Ecclesiastl.8fe Regulatory News (ELLA)

2022 INTERIM RESULTS

Ecclesiastical Insurance Office plc 27 September 2022

Ecclesiastical Insurance Office plc ("Ecclesiastical"), the specialist financial services group1, today announces its 2022 interim results. A copy of the results will be available on the Company's website at www.ecclesiastical.com

Group overview

· Within Ecclesiastical, there was excellent growth in Gross Written Premiums (GWP) to £261.9m (H1 2021: £226.5m), driven by new business, and supported by strong retention and rate strengthening.

· Underwriting profit increased to £16.6m (H1 2021: £2.5m).

· Our capital position remains robust with Solvency II capital cover increasing to 280% and AM Best and S&P affirming our excellent and strong ratings. A consequence of our capital strength is that we are able to hold a large diversified portfolio of equities, property, infrastructure and other investments on top of those assets held to meet our insurance and capital requirements. This is done to enhance our returns over the long term, although it can lead to short term volatility in our reported results, as it has in the first half of the year.

· Overall loss before tax of £27.3m (H1 2021: Profit before tax of £46.5m), which includes £79.8m of fair value investment losses (H1 2021: £34.3m gains) as a result of adverse market conditions. Net investment losses were £26.6m (H1 2021: £58.2m profit).

· As part of the Benefact Group of companies, Ecclesiastical remained focused on its charitable ambition to grow to give. The Group has now given £182m2 to charity against its target of donating £250m by the end of 2025.

· This includes a grant of £5m to our owner Benefact Trust Limited in respect of 2021 performance. Alongside this, thanks to a robust underlying performance of the Group's businesses, we're announcing a further £5m will be granted to our charitable owner.

· Our donations are benefiting charities and communities all over the UK and Ireland, Canada and Australia, and also helping to tackle current issues such as the war in Ukraine and cost of living crisis in the UK.

· Our parent company Benefact Group plc published its climate commitments in March, setting out a roadmap to achieve net zero (direct and indirect) by 2040. This includes an ambitious commitment to achieve net zero for direct emissions by the end of 2023 and to become net negative for direct emissions by the end of 2025.

· Continued external recognition of the Group as a trusted and specialist financial services organisation. This included being named as the UK's most trusted home insurer for the 15th time by independent ratings agency Fairer Finance, and our Canadian team was named one of the Top Employers for Young People for the tenth consecutive year. Ecclesiastical Financial Advisory Services won the NatWest Intermediary local hero mortgage awards - South West & Wales, while EdenTree's Responsible & Sustainable Managed Income Fund was awarded the ESG Clarity Best Multi-Asset ESG (Environmental, Social and Governance) fund.

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

"Being owned by a charity, we measure our success less in terms of the profit we make, but more in terms of the amount we give away to good causes. Together, thanks to outstanding commitment from all our supporters, the Group have now become the fourth largest corporate donor to charity in the UK, and with additional donations made this year, we have now given £182m2 to good causes against our target of giving £250m by the end of 2025.

"In terms of Group profits, whilst we report short term losses due to investment volatility, I'm pleased to report a resilient financial performance for the first half of 2022 from our core businesses. Our business model is focused on delivering long-term sustainable profits, which allows us to withstand short-term economic pressures, and we have continued to grow the business despite the challenging environment. Our GI businesses reported excellent premium growth, driven by new business wins, and supported by strong retention and rate strengthening. This led to an underwriting profit of £16.6m, a significant increase on the previous year.

"While much of the investment industry saw outflows as investor sentiment fell, EdenTree, our award-winning responsible and sustainable investment management business, bucked the trend by growing its fee income and receiving positive net flows. Our broker businesses also performed well, with SEIB reporting solid results with a half year profit before tax of £1.9m (H1 2021: £1.7m).

"Our capital position remains strong, with AM Best and S&P recently affirming our excellent and strong credit ratings, and we continued to invest in our business. In the UK and Ireland, we saw the release of our new general insurance system, which will ultimately enable a better, faster service for our customers and brokers, and we continued to rollout our innovative Smart Properties proposition to heritage properties, schools and cathedrals, which provides an early-warning system to prevent fire and flood. I'm also pleased that Ecclesiastical Financial Advisory Services (EFAS) have signed an official partnership to provide independent financial advice to ordained and lay members of the various Church of England Pension schemes administered by the Church of England Pension Board.

"The challenging market conditions in the first half adversely affected our investment performance as equity prices fell sharply amid concerns around inflation and the on-going uncertainty in Ukraine. Our results included fair value losses of £79.8m (H1 2021: £34.3m gains) on our investment portfolio, which contributed to a net investment loss of £26.6m (H1 2021: £58.2m profit) and overall loss before tax of £27.3m (H1 2021: £46.5m profit).

"In these difficult times, we remain resolute in our vision to build a movement for good in society, helping to transform lives and communities for the better. In June, we celebrated our achievement of giving £100m to good causes with a Service of Thanksgiving at Westminster Abbey, attended by HRH The Prince of Wales, now HM King Charles III, politicians, brokers, clients, colleagues and some of over 10,000 charities that have benefited from our giving. It was a remarkable and moving occasion. It demonstrated our combined impact and inspires us to do even more.

"In the first half of 2022, we have helped hundreds of charities in the UK through our Movement for Good Awards. Our charitable owner, Benefact Trust, stepped up its giving to include a £1m funding package to support those affected by the devastating conflict in Ukraine.

"Earlier this year we granted £5m to Benefact Trust in respect of our excellent 2021 performance and we have announced a further grant of £5m to be paid in October. This will support even more people and help us achieve our new ambition of becoming Britain's biggest corporate donor.

"We are conscious of the financial pressures currently facing many of our customers. In response, we have provided fundraising resources to help churches and charities raise much-needed funds. We have also invested significantly in our risk management services, both face to face and online, to help customers protect themselves from losses, and if the worst happens, our expert claims team are always there for our customers when they need us most.

"Our charitable purpose feels even more relevant in these difficult times. It spurs us on to grow the business, so that we may give even more to good causes, and help those in society who need it most. We are actively seeking new opportunities and paths to growth in all our markets and we have the appetite and capacity to achieve this goal."

1 The 'Group' refers to Ecclesiastical Insurance Office plc together with its subsidiaries. The 'Benefact Group' and 'wider group' refers to Benefact Group plc, the immediate parent company of Ecclesiastical Insurance Office plc, together with its subsidiaries. The 'Benefact Trust' and 'the Trust' refers to Benefact Trust Limited, the ultimate parent undertaking of Ecclesiastical Insurance Office plc.

2 Cumulative giving since 2014.

Results summary

3 The Group uses Alternative Performance Measures (APMs) to help explain performance. More information on APMs is included in note 17.

Financial highlights

General Insurance - UK and Ireland

UK and Ireland reported strong GWP growth of 16% to £166m in the six months to 30 June 2022 (H1 2021: £143m). This has been driven by new business, particularly in Real Estate, and supported by strong retention and rate strengthening. The business reported an underwriting profit of £9.3m and a net combined ratio of 89.6% (H1 2021: £15.3m profit, COR 81.5%).

Large weather related losses early in the year were substantially offset by benign weather conditions in the second quarter of the year. The overall property result performed only slightly behind expectations, although lower than the prior period which was driven by more favourable weather conditions. Claims volumes in our liability business have continued to be lower than pre-pandemic levels, whilst also benefiting from favourable prior year releases.

General Insurance - Canada

The Canadian business delivered premium growth of 16% in local currency, reporting GWP of £39.5m (H1 2021: £32.4m), driven by high retention and rate strengthening. This premium growth, alongside a reduction in expenses, has resulted in an underwriting profit of £5.2m (H1 2021: £0.4m loss) and a COR of 85.6% (H1 2021: 101.5%). A lower than average number of weather events in the first half of the year has led to strong returns in the property portfolio, whilst the liability portfolio recorded a small loss.

General Insurance - Australia

Our Australian business reported GWP of £54.2m (H1 2021: £49.6m), with premium growth of 9.4% in local currency, demonstrating the strength of its renewal portfolio and rate adequacy. The business reported an underwriting profit of £0.8m (H1 2021: £3.9m loss). The property result was again impacted by weather events including the Queensland and New South Wales Floods, however the liability book reported a strong result in the period compared with 2021, which had been adversely impacted by strengthening of historic liability claims.

General Insurance - Other

The Group made a further underwriting profit of £1.4m (2021: £8.5m loss) within its internal reinsurance portfolio, in line with expectations. The prior period result was impacted by reserves strengthening in respect of historic PSA claims in Ansvar Australia.

Investment Returns

Our investment result for the first half of the year was a loss of £26.6m (H1 2021: £58.2m profit), which includes fair value losses of £79.8m (H1 2021: £34.3m gains). 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. The resulting outlook for higher interest rates and a deteriorating economy has driven down financial asset prices.

Income from financial assets was £14.9m (H1 2021: £14.2m), with signs this will continue to increase as interest rates rise.

We discount some of our liability claims reserves at a rate that reflects the yield on long-term investment grade bonds. The reserves relate to liability policies, written over many decades, and represent very long-tail risks. The movement in yields from the year end resulted in a gain of £38.7m (2021: £7.6m) in the first six months of the year.

We continue to take a long-term view of risk and our approach to the management of risks resulting from the Group's exposure to financial markets is outlined in note 4 to our latest annual report.

Asset Management - EdenTree

Despite market movements negatively impacting fund values, our investment management business, EdenTree, grew fee income by 2.6% to £7.0m (H1 2021: £6.8m), supported by positive net flows, largely into the Short Dated Bond Fund. Investor sentiment had caused outflows in the industry as a whole, which highlights the strength of EdenTree performance.

Within the funds EdenTree continues to manage at the period end, net new money totalled £129.5m (2021: £190.8m). During the period, EdenTree transferred or delegated (as appropriate) investment management to a portfolio management business within the wider Benefact Group as part of a strategic decision to clarify functions and associated regulatory permissions. Under this model EdenTree fulfils the role of Authorised Corporate Director for the OEIC range and is legally responsible for the day to day management of the funds to ensure they are managed within applicable regulations, whilst the other business now performs the Investment Management function.

As expected, our emphasis on the continued investment in the business and people contributed to a loss of £1.2m (H1 2021: £0.2m loss).

Broking and Advisory - SEIB Insurance Brokers

SEIB has continued to report solid results with a half year profit before tax of £1.9m (H1 2021: £1.7m). General commission and fees, excluding profit share commission, has increased by 7.9% in the first half of the year to £6.4m (H1 2021: £5.9m) primarily as a result of continued strong renewal retention and rate increases.

Life Business

Our life business reopened to business during 2021, launching a new product providing guarantees for pre-paid funeral planning products sold by our Funeral Planning business in the wider Benefact group. The life business reported a profit before tax of £0.8m at the half year (H1 2021: £0.7m). Assets and liabilities within this business are well matched, though we expect small variances as margins in the insurance liabilities unwind.

Taxation

The Group's taxation charge in the period is a credit of £18.7m (H1 2021: £18.1m charge), driven by reduced deferred tax liabilities which reflect unrealised losses in the period on the investment portfolio. Deferred tax is based on tax rates and laws which have been enacted or substantively enacted at the period-end date.

Balance Sheet and Capital Position

In the first half of the year, total shareholders' equity decreased by £21.8m from £632.4m to £610.5m. The decrease was primarily driven by investment losses as a result of fair value movements the period which were partially offset by underwriting profits. There were also actuarial gains, net of tax of £7.0m, on retirement benefit plans driven by an increase in discount rate. The Group made a £5m charitable grant in the period in respect of prior year performance.

Strategic highlights

The Group's purpose to contribute to the greater good of society underpins its strategic intent: the Group has a long history of giving and a commitment to make a difference in the world. During the first half of 2022 there have been several significant highlights which contribute to the continued progress of the Group.

Firstly, the Group's charitable ambition and focus is at the heart of everything the Group does. In March 2022, the immediate parent was rebranded and renamed Benefact Group, and the ultimate charitable owner was rebranded and renamed the Benefact Trust. This reinforces the distinctive positioning - enabling better understanding that the Trust and its businesses are united and motivated by a common purpose to give its profits to good causes.

This charitable ambition shapes and drives the commitments of the Group's businesses: each offers distinctive positioning and support for its customers and communities. The Group's most recent target to give £100m to charity was achieved in 2021.

The Benefact Group has continued to invest in its businesses, operations and people to drive business benefit and enable charitable giving to its communities. This investment is underpinned by the Group's resilience and financial strength. This is demonstrated by the achievement of key milestones including: the first go-live of the new policy administration platform; establishment of the Benefact family across all divisions and businesses supported by refreshed values, culture and behaviours; the launch of new investment funds; further acquisitions within the Broking and Advisory division; and providing financial support to the people of Ukraine through triple-matching of employee giving.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Group and our approach to managing them are outlined in our latest annual report and in note 4 to these condensed financial statements. There has been no change to the principal risks and uncertainties since the year end.

Group Outlook

Our robust performance in recent years delivering profitable growth within the insurance business has been underpinned by strong underwriting discipline and a real focus on supporting customers to manage their risks. In order to be able to give more, we are ambitious in our plans to grow the business on the back of our many years of success. We are focussing on ways in which we can deliver even better customer value and reach additional customers and customer groups while retaining our strong underwriting and risk management disciplines. 

The global outlook remains uncertain, with the UK expected to enter recession and the Bank of England expected to announce further increase to interest rates to tackle inflation. Despite these economic pressures and challenges ahead, we remain confident about our future and are well placed to withstand potential volatility.

Challenging times serve to remind us just why we do business - we are motivated to make a real difference in the lives of the people and the communities we were built to help.

The Group's Next Chapter strategy enables the Group to significantly increase its impact, with aspirations to build a Movement for Good that transforms lives and communities. This strategy focuses on four themes which encompass both the longer-term ambitions and the short term priorities, while enhancing its strong competitive position in its markets. It brings together the Group's ambitions to grow its profitability, diversify its portfolio within its specialist areas, continue its investments in technology, people and proposition development, and anticipates strong business growth - together enabling the Group to give back even more to society and its communities through its giving. The Benefact Group has a new ambition to give over £250m cumulatively by the end of 2025, following the successful delivery of its £100m ambition as part of its previous strategic chapter.

By order of the Board

Mark Hews

Group Chief Executive

27 September 2022

CONSOLIDATED INTERIM FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the 6 months to 30 June 2022

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 6 months to 30 June 2022

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 6 months to 30 June 2022

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 12.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 30 June 2022

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the 6 months to 30 June 2022

NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS

1. General information and basis of preparation

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

The annual financial statements are prepared in accordance with UK adopted International Financial Reporting Standards (IFRSs) applicable at 31 December 2021 issued by the International Accounting Standards Board (IASB) and the Disclosure Guidance and Transparency Rules issued by the Financial Conduct Authority. The condensed set of financial statements included in the 2022 interim results has been prepared in accordance with UK adopted IAS 34, Interim Financial Reporting.

The information for the year ended 31 December 2021 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor reported on those accounts: its report was unqualified, did not draw attention to any matters by way of emphasis without qualifying the report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

These condensed consolidated interim financial statements were approved by the Board on 27 September 2022 and were reviewed by the Group's statutory auditor but not audited.

The Directors have assessed the going concern status of the Group. The Directors have considered the Group's plans and forecasts, financial resources, investment portfolio and solvency position. The Group's forecasts and projections, taking into account plausible scenarios, show that the group will have adequate resources to continue operating over a period of at least 12 months from the approval of the condensed consolidated interim financial statements. Accordingly, the Directors continue to adopt the going concern basis in preparing the consolidated interim financial statements.

2. Accounting policies

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

The following standards were in issue but not yet effective and have not been applied to these condensed financial statements.

IFRS 17, Insurance Contracts, was issued in May 2017 and is effective for periods beginning on or after 1 January 2023. The standard establishes revised principles for the recognition, measurement, presentation and disclosure of insurance contracts. The Group's long-term business is expected to be the most affected by the new standard. The Group's expected accounting policy choices are disclosed in the 2021 Annual Report and Accounts.

IFRS 9, Financial Instruments, which provides a new model for the classification and measurement of financial instruments, is effective for periods beginning on or after 1 January 2018. The Group has taken the option available to insurers to defer the application of IFRS 9 until the implementation of IFRS 17 on 1 January 2023.

The Group's implementation of both IFRS 17 and IFRS 9 are in progress. It is not currently practicable to reliably quantify the impact on the Group's financial position or performance once these standards are adopted, however, the Group is on track to be able to report IFRS 17 results for the first time in its 2023 interim results. The Group expects to provide further updates in the 2022 Annual Report and Accounts.

Other standards in issue but not yet effective are not expected to materially impact the Group.

3. Critical accounting estimates and judgements

In preparing these interim financial statements and applying the Group's accounting policies, the Directors have made judgements and estimates based on their best knowledge of current circumstances and expectation of future events. The judgements made in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the 31 December 2021 consolidated financial statements. Estimates and their underlying assumptions continue to be reviewed on an ongoing basis with revisions to estimates being recognised prospectively. There have been no significant changes since 31 December 2021. Management have considered the current economic environment including the impact of high inflation in their estimates and judgements.

4. Risk management

The principal risks and uncertainties, together with details of the financial risk management objectives and policies of the Group, have not changed significantly during the first half of the year. These risks are disclosed in the latest annual report.

5. Segment information

The Group segments its business activities on the basis of differences in the products and services offered and, for general insurance, the underwriting territory. Expenses relating to Group management activities are included within 'Corporate costs'. This reflects the management and internal Group reporting structure.

The activities of each operating segment are described below.

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

Segment revenue

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

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

Segment result

General business segment results comprise the insurance underwriting profit or loss, investment activities and other expenses of each underwriting territory. The Group uses the industry standard net combined operating ratio (COR) as a measure of underwriting efficiency. The COR expresses the total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums. Further details on the underwriting profit or loss and COR, which are alternative performance measures that are not defined under IFRS, are detailed in note 17.

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

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

6. Net investment return

7. Tax

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

Deferred tax is provided in full on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Deferred tax is measured using tax rates expected to apply when the related deferred tax asset is realised, or the deferred tax liability is settled, based on tax rates and laws which have been enacted or substantively enacted at the period-end date.

8. Preference shares

Interim dividends paid on the 8.625% Non-Cumulative Irredeemable Preference shares amounted to £4.6m (H1 2021: £4.6m). At the point these dividends were paid, consideration was given to the distributable reserves and capital position.

9. Financial investments

Financial investments summarised by measurement category are as follows:

10. Financial instruments held at fair value disclosures

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

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

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

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

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

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

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

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

The valuation techniques used for instruments categorised in Levels 2 and 3 are described below.

Listed debt and equity securities not in active market (Level 2)

These financial assets are valued using third party pricing information that is regularly reviewed and internally calibrated based on management's knowledge of the markets.

Non exchange-traded derivative contracts (Level 2)

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

Structured notes (Level 2)

These financial assets are not traded on active markets. Their fair value is linked to an index that reflects the performance of an underlying basket of observable securities, including derivatives, provided by an independent calculation agent.

Investment contract liabilities (Level 2)

These financial liabilities are not traded on active markets. Their fair value is obtained directly from the value of structured notes which are linked to an index that reflects the performance of an underlying basket of observable securities, including derivatives, provided by an independent calculation agent. The fair value is also subject to a minimum guarantee.

Unlisted equity securities (Level 3)

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

The valuation is sensitive to the level of underlying net assets, the Euro exchange rate, the price-to-tangible book ratio, an illiquidity discount and a credit rating discount applied to the valuation to account for the risks associated with holding the asset. If the illiquidity discount or credit rating discount applied changes by +/-10%, the value of unlisted equity securities could move by +/-£7m (H1 2021: +/-£8m).

Unlisted debt (Level 3)

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

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

11. Changes in estimates

The estimation of the ultimate liability arising from claims made under general insurance business contracts is a critical accounting estimate. There are various sources of uncertainty as to how much the Group will ultimately pay with respect to such contracts. There is uncertainty as to the total number of claims made on each class of business, the amounts that such claims will be settled for and the timing of any payments.

During the six month period, changes to claims reserve estimates made in prior years as a result of reserve development resulted in a net decrease in reserves of £48.8m (H1 2021: £20.0m increase) in addition to a £27.1m decrease (H1 2021: partially offset by a £7.6m decrease) in reserves due to discount rate movements.

The estimation of the ultimate liability arising from claims made under life insurance business contracts is also a critical accounting estimate. Estimates are made as to the expected number of deaths in each future year until claims have been paid on all policies, as well as expected future real investment returns from assets backing life insurance contracts. During the six month period there was a £11.2m decrease (H1 2021: £2.1m decrease) in reserves due to discount rate movements.

12. Translation and hedging reserve