at fair value
									through the income statement:
									Equity		Debt
									securities		securities		Total
At 31 December 2009									£000		£000		£000
Opening balance									19,403		566		19,969
Total gains/(losses) recognised in profit or loss									14		(43)		(29)
Purchases									251		75		326
Disposal proceeds									(251)		(11)		(262)
Transfers into Level 3									549		-		549
Closing balance									19,966		587		20,553
									£000		£000		£000
Total gains/(losses) for the period included in profit or loss for assets held at the end of the reporting period									14		(43)		(29)

 

 

All the above gains or losses included in profit or loss for the period are presented in net investment return within the income statement.

 

Interest rate risk

The table below summarises the maturity dates for those assets and liabilities that are exposed to interest rate risk.

 

				Maturing within:
				1 year				More than
				or less		2-5 years		5 years		Total
				£000		£000		£000		£000
At 31 December 2009
Assets:
Debt securities				78,023		343,768		219,572		641,363
Mortgage and other loans				29		721		13,603		14,353
Loans to related parties				360		-		-		360
Non-profit reinsurers' share of long term business provisions				592		223		1,718		2,533
Other assets including insurance receivables				34,723		-		-		34,723
Cash and cash equivalents				193,584		-		-		193,584
				307,311		344,712		234,893		886,916
Liabilities:
Finance lease obligations				355		1,533		-		1,888
Non-profit long term business provisions				1,531		1,622		139,999		143,152
Investment contract liabilities				3,587		6,143		42,092		51,822
				5,473		9,298		182,091		196,862
At 31 December 2008
Assets:
Debt securities				78,407		315,236		244,669		638,312
Mortgage and other loans				132		957		15,467		16,556
Non-profit reinsurers' share of long term business provisions				1,716		277		179		2,172
Other assets including insurance receivables				40,223		-		-		40,223
Cash and cash equivalents				146,009		-		-		146,009
				266,487		316,470		260,315		843,272
Liabilities:
Finance lease obligations				371		1,215		-		1,586
Non-profit long term business provisions				2,898		1,905		123,462		128,265
Investment contract liabilities				1,917		4,977		34,049		40,943
				5,186		8,097		157,511		170,794

 

Those financial assets and liabilities that are measured at fair value and have fixed interest rates are subject to fair value interest rate risk. Those financial assets and liabilities with variable interest rates are subject to cash flow interest rate risk.

 

General business insurance liabilities are not directly sensitive to the level of market interest rates, as they are undiscounted and contractually non-interest bearing. Furthermore, these liabilities do not have maturity dates and hence are not included in the above tables.

 

Financial investments represent a significant proportion of the group's assets. Investment strategy is set in order to control the impact of interest rate risk on anticipated group cash flows and asset values. The fair value of the group's investment portfolio of debt and fixed income securities reduces as market interest rates rise, and vice versa. Interest rate risk concentration is reduced by the varied maturity profiles of the investments.

 

The group's exposure to interest rate risk in respect of long term insurance and investment contracts is dependent on the types of liabilities which interest bearing assets are being used to support.

 

Non-profit contracts excluding unit-linked

The benefits payable to policyholders under these contracts 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 can be eliminated by purchasing fixed interest investments with durations that precisely match the profile of the liabilities. For practical purposes it is not possible to exactly match the durations due to the uncertain profile of liabilities (eg mortality risk) and the availability of suitable assets. Some interest rate risk will persist. The group monitors its exposure by comparing projected cashflows for these assets and liabilities and making appropriate adjustments to its investment portfolio.

 

With-profit contracts

All contracts are held in a distinct fund. The surplus of assets over liabilities in this fund is available solely to provide future benefits for insurance policyholders. The group is not entitled to a share of this surplus. There is therefore no equity price, currency, credit, or interest rate risk to the group for these contracts under current circumstances. It is possible under some circumstances that guaranteed benefits will exceed the fund's assets and the group could be called upon to provide financial support to the fund. The nature of these guarantees is described in more detail under Insurance Risk above.

 

Unit-linked contracts

 

For unit-linked contracts, the group matches all the assets on which the unit prices are based with assets in the portfolio. There is therefore no price, currency, credit, or interest rate risk to the group for these contracts.

 

Credit Risk

 

The group has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the group is exposed to credit risk are:

 

-	reinsurers' share of insurance liabilities (excluding provision for unearned premiums) and amounts due from reinsurers in respect of claims already paid;
-	amounts due from insurance intermediaries and policyholders; and
-	corporate bond counterparty default.

 

The carrying amount of financial assets represents the group's maximum exposure to credit risk. Collateral is held over loans secured by mortgages.

 

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.

 

Reinsurance is used to manage insurance risk. This does not, however, discharge the group's liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the group remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on a regular basis through the year by reviewing their financial strength. The Group Reinsurance Security Committee assesses, monitors and approves the creditworthiness of all reinsurers reviewing relevant credit ratings provided by the recognised credit rating agencies, as well as other publicly available data and market information. The committee also monitors the balances outstanding from reinsurers and maintains an approved list of reinsurers.

 

The group's credit risk policy details prescriptive methods for the collection of premiums and control of intermediary and policyholder debtor balances. The level and age of debtor balances are regularly assessed via monthly credit management reports. These reports are scrutinised to assess exposure in more than one region in respect of aged or outstanding balances. Any such balances are likely to be major international brokers who are in turn monitored via credit reference agencies and considered to pose minimal risk of default.

 

The group has no material concentration of credit risk in respect of amounts due from insurance intermediaries and policyholders due to the well-diversified spread of such debtors.

 

The fixed interest portfolio consists of a range of 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.

 

Liquidity risk

 

The group is exposed to daily calls on its available cash resources mainly from claims arising from insurance contracts. Liquidity risk is the risk that funds may not be available to pay obligations when due. The group has robust processes in place to manage liquidity risk and has access to funding in case of exceptional need. Sources of funding include available cash balances, other readily marketable assets and access to short term bank funding. This is not considered to be a significant risk to the group.

 

A maturity analysis for those non-derivative financial liabilities that are exposed to interest rate risk is included above. A maturity analysis for other non-derivative financial liabilities is included in note 35 to the full financial statements. An estimate of the timing of the net cash outflows resulting from insurance contracts is provided in note 28 to the full financial statements. Derivative financial liabilities of the group all mature within one year.

 

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 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 exposure to foreign currency risk within the investment portfolios arises from purchased investments that are denominated in currencies other than sterling.

 

The group foreign operations create two sources of foreign currency risk:

 

 

-	the operating results of the group 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 financial statement year-end date.

 

The largest currency exposures with reference to net assets/(liabilities) are shown below, representing effective diversification of resources:

 

		2009						2008
		£000						£000
Euro		56,255			Euro			51,954
Aus $		41,925			Aus $			31,011
Can $		31,266			Can $			28,385
Hong Kong $		13,750			Hong Kong $			6,298
US $		7,733			US $			(7,935)

 

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 the income statement. The group mitigates this risk by holding a diversified portfolio across geographical regions and market sectors, and through the use of options and futures 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:

 

			2009				2008
			£000				£000
UK			113,578				85,284
Europe			51,486				44,823
Hong Kong			14,189				5,976
USA			6,063				6,040
Other			26,608				19,644
Total			211,924				161,767

 

A geographical analysis of the group's share of underlying equity investments of the Ecclesiastical OEIC funds is included.

 

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, is shown in the following table:

 

Group					Potential increase/				Potential increase/
					(decrease) in				(decrease) in
			Change in		profit				other equity reserves
Variable			variable		2009		2008		2009		2008
					£000		£000		£000		£000
Interest rate risk			-100 basis points		10,271		12,003		136		238
			+100 basis points		(9,670)		(12,140)		(134)		(228)
Currency risk			-5%		3,686		2,541		4,083		3,425
			+5%		(3,502)		(2,414)		(3,879)		(3,253)
Equity price risk			+/-5%		10,596		8,088		-		-

 

 

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
-	the above analysis is based only on exposures borne by the shareholders, and thus excludes those of with-profit and unit-linked business
-	change in profit is stated net of tax at the standard rate of 28% (2008: 28%).

 

 

Capital Management

The group's objectives when managing capital are:

 

-	to comply with the regulators' capital requirements of the markets in which the group operates
-	to 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 regulatory capital.

 

In the UK, the group and its UK regulated entities are required to comply with rules issued by the Financial Services Authority (FSA), and submit FSA returns detailing levels of regulatory capital held. Regulatory capital should be in excess of the higher of two amounts. The first is an amount which is calculated by applying fixed percentages to premiums and claims (general insurance business) or by applying fixed percentages to insurance liabilities and applying stress testing (long term business). The second is an economic capital assessment by the regulated entity, which the FSA reviews and may amend by issuing Individual Capital Guidance (ICG). The group sets internal capital standards above the FSA's minimum requirement. For overseas business the relevant capital requirement is the minimum requirement under the local regulatory regime. With the exception as noted below, both the group and the regulated entities within it have complied with all externally imposed capital requirements throughout the current and prior year.

 

During the prior year the adverse conditions in the financial markets resulted in the regulatory capital of an insurance subsidiary of the group not always exceeding its ICG, although it remained above the regulatory minimum at all times.

 

Regulated subsidiaries are restricted in the amount of cash dividends they transfer to the parent entity, in order for them to meet their individual minimum capital requirements.

 

The group's available capital resource is disclosed in note 28(b) part (iv) of the full Annual Report and Accounts for 2009.

 

Segment information

 

The group has adopted IFRS 8, Operating Segments during the current year. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance. In contrast, the predecessor standard (IAS 14, Segment Reporting) required the group to identify two sets of segments (business and geographical), using a risks and returns approach, with the group's internal financial reporting to key management personnel serving only as the starting point for the identification of such segments. As a result, following the adoption of IFRS 8, the identification of the group's reportable segments has changed. The previous 'general business' segment has been further segmented by geographical underwriting territory. Segment results correspond to the previous segmental operating profit or loss, with the exception that non-underwriting expenses incurred by general business segments, amortisation of acquired intangibles and inter-segment eliminations are excluded from total segmental results, and appear as reconciling items to total profit or loss before tax. Operating segment disclosures in relation to the prior year have been restated to conform to the requirements of IFRS 8.

 

Under IFRS 8, the group segments its business activities on the basis of differences in the products and services offered, and for general insurance, the underwriting territory. 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 'all other segments' category. 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, with a branch situated in Ireland. In addition to the Ecclesiastical and Ansvar UK business, the group holds a global portfolio of risks through its London Market operation, Ecclesiastical Underwriting Management Limited.
		Australia and New Zealand
		The group has wholly owned subsidiaries undertaking general insurance business under the Ansvar brand in both Australia and New Zealand.
		Canada
		The group operates a general insurance Ecclesiastical branch in Canada.
		Other general insurance
		General insurance activities that are either in run-off or not reportable due to their immateriality are included here in aggregate.
-		Long term business
		Long term business comprises life assurance, annuity and pension business.
-		All other segments
		This includes the insurance broking, financial and risk advisory services, fund management and other investment activities of group subsidiaries that are not reportable operating segments due to their immateriality.
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													2009													2008
													Gross						Fee and							Gross						Fee and
													written						commission							written						commission
													premiums						income							premiums						income
General business by territory													£000						£000							£000						£000
United Kingdom and Ireland													314,721						36,482							294,755						29,961
Australia and New Zealand													80,539						7,638							65,058						6,008
Canada													23,615						1,436							17,447						754
Other general insurance													16,072						249							14,323						53
Inter-territory eliminations													(7,249)						(3,252)							(6,890)						(3,117)
Total general business													427,698						42,553							384,693						33,659
Long term business													20,123						670							18,915						932
All other segments													-						9,444							-						7,984
Total segments revenue													447,821						52,667							403,608						42,575
Inter-segment eliminations													-						(4,313)							-						(3,811)
Group													447,821						48,354							403,608						38,764
Group revenues are not materially concentrated on any single external customer.
Segment result
General insurance business segmental results comprise the underwriting profit or loss and investment return earned by 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 expenses as a percentage of net earned premiums.
The long term business and all other segment results consist of the profit before tax measured in accordance with IFRS.
														Combined
2009														operating												Investment
														ratio					Underwriting							return								Total
General business by territory														%					£000							£000								£000
United Kingdom and Ireland														87.6%					23,974							56,445								80,419
Australia and New Zealand														97.5%					965							5,031								5,996
Canada														95.9%					653							1,687								2,340
Other general insurance																			1,359							11								1,370
Inter-territory eliminations																			-							(1,930)								(1,930)
General business segment result														89.6%					26,951							61,244								88,195
Long term business result																																		(4,251)
All other segments																																		963
Total segments profit																																		84,907
Reconciliation of total segments profit or loss to group profit or loss
Non-underwriting and finance costs																																		(5,169)
Amortisation of intangibles on acquisitions																																		(685)
Inter-segment eliminations																																		(71)
Profit before tax																																		78,982
Tax expense																																		(22,792)
Profit attributable to equity holders of the parent																																		56,190
														Combined
2008														operating												Investment
														ratio					Underwriting							Return								Total
General business by territory														%					£000							£000								£000
United Kingdom and Ireland														100.7%					(1,006)							(15,114)								(16,120)
Australia and New Zealand														107.9%					(2,682)							8,160								5,478
Canada														107.9%					(991)							2,976								1,985
Other general insurance																			2,821							337								3,158
Inter-territory eliminations																			-							(1,614)								(1,614)
General business segment result														100.8%					(1,858)							(5,255)								(7,113)
Long term business result																																		(8,211)
All other segments																																		(5,760)
Total segments loss																																		(21,084)
Reconciliation of total segments profit or loss to group profit or loss
Non-underwriting and finance costs																																		(1,595)
Amortisation of intangibles on acquisitions																																		(595)
Inter-segment eliminations																																		793
Loss before tax																																		(22,481)
Tax credit																																		7,088
Loss attributable to equity holders of the parent																																		(15,393)
	Segment total assets
																											2009						2008
	General business by territory																										£000						£000
	United Kingdom and Ireland																										976,074						931,483
	Australia and New Zealand																										205,807						172,155
	Canada																										80,159						70,173
	Other general insurance																										2,097						8,566
	Inter-territory eliminations																										(14,936)						(23,640)
	Total general business																										1,249,201						1,158,737
	Long term business																										333,854						310,564
	All other segments																										58,166						57,668
	Total segment assets																										1,641,221						1,526,969
	Assets attributable to third party unitholders																										105,390						57,924
	Inter-segment eliminations																										(52,170)						(54,709)
	Group total assets																										1,694,441						1,530,184

 

Changes in estimates

The estimation of the ultimate liability arising from claims made under general business insurance 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 year, changes to claims reserve estimates made in prior years as a result of reserve development resulted in a net release of £42m (2008: £24m). A full analysis of movements in insurance liabilities and reinsurance assets is provided in note 28 to the full financial statements.

 

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 consolidated statement of changes in equity.

A full list of related party disclosures is included in note 38 to the full financial statements.