Ecclesiastl.8fe Regulatory News (ELLA)

27 Aug 2008 18:19



ECCLESIASTICAL INSURANCE OFFICE PLC INTERIM ANNOUNCEMENT OF RESULTS FOR THE PERIOD ENDED 30 JUNE 2008

INTERIM REPORT

Total gross written premiums increased by 4.5% compared with the prior interim period. General business premiums increased by 5.5% and long term business premiums decreased by 12.4%, as anticipated following the change to a multi-tie sales offering towards the end of 2007.

Group result before tax was a loss of £21.5m (2007: £28.7m profit). General business operations contributed a £15.8m loss (2007: £26.2m profit), including investment return, to this result. It includes an underwriting loss of £5.4m, a decline on the prior interim period (2007: £1.4m loss). The long term business contributed a £3.0m loss (2007: £1.5m profit) to the group result before tax.

The continuing effect of the 'credit crunch', together with slowing economic growth and inflationary pressures, led to global stock markets experiencing heavy losses. Total net investment return for the group (including investment income and net fair value movements) was a loss of £35.3m (2007: £48.1m gain). Total investment income increased by 24.4% to £35.4m. 

Group result after tax was a £10.7m loss (2007: £21.4m profit).

Shareholders' equity decreased to £350.3m (31 December 2007: £362.1m). Shareholders' equity at the end of the interim prior period, 30 June 2007, was £361.9m.

Theft of metal continues to put pressure on the underwriting result. As mentioned in our 2007 annual report, the trend deteriorated rapidly in the latter half of 2007 as commodity prices soared, and claims volumes have not abated in 2008. We continue to advise our customers on managing the risk, and were pleased that our proactive approach was recognised when we won the British Insurance Award in the risk management category recently.

The acquisition of the insurance brokerage business of South Essex Insurance Brokers Limited was successfully completed in the period, and the interim result includes £405,000 of pre-tax profit for the three months since acquisition. Goodwill of £16.8m arising on acquisition is included in the balance sheet. Further details of the acquisition are given in note 6.

While trading conditions remain challenging we are determined to maintain our underwriting discipline and continue to offer our customers excellent service. Investment markets remain volatile and the economic outlook uncertain; however, our financial strength means we are well positioned to cope with these challenges. We have started a programme of change, one main thrust of which is to simplify our processes and speed up our decision taking. As well as improving customer service it is helping us enhance our competitive position by making inroads into our expense base. Our positioning in key target markets remains strong and we have achieved some notable business successes, on sound underwriting terms. This reflects our improving competitive position and the focus of our expertise.

Related party transactions

Related party transactions and changes to them since the last annual report are disclosed in note 9 to the condensed set of financial statements.

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. There have been no material changes to the principal risks and uncertainties that were disclosed in our latest annual report, and no changes are anticipated in the next six months.

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

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 view 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 view of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the board,

Michael Tripp	George Prescott
Group Chief Executive	Deputy Group Chief Executive

 

27 August 2008

CONDENSED CONSOLIDATED INCOME STATEMENT  for 6 months to 30 June 2008
																		30.06.08		30.06.07		31.12.07
																		6 Months		6 Months		12 Months
																		£000		£000		£000
Revenue
Gross written premiums																		210,838		201,766		386,915
Outward reinsurance premiums																		(70,151)		(65,081)		(132,094)
Net change in provision for unearned premium																		(10,197)		(8,191)		(1,183)
Net earned premiums																		130,490		128,494		253,638
Fees and commission income																		18,662		16,655		37,990
Net investment return																		(35,315)		48,118		69,396
Total revenue																		113,837		193,267		361,024
Expenses
Claims and change in insurance liabilities																		(125,145)		(118,430)		(267,833)
Reinsurance recoveries																		34,131		30,361		73,357
Fees, commissions and other acquisition costs																		(37,071)		(35,380)		(70,563)
Other operating and administrative expenses																		(32,682)		(26,898)		(56,986)
Change in provisions for investment contract liabilities																		6,375		(3,025)		265
Change in net asset value attributable to unitholders																		6,820		(4,279)		(1,097)
Total operating expenses																		(147,572)		(157,651)		(322,857)
Operating (loss)/profit																		(33,735)		35,616		38,167
Finance costs																		(112)		(402)		(832)
Transfers from/(to) the unallocated divisible surplus																		12,332		(6,562)		(1,731)
Result before tax																		(21,515)		28,652		35,604
Tax credit/(expense)																		10,791		(7,286)		(9,348)
Result for the financial period attributable to equity holders of the parent																		(10,724)		21,366		26,256
All the amounts above are in respect of continuing operations.
CONDENSED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE for 6 months to 30 June 2008
																	30.06.08			30.06.07		31.12.07
																	6 Months			6 Months		12 Months
																	£000			£000		£000
Net fair value gains/(losses) on property																	-			16		(39)
Gain on currency translation differences																	1,807			2,803		5,996
Net income recognised directly in equity																	1,807			2,819		5,957
Result for the period after tax																	(10,724)			21,366		26,256
Total recognised income and expense for the period																	(8,917)			24,185		32,213

CONDENSED CONSOLIDATED BALANCE SHEET at 30 June 2008
				30.06.08		30.06.07		31.12.07
				£000		£000		£000
Assets
Goodwill and other intangible assets				25,605		4,992		4,807
Deferred acquisition costs				33,801		30,874		31,751
Deferred tax assets				2,724		2,339		2,755
Pension assets				22,826		18,680		21,276
Property, plant and equipment				11,231		10,492		10,522
Investment property				33,558		38,580		33,558
Financial investments				953,858		952,506		972,792
Reinsurers' share of contract provisions				191,979		174,341		189,259
Current tax recoverable				6,034		628		3,012
Other assets				123,458		114,632		105,249
Cash and cash equivalents				150,994		188,864		181,003
Total assets				1,556,068		1,536,928		1,555,984
Equity
Share capital				80,477		80,477		80,477
Share premium account				4,632		4,632		4,632
Retained earnings and other reserves				265,159		276,819		276,942
Total shareholders' equity				350,268		361,928		362,051
Liabilities
Insurance contract provisions				938,730		870,739		909,469
Investment contract liabilities				48,587		58,141		54,919
Unallocated divisible obligations				27,504		44,667		39,836
Finance lease obligations				1,517		1,569		1,607
Provisions for other liabilities and charges				8,406		7,184		8,207
Retirement benefit obligations				12,903		9,134		11,452
Deferred tax liabilities				38,776		49,648		47,677
Current tax liabilities				1,762		5,831		1,807
Deferred income				18,237		16,252		16,662
Other liabilities				46,350		43,923		33,307
Net asset value attributable to unitholders				63,028		67,912		68,990
Total liabilities				1,205,800		1,175,000		1,193,933
Total shareholders' equity and liabilities				1,556,068		1,536,928		1,555,984
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for 6 months to 30 June 2008
				30.06.08		30.06.07		31.12.07
				6  Months		6 Months		12 Months
				£000		£000		£000

(Loss)/profit before tax															(21,515)		28,652		35,604
Adjustments for:
Depreciation of property, plant and equipment															1,025		922		1,975
(Gain)/loss on disposal of property, plant and equipment															(9)		5		(16)
Amortisation of intangible assets															734		627		1,250
Net fair value losses/(gains) on financial investments &
investment property															70,743		(19,638)		(11,075)
Dividend and interest income															(32,200)		(27,346)		(54,780)
Finance expense															112		402		832
Changes in operating assets and liabilities:
Net increase in insurance contract provisions															20,427		34,254		65,142
Net decrease/(increase) in reinsurers' share of contract provisions															37		(11,937)		(24,755)
Net (decrease)/increase in investment contract liabilities															(6,333)		1,926		(1,295)
Net increase in deferred acquisition costs															(1,670)		(1,062)		(1,461)
Net increase in other assets															(13,356)		(27,157)		(19,604)
Net increase/(decrease) in operating liabilities															8,902		5,655		(5,422)
Net (decrease)/increase in other liabilities															(16,725)		12,464		12,024
Cash generated/(used) by operations															10,172		(2,233)		(1,581)
Dividends received															8,587		7,567		13,318
Interest received															20,223		19,089		39,154
Interest paid															(112)		(402)		(832)
Tax paid															(912)		(5,665)		(14,197)
Net cash from operating activities															37,958		18,356		35,862
Cash flows from investing activities
Purchases of property, plant and equipment															(1,365)		(749)		(1,609)
Proceeds from the sale of property, plant and equipment															50		39		75
Purchases of intangible assets															(751)		(180)		(573)
Acquisition of subsidiary, net of cash acquired															(20,699)		(905)		(905)
Purchases of financial investments & investment property															(242,884)		(201,506)		(339,961)
Sale of financial investments & investment property															196,917		159,812		280,507
Net cash used in investing activities															(68,732)		(43,489)		(62,466)
Cash flows from financing activities
Payment of finance lease liabilities															(226)		(223)		(396)
Repayment of other borrowings															-		(8,750)		(8,750)
Dividends paid to company's shareholders															(2,866)		(3,416)		(6,281)
Donations paid to ultimate parent undertaking															-		(8,300)		(15,500)
Net cash used in financing activities															(3,092)		(20,689)		(30,927)
Net decrease in cash and cash equivalents															(33,866)		(45,822)		(57,531)
Cash and cash equivalents at the beginning of the period															181,003		234,425		234,425
Exchange gains on cash and cash equivalents															3,857		261		4,109
Cash and cash equivalents at the end of the period															150,994		188,864		181,003

NOTES TO THE INTERIM ANNOUNCEMENT OF RESULTS FOR THE PERIOD ENDED 30 JUNE 2008 

1. General information 

The information for the year ended 31 December 2007 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985.

The interim report was approved by the board on 27 August 2008. The group results for the six month periods to 30 June 2008 and 30 June 2007 are unaudited, but have been reviewed by Deloitte & Touche LLP whose review report is presented at the end of this document.

The principal risks and uncertainties of the group are in respect of insurance risk and financial risk. 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. The impact of this risk on the group result is discussed in the interim report. 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's interim results are not subject to any significant impact arising from the seasonality or cyclicality of operations.

2. Accounting policies

The annual financial statements 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.

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 has not adopted early IFRS 8, "Operating Segments"; the analysis below is prepared in accordance with IAS 14, "Segment Reporting".

The group is organised on a worldwide basis into the following business segments:

General business

General business provides insurance cover for risks associated mainly with property, accident, motor and ancillary liability, such as public and employers' liability.

Long term business

Long term business comprises life assurance, annuity and pension business.

Other

This includes activities that are not related to the core business segments plus segments that are not reportable due to their immateriality, together with inter-segment eliminations and other reconciling items.

The analysis of the results by segment is shown below:

Six months ended																			General					Long term
30 June 2008																			business					business					Other					Group
																			£000					£000					£000					£000
Revenue
Gross written premiums																			200,966					9,872					-					210,838
Net earned premiums																			121,218					9,272					-					130,490
Fee and commission income																			16,688					446					1,528					18,662
Net investment return																			(9,662)					(19,499)					(6,154)					(35,315)
Total revenue																			128,244					(9,781)					(4,626)					113,837
Result
Operating loss																			(15,758)					(15,297)					(2,680)					(33,735)
Finance costs																			(66)					(18)					(28)					(112)
Transfers to the unallocated divisible surplus																			-					12,332					-					12,332
Result before tax																			(15,824)					(2,983)					(2,708)					(21,515)
Tax credit																			6,615					2,194					1,982					10,791
Result attributable to equity holders of the parent																			(9,209)					(789)					(726)					(10,724)
	Six months ended																			General			Long term
	30 June 2007																			business			business					Other					Group
																				£000			£000					£000					£000
	Revenue
	Gross written premiums																			190,497			11,269					-					201,766
	Net earned premiums																			118,143			10,351					-					128,494
	Fee and commission income																			15,813			692					150					16,655
	Net investment return																			28,311			12,316					7,491					48,118
	Total revenue																			162,267			23,359					7,641					193,267
	Result
	Operating profit																			26,232			8,125					1,259					35,616
	Finance costs																			(74)			(76)					(252)					(402)
	Transfers to the unallocated divisible surplus																			-			(6,562)					-					(6,562)
	Profit before tax																			26,158			1,487					1,007					28,652
	Tax expense																			(7,103)			(326)					143					(7,286)
	Profit attributable to equity holders of the parent																			19,055			1,161					1,150					21,366
	Twelve months ended																			General			Long term
	31 December 2007																			business			business					Other					Group
																				£000			£000					£000					£000
	Revenue
	Gross written premiums																			365,711			21,204					-					386,915
	Net earned premiums																			234,054			19,584					-					253,638
	Fee and commission income																			36,460			1,239					291					37,990
	Net investment return																			47,946			14,893					6,557					69,396
	Total revenue																			318,460			35,716					6,848					361,024
	Result
	Operating profit																			39,696			(2,453)					924					38,167
	Finance costs																			(153)			(162)					(517)					(832)
	Transfers to the unallocated divisible surplus																			-			(1,731)					-					(1,731)
	Profit before tax																			39,543			(4,346)					407					35,604
	Tax expense																			(9,742)			(451)					845					(9,348)
	Profit attributable to equity holders of the parent																			29,801			(4,797)					1,252					26,256

 

4. Changes in estimates 

The estimation of the ultimate liability arising from claims made under general business insurance 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 £22m (H1 2007: £10.3m).

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. Acquisition of subsidiary

On 1 April 2008, the group acquired 100% of the issued ordinary share capital of South Essex Insurance Holdings Limited, holding company of South Essex Insurance Brokers Limited, an insurance brokerage business, for cash consideration of £25 million. Details of the acquisition are as follows:

Purchase consideration																																														£000
- cash paid																																														21,866
- directly attributable costs																																														903
- deferred consideration																																														2,200
Total purchase consideration																																														24,969
Fair value of net assets acquired																																														(8,166)
Goodwill																																														16,803
The assets and liabilities arising from the acquisition are as follows:																																														Acquiree's
																																														carrying
																																										Fair value						amount
																																										£000						£000
Intangible assets																																								3,826						-
Property, plant and equipment																																								316						316
Financial investments																																								4						4
Cash and cash equivalents																																								2,070						2,070
Other assets																																								5,744						5,744
Other liabilities																																								(3,794)						(3,794)
Net assets acquired																																								8,166						4,340
Purchase consideration settled in cash																																														22,769
Cash and cash equivalents in subsidiary acquired																																														(2,070)
Cash outflow on acquisition																																														20,699

The goodwill arising on the acquisition is attributable to intangibles not qualifying for separate recognition, such as brand name, workforce, synergies and new business opportunities.

South Essex Insurance Brokers Limited contributed £1,498,000 to group revenues and £405,000 of profit to the group's result before tax for the period from the date of acquisition to 30 June 2008. If the acquisition of South Essex Insurance Brokers Limited business had been completed on the first day of the current period of account, group revenues for the period would have been £115,169,000 and group loss attributable to equity holders of the parent would have been £10,522,000.

7. Movement in equity											30.06.08			30.06.07				31.12.07
										6 Months				6 Months				12 Months
										£000				£000				£000
Opening shareholders' equity										362,051				345,009				345,009
Total recognised income and expense for the period										(8,917)				24,185				32,213
Dividends paid (see note 8)												(2,866)			(3,416)				(6,281)
Net charitable grant to ultimate parent undertaking										-						(3,850)		(8,890)
Total shareholders' equity												350,268			361,928					362,051

8. Dividends 

Dividends paid on the 8.625% Non-Cumulative Irredeemable Preference shares amounted to £2.9m (2007: £2.9m).

No interim dividend was paid in the period (2007: 0.392p per share, amounting to £0.5m). The prior period dividend was paid to the company's immediate holding company, Ecclesiastical Insurance Group plc.

9. Related party transactions

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

The loan agreements in place at 31 December 2007 for £6.75m from Ecclesiastical Insurance Office plc to Ecclesiastical Insurance Group plc and £6.75m from Ecclesiastical Insurance Group plc to Allchurches Mortgage Company Limited, a subsidiary of Ecclesiastical Insurance Office plc, were rewritten during the period. The loan agreement is now held between Ecclesiastical Insurance Office plc and Allchurches Mortgage Company Limited and the loan balance outstanding at 30 June 2008 was £5.75m. This amendment has no effect on the performance of the group, but does remove the loan asset and loan liability from the consolidated balance sheet.

There have been no other material related party transactions in the period.

10. Holding company

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

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 2008, which comprises the condensed consolidated income statement, the condensed consolidated statement of recognised income and expense, the condensed consolidated balance sheet, the condensed consolidated cash flow statement 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 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 2008 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 & Touche LLP

Chartered Accountants and Registered Auditor

27 August 2008

London, United Kingdom

ENDIR ILFLDTFIDFIT