Ecclesiastl.8fe Regulatory News (ELLA)

Ecclesiastical Insurance Office plc announces results for the year ended 31 December 2022

Ecclesiastical Insurance Office plc ("Ecclesiastical"), the specialist financial services group, today announces its full year 2022 results. A copy of the results will be available on the Company's website at www.ecclesiastical.com

Group overview

· Driven by our purpose to contribute to the greater good of society, Ecclesiastical continued to give to good causes in 2022, amounting to £22.7m. We are now proud to be the third largest corporate donor in the UK1.

· Despite the challenging external environment, our businesses performed strongly in 2022. Gross Written Premiums (GWP) grew 15% from £486m to £559m, driven by new business wins, strong retention and rate strengthening, along with the impacts from the inflationary environment.

· Strong underwriting profit of £27.4m, a significant increase on the previous year of £8.8m.

· Operating performance was offset by fair value losses on our investment portfolio due to stock market falls and higher interest rates which was partially offset by the impact of discounting on reserves, leading to an overall group loss before tax of £4.8m (2021: £79.2m profit). 

· We remain in a strong capital position and our credit rating agencies affirmed our excellent and strong credit ratings in the second half of 2022. We recently exited our relationship with S&P and added Moody's to join AM Best as our agencies.

· We continue to lead the industry in service with 98% of customers satisfied with the service they receive from Ecclesiastical. For a second year running, independent research consultancy Gracechurch put Ecclesiastical ahead of all other insurers for claims service. 

· We continued to receive external awards, recognising the Group as a trusted and specialist financial services organisation. This included being named as the UK's most trusted home insurer for the 16th time by independent ratings agency Fairer Finance, and our Canadian team was named one of the Top Employers for Young People for the ninth consecutive year.

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

"Last year was a transformational year for our Ecclesiastical Group family. We launched a new brand, prepared for a new Group structure, new strategy, new governance framework, new systems, and strengthened our leadership. Our immediate owner, Ecclesiastical Insurance Group, became Benefact Group, heralding an exciting new chapter for our family of businesses, united by a common goal to give all available profits to good causes.

"Despite the challenging external environment, our businesses performed strongly in 2022. In general insurance we saw excellent premium growth of 15%, driven by new business wins, strong retention and inflationary pressures. The GI Underwriting result was £27.4m, a significant increase on the previous year of £8.8m, which was lower due to strengthening of PSA reserves. This gives a combined operating ratio of 91%2, which compares favourably in the insurance market.

"Our strong operating performance was offset by fair value losses on our investment portfolio, caused by volatility on the stock markets. In addition to these fair value losses, the results include a credit from a fair value gain on an equity investment and a credit arising from a change to our discounting accounting policy. This led to an overall group loss before tax of £4.8m (2021: £79.2m profit). 

"We were able to give a further £22.7m to charitable causes in 2022. Our combined giving with Benefact Trust has helped thousands of charities in recent years, changing countless lives and communities for the better. Many of those charities, along with His Majesty King Charles III, joined us at Westminster Abbey last summer for a Service of Thanksgiving to celebrate our £100m giving milestone. It was a proud moment for our business, and we have therefore raised our ambition, and have set a new cumulative target to give £250m to good causes by the end of 2025. We are now the third largest corporate donor in the UK, with an ambition to be first.

"Inspired by the impact of our giving on so many, we are extremely ambitious for the future. This year will see continued investment in new systems, helping to deliver even better service and value for our customers and brokers. We will pursue growth opportunities, both in our existing sectors and in new niches where we can leverage our specialist expertise. We will make significant investment in digital propositions, helping to build our distribution capability and reach, as we seek to find ways to meet our customers' changing needs. We will also continue to prioritise risk management innovation, exploring new ways to protect our customers from losses, particularly from the growing threat of climate change.

"On behalf of the Board and thousands of our beneficiaries, we say a heartfelt, sincere "thank you" to all our customers, business partners and dedicated colleagues for their exceptional support. With a new brand, a clear strategy for growth and a renewed sense of confidence, we go into 2023 energised and inspired to work together for our customers and society."

1. Directory of Social Change Guide to UK Company Giving 2023/24

2. Alternative performance measure, refer to note 9 to this announcement for further explanation

ECCLESIASTICAL INSURANCE OFFICE PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2022

The Company has now approved its annual report and accounts for 2022.

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

The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2022. The annual report and accounts will be available on or before 28 April 2023 on the Company's website at www.ecclesiastical.com. Copies of the audited financial statements are also available from the registered office at Benefact House, 2000 Pioneer Avenue, Gloucester Business Park, Brockworth, Gloucester GL3 4AW.

A copy of the Company's statutory accounts for the year ended 31 December 2022 will be submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Chair's statement

Despite the challenging environment, 2022 was a year of celebration for Ecclesiastical Insurance. We marked the achievement of giving £100m to good causes over the past five years, with a service of thanksgiving at Westminster Abbey - an incredible moment in the company's 136-year history that saw hundreds of beneficiaries and supporters, among them King Charles III, come together to celebrate our movement for good.

It also saw the successful launch of the Benefact brand, providing not just a new name for Ecclesiastical's parent Group and Trust, but a renewed sense of energy and focus on our purpose to contribute to the greater good of society. Speaking to customers and brokers over the past few months, it's clear the new name resonates and has landed well in our markets. It's a fantastic achievement that we should all be proud of.

Of course, 2022 also brought its challenges. The return to prosperity that many of us hoped for after the pandemic failed to materialise as economic and political events pushed us into a cost of living crisis, while the devastating war in Ukraine continues to take its toll on innocent lives. In these difficult times, our mission to help those most in need in society is more important than ever.

In response to both challenges, our charitable owner the Benefact Trust moved swiftly to support charities on the frontline. In March it announced £1m of funding to give immediate and longer-term support to people fleeing the devastating conflict in Ukraine. In December, the Trust announced a £500,000 funding package to support charities working to keep people safe and warm this winter.

This giving is only possible thanks to the customers, brokers and colleagues that support Ecclesiastical Insurance Office Group, which gives all its available profits to charities and good causes. I'm pleased to say we granted £20m to Benefact Trust in 2022. Alongside this we gave £2.7m through our direct giving programmes in the UK, Ireland and Canada, helping thousands of charities to make a difference in their communities.

This combined giving brings us closer to our ambition of being the UK's biggest corporate donor with a cumulative target of giving £250m to good causes by the end of 2025.

Results

Despite the challenging economic conditions, our businesses performed well in 2022. We continued to attract and retain prestigious customers across all divisions, which helped to drive double-digit premium growth. We also reported an improved underwriting result, with a profit of £27.4m. We reported an overall loss before tax of £4.8m as our results were affected by investment losses, due to falls in global markets.

Achievements and reflections

I'm now in my fourth year as Chairman and I'm delighted with the progress we've made as a business. We've invested considerably over the past few years, from launching new brands for the General Insurance business and the Group, a new head office, and new systems and technology to improve the broker and customer experience. The launch of our new General Insurance system last year was a major milestone and an incredible achievement by everyone involved in the project.

I'm also pleased that we announced our climate commitments in spring last year, outlining our roadmap to achieve net zero by 2040. In my report last year, I talked about the importance of responding to the issues of sustainability and climate change and as a responsible business, we are committed to making a positive environmental impact in the world. Much work has taken place over the past 12 months to understand our climate impact and identify the measures we need to take to reduce our carbon emissions. This has included training sessions for the Board, which have helped deepen our understanding of how we can do the right thing as a business.

None of our achievements would be possible without the commitment of our colleagues and I want to thank them for all their efforts in 2022. Our customer satisfaction and Net Promoter Scores remain high and the Group again achieved Best Companies two-star status, demonstrating outstanding employee engagement. It's always pleasing to see this commitment and effort is recognised by others and this was reflected in 18 awards last year including products, service quality, risk management, marketing and customer engagement.

I was fortunate to visit our offices in Australia and Ireland and spent time with our excellent teams, learning how they're working hard to improve our services to our brokers and customers.

Looking ahead

While some companies are retrenching in the face of economic difficulties, Ecclesiastical has set itself an ambitious target to double in size. The strategy announced last year provides a clear roadmap to achieve this stretching goal and I'm excited by the potential within the business to grow.

Across our businesses, we have identified new areas of growth, both in existing segments and in new ones, and we have the ambition and capacity to benefit from these opportunities.

This year will see continued investment in new systems to improve the customer and broker experience, and we will continue to invest in new technology to drive innovation and growth to enable yet more giving to charities and communities. In particular, we will continue to invest in our risk management offering so that we can help to protect our customers from new and emerging threats.

We will also continue to invest in our people as we seek to become a world-class employer. We want to build a workplace where everyone feels welcome and can realise their full potential, while helping to make a difference to the lives of our customers and communities.

Board activity

For the first time since I became Chairman, there have been no changes to the board in the past 12 months. It is a genuine pleasure to work with such a talented group of individuals who bring a range of different experience and perspectives. I would like to thank all of them for their service over the past year.

The future

It is an immense privilege to be a part of a business with such a special purpose of contributing to the greater good of society. With the new strategy in place, I believe we are well positioned to grow our business so that we can give more to help those most in need.

Chief executive's statement

For over 135 years, Ecclesiastical has understood what matters most to our customers and communities.

Trusted to protect and preserve much of the nation's irreplaceable heritage and history, we're distinguished in the financial services industry by our specialist expertise, our caring approach and our unique charitable purpose. Unlike many other businesses, we prefer to measure success not in sales or profits but in the amount we give to communities to help transform lives for the better. Guided by this purpose, we are driven to grow the business, so that we may give even more to good causes.

Last year was a transformational year for our Ecclesiastical Group family. We launched a new brand, prepared for a new Group structure, new strategy, new governance framework, new systems, and strengthened our leadership.

In particular, our immediate owner, Ecclesiastical Insurance Group, became Benefact Group, and our ultimate parent, Allchurches Trust, became Benefact Trust.

The launch of the Benefact brand is a momentous occasion for our charity-owned Group and at the start of 2023 Benefact Group announced a simplified structure to build on this to help us realise our growth ambitions. This new structure, which aligns our businesses to our three divisions - specialist expert Insurance, responsible and sustainable Investment Management and Broking & Advisory - provides the foundation for our family of businesses to grow even more, to give even more.

By simplifying and streamlining the Benefact Group structure, we have created dynamic, empowered businesses with clarity of focus, a compelling purpose, and the ideal operating environment for each of our new operating divisions to thrive. This is in stark contrast to some other business models where decision making can be centralised, slow and prioritise profits ahead of customer's interests.

Ecclesiastical Insurance is now proudly part of the Benefact Group, a family of financial services businesses with a common goal to give all available profits to good causes. We are here to protect communities and transform lives.

Building a movement for good

A few years ago we set ourselves (and subsequently met) a stretching ambition to give £100m to charity. This level of giving means that Benefact Group is now the third largest corporate donor to charity in the UK. An amazing achievement when you consider that there are over five million companies.

It means that our ultimate parent company, Benefact Trust, is now one of the biggest grant making charities in the UK and is able to provide transformative funding to charities both in the UK and abroad as, for example, they did in response to the crisis in Ukraine. We thank the Trust enormously for the outstanding work they undertake.

Indeed, our combined giving has helped more than 10,000 charities in recent years, changing countless lives and communities for the better. Many of those charities, along with His Majesty King Charles III, joined us at Westminster Abbey last summer for a Service of Thanksgiving to celebrate our £100m giving milestone. It was a proud moment for our business and, for me, a rare moment to reflect on our incredible progress.

Hearing moving testimonials about the life changing work of the charities we support, and taking inspiration from the Parable of the Good Samaritan, we would like to go further and hold out a hand to many, many more.

We have therefore raised our ambition, and have set a new cumulative target to give £250m for good causes by the end of 2025.

Delivering for our customers

Our giving is only possible thanks to the support of our brokers, customers, investors, business partners, and the tremendous efforts of our colleagues. For generations, we have been trusted to protect many of the UK's iconic treasures, from palaces, castles and stately homes to cathedrals, churches and schools. Today we insure world-renowned buildings such as St Pauls Cathedral, Royal Albert Hall, Chatsworth House and Westminster Abbey, the home of the coronation. We pride ourselves on our specialist expertise in our markets and our commitment to customer service.

As an insurance company, our goal is to protect our customers through our specialist risk-management advice and insurance cover. But as a trusted expert committed to creating a movement for good, our dedication to our customers goes beyond that.

Many of our church and charity customers have seen their incomes fall due to the challenging economic climate and we recognise the difficulties they face. We have established resources to help these organisations raise much-needed funds and we invest significantly in our risk management services to help customers reduce the risk of losses occurring. And if the worst happens, our expert claims team are always there for our customers when they need us most.

As the UK's leading insurer of Grade I listed buildings, we are passionate about protecting Britain's heritage. We know the key to protecting our built environment from climate change is adaptation and resilient repairs. However, the challenge for heritage buildings, compared to modern properties, is that adaptation can be more complicated to do sensitively. We are working to be at the forefront of this issue and collaborating with partners like English Heritage to research and understand this important issue better. The threat of climate change is one of the biggest challenges facing our customers and communities. We are committed to making a positive environmental impact and we recognise the importance of reducing our own climate impact as well as supporting our customers to reduce theirs. Last year we announced our climate commitments to achieve net zero by 2040 and we are making good progress against our targets, which are detailed in our Responsible Business Report.

Providing exceptional service

Our customers tell us that our expert service and our compassion makes us stand out in the insurance industry. In the UK, Ecclesiastical retained its top spot in the Fairer Finance Home Insurance league table for a record sixteenth time and remains the UK's most trusted home insurance provider. It was also named Risk Management Specialist Company of the Year - Large in the CIR Risk-Management Awards. Ecclesiastical Canada was named one of Canada's Top Employers for Young people for the 10th consecutive year and won Excellence in Claims Service in the Insurance Business Canada Awards.

Also, for a second year, I'm delighted the independent research consultancy, Gracechurch, put Ecclesiastical ahead of all other insurers for claims service. In addition, an incredible 98% of customers are satisfied with the service they receive from Ecclesiastical, whether that is making a claim or experiencing our risk management service. The Net Promoter Score, which measures how likely a customer is to recommend a company's products and services, for Ecclesiastical Insurance puts us ahead of many well-known and respected brands.

Financial performance

Despite the challenging external environment, our businesses performed strongly in 2022. In general insurance we saw excellent premium growth of 15%, driven by new business wins, strong retention and inflationary pressures. In Investment Management we saw record gross inflows of over £1.2bn as we launched new funds; net inflows place us well inside the top 10 fastest growing asset managers in 2022.

Given our overall financial strength and excellent solvency position, we hold a significant portion of our investment portfolio in real assets such as property and infrastructure. Whilst we expect this to lead to positive real returns over the long term, it can introduce some volatility into annual reported results.

With our long term approach we look through and beyond this short term volatility, however it did mean that, in 2022, our strong operating performance was offset by fair value losses from our assets of around £94.1m on our investment portfolio, leading to an overall Group loss before tax of £4.8m (2021: £79.2m profit). In addition to these fair value losses, the results include a total credit of £30m from a fair value gain on an equity investment and a credit arising from a change to our discounting accounting policy. More detail on these items is included within the Chief Financial Officer's Report.

The GI Underwriting result was a profit of £27.4m, a significant increase on the previous year of £8.8m, which was lower due to strengthening of PSA reserves. This gives a combined operating ratio of 91%, which compares favourably in the insurance market.

We were able to give a further £22.7m to charitable causes, including Benefact Trust, in 2022. This takes our cumulative giving to £198.2m against our £250m target.

We remain in a strong capital position and I'm pleased that our credit rating agencies affirmed our excellent and strong credit ratings in the second half of 2022. In line with normal business practice, we routinely review our rating agencies and we have now appointed Moody's to join AM Best as our two agencies for the next period.

Strategic ambitions

To paraphrase T.S. Eliot...

It is only when one tries to go too far, that one finds out how far it is possible to go.

Inspired by the impact of our giving on so many, we are extremely ambitious for the future. We have launched an exciting new strategy to invest, energise and grow our Group across all our divisions and all our territories. With a strengthened rate environment, tightened insurance capacity and an increasing market focus on Environmental, Social and Governance (ESG) performance, the timing to push for growth has arguably never been better.

This year will see continued investment in new systems, helping to deliver even better service and value for our customers and brokers. We will pursue growth opportunities, both in our existing sectors and in new niches where we can leverage our specialist expertise. We will make significant investment in digital propositions, helping to build our distribution capability and reach, as we seek to find ways to meet our customers' changing needs. We will also continue to prioritise risk management innovation, exploring new ways to protect our customers from losses, particularly from the growing threat of climate change.

To achieve all of this we need to be at our best personally and professionally and we will continue to foster a culture where all our colleagues have the space to grow and perform to their full potential.

For a second year running, we were named an "Outstanding" company to work for by Best Companies following the results of our annual engagement survey. Our ambition is to become a world-class employer, attracting, retaining and developing the best talent in the industry by creating career opportunities for every colleague, no matter what their background.

On behalf of the Board and thousands of our beneficiaries, we say a heartfelt, sincere "thank you" to all our customers, business partners and dedicated colleagues for their exceptional support. I very much hope that they are inspired when they look back at what has been achieved, and the positive impact that they have had. I certainly am.

Join our movement for good

With a new brand, a clear strategy for growth and a renewed sense of confidence, we go into 2023 energised and inspired to work together for our customers and society.

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

As we said when we filled Westminster Abbey in the presence of His Majesty King Charles III in June last year… "Individually we can all make a difference. Together, we can perform miracles."

Chief Financial Officer's Report

The Group reported a loss before tax of £4.8m (2021: £79.2m profit), largely due to fair value investment losses resulting from the challenging economic environment, with the net investment return of £4.1m being £98.8m lower than in 2021.

There were a number of specific items affecting the results, both before and after tax. Before tax, and included within the net investment return, a credit of £66.9m (2021: £14.5m) arose from an increase in the discount on general insurance liabilities. A fair value gain was also recognised for £16.8m (2021: £9.3m) on an unlisted equity investment benefiting from the buoyant reinsurance market, and fair value losses of £21.2m (2021: £20.2m gains) were recognised on investment properties.

During the year, the Group changed its approach to discounting to include all general insurance liabilities. This change in discounting accounting policy ensured the effects of higher interest rates and high inflation were being reflected across both our short and longer term insurance liabilities and so as to more consistently match the effects of changes in interest rates on both insurance liabilities and the assets held to match them. This contributed £13.2m towards the total 2022 impact of discounting and £2.6m in the prior year, which has been restated. More information on these items is included in the investments section below.

In December 2022 and January 2023 the Group made a number of structural changes to support the wider Benefact Group's alignment of businesses across its three main divisions. The impact from these structural changes, including the results of these businesses, was a profit of £13.7m and is presented after tax. Further information on these changes can be found below.

We have continued and will continue to manage our businesses with a long-term view of risk. As a result we have a strong capital position that can withstand short term volatility and our excellent and strong credit ratings with AM Best and S&P was reaffirmed during the year. Following a routine review of our credit rating agencies, we added Moody's alongside AM Best as our agencies, who have also affirmed our excellent credit rating. Given that businesses of our size and type would typically have two rating agencies, we agreed with S&P to exit our relationship with them. S&P reiterated an exit rating of A- (stable). Our Solvency II regulatory capital position remains above regulatory requirements and risk appetite.

Structural changes

Ecclesiastical is part of the Benefact Group, a charitably owned financial services group. Across this wider Benefact Group we have made a number of changes to the legal entity structure to better align and optimise our businesses to the way in which we manage and achieve our growth ambitions across our specialist insurance, investment management and broking and advisory divisions.

On 30 December 2022, Ecclesiastical disposed of South Essex Insurance Holdings Limited and its wholly owned subsidiary SEIB Insurance Brokers Limited (together 'SEIB') to the Lloyd & Whyte Group Limited (Lloyd & Whyte) for £45.2m, recognising a gain after tax of £14.3m. Lloyd & Whyte is an associate of the Benefact Group in whom we are taking an increased share of ownership over time, with full ownership expected to occur in 2026. They provide a range of expert financial planning and specialist insurance services. This disposal took us another step closer to our longer term growth ambitions for our broking and advisory division and will provide synergies and opportunities for closer co-operation in the areas these businesses operates in.

On 3 January 2023 two wholly-owned subsidiaries, EdenTree Investment Management Limited (EdenTree) and Ecclesiastical Financial Advisory Services Limited (EFAS) were transferred to the Benefact Group. The assets and liabilities of these businesses are presented in the Group's balance sheet as amounts held for distribution and represented net assets transferred of £4.5m.

The results of SEIB, EdenTree and EFAS contributed a net loss before tax of £0.2m (2021: profit of £0.5m) and are presented within the Group's financial statements as discontinued operations in the current and prior year after tax. The gain on disposal of SEIB is also presented within discontinued operations.

General insurance

The Group's underwriting businesses have performed in line with expectations in most territories, resulting in a Group Combined Operating Ratio1 (COR) of 91.0% (2021: 96.8%). We have delivered steady underwriting profits despite adverse flooding and freeze events across territories, and some unusually large claims in the UK. Prior year releases have been modest overall as we have strengthened reserves for latent claims. Our strategy to focus on profitable growth opportunities has continued to deliver, with new business of £34.7m contributing to almost half of our overall GWP growth of 15% to £559m (2021: £486m). The strong growth also reflects targeted rate increases as well as strong retention and excellent service delivered to brokers and customers.

Our programme of investment has continued, particularly across our technology platforms and with our colleagues. Our investments in these platforms are an important part in supporting the growth of our business and our customers' needs for the long term.

United Kingdom and Ireland

In the UK and Ireland, underwriting profits fell slightly to £24.2m (2021: £25.0m) resulting in a COR of 86.7% (2021: 85.3%). GWP grew by 16.0% to £344.8m (2021: £297.2m). The current year performance was profitable despite a run of weather events and large claims which affected the UK and Ireland in 2022.

Heritage, Real Estate and Schemes were particularly strong growth areas in 2022 as pricing remained robust in these areas, partly due to reduced insurance capacity and strong propositions in these markets, and we continued to focus on consistent service and delivery of expertise across the business. We expect trading conditions to become more competitive in 2023 with the outlook becoming increasingly unpredictable. Inflationary pressures in the economy, the Ukrainian war, global economics, and the potential for more frequent and intense weather events due to climate change all contribute to this uncertainty. However, our Net Promoter Scores across brokers and customers are robust and provide resilience enabling us to carry positive rate change where appropriate and contribute to the high levels of retention experienced. GWP in respect of our Faith business remained in line with prior year reflecting a good result in challenging competitive conditions specific to this market.

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

Ansvar Australia

Our Australian business reported an underwriting loss of AUD$5.1m resulting in a COR of 107.3% (2021: AUD$24.4m loss, COR of 156.9%). GWP grew by 3.9% in local currency to AUD$177.8m (2021: AUD$171.2m) with strong rate increases combined with moderate new business growth offset by a lower retention rate. The performance of the underlying business in the current year has been good and continues to improve in light of positive underwriting actions. The underwriting result for 2022 was impacted by a very high level of catastrophe claims and the strengthening of prior year casualty reserves. The level of historic physical and sexual abuse (PSA) claims being notified stabilised in 2022, following increases in previous years. This risk is internally reinsured within the Group (reported on below). The overall result in the prior year had been adversely impacted by PSA reserve strengthening.

The Australia operation contributed an underwriting loss of £1.0m (2021: £10.0m) to the Group internal reinsurance portfolio, with the relative improvement reflecting the levelling of PSA claims reporting.

Canada

Our Canadian business continued its track record of delivering double digit premium growth, reporting GWP of CAD$175.4m (2021: CAD$158.0m), an 11.0% increase, which was supported by strong retention and rate increases as well as new business.

Canada reported an underwriting profit of CAD$11.3m resulting in a COR of 90.6% (2021: CAD$12.2m profit, COR of 88.6%). Despite an increase in the number of large losses and Hurricane Fiona, the property book performed well due to lighter than expected attritional losses. The performance of the liability book was impacted by adverse development on prior year claims and the resultant strengthening of the reserves provision.

Investments

Our results include fair value losses of £94.1m (2021: £58.3m gains) on our investment portfolio, which contributed to a lower net investment gain of £4.1m (2021: £102.9m). Investment income of £32.1m (2021: £30.9m) stood up well and comparably with prior year.

Investment markets have been impacted by macroeconomic disruptions, exacerbated by the geopolitical turmoil in Ukraine and the cost of living crisis shadowing the economic outlook. Higher food and energy prices are pushing inflation to a 40 year high in the UK and other parts of the world, as central banks respond with tighter monetary policy in an effort to bring this under control. Whilst we may have now passed a peak in inflation, the outlook drove down financial asset prices compared to last year.

The past three years highlights the impact economic and political uncertainty can have on the performance of our investments, however, we remain confident in our long-term investment philosophy, and are well-diversified and relatively defensively positioned.

Fair value losses on financial instruments of £72.9m (2021: £38.1m gains) included a gain on an unlisted equity investment of £16.8m (2021: £9.3m). We recognised fair value losses of £21.2m (2021: £20.2m gains) on our investment properties, driven by a fall in the value of industrial sector capital values in the portfolio, as investors continue to adjust to the new reality of higher interest rates.

The Group's investment strategy includes the objective of matching assets with insurance liabilities when managing exposure to interest rate risk. Insurance liabilities expected future cash flows are discounted at an interest rate which is set to reflect the risk free yields available on a suitable portfolio of illiquid assets. During the year, an upward movement in interest rates led to an increase in the discount applied to insurance liabilities. This resulted in an overall gain of £66.9m (2021: £14.5m) which is recognised within the net investment return. Whilst the majority of this arose from our longer term liabilities, £13.2m related to our shorter term liabilities.

We recognise the importance of our role in tackling climate change and that we have a duty to invest responsibly. Our responsible and sustainable investment policy plays an important part in how we invest responsibly, informing our investment strategy and helping understand and mitigate the risks of climate change. Our strategy includes a focus on responsible investment and encompasses action to respond to climate risk and operations, investing in ways that support the transition to a low-carbon economy. The Group is expected to be aligned with the Sustainable Development Scenario by 2050, representing a temperature increase of 1.5 degrees by 2050, well ahead of the 3.1 degree benchmark. More information on the Group's approach to responsible investment including actions we take to mitigate the risks of transitioning to a low carbon economy can be found in our Responsible Business Report.

Long-term business

Our life business, Ecclesiastical Life Limited, reopened to business during 2021, launching a new product providing guaranteed funeral planning products sold by Ecclesiastical Planning Services, a business within the wider Benefact group. The legacy book within our life insurance business remains closed to new business. Profit before tax was £3.6m for the year (2021: £1.1m), driven by a reduction in liabilities due primarily to an increase in interest rates. Assets and liabilities in relation to the life insurance business remain well matched.

IFRS 17

The new IFRS 17 insurance accounting standard has been adopted by the Group and was effective from January 2023. This new accounting standard will make the financial statements of public insurance companies more comparable and transparent. The Group's first set of results reported under IFRS 17 will be published in Autumn within the Group's 2023 interim results. Further information about the application of this new accounting standard is included within the notes to the financial statements.

Outlook

Despite the challenges faced during the year and as inflation accelerates across many countries, the underlying resilience of our businesses means we will continue to grow sustainably and invest for the future. It also enabled us to give over £22m to Benefact Trust and other charities in the year. As part of the Benefact Group, we have many exciting opportunities ahead as we look to achieve our ambition of giving £250m cumulatively since 2014 to charitable causes by the end of 2025.

1 The Group uses APMs to help explain performance. More information on APMs is included in note 8 to this announcement.

Directors' Report

Principal activities

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

Ownership

At the date of this report, the entire issued Ordinary share capital of the Company and 4.35% of the issued 8.625% Non-Cumulative Irredeemable Preference Shares of £1 each ('Preference shares') were owned by Benefact Group plc. In turn, the entire issued Ordinary share capital of Benefact Group plc was owned by Benefact Trust Limited, the ultimate parent of the Group.

Dividends

Dividends paid on the Preference shares were £9,181,000 (2021: £9,181,000).

The directors do not recommend a final dividend on the Ordinary shares (2021: £nil), and no interim dividends were paid in 2022 and 2021. An interim dividend in specie of the entire issued share capital of EdenTree Investment Management Limited of £4,651,000 and Ecclesiastical Financial Advisory Services Limited of £572,000 was made on 3 January 2023.

Charitable and political donations

Charitable donations made in the year amounted to £22.7 million (2021: £23.5million).

It is the Company's policy not to make political donations. No political donations were made in the year (2021: £nil).

Principal risks and uncertainties

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

Going concern

The Group has considerable financial resources: financial investments of £870.7m, 84% of which are liquid (2021: financial investments of £883.8m, 90% liquid) and cash and cash equivalents of £104.7m (2021: £114.0m) to withstand economic pressures. Liquid financial investments consist of listed equities and open-ended investment companies, government bonds and listed debt.

The Group has a strong risk management framework and solvency position, is well placed to withstand significant market disruption and has proved resilient to stress testing. The Group has considered its capital position, liquidity and expected performance. The Group and its businesses have sufficient levels of cash and other liquid resources and has expectations it can meet its cash commitments over its planning horizon. The Group and its businesses expect to continue to meet regulatory requirements.

Despite the continuing and expected economic pressures and challenges, given the Group's operations, robust capital strength, liquidity and in conjunction with forecast projections and stress testing, which were considered severe but plausible downside scenarios, the directors have a reasonable expectation that the Group has adequate resources and is well placed to manage its risks successfully and continue in operational existence for at least 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.

Risk Management Report

Strong governance is fundamental to what we do and drives the ongoing embedding of our Enterprise-Wide Risk Management Framework. This provides the tools, guidance, policies, standards and defined responsibilities that enable us to achieve our strategy and objectives, whilst ensuring that individual and aggregated risks to our objectives are identified and managed on a consistent basis.

The Risk Management Framework is integrated into the culture of the Group and is owned by the Board. Responsibility

for facilitation of the implementation and oversight is delegated via the Group Chief Executive to the Group Risk Function, led by the Group Chief Risk and Compliance Officer.

The Risk Management process demands accountability and is embedded in performance measurement and reward,

thus promoting clear ownership for risk and operational efficiency at all levels. On an annual basis, the Group Risk Committee ("GRC"), on behalf of the Board, carries out a formal review of the key strategic risks for the Group with input from the Group Management Board ("GMB") and the Strategic Business Units (SBUs). The GRC allocates responsibility for each of the risks to individual members of the Group's Executive Management team. Formal monitoring of the key strategic risks is undertaken quarterly, which includes progress of Risk Management actions and is overseen by Executive Risk Committees.

Ecclesiastical has clearly defined the accountabilities, roles and responsibilities of all key stakeholders in implementing and maintaining its Risk Management Framework. These are defined, documented and implemented through the Terms of Reference of Board Sub Committees, Management and Executive Forums, Statement of Responsibilities and Functional Charters.

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

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

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

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

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

We seek to develop and improve our Risk Management Framework and strategy on an ongoing basis to ensure it continues to support the delivery of our strategy and objectives.

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

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

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

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

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

Risk environment

The Risk environment is monitored on an ongoing basis and key areas of concern are escalated to GRC.

Whilst we felt significant pressure on the cost and availability of reinsurance, we were able to complete our placement effectively, despite this background. Although inflation predictions have settled more recently, this will be a continuing area of focus across the business into 2023.

With market volatility throughout the year, we maintained our existing investment approach and made no material changes to our asset mix, holding a diversified portfolio of assets including equities and property held for prospects of long-term returns. Consequently, we continue to choose to take a relatively high level of market risk, which is well understood and closely monitored and managed.

The profitable management of our insurance businesses on a portfolio basis in hardening markets continues to be a key area of focus for the Group; ensuring that the business written and retained is profitable and sustainable. Competitor activity remains a risk across all our business operations and chosen niches and 2022 was no exception. Our strategy remains to achieve controlled and profitable growth within our defined specialist markets. During 2022 we have maintained our strong underwriting discipline and risk appetite.

The potential for adverse development of long-tail liability claims, particularly in respect of PSA claims, remains a key risk that we continue to actively manage. A further report was issued in relation to the Independent Inquiry into Child Sexual Abuse in the UK in October 2022. Continued elevated claims volumes in Australia and a combination of greater frequency and a higher assumed severity of claims in Canada has led to increases in levels of reserves held in both of those territories. We continue to monitor the experience and claims environment in all of the territories in which we operate.

The impact of the Covid-19 pandemic continued into the start of 2022 and the wide-ranging impacts, both direct and indirect, continued on the Group, and especially in regards the economic environment in which we operate. Although there were reduced implications on the Group's operations through 2022, there were continued impacts on the insurance policies written by Group companies and on the Group's investment assets. These were further impacted by the inflationary pressures felt across the economy.

The Covid-19 pandemic was the trigger for a high volume of regulatory guidance issued in all territories during the prior years, some other elements of regulatory change had therefore been delayed. However, focus in 2022 has been heavily on Consumer Duty across the group. Management of change in the regulatory environment will

remain a key focus area to ensure that we operate within relevant legal, regulatory and consumer protection requirements and guidelines and that our people maintain the highest standards of conduct with continued commitment to placing customers at the centre of everything we do.

Cyber risk remains a constantly evolving threat due to the threat of zero day attack. We hold customer data, and therefore any event involving a significant loss of such data could result in harm to the data subjects, significant operational disruption and an impact on our service to customers, as well as sizeable regulatory fines and reputational damage. The increased societal focus on data security and appropriateness of use, together with regulations such as GDPR, results in increased scrutiny and prominence. Hybrid working continues, and this is seen as an exploitable opportunity for external attackers, and there continues to be a general increase in social engineering and phishing attacks across the financial sector.

Employee awareness and vigilance is therefore highly important at this time, and the Group operates an ongoing programme of training and awareness exercises for its staff.

The Group aims to be the most trusted, specialist insurer and therefore maintaining a positive reputation is critical. Our

reputation could potentially be damaged as a result of a range of factors including poor business practices and behaviours. High standards of conduct are a core part of the Group's brand, values and culture and there is an ongoing focus on ensuring this is maintained.

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

Principal risks

There is an ongoing risk assessment process which has identified the current principal risks for the Group as follows:

Insurance risk

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

Other financial risks

The risk that proceeds from financial assets are not sufficient to fund the obligations arising from insurance contracts.

Operational risk

The risk of loss arising from inadequate or failed internal processes, people and systems, or from external events.

Regulatory and conduct risk

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

Reputation risk

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

Statement of directors' responsibilities in respect of the financial statements

The following statement is extracted from page the Directors' report of the 2022 Annual Report & Accounts, and is repeated here for the purposes of the Disclosure and Transparency Rules. The statement relates solely to the Company's 2022 Annual Report & Accounts and is not connected to the extracted information set out in this announcement. The names and functions of the directors making the responsibility statement are set out in the Governance section of the full Annual Report & Accounts.

The Directors consider that the 2022 Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's and Company's position and performance, business model and strategy. Each of the Directors, whose names and functions are listed on the Governance section of the full Annual Report and Accounts confirm that, to the best of their knowledge:

The directors confirm to the best of their knowledge:

§ the Group and Company financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities and financial position of the Group and Company, and of the loss before tax of the Group in the year; and

§ the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the year ended 31 December 2022

* The Group's accounting policy for general insurance outstanding claims provisions has previously been to apply discounting only to certain longer term liabilities. The accounting policy has been changed to include discounting of the general insurance liabilities that have not previously been discounted. The comparative financial statements have been restated to the revised basis, detailed in note 11 to this announcement.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2022

\* The comparative financial statements have been restated as detailed in note 11 to this announcement.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2022

\* The comparative financial statements have been restated as detailed in note 11 to this announcement.

The revaluation reserve represents cumulative net fair value gains on owner-occupied property. Further details of the translation and hedging reserve are included in note 6 to this announcement.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2022

\* The comparative financial statements have been restated as detailed in note 11 to this announcement.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2022

\* The comparative financial statements have been restated as detailed in note 11 to this announcement.

NOTES TO THIS ANNUAL FINANCIAL REPORT ANNOUNCEMENT OF RESULTS

for the year ended 31 December 2022

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 2022 as prepared in accordance with UK adopted IAS applicable at 31 December 2022 issued by the International Accounting Standards Board (IASB).

A number of amendments and improvements to accounting standards have been issued by the International Accounting Standards Board (IASB), and endorsed by the UK, with an effective date of on or after 1 January 2022, and are therefore applicable for the 31 December 2022 financial statements. None had a significant impact on the Group.

2.  General Information

Whilst the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. Full financial statements that comply with IFRS were approved by the Board of Directors on 16 March 2023.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2022 or 2021, but is derived from those accounts. Statutory accounts for 2021 have been delivered to the Registrar of Companies and those for 2022 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under sections 498(2) and 498(3) of the Companies Act 2006.

This announcement was approved at a meeting of the Board of Directors held on 16 March 2023.

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

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

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

The following information is included in this announcement in compliance with the Disclosure and Transparency Rules and has been extracted from the full financial statements for 2022.

3.  Insurance Risk

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

(a) Risk mitigation

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

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

(b) Concentrations of risk

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

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

(c)  General insurance risks

Property classes

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

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

The nature of claims may include fire, weather damage, escape of water, explosion (after fire), riot and malicious damage, subsidence, accidental damage, theft and earthquake. Subsidence claims are particularly difficult to predict because the damage is often not apparent for some time. The ultimate settlements can be small or large with a risk of a settled claim being reopened at a later date.

The number of claims made can be affected in particular by weather events, changes in climate, economic environment, and crime rates. Climate change may give rise to more frequent and extreme weather events, such as river flooding, hurricanes and drought, and their consequences, for example, subsidence claims. If a weather event happens near the end of the financial year, the uncertainty about ultimate claims cost in the financial statements is much higher because there is insufficient time for adequate data to be received to assess the final cost of claims.

Individual claims can vary in amount since the risks insured are diverse in both size and nature. The cost of repairing property varies according to the extent of damage, cost of materials and labour charges.

Contracts are underwritten on a reinstatement basis or repair and restoration basis as appropriate. Costs of rebuilding properties, of replacement or indemnity for contents and time taken to bring business operations back to pre-loss levels for business interruption are the key factors that influence the cost of claims. Individual large claims are more likely to arise from fire, storm or flood damage. The greatest likelihood of an aggregation of claims arises from earthquake, weather or major spreading fire events.

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

Liability classes

The main exposures are in respect of liability insurance contracts which protect policyholders from the liability to compensate injured employees (employers' liability) and third parties (public liability).

Claims that may arise from the liability portfolios include damage to property, physical injury, disease and psychological trauma. The Group has a different exposure profile to most other commercial lines insurance companies as it has lower exposure to industrial risks. Therefore, claims for industrial diseases are less common for the Group than injury claims such as slips, trips and back injuries.

The frequency and severity of claims arising on liability insurance contracts can be affected by several factors. Most significant are the increasing level of awards for damages suffered, legal costs and the potential for periodic payment awards.

The severity of bodily injury claims can be influenced particularly by the value of loss of earnings and the future cost of care. The settlement value of claims arising under public and employers' liability is particularly difficult to predict. There is often uncertainty as to the extent and type of injury, whether any payments will be made and, if they are, the amount and timing of the payments, including the discount rate applied for assessing lump sums. Key factors driving the high levels of uncertainty include the late notification of possible claim events and the legal process.

Late notification of possible claims necessitates the holding of provisions for incurred claims that may only emerge some years into the future. In particular, the effect of inflation over such a long period can be considerable and is uncertain. A lack of comparable past experience may make it difficult to quantify the number of claims and, for certain types of claims, the amounts for which they will ultimately settle. The legal and legislative framework continues to evolve, which has a consequent impact on the uncertainty as to the length of the claims settlement process and the ultimate settlement amounts.

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

Provisions for latent claims

The public and employers' liability classes can give rise to very late reported claims, which are often referred to as latent claims. These can vary in nature and are difficult to predict. They typically emerge slowly over many years, during which time there can be particular uncertainty as to the number of future potential claims and their cost. The Group has reflected this uncertainty and believes that it holds adequate reserves for latent claims that may result from exposure periods up to the reporting date.

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

(d) Life insurance risks

The Group provides whole-of-life insurance policies to support funeral planning products, for most of which the future benefits are linked to inflation and backed by index-linked assets. None of the risks arising from this business are amongst the Group's principal risks and no new policies with insurance risk have been written in the life fund since 2013.

The primary risk on these contracts is the level of future investment returns on the assets backing the liabilities over the life of the policyholders is insufficient to meet future claims payments, particularly if the timing of claims is different from that assumed. The interest rate and inflation risk within this has been largely mitigated by holding index-linked assets of a similar term to the expected liabilities profile. The main residual risk is the spread risk attached to corporate bonds held to match the liabilities.

Uncertainty in the estimation of the timing of future claims arises from the unpredictability of long-term changes in overall levels of mortality. The Group bases these estimates on standard industry and national mortality tables and its own experience. The most significant factors that could alter the expected mortality rates profile are epidemics, widespread changes in lifestyle and continued improvement in medical science and social conditions. This small mortality risk is retained by the Group. The Group holds a reserve to meet the costs of future expenses in running the life business and administration of the policies. There is a risk that this is insufficient to meet the expenses incurred in future periods.

4.  Financial risk and capital management

The Group is exposed to financial risk through its financial assets, financial liabilities, reinsurance assets and insurance liabilities. In particular, the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts. The most important components of financial risk are interest rate risk, credit risk, equity price and currency risk.

There has been no change from the prior period in the nature of the financial risks to which the Group is exposed. The continued conflict in Ukraine and the cost of living crisis means there is continued uncertainty in relation to the economic risks to which the Group is exposed. This includes equity price volatility, movements in exchange rates and long-term UK growth prospects. The Group's management and measurement of financial risks is informed by either stochastic modelling or stress testing techniques.

(a) Categories of financial instruments

(i) Categories applying IAS 39