Ecclesiastl.8fe Regulatory News (ELLA)

This is my first statement as Group Chief Executive following my appointment in May. I joined the Group in 2009 as Chief Financial Officer and am privileged to have been asked to lead the Group forward.

We are very proud of our history of charitable giving, our strong position in specialist markets and reputation for claims management. We believe our financial strength and committed ethical approach give our business strong foundations.

We are very clear about the challenges ahead, and what we must do to face up to them. We must continue to focus on our core specialist areas - the reasons why we were established, and the reasons why we continue to be successful today. As a result we need to tackle unprofitable areas of our business and shape it for the future.

We have already made some key changes in leadership to support this including the appointment of Jacinta Whyte, the General Manager of our Canadian branch since 2003, as our Deputy Group Chief Executive, member of the Board and interim Managing Director of our UK general insurance business.

We have also re-shaped our management structure into three key business divisions - general insurance, investment management and broking and advisory. In doing so we can bring distinct focus to each part of our business and ensure that each has a clear vision, strategy, plans and leadership to succeed.

Financial performance

Our results for the first half of the year are positive overall. We have delivered a pre-tax profit of £24.4m (H1 2012: £8.0m profit), which was ahead of our expectations. This is a result of a mixed underwriting performance and a strong investment return.

General Insurance

Gross written premiums decreased to £205.7m (H1 2012: £240.7m) as we took action to address profitability issues in motor and liability. Our exit from motor business in the UK and Ireland contributed £12.2m of this reduction. Business written in Australia has reduced by £10.3m following our exit from personal lines and action taken to reduce our exposure to catastrophe events. The balance is due to reductions in our exposure to liability business in the UK and Ireland, particularly in the Care sector.

Our underwriting performance for the half year was a loss of £8.9m (H1 2012: £14.4m loss). Our UK business delivered an overall underwriting profit of £4.8m (COR 95.6%). Our UK property portfolio continued to perform strongly, supported by generally favourable weather conditions in the first half, but we have, however, continued to experience losses on liability business which reduced the overall underwriting profit.

Whilst we remain confident in the actions we have taken and continue to take to improve liability underwriting performance, we expect it to take time to restore the account to acceptable levels of profit.

As in the UK, the property portfolio of our business in Ireland was profitable, with losses on liability business driving the reported first half underwriting loss of £5.5m (H1 2012: £1.2m loss).

Our business in Australia reported an underwriting loss of £7.8m in the first half (H1 2012: £8.1m loss). The January floods in Brisbane contributed to this loss, as has the reduced level of premiums, but it is the cost of reinsurance that continues to be the biggest challenge to profitability. We achieved a step change reduction in reinsurance cost for 2013 following actions taken during 2012, and work continues to ensure that future reinsurance costs are at a sustainable level.

Our Canadian business was impacted by the Calgary floods in June 2013 and reported an underwriting loss of £1.5m (H1 2012: £0.6m loss).

Investment management

We are proud that our investment team has continued to outperform the market and contributed £33.2m to profit at the half year (H1 2012: £22.3m). The optimism that drove investment markets in 2012 carried through into May 2013 as evidence mounted of an improving US economic backdrop.

In the latter part of the period uncertainty over the scale and longevity of the Federal Reserve's Quantitative Easing programme led to heightened volatility across all asset classes. There followed a sharp sell-off in the bond markets and global equities retrenched from highs in May. Strong performance from our equities and a positive contribution from corporate bonds more than offset moderate losses from government securities.

Our retail investment business continues to build a presence in the socially responsible investment market, bringing in a profit of £1.0m (H1 2012: £0.6m profit) and growing funds under management by £155.0m in the first six months of the year.

Broking and Advisory

South Essex Insurance Brokers (SEIB) continued to provide a steady income to the Group with a profit before tax of £1.2m (H1 2012: £1.2m), a growth of 5% on the prior year period.

We have made changes to our life insurance business during the first half of the year. In April, we signed an agreement with a third party provider, Reliance Mutual Insurance Society, which now underwrites the life insurance policies that support the National Association of Funeral Directors' (NAFD) funeral plan offering.

This arrangement has ensured that NAFD's customer requirements are met with Ecclesiastical continuing to provide advisory and administration services to support NAFD.

ELL reported a loss before tax of £0.4m at the half year (H1 2012: £0.1m profit). New business strain up to April was offset by better than expected performance of corporate bond investments, but the cessation of future new business has resulted in an increased provision for expenses leading to a small loss overall at the half year.

Our small financial advisory business Ecclesiastical Financial Advisory Services Limited (EFAS) has changed a great deal in the past few years to tackle the challenges of the Retail Distribution Review and is clearly focused on the clergy market. Losses from our IFA business have more than halved compared to this time last year with EFAS reporting a loss before tax of £0.4m (H1 2012: £0.9m).

Related party transactions

Related party transactions and changes to them since the last annual report are disclosed in note 7 to the condensed set of financial statements. The latest annual report is available from the registered office and at www.ecclesiastical.com/general/investorrelations/reportandaccounts.

Principal risks and uncertainties

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

Going concern

The Group has considerable financial resources: financial investments of £955.3m, 96% of which are liquid (H1 2012: financial investments of £842.1m, 96% liquid); cash and cash equivalents of £104.3m and no bank borrowings (H1 2012: cash and cash equivalents of £148.6m and no bank borrowings); and a regulatory enhanced capital resources cover of 2.7 (H1 2012: 2.8). As a consequence, the Directors have a reasonable expectation that the Group is well-placed to manage its business risks successfully and continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly financial report.

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

Mark Hews

Group Chief Executive

We confirm that to the best of our knowledge:

(a)

the condensed set of financial statements has been prepared in accordance with IAS 34, "Interim Financial Reporting";

(b)

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

(c)

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

The Board of Directors is as per the latest audited annual financial statements, with the following changes:

-

T.J. Carroll was appointed to the Board on 2 April 2013;

-

M.C.J. Hews was appointed Group Chief Executive on 1 May 2013;

-

M.H. Tripp resigned from the Board on 21 May 2013;

-

S.A. Wood resigned from the Board on 12 June 2013; and

-

S.J. Whyte was appointed to the Board on 16 July 2013.

By order of the Board,

Mark Hews

Will Samuel

Group Chief Executive

Chairman

21 August 2013

for the 6 months to 30 June 2013

30.06.13

30.06.12

31.12.12

6 Months

6 Months

12 Months

£000

£000

£000

Revenue

Gross written premiums

 212,267

 251,420

 481,334

Outward reinsurance premiums

(67,448)

(78,348)

(157,843)

Net change in provision for unearned premium

 11,085

(16,622)

(12,846)

Net earned premiums

 155,904

 156,450

 310,645

Fees and commission income

 29,414

 26,573

 53,657

Net investment return

 34,975

 25,315

 64,991

Total revenue

 220,293

 208,338

 429,293

Expenses

Claims and change in insurance liabilities

(114,941)

(139,330)

(256,057)

Reinsurance recoveries

 3,232

 24,320

 41,447

Fees, commissions and other acquisition costs

(43,532)

(47,481)

(97,454)

Other operating and administrative expenses

(40,623)

(37,827)

(79,311)

Total operating expenses

(195,864)

(200,318)

(391,375)

Operating profit

 24,429

 8,020

 37,918

Finance costs

(61)

(61)

(115)

Profit before tax

 24,368

 7,959

 37,803

Tax expense

(2,594)

(965)

(4,448)

Profit for the financial period from continuing operations

 21,774

 6,994

 33,355

Net loss attributable to discontinued operations *

-

(5,737)

(5,737)

Profit for the financial period attributable to equity holders of the parent

 21,774

 1,257

 27,618

* On 15 May 2012, the Group disposed of its wholly owned subsidiary, ACS (NZ) Limited. Further details are contained in the 2012 annual report.

for the 6 months to 30 June 2013

Restated*

30.06.13

30.06.12

31.12.12

6 Months

6 Months

12 Months

£000

£000

£000

Items that will not be reclassified to profit or loss:

Fair value losses on property

-

-

(313)

Actuarial gains/(losses) on retirement benefit schemes

 5,265

(666)

(1,331)

Attributable tax

(1,211)

 211

 511

 4,054

(455)

(1,133)

Items that may be reclassified subsequently to profit or loss:

Loss on currency translation differences

(1,889)

(2,277)

(3,784)

Net income/(expense) recognised directly in equity

 2,165

(2,732)

(4,917)

Profit for the period after tax

 21,774

 1,257

 27,618

Total comprehensive income attributable to equity holders of the parent

 23,939

(1,475)

 22,701

* The Group adopted IAS 19 (Revised), Employee Benefits for the 2012 year end. Further details are contained in the 2012 annual report and in note 2 of this report.

for the 6 months to 30 June 2013

Share

Share

Equalisation

Revaluation

Translation

Retained

capital

premium

reserve

reserve

reserve

earnings

Total

£000

£000

£000

£000

£000

£000

£000

2013

At 1 January

 120,477

 4,632

 25,590

 752

 24,411

 279,795

 455,657

Profit for the period

-

-

-

-

-

 21,774

 21,774

Other net (expense)/income

-

-

-

-

(1,889)

 4,054

 2,165

Total comprehensive income

-

-

-

-

(1,889)

 25,828

 23,939

Dividends

-

-

-

-

-

(4,591)

(4,591)

Reserve transfers

-

-

 502

-

-

(502)

-

At 30 June

 120,477

 4,632

 26,092

 752

 22,522

 300,530

 475,005

2012

At 1 January

 120,477

 4,632

 22,719

 971

 28,195

 259,090

 436,084

Changes in accounting policies *

-

-

-

-

-

 9,177

 9,177

As restated

 120,477

 4,632

 22,719

 971

 28,195

 268,267

 445,261

Profit for the period

-

-

-

-

-

 1,257

 1,257

Other net income/(expense)

-

-

-

 2

(2,277)

(457)

(2,732)

Total comprehensive income

-

-

-

 2

(2,277)

 800

(1,475)

Dividends

-

-

-

-

-

(4,591)

(4,591)

Reserve transfers

-

-

 1,880

-

-

(1,880)

-

At 30 June (restated)

 120,477

 4,632

 24,599

 973

 25,918

 262,596

 439,195

2012

At 1 January

 120,477

 4,632

 22,719

 971

 28,195

 259,090

 436,084

Changes in accounting policies *

-

-

-

-

-

 9,177

 9,177

As restated

 120,477

 4,632

 22,719

 971

 28,195

 268,267

 445,261

Profit for the year

-

-

-

-

-

 27,618

 27,618

Other net expense

-

-

-

(219)

(3,784)

(914)

(4,917)

Total comprehensive income

-

-

-

(219)

(3,784)

 26,704

 22,701

Dividends

-

-

-

-

-

(9,181)

(9,181)

Net charitable grant to ultimate parent

-

-

-

-

-

(3,020)

(3,020)

Group tax relief in excess of standard rate

-

-

-

-

-

(104)

(104)

Reserve transfers

-

-

 2,871

-

-

(2,871)

-

At 31 December

 120,477

 4,632

 25,590

 752

 24,411

 279,795

 455,657

The equalisation reserve is not distributable and must be kept in compliance with the insurance companies' reserves regulations. The revaluation reserve represents cumulative net fair value gains on owner-occupied property. The translation reserve arises on consolidation of the Group's foreign operations.

 * Further details are contained in the 2012 annual report and note 2 of this report.

at 30 June 2013

Restated*

30.06.13

30.06.12

31.12.12

£000

£000

£000

Assets

Goodwill and other intangible assets

 23,992

 24,920

 24,349

Deferred acquisition costs

 31,549

 34,168

 34,626

Deferred tax assets

 4,776

 6,315

 3,202

Pension assets

 37,336

 36,584

 36,521

Property, plant and equipment

 7,741

 8,585

 8,414

Investment property

 30,214

 29,454

 27,315

Financial investments

 955,336

 842,052

 922,109

Reinsurers' share of contract liabilities

 123,797

 163,252

 141,011

Current tax recoverable

 1,134

-

 316

Other assets

 153,203

 175,679

 145,714

Cash and cash equivalents

 104,270

 148,564

 112,584

Total assets

 1,473,348

 1,469,573

 1,456,161

Equity

Share capital

 120,477

 120,477

 120,477

Share premium account

 4,632

 4,632

 4,632

Retained earnings and other reserves

 349,896

 314,086

 330,548

Total shareholders' equity

 475,005

 439,195

 455,657

Liabilities

Insurance contract liabilities

 870,177

 900,531

 878,691

Finance lease obligations

 1,651

 1,736

 1,812

Provisions for other liabilities

 7,046

 7,744

 7,273

Retirement benefit obligations

 10,161

 13,768

 14,810

Deferred tax liabilities

 44,432

 35,608

 38,653

Current tax liabilities

 712

 5,713

 290

Deferred income

 14,725

 15,743

 14,782

Other liabilities

 49,439

 49,535

 44,193

Total liabilities

 998,343

 1,030,378

 1,000,504

Total shareholders' equity and liabilities

 1,473,348

 1,469,573

 1,456,161

* The revised IAS 19 standard and a change of accounting policy were adopted for the 2012 year end accounts. Further details are contained in the 2012 annual report and note 2 of this report.

for the 6 months to 30 June 2013

30.06.13

30.06.12

31.12.12

6 Months

6 Months

12 Months

£000

£000

£000

Profit before tax

 24,368

 7,959

 37,803

Adjustments for:

Loss before tax on discontinued operations

-

(834)

(834)

Depreciation of property, plant and equipment

 959

 974

 2,132

(Gains)/losses on disposal of property, plant and equipment

(1)

 50

 79

Amortisation of intangible assets

 1,136

 991

 2,125

Loss on disposal of intangible assets

-

 14

 83

Net fair value gains on financial instruments and investment property

(14,274)

(2,555)

(23,498)

Dividend and interest income

(19,378)

(21,737)

(38,867)

Finance costs

 61

 61

 115

Changes in operating assets and liabilities:

Net decrease in insurance contract liabilities

(3,539)

(4,883)

(23,201)

Net decrease in reinsurers' share of contract liabilities

 16,134

 50,419

 71,872

Net decrease in deferred acquisition costs

 3,187

 1,531

 1,037

Net (increase)/decrease in other assets

(8,027)

(28,519)

 1,404

Net increase/(decrease) in operating liabilities

 9,424

(655)

(8,971)

Net increase/(decrease) in other liabilities

 58

(685)

(877)

Cash generated by operations

 10,108

 2,131

 20,402

Dividends received

 4,449

 5,732

 9,358

Interest received

 12,975

 14,613

 28,967

Interest paid

(61)

(61)

(115)

Tax (paid)/recovered

(303)

 2,955

 303

Net cash from operating activities

 27,168

 25,370

 58,915

Cash flows from investing activities