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Half Yearly Report

24 Aug 2011 14:30

RNS Number : 9674M

Ecclesiastical Insurance Office PLC

24 August 2011

ECCLESIASTICAL INSURANCE OFFICE PLC HALF-YEARLY FINANCIAL REPORT FOR THE PERIOD ENDED 30 JUNE 2011

INTERIM MANAGEMENT REPORT

Financial highlights

The Group's result after tax was £12.6m profit (H1 2010: £10.0m loss, £8.2m loss excluding discontinued operations). Shareholders' equity increased to £466.2m (31 December 2010: £456.9m).

Total Group gross written premiums increased by 1.3% compared with the continuing operations of the prior interim period.

General business premiums fell by 0.2% from £240.8m to £240.3m largely as a result of a decision to place the Group's London Market operation, Ecclesiastical Underwriting Management Limited (EUML) into run-off from September 2010. After adjusting for this, general business premiums grew by 9.7% on the prior interim period.

Single premiums from continuing long-term business operations increased by 63.6% from £6.0m to £9.8m.

The Group's result before tax was a £15.6m profit (restated H1 2010: £7.6m loss before discontinued operations). The general business underwriting result was a £7.5m loss, due to catastrophe events occurring in Australia, New Zealand and Japan (H1 2010: £15.5m loss). The combined operating ratio was 104.9% (H1 2010: 111.3%). When adjusted to remove the impact of the 2011 catastrophe events, the combined operating ratio becomes 98.6%.

The long-term business contributed a £1.1m loss (restated H1 2010: £0.6m loss before discontinued operations) to the Group's result before tax. Insurance broking activities contributed £1.0m profit (H1 2010: £0.9m profit).

Domestic stock markets were more stable in the 2011 interim period compared to the prior interim period, and despite uncertainty around certain European economies, the Group's net investment return improved to £29.9m (restated H1 2010: £17.8m). Since the end of June, however, there has been considerable volatility in stock markets, which may impact the full year results.

No charitable grant was paid or approved in the 2011 interim period to Allchurches Trust Limited, the ultimate parent undertaking, but it is the Group's intention to pay a grant to Allchurches Trust Limited in the second half of 2011. The interim prior period results included a special grant of £10.0m (£7.2m net of tax relief) to Allchurches Trust Limited, in respect of the profits made in 2009. The total grant recognised during the full year 2010 was £19.3m (£13.9m net of tax relief).

Operating review

The number and magnitude of claims reported following the earthquakes experienced in New Zealand and Japan contributed significantly to the interim 2011 general business underwriting loss. The events on 22 February 2011 and 13 June 2011 in New Zealand contributed a gross loss of £200.5m, and a net loss of £2.3m. The Japanese earthquake in March 2011 resulted in the Group suffering a £1.7m net loss from exposure through EUML. Australia has continued to be affected by weather events this year; Queensland storms in January and Cyclone Yasi and Victoria storms in February impacted the Group's Australian Ansvar Insurance subsidiary, with the net exposure totalling £5.6m. The Canadian branch underwriting loss of £2.5m is the result of weather events in 2011 and a deterioration in previously reported claims.

The Group achieved premium growth and underwriting profit in the UK despite difficult market conditions, assisted by a move into the Property Owners market earlier in the year and theft of metal claims being lower than was anticipated.

The Group's broker business has maintained steady profits during the interim period. Strong growth of net new retail fund inflows to the Group's ethical investment funds has been maintained with an increase of over £75m (74%) on the prior interim period. In addition, April saw the launch of two new ethical funds aimed at charities and organisations seeking a socially responsible investment approach.

Outlook

The Group remains cautious over the short term outlook: the financial climate is still uncertain as US and Eurozone debt fears spread, causing volatility on global stock exchanges, and the insurance market remains highly competitive.

However, the Group remains confident about the medium to long term outlook as it continues to build on its specialist general insurance underwriting and claims expertise along with growing its broking and investment businesses.

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 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 Report and notes 3 and 4 to our latest annual report are still relevant.

Increases in reinsurance balances due to catastrophe events in Australia and New Zealand increase the credit risk and liquidity risk for the Group. These territories operate regional reinsurance programmes with extra protection provided by the Group's global catastrophe reinsurance. All reinsurers on the programme have a minimum 'A-' rating from Standard & Poor's or equivalent from another rating agency. Managing cash flows with reinsurers is key to managing liquidity risk; the Group maintains open and frequent communication with them to ensure there is no delay in receiving recoveries.

Investment markets have suffered from growing macro-economic instability as debts fears spread. This may have a short term impact on the Group's full year results; however, the strong capital base of the Group allows it to take a longer term view with its investment strategy and it is therefore willing and able to cope with the effects of periods of volatility.

Going concern

The Group has considerable financial resources and, as a consequence, the directors believe the Group is well placed to manage its business risks successfully and continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing the half-yearly financial report.

Events subsequent to the reporting period date are detailed in note 9 to the condensed set of financial statements.

Michael Tripp

Group Chief Executive

RESPONSIBILITY STATEMENT

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).

By order of the board,

Michael Tripp

Mark Hews

Group Chief Executive

Chief Financial Officer

24 August 2011

CONDENSED CONSOLIDATED INCOME STATEMENT

for the 6 months to 30 June 2011
			Restated*
	Note	30.06.11	30.06.10	31.12.10
		6 Months	6 Months	12 Months
		£000	£000	£000
Revenue
Gross written premiums		250,082	246,798	487,927
Outward reinsurance premiums		(84,477)	(86,665)	(171,083)
Net change in provision for unearned premium		(4,495)	(17,410)	(14,306)
Net earned premiums		161,110	142,723	302,538

Fees and commission income		25,793	23,025	51,071
Net investment return		29,926	17,825	86,070
Total revenue		216,829	183,573	439,679

Expenses
Claims and change in insurance liabilities		(432,788)	(176,069)	(374,473)
Reinsurance recoveries		316,948	64,377	163,398
Fees, commissions and other acquisition costs		(49,783)	(42,998)	(95,156)
Other operating and administrative expenses		(35,503)	(36,157)	(69,797)
Change in net asset value attributable to unitholders		-	(107)	(13,080)
Total operating expenses		(201,126)	(190,954)	(389,108)


Operating profit/(loss)		15,703	(7,381)	50,571
Finance costs		(130)	(173)	(128)
Profit/(loss) before tax		15,573	(7,554)	50,443
Tax expense		(2,962)	(695)	(13,717)
Profit/(loss) for the financial period from continuing operations		12,611	(8,249)	36,726
Net loss attributable to discontinued operations	10	-	(1,794)	(2,281)
Profit/(loss) for the financial period attributable to equity holders of the parent		12,611	(10,043)	34,445


* On 30 November 2010, the Group disposed of its long-term business (excluding funeral plan related business). The prior half-year period has been restated to present the results of the disposed business up until 30 June 2010 within discontinued operations. Further information relating to the disposal is presented in note 10.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the 6 months to 30 June 2011
	30.06.11	30.06.10	31.12.10
	6 Months	6 Months	12 Months
	£000	£000	£000

Net fair value losses on property	-	-	(56)
Gain on currency translation differences	1,283	2,218	10,124
Net income recognised directly in equity	1,283	2,218	10,068

Profit/(loss) for the period after tax	12,611	(10,043)	34,445
Total comprehensive income attributable to equity holders of the parent	13,894	(7,825)	44,513

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the 6 months to 30 June 2011
	Share	Share	Equalisation	Revaluation	Translation	Retained
	capital	premium	reserve	reserve	reserve	earnings	Total
	£000	£000	£000	£000	£000	£000	£000
2011
At 1 January	120,477	4,632	18,679	924	28,620	283,575	456,907
Total comprehensive income attributable to equity holders of the parent	-	-	-	-	1,283	12,611	13,894
Dividends	-	-	-	-	-	(4,591)	(4,591)
Reserve transfers	-	-	(1,012)	-	-	1,012	-
At 30 June	120,477	4,632	17,667	924	29,903	292,607	466,210

2010
At 1 January	80,477	4,632	21,674	980	18,496	266,561	392,820
Total comprehensive income attributable to equity holders of the parent	-	-	-	-	2,218	(10,043)	(7,825)
Dividends	-	-	-	-	-	(2,866)	(2,866)
Net charitable grant to ultimate parent	-	-	-	-	-	(7,200)	(7,200)
Reserve transfers	-	-	(5,864)	-	-	5,864	-
At 30 June	80,477	4,632	15,810	980	20,714	252,316	374,929

2010
At 1 January	80,477	4,632	21,674	980	18,496	266,561	392,820
Total comprehensive income attributable to equity holders of the parent	-	-	-	(56)	10,124	34,445	44,513
Issue of share capital	40,000	-	-	-	-	-	40,000
Dividends	-	-	-	-	-	(5,731)	(5,731)
Net charitable grant to ultimate parent	-	-	-	-	-	(13,860)	(13,860)
Group tax relief in excess of standard rate	-	-	-	-	-	(835)	(835)
Reserve transfers	-	-	(2,995)	-	-	2,995	-
At 31 December	120,477	4,632	18,679	924	28,620	283,575	456,907

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.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 June 2011
	Note	30.06.11	30.06.10	31.12.10
		£000	£000	£000
Assets
Goodwill and other intangible assets		25,478	26,154	25,923
Deferred acquisition costs		39,880	40,286	41,482
Deferred tax assets		4,762	3,294	4,520
Pension assets		31,222	27,660	30,185
Property, plant and equipment		8,918	9,525	9,417
Investment property		27,026	24,471	24,641
Financial investments	10	887,391	1,009,114	834,163
Reinsurers' share of contract liabilities		552,307	371,263	286,194
Current tax recoverable		2,621	277	110
Other assets		153,409	146,841	136,661
Cash and cash equivalents		116,117	201,111	164,805
Total assets		1,849,131	1,859,996	1,558,101

Equity
Share capital		120,477	80,477	120,477
Share premium account		4,632	4,632	4,632
Retained earnings and other reserves		341,101	289,820	331,798
Total shareholders' equity		466,210	374,929	456,907

Liabilities
Insurance contract liabilities		1,252,630	1,061,760	965,309
Investment contract liabilities	10	-	50,512	-
Unallocated divisible surplus	10	-	22,363	-
Finance lease obligations		1,889	1,781	1,898
Provisions for other liabilities		10,162	14,188	11,227
Retirement benefit obligations		9,714	6,733	8,652
Deferred tax liabilities		41,979	38,340	42,321
Current tax liabilities		5,412	2,004	2,700
Deferred income		19,690	21,289	20,562
Other liabilities		41,445	66,977	48,525
Net asset value attributable to unitholders	10	-	199,120	-
Total liabilities		1,382,921	1,485,067	1,101,194

Total shareholders' equity and liabilities		1,849,131	1,859,996	1,558,101

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the 6 months to 30 June 2011		Restated
	30.06.11	30.06.10	31.12.10
	6 Months	6 Months	12 Months
	£000	£000	£000

Profit/(loss) before tax	15,573	(7,554)	50,443
Adjustments for:
Loss before tax on discontinued operations	-	(2,368)	(1,858)
Depreciation of property, plant and equipment	1,134	1,225	2,490
Loss on disposal of property, plant and equipment	77	143	356
Amortisation of intangible assets	1,057	949	2,050
Net fair value (gains)/losses on financial instruments & investment property	(8,698)	3,778	(44,048)
Dividend and interest income	(19,014)	(29,290)	(53,685)
Finance and share issue expenses	130	200	501

Changes in operating assets and liabilities:
Net increase in insurance contract liabilities	268,137	78,538	140,245
Net increase in reinsurers' share of contract liabilities	(250,002)	(27,453)	(78,914)
Net (decrease)/increase in investment contract liabilities	-	(1,309)	4,005
Net decrease/(increase) in deferred acquisition costs	1,793	(1,696)	(2,561)
Net increase in other assets	(17,042)	(24,029)	(18,787)
Net (decrease)/increase in operating liabilities	(8,030)	10,087	486
Net (decrease)/increase in other liabilities	(10)	42,816	113,968
Cash (used)/generated by operations	(14,895)	44,037	114,691

Dividends received	4,494	9,810	17,286
Interest received	13,751	19,367	34,196
Interest paid	(130)	(200)	(152)
Tax paid	(3,183)	(5,648)	(9,085)
Net cash from operating activities	37	67,366	156,936

Cash flows from investing activities
Purchases of property, plant and equipment	(401)	(520)	(1,536)
Proceeds from the sale of property, plant and equipment	8	13	42
Purchases of intangible assets	(607)	(648)	(1,467)
Disposal of businesses, net of cash transferred	-	(5)	(587)
Cash derecognised on deconsolidation of OEICs	-	-	(31,554)
Purchases of financial investments & investment property	(251,186)	(122,636)	(333,903)
Sale of financial instruments & investment property	207,502	70,582	168,538
Net cash used by investing activities	(44,684)	(53,214)	(200,467)

Cash flows from financing activities
Proceeds from the issue of shares	-	-	39,827
Payment of finance lease liabilities	(295)	(329)	(336)
Payment of group tax relief in excess of standard rate	-	-	(111)
Dividends paid to company's shareholders	(4,591)	(2,866)	(5,731)
Donations paid to ultimate parent undertaking	-	(4,500)	(23,750)
Net cash (used by)/from financing activities	(4,886)	(7,695)	9,899

Net (decrease)/increase in cash and cash equivalents	(49,533)	6,457	(33,632)
Cash and cash equivalents at the beginning of the period	164,805	193,584	193,584
Exchange gains on cash and cash equivalents	845	1,070	4,853
Cash and cash equivalents at the end of the period	116,117	201,111	164,805

NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE PERIOD ENDED 30 JUNE 2011

1. General information

The information for the year ended 31 December 2010 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.

The half-yearly financial report was approved by the board on 24 August 2011. The Group results for the six month periods to 30 June 2011 and 30 June 2010 are unaudited, but have been reviewed by Deloitte LLP whose review report is presented at the end of this report.

The principal risks and uncertainties of the Group are in respect of insurance risk and financial risk. The principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities, which may occur if the frequency or severity of claims and benefits are greater than estimated. Insurance events are unpredictable and the actual level of claims and benefits may vary from year to year from the estimates established using statistical techniques. The Group's insurance underwriting strategy aims to diversify the type of insurance risks accepted in order to reduce the variability of the expected outcome. The Group also manages insurance risk through a comprehensive reinsurance programme and proactive claims handling.

The most important components of financial risk are interest rate risk, credit risk, currency risk and equity price risk. The Group is exposed to equity price risk because of financial investments held by the Group and stated at fair value through the income statement. The Group mitigates this risk by holding a diversified portfolio across geographical regions and market sectors, and through the use of options and futures contracts from time to time which would limit losses in the event of a fall in equity markets. These principal risks and uncertainties, together with details of the financial risk management objectives and policies of the Group, are disclosed in the latest annual report.

The Group derives insurance premiums from a range of geographical locations and classes of business. Depending on the location and class of the risk, there may be a seasonal pattern to the incidence of claims. However, given the mix of business that the Group writes, overall the half-yearly results are not subject to any significant impact arising from the seasonality or cyclicality of operations.

The Group has considerable financial resources and, as a consequence, the directors believe the Group is well placed to manage its business risks successfully and continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly financial report.

2. Accounting policies

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 and long-term insurance with offices in the UK, Ireland, Canada, Australia and New Zealand.

The annual financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34, Interim Financial Reporting.

In the current year amendments to IAS 24, Related Party Disclosures which extends the definition of a related party and IAS 32, Financial instruments: Presentation on classification of rights issues are applicable. The IASB's 2010 annual improvements project makes minor changes to IAS 27, Consolidated and Separate Financial Statements, IFRS 3, Business combinations and IFRS 7, Financial Instruments: Disclosures. None of these changes have any impact on the financial statements.

IFRS 9, Financial Instruments was reissued, and new standards IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements, IFRS 12, Disclosures of Interests in Other Entities and IFRS 13, Fair Value Measurement were issued, applicable from 1 January 2013. The Group does not intend to adopt these standards early.

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

3. 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. This reflects the management and internal Group reporting structure. Group activities that are not reportable operating segments on the basis of size are included within an 'all other segments' category. The activities of each operating segment are described below:

-	General business
	United Kingdom and Ireland
	The Group's principal general insurance business operation is in the UK where it operates under the Ecclesiastical and Ansvar brands. The Group operates a general insurance Ecclesiastical branch in Ireland. In addition, the Group holds a global portfolio of risks through its London Market operation, Ecclesiastical Underwriting Management Limited (EUML), which ceased underwriting on 30 September 2010 and will run-off over the next few years.

	Australia and New Zealand
	The Group has wholly owned subsidiaries in Australia and New Zealand undertaking general insurance business under the Ansvar brand.

	Canada
	The Group operates a general insurance Ecclesiastical branch in Canada.

	Other general insurance
	General insurance activities that are either in run-off (excluding EUML) or not reportable due to their immateriality are included here in aggregate, together with central underwriting expenses.

-	Long-term business
	The long-term business segment consists of the Group's funeral plan business. The Group's long-term business operations excluding funeral plan business were included in this segment up until they were disposed of on 30 November 2010.

-	All other segments
	This includes the insurance broking, financial advisory services, fund management and other investment activities of Group subsidiaries that are not reportable operating segments due to their immateriality.

Inter-segment and inter-territory transfers or transactions are entered into under normal commercial terms and conditions that would also be available to unrelated third parties.
				Restated
		6 months ended		6 months ended
Segment revenue		30.06.11		30.06.10
		Gross	Fee and	Gross	Fee and
		written	commission	written	commission
		premiums	income	premiums	income
General business by territory		£000	£000	£000	£000

United Kingdom and Ireland		176,960	14,707	183,428	16,687
Australia and New Zealand		45,450	4,998	41,755	4,468
Canada		14,750	594	12,820	919
Other general insurance		3,520	86	6,390	53
Inter-territory eliminations		(371)	(353)	(3,569)	(1,707)
Total general business		240,309	20,032	240,824	20,420
Long-term business		9,773	-	9,430	316
All other segments		-	8,023	-	5,415
Total segments revenue		250,082	28,055	250,254	26,151
Inter-segment eliminations		-	(2,262)	-	(3,023)
Less: long-term business discontinued operations		-	-	(3,456)	(103)
Group revenue from continuing operations		250,082	25,793	246,798	23,025

				12 months ended
				31.12.10
				Gross	Fee and
				written	commission
				premiums	income
General business by territory				£000	£000

United Kingdom and Ireland				341,672	36,431
Australia and New Zealand				96,331	9,477
Canada				29,145	2,085
Other general insurance				14,570	162
Inter-territory eliminations				(7,312)	(3,448)
Total general business				474,406	44,707
Long-term business				20,402	370
All other segments				-	14,255
Total segments revenue				494,808	59,332
Inter-segment eliminations				-	(8,104)
Less: long-term business discontinued operations				(6,881)	(157)
Group revenue from continuing operations				487,927	51,071

Group revenues are not materially concentrated on any single external customer. Segmental revenues do not include net investment return, which is reported within revenue in the consolidated income statement.

Segment result
General insurance business segmental results comprise the underwriting profit or loss and net investment return earned by each underwriting territory. The Group uses the industry standard net combined operating ratio (COR) as a measure of underwriting efficiency. The COR expresses the total of net claims costs, commission and expenses as a percentage of net earned premiums.

The long-term business and all other segment results consist of the profit or loss before tax measured in accordance with IFRS.

6 months ended
30 June 2011		Combined		Investment
		operating	Underwriting	return	Total
General business by territory		ratio	£000	£000	£000

United Kingdom and Ireland		95.9%	4,602	19,141	23,743
Australia and New Zealand		137.0%	(8,632)	4,918	(3,714)
Canada		121.9%	(2,513)	936	(1,577)
Other general insurance			(1,056)	5	(1,051)
Inter-territory eliminations			124	(124)	-
General business segment result		104.9%	(7,475)	24,876	17,401
Long-term business result					(1,132)
All other segments					1,689
Total segments profit					17,958

Reconciliation of total segments profit or loss to Group profit or loss

Non-underwriting and finance costs					(1,588)
Amortisation of intangibles on acquisitions					(297)
Inter-segment eliminations					(500)
Profit before tax					15,573


6 months ended
30 June 2010 (restated)		Combined		Investment
		operating	Underwriting	return	Total
General business by territory		ratio	£000	£000	£000

United Kingdom and Ireland		113.5%	(13,172)	7,588	(5,584)
Australia and New Zealand		106.2%	(1,492)	2,772	1,280
Canada		102.4%	(224)	821	597
Other general insurance			(678)	17	(661)
Inter-territory eliminations			116	-	116
General business segment result		111.3%	(15,450)	11,198	(4,252)
Long-term business result					(2,943)
All other segments					193
Total segments loss					(7,002)

Reconciliation of total segments profit or loss to Group profit or loss

Non-underwriting and finance costs					(2,480)
Amortisation of intangibles on acquisitions					(297)
Inter-segment eliminations					(143)
Add back: loss before tax from long-term business discontinued operations					2,368
Loss before tax					(7,554)


12 months ended
31 December 2010		Combined		Investment
		operating	Underwriting	return	Total
General business by territory		ratio	£000	£000	£000

United Kingdom and Ireland		101.9%	(4,071)	54,514	50,443
Australia and New Zealand		104.6%	(2,188)	6,308	4,120
Canada		101.8%	(347)	1,341	994
Other general insurance			464	29	493
Inter-territory eliminations			241	(2,578)	(2,337)
General business segment result		102.0%	(5,901)	59,614	53,713
Long-term business result					(4,449)
All other segments					4,320
Total segments profit					53,584

Reconciliation of total segments profit or loss to Group profit or loss

Non-underwriting and finance costs					(4,859)
Amortisation of intangibles on acquisitions					(593)
Inter-segment eliminations					(487)
Add back: loss before tax from long-term business discontinued operations					2,798
Profit before tax					50,443

4. 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 release of £19m (H1 2010: £23m).

5. 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.

6. Dividends

Dividends paid on the 8.625% Non-Cumulative Irredeemable Preference shares amounted to £4.6m (H1 2010: £2.9m).

No interim ordinary dividend was paid in the current or prior period.

7. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.

Charitable grants to the ultimate parent company are disclosed in the condensed consolidated statement of changes in equity.

There have been no other changes to related party transactions in the period which require disclosure.

8. Holding company

The ultimate holding company is Allchurches Trust Limited, a company limited by guarantee and a registered charity.

9. Non-adjusting event after the reporting period

Since the end of the reporting period, effective from 1 August 2011, the Group has agreed with the Trustee of Ecclesiastical Insurance Office plc Staff Retirement Benefit Fund to change the terms of the scheme for future service from non-contributory, final salary based to a contributory scheme in which benefits are based on career average revalued earnings. This is expected to reduce the future contributions of the Group by an estimated £2m per annum (based on the membership of the scheme at the end of 2010). This has no impact on the financial condition of the Group at 30 June 2011.

10. Prior year discontinued operations and disposal of business

As disclosed in note 16 of the latest audited annual financial statements, on 30 November 2010, the Group sold its long-term business (excluding funeral plan related business) to Homeowners Friendly Society Limited (trading as engage Mutual Assurance). The results of the disposed business up until that date were presented as discontinued operations for the year ended 31 December 2010. The results of the prior half-year period have been restated on a comparable basis.

As part of the transaction to dispose of the business, and as disclosed in note 18(b) of the latest audited annual financial statements, investment holdings in Ecclesiastical Investment Funds (EIF), an Open Ended Investment Company, were disposed of. As a result, the Group's subsequent ownership and voting rights in relation to EIF reduced to below 50% and the assets and liabilities of EIF and the net asset value attributable to unitholders were derecognised as at 30 November 2010. The Group's remaining share of EIF is measured at fair value and has been recognised within financial investments.

INDEPENDENT REVIEW REPORT TO ECCLESIASTICAL INSURANCE OFFICE PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011, which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated statement of financial position, the condensed consolidated statement of cash flows and related notes 1 to 10. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

24 August 2011

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR ZMGZRFDNGMZM

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