Ecclesiastl.8fe Regulatory News (ELLA)

ECCLESIASTICAL INSURANCE OFFICE PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2015

The Company has now approved its annual report and accounts for 2015.

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 2015. The annual report and accounts will be available from 17 March 2016 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.

A copy of the Company's statutory accounts for the year ended 31 December 2015 has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk.

Chairman's Statement

Financial performance

Ecclesiastical has delivered another set of strong and consistent results in 2015, testimony to the transformation in its performance over the last two years. Profit before tax grew by 11% to £54m, with underwriting profits and investment returns both performing well despite a challenging business climate.

These are pleasing results, but insurance remains a cyclical business and the industry is facing soft markets and lower investment returns. To prosper in these conditions, Ecclesiastical will continue to provide a specialist trusted proposition, backed up by disciplined underwriting and expense control.

The profits we made in 2015, combined with our strong balance sheet, have enabled us to pay a grant of £20m to our charitable owner, bringing the total we have granted ATL since 2014 to £43.5m. Including all other charitable giving, we have given £45.8m to charitable causes in that time, taking us closer to our goal of giving £50m to charity over three years.

Group underwriting profits increased from £11m to £16m, generating a combined operating ratio (COR) of 92.0% against 95.2% in 2014. In the UK and Ireland, the impact of challenging property claims and December's storm and flood events were offset by the improvement in the performance of our liability book. This helped us deliver an overall COR of 90.4% in our home market, compared to 94.0% the previous year.

Investment returns were on budget at £43m in 2015, despite falling global equity markets and a reduction in the capital value of fixed interest investments due to rising yields. We achieved a return on our equity portfolio that exceeded FTSE All-Share Index returns. We also enhanced our investment property portfolio during 2014 and 2015 which generated a return of 11% during the year. Ecclesiastical has a sound capital base, which enables us to pursue our long-term strategy while being cognisant of short-term volatility.

People

First and foremost, our current and future success rests with our people. Ecclesiastical has a skilled, adaptable and dedicated team and I would like to thank and congratulate them for this year's successes and the transformation they have achieved.

We have continued to invest in our employees through a comprehensive, ongoing programme of training and development. In 2015, we provided over 3,000 technical and personal development training courses and over 500 management courses, many in conjunction with our business partners. We have also recruited to augment our underwriting and risk management capability.

Corporate culture

The Board recognises the importance, particularly in times of change, of ensuring that our corporate culture supports long-term success. To that end we are reviewing our leadership and talent development strategy, to ensure that the values Ecclesiastical espouses are combined with outstanding commercial acumen.

Customer service is central to our corporate culture; our most recent surveys show customer satisfaction of between 95% and 100% across all measured groups and territories. We are committed to putting the customer at the heart of our business, for example by conducting regular 'listening exercises' with small groups of customers to discuss their current and emerging needs and concerns.

Board

I would like to thank my fellow directors for their support and hard work in the past year. In particular, I want to express my thanks to David Christie, who retires as a non-executive director in March 2016. David has made an invaluable contribution to our company and we wish him well in his future endeavours.

This is my final review as Chairman of Ecclesiastical, as I will be retiring in March 2016 after ten years with the Company. It has been an honour to lead it through this period of transformation and to work with the committed and motivated people who work here. My successor, Edward Creasy, brings to Ecclesiastical a wealth of financial services and board level experience and I wish him every success as he takes the Company forward.

Ecclesiastical is a company with distinctive ethical values. Its ongoing success will come from a judicious fusion of the best of those values with a keen acceptance of the change required to succeed in a competitive insurance and investment market. I firmly believe that, with the substantial changes made to the Board and executive management team over the last three years, we have the necessary skills in place to embrace that change and take Ecclesiastical to even greater success.

Group Chief Executive's Review

Customers and partners often tell us that our charitable purpose sets us apart.

Founded 129 years ago to insure the Church of England, we have always had a strong sense of moral purpose. Today, as we face the modern challenge of public mistrust in financial services, that purpose inspires our drive to be a very different kind of business.

In 2014, we set out a strategic goal for the Group that built upon our ethical foundations. It was clear, stretching and inspirational: 

To work together to be the most trusted and ethical specialist financial services group, giving £50m to charity over three years.

Put simply, we want to deliver on our promises. We want to do the right thing for our customers and partners. And, above all, we want to give help, support and money to those who need it most. That is not just an adjunct to what we do; it is the reason we exist.

Another strong year

As a commercial business with a charitable purpose, we are focused on delivering strong and sustainable returns. To do good, we know we must be good.

That is why it gives me immense pleasure to report another year of strong results. We have achieved a pre-tax profit of £53.6m compared to £48.2m in 2014 and an underwriting profit of £15.9m, up from £10.7m the previous year. Our capital strength has also been enhanced and our net assets ended the year at £505m, a record high, compared to £495m in 2014.

All this been delivered against a backdrop of volatile investment markets, unusually high property losses and severe weather events, including Canada's exceptionally cold January and the storms that hit the UK at the end of the year.

Last year, I described our results as 'nothing short of transformational'. This year's results signal that our ambitious change programme, new leadership teams and the tough decisions that we have taken over the past few years are reaping further dividends. Our momentum is building and we are now well placed to invest more in our future so that, over time, we can grow both our business and our charitable giving.

Being good to do good

Our charitable purpose shapes every aspect of how we do business.

For example, unlike many of our competitors, we do not have to pay hefty returns to external shareholders. This means we are not driven by short-term decisions focused mainly on the bottom line. Instead, we can focus on longer-term goals that are in our customers' best interests.

We are very conscious that trust in financial services companies has declined sharply in recent years. In a deliberate move to buck this trend, we have set about securing the trust of our customers and business partners for the long-term. In practice, this means meeting or exceeding our customers' expectations, being honest and professional at every turn and, most important, being unfailingly supportive in times of need.

This is where we differentiate ourselves in today's competitive environment. By being the most intelligent and knowledgeable player in our chosen markets, by offering real value for money and by always delivering on our promises, we know we are honing a competitive edge.

A raft of independent data shows that we have already made enormous progress.

Our latest UK customer satisfaction levels are 98-100% across the board and satisfaction with claims handling sits at 99% in the UK and 96% in Ireland. UK brokers have recognised us as the best charity, education and heritage insurer for the ninth consecutive year. In home insurance, we top the UK's Fairer Finance league table and pay 93% of claims against an industry average of just 79%. Our investment management business has been voted Moneyfact's Best Ethical Investment Provider for seven consecutive years and achieved the top assessment rating from the UN Principles of Responsible Investment.

All this reinforces my belief that, while not perfect, we are getting many things right. 

The case studies in this report and on our website show how highly our customers and partners think of us, and I thank them all for their kind words. They represent just a fraction of the positive comments we receive, such as the handful below:

"You meet claims fairly and promptly, and your valuation service is highly valued and unique."

Broker, London and South East

"It is also appropriate here to salute the insurance companies, many of which have been praised for the speed and nature of their response to those flooded. Affected churches have greatly valued the service of the Ecclesiastical Insurance Group in particular during recent weeks."

Rt. Revd. Nick Baines, Bishop of Leeds, speaking in the House of Lords

"The human side and the caring that everyone at Ecclesiastical showed has been so tremendous. I don't know how we'd have got through it all without your support."

Kathryn Creese, churchwarden and treasurer, St. Michael and All Angels Church, Tirley

"We should perhaps praise the Lord there is an insurer out there with a conscience…"

Patrick Collinson, personal finance editor, Guardian (on our behaviour towards a policyholder)

I would like to thank and congratulate every one of my Ecclesiastical colleagues, who work tirelessly to deliver the service that elicits comments like these. They illustrate better than any words I could ever write how we are fulfilling our commitment to being the most trusted and ethical financial services group. Doubly rewarding is the fact that by doing so, we are also meeting our ultimate goal of giving £50m to charity over three years.

Progress in detail

Our focus is firmly on taking the right decisions to create long-term ethical and sustainable growth. In 2015, we continued to apply strong underwriting disciplines across the Group, which saw our overseas businesses achieve an increase in gross written premium (GWP) although our global GWP declined slightly. We won a number of significant accounts such as the Canadian Cancer Society, Scouts New South Wales, National Trust of Victoria and the Irish Management Institute, and we now insure the majority of Grade I listed buildings in the UK.

In the UK we maintained high retention levels, despite further losses of academies to the Department for Education's risk protection arrangement for academy trusts, and managed our portfolio rigorously, with a deliberate emphasis on delivering profit in a highly competitive market. This approach lies behind the year's 7% fall in GWP and has contributed to the £5.2m increase in underwriting profits. Our aim is to achieve moderate GWP growth over the coming years, by adding profitable business at a sustainable rate.

Our Australian and Canadian businesses continued to achieve measured growth, increasing GWP by 4% and 9% respectively in local currency. Australia delivered an underlying underwriting profit of £0.1m and COR of 99.3%. Canada secured another set of robust underwriting results despite a record 'freeze' at the beginning of the year.

The investment management division, which rebranded as EdenTree Investment Management (EdenTree) during the year, delivered a profit of £2m against £3m in 2014. We invested substantially in this business during 2015, with the launch of the new brand and successful implementation of a new IT platform. Investment like this takes time to bear fruit but we are confident that it will enable us to make our offer clearer, more distinct and give it a wider appeal. The name of the company may have changed but the profits with principles ethos remains as strong as ever.

Our independently run broking operation, SEIB, had a more difficult year as it dealt with the transition of one scheme to another provider. This resulted in a £0.8m decrease in profit from £3.0m to £2.2m, although in part this reflected a programme of investment in new employees, systems, websites, and marketing.

Looking forward to our future

I see 2016 as an exciting year of transition: a year where one successful chapter of transformation draws to a close and a fresh new chapter of investment in our future begins.

We are enormously grateful to Will Samuel for his outstanding chairmanship in recent years. There is no doubt that with his guidance we have made huge strides in reshaping and repositioning our Group, going through each of our businesses thoroughly, taking decisive action to improve them and delivering a Group-wide change programme. This has all contributed to strong results and increased grants for our charitable owner.

In our next chapter, we have much to look forward to. We will launch and drive forward the next stage of our transformation programme, led by an exceptionally committed and energised team in each of our territories and businesses around the world. I know they are keen to build on our recent success and deliver against our charitable purpose.

We know that challenges lie ahead and are prepared for them. We expect market volatility to continue in the near term and are positioned for this, taking a defensive stance where appropriate. Equity markets have performed strongly over the long term but we know that the level of return cannot be guaranteed. However, our financial strength and unique ownership allow us to take a long-term view and ride out periods of market turbulence.

In 2016, institutions in England and Wales will be scrutinised as the Independent Inquiry into Child Sexual Abuse starts its investigations. We welcome the openness and transparency that the Inquiry heralds and recognise it may result in more victims and survivors feeling able to come forward. Our reserving techniques for latent claims of this nature have been developed and enhanced over a number of years; ensuring appropriate reserves are held which take into account the typically higher uncertainties that are attached to this kind of risk.

The general insurance market remains very competitive in some of our markets; however, our results demonstrate that with our specialist focus, disciplined underwriting and premium service we can successfully confront these challenges.

I know that our financial strength and committed ethical approach give us strong foundations upon which we can build our business and grow our charitable giving. We have high aspirations, we are on target to give £50m to charity over three years, and there is abundant energy and goodwill drawing us together to achieve this.

Working together for the greater good

In 2015, we gave £20.6m to charity, including grants to our charitable owner and through our wider Greater Giving programme.

Yes, this is a big number. But for us, what really matters is the lives we are able to improve. And having seen first-hand the impact of our giving, there is no doubt that we make a real and life-changing difference to many vulnerable people in the markets and communities in which we operate. That is the reason why so many of us support Ecclesiastical, either as employees, customers or business partners.

I thank all our customers and our business partners whom we serve, and whose expectations we aim to exceed. It is only with their support that we can give so much to good causes.

I would also like to take the opportunity to invite prospective partners and customers to consider working with us and experience the 'Ecclesiastical difference' for yourselves. I would also encourage potential employees from all walks of life to consider joining us. Our doors are always open to like-minded individuals and organisations who share our aspirations and can help us to help others.

I am confident that with the ongoing support and commitment of our extraordinary people, we will deliver this exciting new chapter and build a Group that stands by its customers ever more firmly. A Group that is formed from a unique blend of business, charity and faith. A Group that is changing people's lives.

Business Review

Financial Performance Report

We delivered another year of strong and consistent financial results, reporting a pre-tax profit of £53.6m (2014: £48.2m). Our underwriting performance improved again, despite a more active year for property claims across all of our territories. Investment returns were also similar to last year in the face of challenging markets, particularly in the second half of the year.

Our consistent financial performance and continuing strong capital position have enabled us to make further substantial charitable grants to ATL. Grants of £20m were paid during the year taking our total charitable giving since the start of 2014 to £45.8m. 

We invested in our investment management business during the year, rebranding as EdenTree and continuing the modernisation of their IT systems. We continued to streamline and develop our broking and advisory business in the year, successfully concluding the sale of our legacy mortgage book in the early months of the year.

General Insurance

Our underwriting performance for the year was a profit of £15.9m (2014: £10.7m profit), resulting in a Group COR of 92.0% (2014: 95.2%). Each of our business units has delivered an underlying underwriting profit for a second year.

United Kingdom and Ireland

Our insurance businesses in the UK and Ireland reported an underwriting profit of £14.5m (2014: £10.4m profit) and a COR of 90.4% (2014: 94.0%).

It has been a more active year for property claims with a higher than average cost of large losses, particularly fire losses, together with the storms and floods that hit the UK in December. We incurred net losses of £12.2m in respect of those weather events which were adequately reserved for at the year end.

The performance of our liability book, however, has continued to improve and produced strong profits, enhancing the overall positive underwriting performance for the year. Current year claims performance has been better than expected, and we have also had the benefit of reserve releases as historical claims have been settled at amounts that were less than anticipated.

In 2015, GWP has fallen by 7% to £228m, (2014: £246m). Retention levels were high at 85%, despite further losses of academies to the Department for Education's risk protection arrangement for academy trusts. We considered all new business carefully and did not seek to write business at prices we considered unsustainable. 

Our Strategy over the medium-term is to seek moderate GWP growth by adding good-quality business at a steady pace, but we expect the market environment to remain very competitive, particularly for commercial property business. We will not change our approach, in accordance with our philosophy of not putting our underwriting performance at risk by seeking growth above profit.

Ansvar Australia

Australia achieved an underlying underwriting profit of AUD$0.2m (COR 98.4%) before the impact of movements on discount rates, which resulted in an underwriting loss of AUD$0.7m overall (2014: AUD$2.1m loss). The business was affected by a higher than average number of catastrophe events during the year, which was an issue for the whole Australian market. However, the reinsurance arrangements in place reduced the impact of these losses to a manageable level. 

GWP grew by 4% in local currency to AUD$76.2m (2014: AUD$73.5m). Retention rates remained very strong and new business was 40% ahead of the prior year.

Canada

Canada continued its track record of delivering strong, profitable growth, reporting a 9% increase in GWP in the year in local currency. The branch's contribution to GWP increased to CAD$77.9m (2014: CAD$71.6m).

The territory reported an underwriting profit of CAD$2.0m (2014: CAD$3.0m profit), a COR of 96.5%. As with other territories, it has been a more active year for property claims than in the prior year with higher than expected costs coming from large losses.

Other insurance operations

Profits were improved by releases of reserves from our businesses in run-off, resulting in an overall profit of £0.8m (2014: £0.2m loss). 

Investments

Against the backdrop of rising political tensions across the world, increased concern over the extent of the economic slowdown in China, and deterioration of growth in emerging economies, market volatility increased in the second half of 2015. The price of oil and other major resources continued to fall, hitting multi-year lows, significantly damaging many companies' balance sheets and dividend-paying ability. 

Over the course of 2015, the FTSE All-Share Index produced a return of 1.0% while the FTSE 100 Index ended the year down 4.9%. By contrast, our UK equity portfolio increased by 4.4%, outperforming both indices, reflecting its lower weighting in poorly performing sectors such as oil and mining.

Government bond yields ended the year marginally higher, though they succumbed to significant bouts of volatility. Quantitative easing from the Eurozone and Japan, the surprise devaluation of the Chinese Yuan in August, fears about a Chinese growth slowdown and persistent commodity price declines all pushed global bond yields lower at different times throughout the year.

The end of 2015 was dominated by central bank monetary policy divergence between the US Federal Reserve and the European Central Bank (ECB). While the Federal Reserve saw fit to begin the process of interest rate normalisation, the ECB took the opposite approach, extending the duration of its asset purchase programme. These policy announcements triggered a bond sell-off which caused yields to rise in the final weeks of the year.

In 2015, our UK bond portfolio produced a total return of 1.1%, which compared favourably against the FT All Stocks Gilt Index's 0.6% return for the same period, due to its short dated position.

Investment management

The Group's investment management business completed a successful rebrand as EdenTree during 2015, as ethical investment continues to become more main-stream in investment management markets, reflecting the future growth ambitions of the company. The new brand coincided with the launch of a new EdenTree website, digital advertising, use of social media and national outdoor advertising. The team also launched a new front office IT platform to support investment trading and compliance activities, delivering better service to clients. Despite the change in name, there has been no change to the strategic aims of the business as it continues to focus on an active, value-based and long-term approach to stock picking, building upon its long track record of delivering profit with principles for investors and charities.

EdenTree benefited from receipt of a one-off performance fee of £0.7m in 2014, which was not repeated in 2015, meaning overall fee income for the year decreased by 4.7% to £13.6m (2014: £14.3m). Pre-tax profits fell to £1.8m (2014: £3.2m) reflecting the level of investment made during the year in the operations of the business. Stock market volatility increased during the second half of the year and led to greater investor caution with the industry as a whole generally experiencing net outflows in 2015. Faced with a challenging investment environment, EdenTree generated net inflows to its funds of £15m (2014: £98m net inflow), holding assets under management at the end of the year of £2.3bn (2014: £2.3bn).

EdenTree has maintained its track record as a multi-award-winning ethical investment provider, with the company winning the Moneyfacts Best Ethical Investment Provider Award for a seventh consecutive year. Its funds continue to win awards, as shown in the Strategic Report in the full financial statements. EdenTree was rated platinum by Citywire, and across the team our Fund Managers continue to be highly rated.

Long-term insurance

The long-term insurance business result for 2015 was a profit of £1.0m (2014: £0.2m loss). Ecclesiastical Life Limited is closed to new business and the expected favourable run-off of the business during the year was enhanced by the positive impact of increased bond yields.

Broking and Advisory

The broking and advisory business comprises our insurance broker business SEIB and EFAS, our small financial advisory business.

In 2015, SEIB was affected by disruption during the transition of one scheme to another provider. Profit before tax reduced to £2.2m (2014: £3.0m).

EFAS completed the sale of its mortgage book in early 2015, as the business looks to focus on its core independent financial advisory and funeral plan administration business. It reported a small loss of £0.3m in the year (2014: £1.0m loss which included £0.6m of costs in relation to the sale of the mortgage book).

Overall, our broking and advisory business delivered a stable pre-tax profit of £1.9m (2014: £2.0m profit).

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 none of the issued 8.625% Non-Cumulative Irredeemable Preference Shares of £1 each ('Preference shares') were owned by Ecclesiastical Insurance Group plc. In turn, the entire issued Ordinary share capital of Ecclesiastical Insurance Group plc was owned by Allchurches Trust Limited (ATL), the ultimate parent of the Group.

Dividends

Dividends paid on the Preference shares were £9,181,000 (2014: £9,181,000).

The directors do not recommend a final dividend on the Ordinary shares (2014: £nil), and no interim dividends were paid in respect of either the current or prior year.

Charitable and political donations

Charitable donations paid, and provided for, by the Group in the year amounted to £20.6 million (2014: £25.2 million).

During the last 10 years, a total of £130.0 million (2014: £115.2 million) has been provided by Group companies for church and charitable purposes.

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

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.

Going concern

The Group has considerable financial resources: financial investments of £833.4m, 96% of which are liquid (2014: financial investments of £892.3m, 98% liquid); cash and cash equivalents of £118.4m and no borrowings (2014: cash and cash equivalents of £107.5m and no borrowings); and a regulatory enhanced capital cover of 3.0 (2014: 2.9). Liquid financial investments consist of listed equities and OEICs, government bonds and listed debt. As a consequence, the directors have a reasonable expectation that the Group is well placed to manage its business risks successfully and continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.

Risk Management

Introduction

The operations of the Group present a number of risks including Insurance, Market, Credit, Operational and Strategic.

An enterprise-wide risk management framework has been embedded across the Group, with the purpose of providing the tools, guidance, policies, standards and defined responsibilities to enable us to achieve our Strategy and objectives. This also ensures 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 the implementation and oversight is delegated to the Group Risk Function, led by the Group Chief Risk Officer. This is supported by three executive Risk Management Committees:

- The (Non-Life) Insurance Risk Committee which has oversight of the non-life insurance risks of the Group including counterparty risk;

- The Investment and Market Risk Committee which has oversight of the investment and market risks of the Group; and

- The Group Operational Risk Committee which has oversight for all the operational risks of the Group.

The insurance risks relating to our life business are overseen by the Life Management Committee.

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 (on behalf of the Board) identifies key strategic risks for the Group with input from the Group Management Board (GMB) and the Strategic Business Units (SBUs). The Group Risk Committee allocates responsibility for each of the risks to individual members of the Group's executive management. Any risk management actions that arise are regularly monitored and any gaps in risk mitigants challenged.

The key to the success of this process is the deployment of a strong Three Lines of Defence Model whereby the:

§ 1st Line (Business Management) is responsible for strategy, performance and management of risks arising;

§ 2nd Line (Reporting, Oversight and Guidance) is responsible for establishing minimum standards, appropriate reporting, oversight and challenge of our risk profiles and risk management activities within each of our businesses. This includes executive Risk Management Committees and is subject to oversight and challenge by the Group Risk Committee; and the

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

We have a continuously evolving approach to enterprise risk management and use emerging experience to refine our approach. During 2015, key improvements included:

§ Formal documentation of the risk management framework;

§ Further embedding of the risk management framework within the 1st line of defence;

§ Consolidation of the qualitative risk profiles with a focus on business plans; 

§ Significant development of quantitative risk profiling capabilities to ensure capture of all material risks and the development of an Internal Model validation framework;

§ A revised Group risk appetite to strengthen risk oversight which was approved by the Group Risk Committee on behalf of the Board and refreshed SBU risk appetites aligned to the Group appetite;

§ Enhanced stress testing and scenario analysis;

§ Enhanced control risk and self-assessment (CRSA) process;

§ Implementation of a policy framework supported by standards and guidance; and

§ Improvements were made to the own risk and solvency assessment (ORSA) process.

Risk Appetite

The risk appetite defines the level of risk-taking that the Board feel is appropriate for the Group as we pursue our business objectives. It has been 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 reported to the Group Risk Committee at each meeting. A formal escalation process exists for activities outside of risk appetite.

The risk appetite is refreshed at least annually and is signed-off and approved by the Board.

The Board takes the reputation of the Group seriously and will not undertake any activity whose outcome might reasonably be expected to have a sufficiently negative reputational impact on the Group and undermine the sustainability of the business model.

Our overarching risk appetite sets the minimum levels of capital and solvency that the Group wishes to maintain, and contains statements detailing the maximum exposure to different risk types that are deemed to be desirable. This includes limits on the type, nature, size and concentration of insurance risks that will be accepted by the Group and limits on the mix of assets to be held within the Group's investment portfolio.

 The main objective of our risk appetite is to ensure that we have sufficient capital to meet our liabilities and maintain our financial strength in extreme adverse scenarios. The risk appetite aims to achieve and support a credit rating of at least single A minus from Standard & Poor's (S&P).

Quantitative Risk Measures and Stress Testing Framework

The tool we use to measure aggregate risk is our Internal Model, which has been calibrated to estimate the internal view of the capital resources required to deliver our business plan. Over the last year we have improved both the scope and methodology of our Internal Model to better reflect the risk profile. The model has become further embedded in our strategic decision-making processes. As an example, the Internal Model was used as an input to the development of our reinsurance strategy and pricing decisions and setting of investment strategy.

Under the Solvency I Regime this model was used to calculate our capital requirements. With the introduction of Solvency II our regulatory capital requirement will be calculated using the standard formula, although we will continue to use and develop our Internal Model alongside this. Our intention is to seek regulatory approval for our Internal Model as the basis for the calculation of our regulatory capital requirements during 2017.

We have continued to refine a comprehensive stress testing and scenario analysis framework to complement our quantitative risk measures.

This framework seeks to stress the business plan and identifies potential outcomes generated from a range of scenarios, providing evidence to the Board that the plan is robust. These stress tests are also used to identify additional actions that can be taken, including contingency plans, to mitigate any risks or potential adverse experiences identified. As such the Group uses stress and scenario testing as a key component of its business planning process.

Principal risks

The Board of directors has carried out a robust assessment of the principal risks that could have the highest potential to damage the Business Model, the Strategy or solvency of the Group both in the short and long term. Those risks identified are as follows:

Directors' Responsibility Statement

The following statement is extracted from page 83 of the 2015 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 2014 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 on pages 78 and 79 of the full annual report and accounts.

The directors confirm to the best of their knowledge:

§ The financial statements, prepared in accordance with IFRS, 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;

§ The Strategic Report within the 2015 annual report and accounts 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; and

§ The Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, Business Model and Strategy.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the year ended 31 December 2015

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2015

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2015

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

For the year ended 31 December 2015

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2015

NOTES TO THIS ANNUAL FINANCIAL REPORT ANNOUNCEMENT OF RESULTS

for the year ended 31 December 2015

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 2015 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 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 2016.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2015 or 2014, but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 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 2016.

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 2015.

Insurance Risk

Through its general and life insurance operations, the Group is exposed to a number of risks, as summarised in the Risk Management section of the Strategic Report. The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount and timing of the resulting claim. Factors such as the business and product mix, the external environment including market competition and reinsurance capacity all may vary from year to year, along with the actual frequency, severity and ultimate cost of claims and benefits. This subjects the Group to underwriting and pricing risk (the risk of failing to ensure disciplined risk selection and achieve the required 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 and supported by proactive claims handling. The overall reinsurance structure is regularly reviewed and modelled to ensure that it remains optimum to the Group's needs. The optimum reinsurance structure provides the Group with sustainable, long-term capacity to support its specialist business strategy, with effective balance sheet and profit and loss protection at a reasonable cost.

Catastrophe protection is purchased following an extensive annual modelling exercise of gross and net (of proportional reinsurance) exposures. In conjunction with reinsurance brokers the Group utilises the full range of proprietary catastrophe models and continues to develop bespoke modelling options that better reflect the specialist nature of the portfolio. Reinsurance is arranged to cover up to a 1/250 loss, which increases to a 1/500 loss where earthquake risk exists.

(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 Group has also underwritten a small portfolio of motor policies, but this class is in run-off following the decision in November 2012 to focus on the principal classes. The accident class of business covers injury, death or incapacity as a result of an unforeseen event. The Group's whole-of-life insurance policies support funeral planning products.

Below is a table summarising 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 properties or for the value of property lost. Property insurance may also include cover for pecuniary loss through the inability to use damaged insured commercial properties.

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

The nature of claims may include fire, business interruption, weather damage, escape of water, subsidence, accidental damage to insured vehicles and theft. 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 re-opened at a later date.

The number of claims made can be affected by weather events, changes in climate 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 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 earthquake, weather or 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.

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, including the liability element of motor contracts, can be affected by several factors. Most significant are the increasing level of awards for damages suffered, the courts' move to periodic payments awards and the increase in the number of cases that have been latent for a long period of time.

The severity of bodily injury claims is highly influenced 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. 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 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. The risk that actual claims payments exceed the carrying amount of the insurance liabilities may occur if the timing of claims is different from assumed. This is not one of the Group's principal risks and the life fund is closed to new entrants, with only minimal premiums now being received each year.

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

Finance 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, currency risk and equity price risk.

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

(a) Categories of financial instruments

(b) Fair value hierarchy

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

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

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

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

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

Fair value measurements based on level 3

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

(c) Interest rate risk

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

Interest rate risk concentration is reduced by adopting asset-liability duration matching principles where appropriate. Excluding assets held to back the long-term business, the average duration of the Group's fixed income portfolio is two years (2014: two years), reflecting the relatively short-term average duration of its general insurance liabilities. The mean term of discounted general insurance liabilities is disclosed in note 28 (a) part (iv) to the full financial statements.

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

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

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

(d) Credit risk

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

§ reinsurers' share of insurance liabilities (excluding provision for unearned premiums) and amounts due from reinsurers in respect of claims already paid;

§ deposits held with banks;

§ amounts due from insurance intermediaries and policyholders; and

§ counterparty default on loans and debt securities.

The carrying amount of financial and reinsurance assets represents the Group's maximum exposure to credit risk. The Group structures the levels of credit risk it accepts by placing limits on its exposure to a single counterparty. Limits on the level of credit risk are regularly reviewed.

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.

There has been no significant change in the recoverability of the Group's reinsurance balances during the year with all reinsurers on the 2015 reinsurance programme having a minimum rating of 'A-' from Standard & Poor's or an equivalent agency at the time of purchase.

Group cash balances are regularly reviewed to identify the quality of the counterparty bank and to monitor and limit concentrations of risk.

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.

Collateral is held over loans secured by mortgages. The debt securities portfolio consists of a range of mainly fixed interest instruments including government securities, local authority issues, corporate loans and bonds, overseas bonds, preference shares and other interest-bearing securities. Limits are imposed on the credit ratings of the corporate bond portfolio and exposures regularly monitored. Group investments in unlisted securities represent less than 1% of this category in the current and prior year. The Group's exposure to counterparty default on debt securities is spread across a variety of geographical and economic territories, as follows: