Hansard Regulatory News (HSD)

22 September 2022

Hansard Global plc

Results for the year ended 30 June 2022

Dividend maintained in challenging year for new business

Hansard Global plc ("Hansard" or "the Group"), the specialist long-term savings provider, issues its full-year results for the year ended 30 June 2022 ("FY 2022").

Summary

1  Present Value of New Business Premiums

2 Subject to approval at the AGM

Graham Sheward, Group Chief Executive Officer, commented:

"Our results for the 2022 financial year reflect a challenging year for new business together with £1.0m of provisions made at the time of our half-year results to write-down all amounts receivable from a set of external legacy funds in liquidation.

We are working hard to improve new business levels through a combination of new product development, new broker relationships and the deployment of additional experienced sales management executives into the business.

We are also making encouraging progress with additional distribution options for our Japanese proposition. 

Excellent progress has been made with our major systems project to replace our policy administration system and portals which will support our next generation of products whilst realising associated cost and efficiency gains.

Given the underlying strength of the business as we manage through this cycle, the Board has recommended maintaining our dividend in line with last year."

NEW BUSINESS

As previously announced, our new business levels were £120.5m on a Present Value of New Business Premiums ("PVNBP") basis, down 30.3% from £173.0m in FY 2021. 

New business was impacted by economic uncertainty, geopolitical developments, the aftermath of Covid-19 restrictions around the world and a general hesitancy by clients to commit to long-term savings products, particularly those with contractual regular premiums. The prior year comparative figures also benefited from a number of high net-worth single premium policies which did not repeat in FY 2022.

We have taken a number of actions to improve new business generation. We have recruited two senior additions to our sales team: a Head of Sales and a Head of New Business Development, to help develop and grow future new business levels.

The expanded sales team will drive a number of broker and product initiatives to increase new business in the 2023 financial year and beyond. This includes the development and launch of new products for key target markets, updates and improvements to existing products and the recruitment of additional localised sales colleagues into key growth regions.

TRADING RESULTS

IFRS profit before tax for the year was £3.8m, down from £5.1m in FY 2021. Excluding litigation defence costs and other non-recurring provisions, underlying profit was £5.9m compared with £6.8m in FY 2021. 

Fee and commission income was £48.8m for the year (FY 2021: £50.5m) with lower transactional based income in Hansard International and lower income from Hansard Europe which continues to run-off since closing to new business in 2013.

Administrative and other expenses were £29.8m for the year (FY 2021: £29.5m) as a £1.0m provision for amounts receivable from a set of legacy funds in liquidation was mitigated by lower litigation-related expenditure and tight management of overheads, despite inflationary pressures.

VIF represents the present value of expected future shareholder profits less the present value cost of holding capital required to support the in-force business. VIF totalled £128.5m as at 30 June 2022 compared to £145.8m at 30 June 2021 reflecting new business levels being lower in volume and profitability than the unwind of older business written and lower assets under administration.

Assets under administration were £1.1bn as at 30 June 2022, down from £1.2bn at 30 June 2021, primarily reflecting declines in global stock markets over the latter part of the year.

Strategy IMPLEMENTATION

During the past financial year the primary focus has continued to be on delivering our two most significant near-term strategic initiatives:

· bringing to market our locally-licensed investment product in Japan; and

· upgrading and streamlining our systems and IT infrastructure. 

As previously noted, we have completed internally the development of our Japanese product.  Whilst the timetable for launching with our first distribution partner in Japan remains unclear despite vigorous efforts, additional forward-looking strategic and tactical product developments commenced in earnest earlier this year, with a view to mitigating the impact of this delay. These revenue accretive initiatives are progressing well.

Positive progress has been made with our major systems project to replace our policy administration system and portals to support our next generation of products and secure significant cost and efficiency gains. The primary core system functionality has now been delivered and we are working through the final project stages which will allow us to implement a full migration from our legacy systems in 2023.

policyholder LITIGATION

The Group continues to manage carefully its litigation exposures relating to the legacy operations of Hansard Europe. We continue to believe we have strong defences against the claims being made. 

Contingent liabilities arising out of outstanding writs were £21.2m as at 30 June 2022 compared to £22.7m at 30 June 2021. The exposure has fallen from the prior year primarily due to the settlement of a significant case which was covered by our corporate insurance and which reduced contingent liabilities by £2.9m.

In addition, the Group successfully defended 24 cases during the year with net exposures of approximately £3.2m, 11 of which have been appealed by the plaintiffs. These successes continue to affirm confidence in the Group's legal arguments. Our policy is to maintain contingent liabilities even where we win cases in the court of first instance if such cases have been subsequently appealed. 

DIVIDENDS

The Board has proposed a final dividend of 2.65p per share, the same level as last year. 

This dividend, if approved by the shareholders at the Annual General Meeting on 2 November 2022, represents a total dividend of 4.45p (2021: 4.45p) per share in respect of the financial year. Upon approval, the dividend will be paid on 10 November 2022 to shareholders on the register on 30 September 2022. The associated ex-dividend date is 29 September 2022.

CURRENT TRADING

New business levels to date in Q1 FY 2023 are broadly in line with those of the prior year. There have been no significant post balance sheet events to report.

NEXT TRADING UPDATE

The first trading update in respect of the year ending 30 June 2023 is expected to be published on 3 November 2022.

For further information:

Hansard Global plc +44 (0) 1624 688 000

Graham Sheward, Group Chief Executive Officer

Tim Davies, Chief Financial Officer

Email: investor-relations@hansard.com

Camarco +44 (0) 7990 653 341

Ben Woodford, Hugo Liddy

Notes to editors:

· Hansard Global plc is the holding company of the Hansard Group of companies. The Company was listed on the London Stock Exchange in December 2006. The Group is a specialist long-term savings provider, based in the Isle of Man.

· The Group offers a range of flexible and tax-efficient investment products within a life assurance policy wrapper, designed to appeal to affluent, international investors.

· The Group utilises a controlled cost distribution model via a network of independent financial advisors, and the retail operations of certain financial institutions who provide access to their clients in more than 170 countries. The Group's distribution model is supported by Hansard OnLine, a multi-language internet platform, and is scalable.

· The principal geographic markets in which the Group currently services contract holders and financial advisors are the Middle East & Africa, the Far East and Latin America. These markets are served by Hansard International Limited and Hansard Worldwide Limited.

· Hansard Europe dac previously operated in Western Europe but closed to new business with effect from 30 June 2013.

· The Group's objective is to grow by attracting new business and positioning itself to adapt rapidly to market trends and conditions. The scalability and flexibility of the Group's operations allow it to enter or develop new geographic markets and exploit growth opportunities within existing markets often without the need for significant further investment.

Forward-looking statements:

This announcement may contain certain forward-looking statements with respect to certain of Hansard Global plc's plans and its current goals and expectations relating to future financial condition, performance and results. By their nature forward-looking statements involve risk and uncertainties because they relate to future events and circumstances which are beyond Hansard Global plc's control. As a result, Hansard Global plc's actual future condition, performance and results may differ materially from the plans, goals and expectations set out in Hansard Global plc's forward-looking statements. Hansard Global plc does not undertake to update forward-looking statements contained in this announcement or any other forward-looking statement it may make. No statement in this announcement is intended to be a profit forecast or be relied upon as a guide for future performance.

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regime.

Legal Entity Identifier: 213800ZJ9F2EA3Q24K05

Chairman's Statement

Introduction

I am delighted to present to you my first annual report as Chairman of Hansard Global plc ("Hansard" or "Group") and I would like to begin by thanking Graeme Easton, my predecessor, for the leadership and guidance that he has provided to the Group.  Graeme will be retiring from the Group and its boards and will not be offering himself for re-election at the AGM of the Company. He has worked tremendously hard both as a Non-Executive Director and as Chairman of the Group and its subsidiaries. Our best wishes go with him. We are actively seeking a new Independent Non-Executive Director.

Hansard, like many other businesses, has continued to experience a challenging external environment as we navigate our way through the constraints and economic aftermath of the Covid-19 global pandemic. While new business was lower than the prior year comparative, the business has remained resilient, with our systems and client services function fully operational at all times.

The Board and I remain confident in the future opportunities for the business. We are operationally ready to launch our innovative new product in Japan and will move to do so when our preferred distribution partner is in a position to launch. In the interim, we are progressing other distribution channels to ensure we capitalise on the development work which we have completed to date.

We have also made significant progress with the project to upgrade our key systems. This will provide an advanced, modern platform that will benefit our customers, our distribution partners and the Group through enhanced operational efficiency and cost savings.

New business

New business for the 2022 financial year was £120.5m (using the PVNBP metric), down 30.3% from £173.0m in 2021. New business levels were impacted by economic uncertainty, geopolitical developments, the aftermath of Covid-19 restrictions around the world, and a general hesitancy by clients to commit to long-term savings products, particularly those with contractual regular premiums. 

The Board is very conscious that new business levels need to improve and the initiatives which are underway are further outlined in the Business and Financial Review.

Financial performance

Our IFRS profit before tax for the year was £3.8m compared to £5.1m in 2021. 

Fees and commissions were down £1.7m to £48.8m for the year (2021: £50.5m), reflecting lower transactional income within Hansard International and the continuing run-off of Hansard Europe.

Administrative and other expenses were £29.8m for the year, compared to £29.5m in 2021. This incorporates a £1.0m provision for fees and other balances likely to be irrecoverable from a set of legacy funds in the process of liquidation which has been significantly mitigated by lower net litigation expenditure and tight control over general overheads and expenses. 

Further detail and analysis are contained in the Business and Financial Review.

Capitalisation and solvency

The Group remains well capitalised to meet the requirements of regulators, contract holders, intermediaries and other stakeholders.

On a risk-based capital basis, total Group Free Assets in excess of the Solvency Capital Requirements of the Group were £50.7m (2021: £58.7m), a coverage of 165% (2021: 168%). We have maintained our prudent investment policy for shareholder assets, which minimises market risk and has provided a stable and resilient solvency position over many years and economic cycles.

Dividends

The Board has resolved to pay a final dividend of 2.65p per share (2021: 2.65p). In making this decision, the Board has carefully considered its current and future cash flows, the risks and potential impact introduced by Covid-19 and the on-going Russia-Ukraine conflict, the outlook for future growth and profitability and the views of key stakeholders, including shareholders and regulators. 

The dividend is subject to approval at the Annual General Meeting. If approved, this will represent total dividends for the financial year of 4.45p per share (2021: 4.45p). Upon approval, the final dividend will be paid on 10 November 2022. The ex-dividend date will be 29 September 2022 and the record date will be 30 September 2022.

Philip Kay

Chairman

21 September 2022

GROUP CEO REVIEW

My first full financial year with the Hansard Group has been dominated by successfully restructuring parts of the business to drive transformational organisational change capable of delivering on our two core strategic objectives of Japan product launch and systems replacement.

A pleasing result of this activity is the positive progress we have made with our major IT project to replace our policy administration systems and portals to support our next generation of products and secure significant cost and efficiency gains. All the primary system functionality has now been delivered and we are working through the final project stages which will allow us to implement a full migration from our legacy systems in 2023.

Whilst the timetable for launching our new product with our first distribution partner in Japan remains unclear despite vigorous efforts, additional forward-looking strategic and tactical product developments commenced in earnest earlier this year, with a view to mitigating the impact of this delay. These accretive revenue initiatives are progressing well.

Our sales and commercial team has been substantially restructured and redeployed to work better on generating additional new business opportunities in the key markets they serve.

Our cost base has been tightly managed throughout the year with close scrutiny of all expenditure and accountability across our management team. Despite seeing inflationary pressures in certain areas, we have achieved a £0.4m saving on the prior year in our administrative and other expenses excluding litigation and provisions for doubtful debts.

I am confident that the hard work and change programme effected over the past year will begin to deliver positive business results during this financial year. This progress is largely due to my colleagues at all levels across the Group. I'm also delighted with the quality and depth of talent we have been able to recruit over the past 12 months to help support business improvement initiatives. I would like to take this opportunity to thank all Hansard colleagues for their contribution, since I joined, to the journey we have commenced together.

Finally, the Hansard Group has embarked on a major cultural change programme across a wide range of behaviours intended to support business success and necessary change by encouraging activities and skillsets across areas such as innovation, learning and development, communication and leadership whilst delivering required business results.

RESULTS FOR THE YEAR UNDER REVIEW

We believe that the following areas are the fundamental factors for the success of the Group:

· Diversification of our product and distribution channels to enable origination of significant flows of new business from identified target markets;

· Managing our exposure to business risks;

· Positioning ourselves to incorporate increasing levels of regulation into our business model;

· Leveraging our award-winning technology and systems; and

· Managing our cash flows through the cycle to fund the appropriate balance of investment in new business and dividends.

I draw your attention to the following items below. Additional information is contained in the Business and Financial Review.

1. New business distribution

New business for the 2022 financial year was £120.5m (using the PVNBP metric), down 30.3% from £173.0m in FY 2021. New business levels were impacted by economic uncertainty, geopolitical developments, the aftermath of Covid-19 restrictions around the world, and a general hesitancy by clients to commit to long-term savings products, particularly those with contractual regular premiums. The prior year comparative figures benefited from a number of high net worth single premium policies which did not repeat in FY 2022. Activities in train to improve new business levels are further outlined in the Business and Financial Review.

2. Operational, Business and Financial Risks

Our business model involves the acceptance of a number of risks on a managed and controlled basis. The Group's Enterprise Risk Management ("ERM") Framework provides for the identification, assessment, management, monitoring and control of current and emerging risks, recognising that systems of internal control can only provide reasonable and not absolute assurance against material misstatement or loss. The Group's internal control and risk management processes have operated satisfactorily throughout the year under review. 

2.1 Litigation Risk

As explained more fully in the Business and Financial Review, we continue to manage complaints and litigation arising from our closed book, Hansard Europe, where the performance of assets linked to contracts written before 2014 have suffered or become illiquid. We continue to maintain that we have never given investment advice and are not party to the selection of assets and therefore believe that such claims have no merit.

As at 30 June 2022, the Group had been served with cumulative writs with a net exposure totalling €24.6m, or £21.2m in sterling terms (30 June 2021: €26.5m / £22.7m) arising from contract holder complaints and other asset performance-related issues.

During the year, we successfully settled a significant claim with a contingent liability exposure of £2.9m. This settlement was covered in full by our insurers and involved no additional cost to our 2022 financial result.

We also successfully defended twenty-four cases with net exposures of approximately £3.2m, 11 of which have been appealed by the plaintiffs. These successes continue to affirm confidence in the Group's legal stance.

3. Hansard OnLine

Our award-winning IT systems and online customer platform are key aspects of our proposition.  Hansard OnLine is a powerful sales and business administration tool that is used by independent financial advisors ("IFAs") and clients the world over. It is an integral part of the Group's operating model and allows us to better service IFAs and clients, embed process efficiencies and be flexible in operational deployment.

Hansard OnLine provides IFAs and clients with a reliable online self-service model which they can access 24/7 from anywhere around the world with an internet connection. It provides an important foundation to our strategic goal of the delivery of excellent customer service.

As noted in previous reports, we have embarked on a project to replace our core administration systems and ensure our infrastructure is future-proofed for our next generation of products and strategic development. We expect this project to be completed in our 2023 financial year.

Additional information concerning Hansard OnLine is set out in the Business and Financial Review.

4. Operating cash flows and dividends

The Group generates operating cash flows to fund investment in new business and support dividend payments.

As outlined in the Cash Flow analysis section of the Business and Financial Review, the Group generated £5.3m in overall net cash inflows before dividends (2021: inflows of £3.6m), after commission and other new business acquisition costs of £11.5m (2021: £16.5m) and the investment of £4.5m (2021: £3.8m) in IT software and equipment expenditure. Dividends of £6.1m were paid in the financial year (2021: £6.1m).

A final dividend of 2.65p per share has been proposed by the Board and will be considered at the Annual General Meeting on 2 November 2022. If approved, this will represent total dividends for the financial year of 4.45p per share (2021: 4.45p).

FINANCIAL PERFORMANCE

Results for the year

Financial performance is summarised as follows. A detailed review of performance is set out in the Business and Financial Review that follows this report.

IFRS results

IFRS profit before tax for the year was £3.8m, down from £5.1m in 2021. After eliminating litigation and non-recurring items, the underlying IFRS profit (a non-GAAP metric) was £6.0m, down from £6.8m in 2021.

Fees and commissions were £48.8m for the year (2021: £50.5m). Fees from Hansard International and Hansard Worldwide were down £1.2m to £46.3m from 2021, reflecting lower transactional based income and lower new business generally. Income from our closed book, Hansard Europe, has continued to fall, as expected, and was £0.5m down on the prior year.

Administrative and other expenses were £29.8m for the year, compared to £29.5m in 2021. This incorporates a £1.0m provision for fees and other balances likely to be irrecoverable from a set of legacy funds in the process of liquidation which has been was significantly mitigated by lower net litigation expenditure and tight control over general overheads and expenses. 

Origination costs to acquire new business were down £0.2m to £16.2m as lower 2022 commission expenditure was offset by increased amortisation of prior years' deferred origination costs.

Further detail and analysis is contained in the Business and Financial Review.

Capitalisation and solvency

Our key financial objective is to ensure that the Group's solvency is managed safely through the economic cycle to meet the requirements of regulators, contract holders, intermediaries and shareholders. The Group continues to be well capitalised.

Under risk-based capital methodologies, total Group Free Assets in excess of the Solvency Capital Requirements of the Group were £50.7m (2021: £58.7m), a coverage of 165% (2021: 168%). Shareholder assets are typically held in a wide range of deposit institutions and in highly-rated money market liquidity funds. This prudent investment policy for shareholder assets minimises market risk and has provided a stable and resilient solvency position over recent years.

Covid-19 & russia-ukraine conflict

As reported previously, our business demonstrated great operational resilience throughout the pandemic without any significant disruption to our corporate systems or customer service.

The financial year began with a slow return to pre-pandemic business practice and we were able to start reconnecting face-to-face with our broker community. Since the escalation of the Russia-Ukraine conflict in February 2022, the knock-on challenges to the rest of the world are becoming clearer as energy and food prices spike and can be expected to increase further over the winter period.

The direct impacts to our business are expected to be two-fold. Firstly, it has exacerbated hesitancy amongst our target clients in investing in long term savings plans and this has impacted our 2022 new business results. Secondly, we can expect cost pressures within our business in our 2023 financial year as energy costs increase, suppliers and professional advisors increase their charges and inflationary pressure is felt across our workforce.

We will seek to manage both these challenges. We aim to build on our existing market by opening new channels and new product opportunities and we will be targeting cost savings to help mitigate inflationary pressures elsewhere. 

our people

Our people are critical to our success. We have a dedicated dynamic workforce across a number of locations around the world. I would like to recognise and thank each of my colleagues for their continued commitment, flexibility and resilience in managing both our on-going day-to-day operations and our key strategic projects. 

I have been delighted by the level of engagement seen within our programme of cultural change referenced earlier and look forward to continuing in our goals of fostering an engaged and innovative workforce to meet our goals and the expectations of our stakeholders.

Graham Sheward

Group Chief Executive Officer

21 September 2022

BUSINESS AND FINANCIAL REVIEW

Our Business Model and Strategy

Hansard is a specialist long-term savings provider that has been providing innovative financial solutions for international clients since 1987. We focus on helping financial advisors and institutions to provide their clients (individual and corporate investors) with savings and investment products in secure life assurance wrappers to meet long-term savings and investment objectives.

We administer assets in excess of £1 billion for just under 40,000 client accounts around the world.

Business Model

The Company's head office is in Douglas, Isle of Man, and its principal subsidiaries operate from the Isle of Man, The Bahamas and the Republic of Ireland. 

Hansard International is regulated by the Isle of Man Financial Services Authority and has a branch in Malaysia, regulated by the Labuan Financial Services Authority, to support business flows from Asian growth economies and one in Japan to support its Japanese proposition, regulated by the Japanese Financial Services Agency. Through its relationship with a local insurer in the UAE, Hansard International reinsures business written in the UAE.

Launched in 2019, Hansard Worldwide underwrites international and expatriate business around the world. It is regulated by the Insurance Commission of The Bahamas.

Hansard Europe is regulated by the Central Bank of Ireland. Hansard Europe ceased accepting new business with effect from 30 June 2013.

Our products are designed to appeal to affluent international investors, institutions and wealth-management groups. They are distributed exclusively through independent financial advisers (IFAs) and the retail operations of financial institutions.

Our network of Regional Sales Managers provides local language-based support services to independent financial advisors in key territories around the world, supported by our multi-language online platform, Hansard OnLine.

Vision and Strategy

Our vision for the Hansard Group is:

"to share success with our clients by providing simple, understandable and innovative financial solutions".

To deliver this vision, client outcomes will be the central focus within our business and, consequently, we will seek to evolve all aspects of our products, processes and distribution in order to constantly improve.

Our talented people are the foundation of our business. We have created an empowering culture, which values innovation, quality, integrity and respect.

Our strategy to improve, grow and future-proof our business will be delivered through three key areas of strategic focus:

i. Improve our business: We will improve customer outcomes through the introduction of new disclosures, the provision of new products and services, focusing on the quality of our IFAs with whom we work with and continuing to drive up the engagement of our people within our business.

ii. Grow our business: In recent years we established a new life company in The Bahamas and entered into a strategic alliance with Union Insurance in the UAE. We have acquired the necessary licence and approvals to access the Japanese market. We will continue to seek out opportunities for locally licenced business in other targeted jurisdictions over the coming years.

iii. Future-proof our business: We actively consider new and innovative technologies, propositions and business models. It remains critical to support the online and digital needs of our clients alongside improving organisational efficiency and scalability.

Strategy DEVELOPMENT

Our current strategy has three main aims:

i) to capitalise on near term strategic opportunities;

ii) to ensure the Group is correctly positioned for future regulatory developments and change; and

iii) to consider and plan for longer term industry and technological evolution.

During the past financial year the primary focus has continued to be on delivering our two most significant near-term strategic initiatives:

· bringing to market our locally-licensed investment product in Japan; and

· upgrading and streamlining our systems and IT infrastructure. 

We have completed internally the development of our Japanese product. We intend to launch with our first distribution partner on our new policy administration system when our partner is operationally ready to launch new products into the post-Covid-19 marketplace.

Core functionality for our new IT platform has been delivered as at 30 June 2022. Additional change requests and development will take place in the first half our 2023 financial year prior to an expected full migration later in the financial year. 

Regulatory change

The Isle of Man Financial Services Authority (the "Authority") remains committed to maintaining a robust and up to date insurance supervisory framework appropriate to the Island's insurance businesses.

The Island's reputation as a well-regulated and internationally responsible jurisdiction is of vital importance to maintaining consumer confidence and therefore market share. The international standards applicable to effective insurance supervision are the Insurance Core Principles (ICPs), issued by the International Association of Insurance Supervisors (IAIS). The ICPs emphasise the need for insurers and regulators to understand the nature and degree of risks assumed and provide for them appropriately thus addressing financial stability risks with the ultimate aim of protecting the interests of consumers and wider stakeholders. 

The Authority has continued its work to ensure the framework for insurance regulation and supervision maintains a high level of observance with the IAIS Insurance Core Principles. The Authority has developed and implemented revisions in a way which is appropriate and proportionate for the Isle of Man's diverse insurance sector whilst promoting regulatory best practice and preserving the continued reputation of the Isle of Man as a stable and well-regulated jurisdiction. 

Major milestones have been enacted in recent years with the implementation of new risk-based capital corporate governance, enterprise risk management, conduct of business requirements and a Group Supervision regime.

We have continued our work to adapt the Hansard model and our strategic and business plans in line with the intent and objectives of the regulatory changes, working transparently with our regulators to shape the practical implementation of the Authority's roadmap and embed associated changes. The Group continues to monitor developments in our other regulatory jurisdictions.

Products

The Group's products are unit-linked regular or single premium life assurance and investment contracts which offer access to a wide range of investment assets. The contracts are flexible, secure and held within "wrappers" allowing life assurance cover or other features depending upon the needs of the client. The contract benefits are directly linked to the value of those assets that are selected by, or on behalf of, the client and held within the wrapper. The Group does not offer investment advice. Contract holders bear the investment risk.

The Group's products do not include any contracts with financial options and/or guarantees regarding investment performance and, hence, unlike the situation faced by some other life assurers, the Group carries no guarantee risk that can cause capital strain.

As a result of high levels of service, the nature of the Group's products, the functionality of Hansard OnLine, and the ability of the contract holder to reposition assets within a contract, we aim to retain the contract holder relationship over the long term.

Contract holder servicing and related activities are performed by Hansard Administration Services Limited, which is authorised by the Financial Services Authority of the Isle of Man Government to act as an Insurance Manager to insurance subsidiaries of the Group.

Revenues

The main sources of income for the Group are the fees earned from the administration of insurance contracts. These fees are largely fixed in nature and amount. Approximately 30% of the Group's revenues, under IFRS, are based upon the value of assets under administration. The new business generated in a particular year is expected to earn income for an average period of 14 years. Our business is therefore long term in nature both from a contract holder perspective and with regards to the income that is generated. 

From this income we meet the overheads of the business, invest in our business, remunerate our distribution network and pay dividends.

Managing Risk

Risk can arise from a combination of macro events and company-specific matters. On the macro side, events such as the UK's exit from the EU, the Covid-19 pandemic, the Russia-Ukraine conflict and other geo-political tensions can cause significant volatility to stock markets, foreign exchange markets and cost inflation. We therefore continue to maintain a robust, low risk balance sheet. We believe this prudent approach to be appropriate to meet the requirements of regulators, contract holders, intermediaries and shareholders.

We are conscious that managing operational risk is critical to our business and we are continuously developing our enterprise risk management system and controls. Further details of our approach to risk management and the principal risks facing the Group are outlined in the Risk Management and Internal Control Section.

Hansard OnLine

Hansard OnLine is a powerful and secure tool that is used by our IFAs around the world. Available in multiple languages, it allows them to access information about their clients, to generate reports for their clients, to submit new business applications online, to place dealing and switch instructions online, to access all client correspondence and to access a library of forms and literature.

Almost all investment transactions are processed electronically by intermediaries, on behalf of their clients, using Hansard OnLine and over 90% of all new business applications are submitted via the platform.

The straight-through processing of contract holder instructions (whether received directly or through their appointed agents) reduces the Group's operational risk exposures, as does the ability of the Group to communicate electronically with contract holders and intermediaries, irrespective of geographical boundaries. Data validation happens in real-time to ensure there are no delays to the investment of client funds.

Hansard Online Lite provides prospective IFAs with easy access to a subset of the online system. Its purpose is to showcase our online proposition to prospective and new IFAs and to allow easy access to non-sensitive documents and functionality. Users can access our online document library, the Unit Fund Centre, company news and submit new business online.

The benefit of Hansard OnLine is recognised by many IFAs as market leading and our online proposition has been nominated for and won a number of independent industry awards.  Most recently this included winning International Investment's "Excellence in Fintech" award in October 2021.

Online Accounts

Whilst many of our IFAs are technologically sophisticated and have been utilising our online offering for years, our client base has typically lagged behind. However, we are now observing a growing trend amongst our clients to take more control of their financial wellbeing by embracing mobile technology to better monitor and manage their finances.

To support our commitment to delivering 'excellent customer service', we believe it is vital to provide our clients with a modern and secure online platform that allows them to access their finances easily and comprehensively, 24/7. We provide this through our client-facing version of Hansard OnLine, called Online Accounts.

Similar to our IFA-facing online platform, the client's Online Account allows them to access all their policy information, valuation statements, transaction history, premium reports, switch funds online, access all correspondence, access a library of forms and literature, and more.

A large and increasing number of clients have signed up for this service which allows them to view all documentation and communications relating to their contracts via their Online Account as well as choosing to receive post electronically, rather than in hard-copy form. This not only provides a more secure, more efficient and cost-effective means of communication with clients but also the convenience to manage their own contract within a timeframe which is more suitable. This has gained further traction during the restrictions encountered during the Covid-19 pandemic.

Continuous Improvements to our Online Proposition

When it comes to improving how we operate and the proposition we offer, we value the views of our clients and IFAs. This means that we regularly seek feedback through surveys and office visits in order to identify ways in which we can improve our systems and processes to best meet their needs. However, it is not just functionality that is important, we also have a continuous programme to enhance the overall user experience, for both IFA's and our clients.

Cyber Security

As cyber crime continues to increase and target commercial and public enterprises alike (further heightened by the current geo-political situation relating to the Russia-Ukraine conflict), Hansard has continued to invest in its cyber security. This includes continuous upgrades to our firewall protection, encryption of data, tokenisation of sensitive data and annual external review and testing.

Excellent Customer Service

We strive to provide excellent customer service and turn-around times to our clients and our IFA community. We have won a number of external awards in this area over the years, most recently in October 2020 when we won 'Excellence in Client Service - Industry' from International Investor for both the Asian region and as overall global winner. We also maintained our five-star rating for customer service by AKG Financial Analytics in their 2021 review.

Key performance indicators

The Group's senior management team monitors a wide range of Key Performance Indicators, both financial and non-financial, that are designed to ensure that performance against targets and expectations across significant areas of activity are monitored and variances explained.

The following is a summary of the key indicators that were monitored during the financial year under review.

business AND FINANCIAL REVIEW

NEW BUSINESS PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2022

The Group continues to focus on the distribution of regular and single premium products in a range of jurisdictions around the world, achieving well diversified new business growth.

New business performance for the year is summarised in the table below:

In Present Value of New Business Premiums ("PVNBP") terms, new business for the year to 30 June 2022 was £120.5m, 30.3% down compared to the prior year.

The Annualised Premium Equivalent ("APE") measure shows a decline of 29.0% from 2021.

Present Value of New Business Premiums

New business flows on the PVNBP basis for the Group are further analysed as follows:

New business for the financial year was impacted by economic uncertainty, geopolitical developments, the aftermath of Covid-19 restrictions around the world, and a general hesitancy by clients to commit to long-term savings products, particularly those with contractual regular premiums. The prior year comparative figures benefited from a number of high net worth single premium policies which did not repeat in FY 2022.

We have taken a number of actions to improve new business generation. We have recruited two senior additions to our sales team: a Head of Sales and a Head of New Business Development, to help develop and grow future new business levels. This has also been supplemented by the addition of an experienced new regional sales manager for our Middle East and Africa region. With the relaxation of Covid-19 restrictions in a number of regions we are also re-locating two regional sales managers permanently into their regions to grow business locally.

The Head of Sales has taken oversight of our global IFA-channel sales team and is tasked to deliver a number of our key distribution and relationship initiatives, enhancing our overall broker proposition.

The Head of New Business Development is tasked with developing business relationships with new distributors and further invigorating relationships with current distributors. A number of new developments have already been delivered, including streamlining the onboarding process for new brokers as part of our plan to expand further our networks of distributors.

The expanded sales team will drive a number of broker and product initiatives to increase new business in the 2023 financial year and beyond. This includes the development and launch of new products for key target markets, updates and improvements to existing products and the recruitment of additional localised sales colleagues into key growth regions.

The currencies premiums were received in remained relatively consistent, with the predominant currency being US Dollars:

New business margin

Our new business margin (calculated on a PVNBP basis) is sensitive to sales levels and product mix (regular premium products and smaller single premium sizes typically have a higher margin). While positive on a marginal cost basis, current levels of new business continue to result in a negative new business margin. We expect the primary catalyst for margin improvement to be a successful launch of our new product into the Japanese market in the 2023 financial year.

Presentation of financial results

Our business is long term in nature. The nature of the Group's products means that new business flows have a limited immediate impact on current earnings reported under International Financial Reporting Standards as adopted by the United Kingdom ("IFRS"), as initial fees and acquisition costs from the contracts sold are mostly deferred and amortised over the life of the contract. The benefit of sales to fee income levels are felt in future financial periods, noting also that our newer products have a longer earning period than our older products.

Results for the year

The following is a summary of key items to allow readers to better understand the results for the year.

IFRS profit before tax for the year was £3.8m, down from £5.1m in 2021. The primary drivers in the reduction relate to reduced fee income and the provision in full of fees and other balances of £1.0m likely to be irrecoverable from a set of primarily Hansard Europe legacy funds which are in the process of liquidation.

Operating profit prior to litigation and non-recurring items was £5.9m in 2022, down from £6.8m in 2021.

Abridged consolidated income statement

The consolidated statement of comprehensive income presented under IFRS reflects the financial results of the Group's activities during the year. This income statement however, as a result of its method of presentation, incorporates a number of features that might affect an understanding of the results of the Group's underlying transactions. These relate principally to:

· Investment losses attributable to contract holder assets were £102.5m (2021: gain of £163.3m). These assets are selected by the contract holder or an authorised intermediary and the contract holder bears the investment risk. They are also reflected within 'Change in provisions for investment contract liabilities' and together have a net nil impact on IFRS profit.

· Third party fund management fees collected and paid onwards by the Group to third parties having a relationship with the underlying contract. In 2022 these were £5.6m (2021: £5.3m). These are reflected on a gross basis in both income and expenses under the IFRS presentation. Deducting the £5.6m from £48.8m for fees and commissions and £29.8m for administrative and other expenses in the consolidated statement of comprehensive income results in the figures of £43.2m, £22.1m and £2.1m presented below.

An abridged non-GAAP consolidated income statement in relation to the Group's own activities is presented below, adjusted for the items of income and expenditure indicated above.

Fees and commissions

Fees and commissions for the year attributable to Group activities were £43.2m, 4.4% lower than the 2021 total of £45.2m.

Contract fee income totalled £30.1m for the year, down £2.1m on the 2021 comparative of £32.2m. Contract fee income includes the amortised element of up-front income deferred under IFRS and contract-servicing charges. Amortisation of deferred income in Hansard International was broadly similar to the prior year, whilst immediately recognised fees, including surrender charges from redemptions, decreased compared to the prior year. This was reflective of lower levels of redemptions compared to the prior year. The continuing run-off of Hansard Europe which closed to new business in 2013 resulted in lower contract fee income of £0.5m compared to 2021.

Fund management fees accruing to the Group and commissions receivable from third parties totalling £8.3m were unchanged from 2021. Such fees are related directly to the value of assets under administration and are affected by market movements, currency rates and valuation judgements. 

A summary of fees and commissions is set out below:

Included in contract fee income is £16.6m (2021: £16.7m) representing the amortisation of fees prepaid in previous years, as can be seen in the analysis set out below:

Investment and other income

Historically low UK and US interest rates continue to result in relatively modest levels of interest income earned on the Group's deposits and money market funds. More recently rates have started to improve as central bank base rates are raised.

The below table shows the investment and other income excluding losses attributable to contract holder assets of £102.5m (2021: gain of £163.3m).

Origination costs

Under IFRS, new business commissions paid, together with the directly attributable incremental costs incurred on the issue of a contract, are deferred and amortised over the anticipated life of that contract to match the longer-term income streams expected to accrue from the contracts issued this year. Typical terms range between 6 years and 16 years, depending on the nature of the product. Other elements of the Group's new business costs, for example recruitment costs, which reflect investment in distribution resources in line with our strategy, are expensed as incurred.

Origination costs incurred in 2022 have decreased by £0.2m from the prior year. Origination costs were lower in line with lower new business levels but offset by increased amortisation of prior year balances. 

Amounts totaling £13.9m (2021: £14.1m) have been expensed to match contract fee income earned this year from contracts issued in previous financial years, as can be seen in the analysis below. Summarised origination costs for the year were:

Administrative and other expenses

We continue to manage our expense base robustly to control administrative expenses while supporting our strategic developments and other new business growth activities with targeted expenditure.

An analysis of administrative and other expenses is set out in notes 8 and 9 to the consolidated financial statements under IFRS. The following summarises some of the expenses attributable to the Group's own activities, excluding the third party fund management fees collected and paid onwards by the Group to third parties having a relationship with the underlying contract of £5.6m (2021: £5.3m).

Salaries and other employment costs have decreased by £0.2m or 2% to £10.8m, reflecting active cost control and limited variable compensation being awarded. 

The average Group headcount for the 2021 financial year was 189 people (2021: 191 people).

Other administrative expenses decreased to £7.7m from £8.0m, reflecting active cost control and a reduction in property costs following the completed relocation of our head office premises.

Professional fees including audit increased by £0.2m to £2.8m primarily driven by audit and recruitment fees. These costs include amounts totalling £0.5m paid to the Group's auditor (2021: £0.4m); £0.5m (2021: £0.5m) for administration, custody, dealing and other charges paid under the terms of the investment processing outsourcing arrangements; recruitment costs of £0.2m (2021: £0.1m), costs of investor relations activities of £0.2m (2021: £0.2m) and general legal and professional fees of £1.4m (2021: £1.4m).

Growth investment spend represents internal and external strategic costs to generate opportunities for growth. This includes the costs of our commercial development team and costs associated with developing our Japanese proposition which have reduced in the current year as the project has neared conclusion.

Litigation defence and settlement costs represent those costs (net of insurance recoveries) incurred in defending Hansard Europe against writs taken against it, as described more fully in note 26 to the consolidated financial statements. Legal costs recovered from insurers were £0.5m, in line with the previous year. The prior year included the provision of £0.5m for expected future settlements but no further additional provisions have been required in the current year with the balance of the provision as at 30 June 2022 being £0.2m (2021: £0.4m).

Provision for doubtful debts relate to the provision in full of fees and other balances likely to be irrecoverable from a set of primarily Hansard Europe legacy funds which are in the process of liquidation.

Cash Flow ANALYSIS

The operational cash surplus (fees deducted from contracts and commissions received, less operational expenses paid) for the year was £21.1m (2021: £23.8m). Operating cash flows have decreased this year as a result of the decrease in new business and fee income levels.

Writing new business, particularly regular premium business, produces a short-term cash strain as a result of the commission and other costs incurred at the inception of a contract. Annual management charges offset this strain and produce a positive return over time.

Future increases in new business levels can be funded where necessary by the Group's significant cash resources, but over time as the level of contract holder assets is built up, the annual management charges that are earned from the Group's newer products will become sufficient to sustain new business growth and dividends.

During 2022, the Group invested £4.2m (2021: £3.3m) as part of a project to replace its administration systems. These costs are capitalised as computer software on the Group's consolidated balance sheet. 

Net cash inflows before dividends of £5.3m have improved from 2021 (£3.6m) and are closer to covering in full the current dividend of £6.1m.

Overall Group cash and deposits have increased from £63.5m at 30 June 2021 to £74.5m at 30 June 2022. The increase is primarily driven by an increase in cash which is due to be paid out to contract holders as result of product maturities and redemptions.

The following non-GAAP tables summarise the Group's own cash flows in the year:

The below table reconciles the key lines for the current year in the above non-GAAP cash flow to the key lines in the consolidated cash flow.

Group bank deposits and money market funds

The Group holds its liquid assets in highly-rated money market liquidity funds and with a wide range of deposit institutions to minimise market risk. Deposits totalling £15.6m (2021: £6.8m) have original maturity dates typically greater than 3 months and are therefore excluded from the definition of "cash and cash equivalents" under IFRS and are instead included within 'Deposits and money market funds' in the consolidated balance sheet. The following table summarises the total shareholder cash and deposits at the balance sheet date.

Abridged consolidated balance sheet

The consolidated balance sheet presented under IFRS reflects the financial position of the Group at 30 June 2022. As a result of its method of presentation, the consolidated balance sheet incorporates the financial assets held to back the Group's liability to contract holders, and also incorporates the net liability to those contract holders of £1,092.3m (2021: £1,224.2m). Additionally, that portion of the Group's capital that is held in bank deposits is disclosed in "cash and cash equivalents" based on original maturity terms, as noted above.

The abridged consolidated balance sheet presented below, adjusted for those differences in disclosure, allows a better understanding of the Group's own capital position.

Deferred origination costs

The deferral of origination costs reflects that the Group will earn fees over the long-term from contracts issued in a given financial year. These costs are recoverable out of future net income from the relevant contract and are charged to the consolidated statement of comprehensive income on a straight-line basis over the life of each contract.

The movement in value over the financial year is summarised below.

Deferred income

The treatment of deferred income ensures that contract fees are taken to the consolidated statement of comprehensive income in equal instalments over the longer-term, reflecting the services to be provided over the period of the contract. This is consistent with the treatment of deferred origination costs. Deferred income at the balance sheet date is the unamortised balance of accumulated initial amounts received on new business.

The proportion of income deferred in any one year is dependent upon the mix and volume of new business flows in previous years. The Group's focus on regular premium business means that these fees are received over the initial period of the contract, rather than being received up front, as is often the case with single premium contracts.

The majority of initial fees collected during the year relates to charges taken from contracts issued in prior financial years demonstrating the cash generative nature of the business. Regular premium contracts issued in this financial year will generate the majority of their initial fees over the next 18 months on average.

The movement in value of deferred income over the financial year is summarised below.

CONTRACT HOLDER Assets under administration

In the following paragraphs, contract holder assets under administration ("AuA"), refers to net assets held to cover financial liabilities, as analysed in note 17 to the consolidated financial statements presented under IFRS. Such assets are selected by or on behalf of contract holders to meet their investment needs.

The Group receives investment inflows to its AuA from single and regular premium contracts which are offset by withdrawals, charges, premium holidays affecting regular premium policies and by market valuation movements.

The majority of premium contributions are designated in currencies other than sterling, reflecting the wide geographical spread of those contact holders. The currency composition of AuA at the balance sheet date is similar to that as at 30 June 2021, with 71% of AuA designated in US dollar (2021: 68%) and 8% in euro (2021: 10%).

Certain collective investment schemes linked to customers' contracts can from time to time become illiquid, suspended or be put into liquidation. In such cases, the Directors are required to exercise their judgement in relation to the fair value of these assets. The cumulative impact on the balance sheet is not material.

The value of AuA at 30 June 2022 was £1,092.3m, 10.8% lower than 30 June 2021. During 2022, global stock markets fell in value largely due to economic concerns arising out of the Russia/Ukraine conflict and the impact of monetary tightening with high levels of inflation. Significantly lower single premiums were somewhat offset by lower withdrawals.

The following table summarises the movements in the year: 

The analysis of AuA held by each Group subsidiary to cover financial liabilities is as follows:

Assets acquired by Hansard Worldwide are administered by Hansard International and therefore are included within Hansard International's total AuA.

Since it closed to new business in 2013, Hansard Europe's AuA has been declining broadly in line with expectations as contracts are surrendered or mature.

DIVIDENDS

An interim dividend of 1.8p per share was paid in April 2022. This amounted to £2.5m.

The Board has resolved to recommend a final dividend of 2.65p per share (2021: 2.65p) for shareholder approval at the AGM. In making this recommendation, the Board has carefully considered its current and future cash flows, the risks and potential impacts introduced by Covid-19 and the on-going Russia-Ukraine conflict, the outlook for future growth and profitability and the views of key stakeholders, including shareholders and regulators. Subject to approval at the AGM, this dividend will be paid on 10 November 2022.

complaints and potential litigation

In valuation issues such as those referred to above, financial services institutions can be drawn into disputes in cases where the performance of assets selected directly by or on behalf of contract holders through their advisors fails to meet their expectations. This is particularly relevant in the case of more complex products distributed throughout Europe prior to 2014.

Even though the Group have never given any investment advice, as this is left to the contract holder directly or through an agent, advisor or an entity appointed at their request or preference, the Group has been subject to a number of complaints in relation to the performance of assets linked to contracts.

As at 30 June 2022, the Group had been served with cumulative writs with a net exposure totalling €24.6m, or £21.2m in sterling terms (30 June 2021: €26.5m / £22.7m) arising from contract holder complaints and other asset performance-related issues. These are disclosed as contingent liabilities in note 26 to the consolidated financial statements. The primary reason for the reduction in contingent liabilities relates to a significant case which was covered by our insurance cover which was agreed to be settled by our insurers. This reduced our pre-insurance contingent liabilities by £2.9m.

During the year, the Group successfully defended twenty-four cases with net exposures of approximately £3.2m, eleven of which have been appealed by the plaintiffs (2021: successfully defended sixteen cases with net exposures of £1.6m). These successes continue to affirm confidence in the Group's legal arguments.

Our policy is to maintain contingent liabilities even where we win cases in the court of first instance if such cases have been subsequently appealed. This includes our largest single case in Belgium.

We have previously noted that we expect a number of our larger claims to ultimately be covered by our Group insurance cover. During FY 2022 we recorded £0.5m in insurance recoveries in relation to litigation expenses. We expect such reimbursement to continue during the course of those claims. 

As a result we also expect that a significant amount of the £22.7m of contingent liabilities referred to above would be covered by insurance should those cases be ruled against us. We continue to estimate insurance coverage to be in the range of £3m to £10m.

While it is not possible to forecast or determine the final results of such litigation, based on the pleadings and advice received from the Group's legal representatives and experience with cases previously successfully defended, we believe we have a strong chance of success in defending these claims. Other than smaller cases where based on past experience it is expected a settlement might be reached, the writs have therefore been treated as contingent liabilities and are disclosed in note 26 to the consolidated financial statements. Where there is an established pattern of settlement for a grouping of claims, a provision has been made for the remaining exposures and included in note 20 'Provisions'.

Net asset value per shaRE

The net asset value per share on an IFRS basis at 30 June 2022 is 16.1p (2021: 17.9p) based on the net assets in the Consolidated Balance Sheet divided by the number of shares in issue, being 137,557,079 ordinary shares (2021: 137,557,079).

Risk management and internal control

The Group is naturally exposed to both existing and emerging internal and external risks as it pursues its strategic and business plan objectives. All such risks, are identified, assessed, monitored, managed and reported under the governance, risk management and internal control protocols, which constitute the Group's ERM Framework, and which remain central to the Board's oversight, direction and control of the Company.

For the year ended 30 June 2022 the Board has remained cognisant of the range of possible societal, economic and corporate level risks attaching to recovery from the pandemic and any threats these might continue to pose. Particular attention has been maintained on diverging trajectories and approaches within and between jurisdictions and the capacity for these risks to impede the visibility of other emerging challenges, including climate transition risks, increased cyber vulnerabilities, greater barriers to international mobility, supply chain disruptions, protectionism, geopolitical instabilities and inflationary pressures.

Concurrently, the escalation of the Russia-Ukraine conflict during Q3 of the reporting period has remained prominent on the risk agenda. In addition to this, the attention of the Board has been focused on the potential impacts to economic and global financial markets, the exacerbation of existing macroeconomic challenges, such as rising inflation and supply chain disruption and the rapid escalation of cyber risks. The nature and duration of uncertain and unpredictable events, such as further escalation of the conflict, additional sanctions and reactions to ongoing developments in global financial markets remain under close scrutiny. 

Approach

Having regard to the Financial Reporting Council's 'Guidance on Risk Management, Internal Control and Related Financial and Business Reporting', the ERM Framework encompasses the policies, processes, tasks, reporting conventions, behaviours and other aspects of the Group's environment, which cumulatively:

· Support the Board's assessment of existing and emerging risks, together with combinations of those risks in the form of plausible stresses and scenarios, which have the potential to threaten the Company's business model, future performance, solvency, liquidity or reputation. Such assessment includes analysis of the likelihood, impact and time horizon over which such risks, or combinations of risks might emerge or crystallise.

· Facilitate the effective and efficient operation of the Group and its subsidiary entities by enabling a consolidated and comprehensive approach to the management of risks across the Group, with specific attention to aggregate impacts and effects, enabling appropriate responses to be made to significant business, operational, financial, compliance and other risks to business objectives, so safeguarding the assets of the Group.

· Help to ensure the quality of internal and external reporting. This requires the maintenance of proper records and processes that generate a flow of timely, relevant and reliable information from within and outside the Group, enabling the Board to form their own view on the effectiveness of risk management and internal control arrangements through the regular provision of relevant information and assurances.

· Seek to ensure continuous compliance with applicable laws and regulations as well as with internal policies governing the conduct of business.

· Drive the cultural tone and expectations of the Board in respect of governance, risk management and internal control arrangements and the delegation of associated authorities and accountabilities.

The Board has overall responsibility for the effective operation of the ERM Framework and the Directors retain responsibility for determining, evaluating and controlling the nature and extent of the risks which the Board is willing to accept across the spectrum of risk types, taking account of varying levels of strategic, financial and operational stresses, potential risk scenarios and emerging as well as existing risk exposures. This approach ensures that risk appetite remains an integral element of decision-making by both the Board and the Executive Management Team, including in the setting of strategy, ongoing business planning and business change initiatives. 

The ERM Framework has been designed to be appropriate to the nature, scale and complexity of the Group's business at both corporate and subsidiary level. The Framework components are reviewed on at least an annual basis and refined, if necessary, to ensure they remain fit for purpose in substance and form and continue to support the Directors' assessment of the adequacy and effectiveness of the Group's risk management and internal control systems. Such assessment depends upon the Board maintaining a thorough understanding of the Group's risk profile, including the types, characteristics, interdependencies, sources and potential impact of both existing and emerging risks on an individual and aggregate basis.

During the year ended 30 June 2022 a new 'Group Risk Forum' (GRF) was established to replace the pre-existing Executive and Operational Risk Committees, as part of the annual ERM Framework review. The GRF is designed to further enhance the evidencing and demonstration of risk ownerships, ensuring responsibilities and accountabilities for risk management and risk-based decision making are transparent and proactively owned at all business levels. The GRF has also helped to drive clearer and more dynamic interfaces between the governance, risk management and internal control conventions of the ERM Framework and those constituting the Group and subsidiary ORSA cycles.

The disciplines of the ERM Framework seek to coordinate risk management in respect of the Group as a whole, including for the purpose of ensuring compliance with capital adequacy requirements, liquidity adequacy requirements and regulatory capital requirements, in line with the Isle of Man Financial Services Authority Risk-Based Capital Regime.

Governance, risk management and internal control protocols remain structured upon a 'three lines' model, which determines how specific duties and responsibilities are assigned and coordinated. Front line management are responsible for identifying risks, executing effective controls and escalating risk issues and events to the Group's Control Functions. The Group Risk and Compliance Functions oversee and work in collaboration with the First Line, ensuring that the business is conducted in a manner consistent with rules, limits and risk appetite constraints. The Group Internal Audit Department provides independent assurance services to the Board and Executive Management Team on the adequacy and effectiveness of the Group's governance, risk management and internal control arrangements.

The ERM Framework seeks to add value through embedding risk management and effective internal control systems as continuous and developing processes within strategy setting, programme level functions and day-to-day operating activities. The ERM Framework also acknowledges the significance of organisational culture and values in relation to risk management and their impact on the overall effectiveness of the internal control framework.

Emerging Risks

The ERM Framework promotes the pursuit of its overarching performance, information and compliance objectives through focus on five interrelated elements, which enable the management of risk at strategic, programme and operational level to be integrated, so that layers of activity support each other. The five interrelated elements are defined as: -

· Management oversight and the control culture

· Risk recognition and assessment

· Control activities and segregation of duties

· Information and communication

· Monitoring activities and correcting deficiencies

Risk management processes are undertaken on both a top-down and bottom-up basis, structured to promote improved organisational performance through better integration of strategy, risk, control and governance. 

The top-down aspect involves the Board assessing, analysing and evaluating what it believes to be the principal risks facing the Group, with focus on current and forward-looking risks. The bottom-up approach involves the identification, review and monitoring of risk issues and emerging risks at functional and divisional levels, with analysis and formal reporting to the Group Risk Forum on a quarterly basis and onward analytical reporting to the Board. 

Stress and scenario testing is used to explore emerging risks as well as to analyse and assess any changes in existing aspects of the 'Risk Universe', which are monitored via the ERM Framework. Such analyses use both quantitative tests and qualitative assessments to consider reasonably plausible risk events, including those stresses and scenarios that could lead to failure of the business, approximated to the range of impact types which can be envisaged. The results of the stress and scenario testing are considered and explored by the Group Risk Forum, the Audit and Risk Committee and the Board, as necessary and appropriate.

The system of internal control is designed to understand and manage rather than eliminate risk of failure to achieve business objectives and can only provide reasonable, rather than absolute assurance against material misstatement or loss.

Review of risk management and internal control systems

The results of the risk management processes combine to facilitate identification of the principal business, financial, operational and compliance risks and any associated key risks at a subordinate level. Established reporting cycles enable the Board to maintain oversight of the quality and value of risk management and internal control activities throughout the year and ensure that the entirety of the governance, risk management and internal control frameworks, which constitute the ERM Framework, are operating effectively and as intended. These processes have been in place throughout the year under review and up to the date of this report.

Independently of its quarterly and ad hoc risk reporting arrangements the Board has conducted its annual review of the effectiveness of the Company's risk management and internal control systems including financial, operational and compliance controls. This review is undertaken in collaboration with the Audit and Risk Committee and is based upon analysis and evaluation of:

· Attestation reporting from the key subsidiary companies of the Group as to the effective functioning of the risk management and internal control frameworks and the ongoing identification and evaluation of risk within each subsidiary.

· Formal compliance declarations from senior managers at divisional level that key risks are being managed appropriately within the functional and operational areas falling under their respective span of control and that controls have been examined and are effective.

· The cumulative results of cyclical risk reporting by senior and executive management via the GRF, covering financial, operational and compliance controls.

· Independent assurance work by the Group Internal Audit Department to identify any areas for enhancements to internal controls and work with management to define associated action plans to deliver them.

The Board has determined that there were no areas for enhancement which constituted a significant weakness for the year under review and they are satisfied that the Group's governance, risk management and internal control systems are operating effectively and as intended.

Financial reporting process

Integral to ERM monitoring and reporting arrangements are the conventions which ensure that the Board maintains a continuous understanding of the financial impacts of the Group failing to meet its objectives, due to crystallisation of an actual or emerging risk, or via the stress and scenario events, which the Board considers to be reasonably plausible. This includes those stresses and scenarios that could lead to a failure of the business. Planning and sensitivity analyses incorporate Board approval of forecast financial and other information. The Board receives regular representations from Senior Executives in this regard.

Performance against targets is reported to the Board quarterly through a review of Group and subsidiary company results based on accounting policies that are applied consistently throughout the Group. Financial and management information is prepared quarterly by the Chief Financial Officer (CFO) and presented to the Board and Audit Committee. The members of the Audit Committee review the interim financial statements for the half year ending 31 December and for the full financial year and meet with the CFO to discuss and challenge the presentation and disclosures therein. Once the draft document is approved by the Audit Committee, it is reviewed by the Board before final approval at a Board meeting.

Outsourcing

The majority of investment dealing and custody processes in relation to contract holder assets are outsourced to Capital International Limited (CIL), a company authorised by the Isle of Man Financial Services Authority and a member of the London Stock Exchange.

These processes are detailed in a formal contract that incorporates notice periods and a full exit management plan. Delivery of services under the contract is monitored by a dedicated Relationship Manager against a documented Service Level Agreement, which includes Key Performance Indicators.

CIL is required to confirm on a monthly basis that no material control weaknesses have been identified in their operations; this is overseen via service delivery monitoring performed by the Relationship Manager. Each year CIL are required to confirm and evidence the adequacy and effectiveness of their internal control framework through a formal Assurance Report on Internal Controls, with an external independent review performed every second year. The last such independent report was issued on 9 July 2021 and did not reveal any material control deficiencies in the relevant period. CIL's Internal Audit department conducted the 2022 review and issued their report dated 30 June 2022. This report did not reveal any material control deficiencies for the period.

Risks relating to the Group's financial and other exposures

Hansard's business model involves the controlled acceptance and management of risk exposures. Under the terms of the unit-linked investment contracts issued by the Group, the contract holder bears the investment risk on the assets in the unit-linked funds, as the policy benefits are directly linked to the value of the assets in the funds. These assets are administered in a manner consistent with the expectations of the contract holders. By definition, there is a precise match between the investment assets and the contract holder liabilities, and so the market risk and credit risk lie with contract holders.

The Group's exposure on this unit-linked business is limited to the extent that income arising from asset management charges and commissions is generally based on the value of assets in the funds, and any sustained falls in value will reduce earnings. In addition, there are certain financial risks (credit, market and liquidity risks) in relation to the investment of shareholders' funds. The Group's exposure to financial risks is explained in note 3 to the consolidated financial statements.

The Board believes that the principal risks facing the Group's earnings and financial position are those risks which are inherent to the Group's business model and operating environment. The regulatory landscape continues to evolve at both a local and international level and the risk management and internal control frameworks of the Group must remain responsive to developments which may change the nature, impact or likelihood of such risks, or the time horizon within which they might crystallise.

Principal Risks

The following table sets out the principal inherent risks that may impact the Group's strategic objectives, profitability or capital and provides an overview of how such risks are managed or mitigated. The Board robustly reviews and considers its principal risks on at least an annual basis and for the year ended 30 June 2022 have continued to consider specifically the likelihood, impacts and timescales within which such risks might crystallise, together with assessment of contingent uncertainties and any emerging risks.

Further detail around financial risks is outlined in note 3 (Financial Risk Management) to the consolidated financial statements.

Philip Kay

Chairman

21 September 2022

Consolidated Statement of Changes in Equity

for the year ended 30 June 2022

Notes to the consolidated financial statements

1 General Information

Hansard Global plc ("the Company") is a limited liability company, incorporated in the Isle of Man, whose shares are publicly traded. The principal activity of the Company is to act as the holding company of the Hansard group of companies. The activities of the principal operating wholly owned subsidiaries include the transaction of life assurance business and related activities. Hansard Europe was closed to new business with effect from 30 June 2013. The principal subsidiaries of the Company are as follows:

Company name Incorporated Activity

Hansard International Limited Isle of Man Life Assurance

Hansard Worldwide Limited The Bahamas Life Assurance

Hansard Europe Designated Activity Company Ireland Life Assurance

Hansard Administration Services Limited Isle of Man Administration Services

Hansard Development Services Limited Isle of Man Marketing and

Development Services

The registered office of the Company is 55 Athol Street, Douglas, Isle of Man, IM99 1QL.

The Company has its primary listing on the London Stock Exchange.

1.1 Principal accounting policies

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below or, in the case of accounting policies that relate to separately disclosed values in the primary statements, within the relevant note to these consolidated financial statements. These policies have been consistently applied, unless otherwise stated.

1.2 Basis of presentation

The consolidated financial statements have been prepared in accordance with UK Adopted International Accounting Standards ("IFRSs") (previously IFRS as adopted by the European Union), International Financial Reporting Standards Interpretations Committee ("IFRSIC") interpretations, and with the Isle of Man Companies Acts 1931 to 2004. The financial statements have been prepared under the historical cost convention as modified by the revaluation of financial investments and financial liabilities at fair value through profit or loss. The Group has applied all International Financial Reporting Standards adopted by the United Kingdom and effective at 30 June 2022.

The Group's products are designated as investment rather than insurance products under IFRS 4 'Insurance Contracts' as they do not transfer significant insurance risk. 

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting year. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year or in the year of the revision and future years if the revision affects both current and future years.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 2.

Except where otherwise stated, the financial statements are presented in pounds sterling, the functional currency of the Company, rounded to the nearest one hundred thousand pounds.

The following new standards, amendments and interpretations are in issue but not yet effective and have not been early adopted by the Group and are not expected to have a significant impact;

· Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37) - effective from January 2022

· 2022 Annual Improvements to IFRS Standards 2018 - 2020 - effective from January 2022

· Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) - effective from January 2022

· Reference to the Conceptual Framework (Amendments to IFRS 3) - effective from January 2022

· IFRS 17 Insurance Contracts - effective from January 2023

· Classification of liabilities as current or non-current (Amendments to IAS 1) - effective from January 2023

· Amendments to IFRS 17 - effective from January 2023

· Disclosure of Accounting Policies (Amendments to IAS1 and IFRS Practice Statement 2) - effective from January 2023

· Definition of Accounting Estimate (Amendments to IAS 8)

· Deferred Tax related Asset and Liabilities Arising from a Single Transaction - Amendments to IAS 12 Income Taxes - effective 1 January 2023

· Sale or Contribution of Assets between an Investor and its Associate or Joint Ventures (Amendments to FRS 10 and IAS 28)

There are no other standards, amendments or interpretations to existing standards that are not yet effective, that would have a material impact on the Group's reported results.

1.3 Basis of consolidation

The Group's financial statements consolidate those of the parent company and all its subsidiaries as at 30 June 2022.

All transactions between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

1.4 Going concern

As shown within the Business and Financial Review, the Group's capital position is strong and well in excess of regulatory requirements. The long-term nature of the Group's business results in considerable recurring cash inflows arising from existing business. The Directors believe that the Group is well placed to manage its business risks successfully.

The Directors are satisfied that the Company and the Group have adequate resources to continue to operate as a going concern for the foreseeable future and have prepared the consolidated financial statements on that basis.

In making this statement, the Directors have given specific consideration to the impact on the business arising out of the Covid-19 pandemic, the Russia-Ukraine conflict and the resulting economic conditions. They have reviewed financial forecasts that include plausible downside scenarios such as reduced levels of new business and higher expenses arising from increased inflation. These show the Group continuing to generate profit over the next 12 months and that the Group has sufficient cash reserves to enable it to meet its obligations as they fall due.

The Directors expect the acquisition of new business will continue to be challenging in the current climate with the direct impact of the pandemic turning towards wider economic challenges with inflation and interest rates increasing. The impact of lower new business is not immediate to the Group's profit and cash flows and therefore allows for longer term adjustments to operations and the cost base. Long periods of lower new business or indeed lower AuA would be addressed by reducing the cost base and where necessary, the dividend paid.

The following factors are considered as supportive to the Group's resilience to external market and economic challenges:

· The Group's business model focuses on long term savings products, a majority of which are regular premium paying products which continue to receive cash inflows regardless of the amount of new business sold. 

· The Group earns approximately a third of its revenues from asset-based income which is not immediately dependent on sourcing new business. 

· New business channels are geographically dispersed and therefore less exposed to specific regional challenges such as geo-political conflicts. 

· The largest expense associated with new business is commission expenditure which reduces directly in line with reduced sales. 

· The Group has, and continues to the date of this report to have, a strong capital position with significant levels of liquidity and cash (as outlined in the Business and Financial Review).

· The business has demonstrated operational resilience in being able to operate remotely from its offices without any material impact to processing and servicing levels. Its control environment continued to operate effectively during this time.

· The Group places its shareholder assets into conservative, highly-liquid, highly-rated bank deposits and money market funds. These are typically not subject to price fluctuation and protect the Group's assets against potential market volatility. 

· The Group has no borrowings.

2 Critical accounting estimates and judgements in applying accounting policies

Estimates, assumptions and judgements are used in the application of accounting policies in these financial statements. Critical accounting estimates are those which involve the most complex or subjective judgements or assessments. Estimates, assumptions and judgements are evaluated continually and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes may differ from assumptions and estimates made by management.

2.1 Accounting estimates and assumptions

The principal areas in which the Group applies accounting estimates and assumptions are and the period and method of amortisation of deferred origination costs and deferred income. Estimates are also applied in determining the recoverability of deferred origination costs.

2.1.1 Amortisation of deferred origination costs and deferred income

Deferred origination costs and deferred income are amortised on a straight-line basis over the estimated life of the underlying investment contract. Estimates are made based on recent experience.

2.1.2 Recoverability of deferred origination costs

Formal reviews to assess the recoverability of deferred origination costs on investment contracts are carried out at each balance sheet date to determine whether there is any indication of impairment based on the estimated future income levels.

If, based upon a review of the remaining contracts, there is any indication of irrecoverability or impairment, the contract's recoverable amount is estimated. Impairment losses are reversed through the consolidated statement of comprehensive income if there is a change in the estimates used to determine the recoverable amount. Such losses are reversed only to the extent that the contract's carrying amount does not exceed the carrying amount that would have been determined, net of amortisation where applicable, if no impairment loss had been recognised.

2.1.3 Fair value of financial investments

Where the Directors determine that there is no active market for a particular financial instrument, fair value is assessed using valuation techniques based on available relevant information and an appraisal of all associated risks as detailed in Note 3.

2.2 Judgements

The primary areas in which the Group has applied judgement in applying accounting policies are as follows:

· to determine whether a provision or contingent liability is required in respect of any pending or threatened litigation;

· the type of management expenses that are treated as origination costs to be deferred. Any other expenses are expensed as incurred.

 3 Financial risk management

Risk management objectives and risk policies

The Group's objective in the management of financial risk is to minimise, where practicable, its exposure to such risk, except when necessary to support other objectives. The Group seeks to manage risk through the operation of unit-linked business whereby the contract holder bears the financial risk. In addition, shareholder assets are invested in highly rated investments.

Overall responsibility for the management of the Group's exposure to risk is vested in the Board. To support it in this role, an Enterprise Risk Management ("ERM") framework is in place comprising risk identification, risk assessment, control and reporting processes. Additionally, the Board and the Boards of subsidiary companies have established a number of Committees with defined terms of reference. These are the Audit & Risk, Executive and Investment Committees. Additional information concerning the operation of the Board Committees is contained in the Corporate Governance section of this Annual Report and Accounts.

The main significant financial risks to which the Group is exposed are set out below. For each category of risk, the Group determines its risk appetite and sets its investment, treasury and associated policies accordingly.

3.1 Market risk

This is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices, analysed between price, interest rate and currency risk. The Group adopts a risk averse approach to market risk, with a stated policy of not actively pursuing or accepting market risk except where necessary to support other objectives. However, the Group accepts the risk that the fall in equity or other asset values, whether as a result of price falls or strengthening of sterling against the currencies in which contract holder assets are denominated, will reduce the level of annual management charge income derived from such contract holder assets and the risk of lower future profits.

Sensitivity analysis to market risk

The Group's business is unit-linked and the direct associated market risk is therefore borne by contract holders (although there is a secondary impact as shareholder income is dependent upon the fair value of contract holder assets). Other financial assets and liabilities held outside of contract holder unitised funds primarily consist of units in money market funds, cash and cash equivalents, and other assets and liabilities. Cash held in unitised money market funds and at bank is valued at par and is unaffected by movements in interest rates. Other assets and liabilities are similarly unaffected by market movements.

As a result of these combined factors, the Group's financial assets and liabilities held outside unitised funds are not materially subject to market risk, and movements at the reporting date in interest rates and equity values have an immaterial impact on the Group's profit after tax and equity. Future revenues from annual management charges may be affected by movements in interest rates, foreign currencies and equity values. The Group does not control the asset selection strategy as assets are chosen by the contract holders.

(a) Price risk

Unit linked funds are exposed to securities price risk as the investments held are subject to prices in the future which are uncertain. The fair value of financial assets (designated at fair value through profit or loss) exposed to price risk at 30 June 2022 was £1,009.7m (2021: £1,148.6m). In the event that investment income is affected by price risk then there will be an equal and opposite impact on the value of the changes in provisions for investment contract liabilities in the same accounting period. The impact on the profit or loss before taxation in a given financial year is negligible.

An overall change in the market value of the unit-linked funds would affect the annual management charges accruing to the Group since these charges, which are typically 1% per annum, are based on the market value of contract holder assets under administration. The approximate impact on the Group's profits and equity of a 10% change in fund values, either as a result of price, interest rate or currency fluctuations, is £1.7m (2021: £1.7m).

(b) Interest rate risk

Interest rate risk is the risk that the Group is exposed to lower returns or loss as a direct or indirect result of fluctuations in the value of, or income from, specific assets arising from changes in underlying interest rates.

The Group is primarily exposed to interest rate risk on the balances that it holds with credit institutions and in money market funds. The Group partially mitigates its exposure to cash flow interest rate risk by placing a proportion of its cash holdings on longer-term, fixed-rate deposits.

Taking into account the proportion of Group funds held on longer-term, fixed-rate deposits, a change of 1% per annum in interest rates will result in an increase or decrease of approximately £0.7m (2021: £0.6m) in the Group's annual investment income and equity.

A summary of the Group's liquid assets at the balance sheet date is set out in note 3.2.

(c) Currency risk

Currency risk is the risk that the Group is exposed to higher or lower returns as a direct or indirect result of fluctuations in the value of, or income from, specific assets and liabilities arising from changes in underlying exchange rates.

(c)(i) Group foreign currency exposures

The Group is exposed to currency risk on the foreign currency denominated bank balances, contract fees receivable and other liquid assets that it holds to the extent that they do not match liabilities in those currencies. The impact of currency risk is minimised by regular conversion of excess foreign currency funds to sterling. The Group does not hedge foreign currency cash flows. At the balance sheet date the Group had exposures in the following currencies:

The approximate effect of a 5% change: in the value of US dollars to sterling is £0.1m (2021: £0.1m); in the value of the euro to sterling is less than £0.1m (2021: less than £0.1m); and in the value of the yen to sterling is less than £0.1m (2021: less than £0.1m).

(c)(ii) Financial investments by currency

Certain fees and commissions are earned in currencies other than sterling, based on the value of financial investments held in those currencies from time to time. 

The sensitivity of the Group to the currency risk inherent in investments held to cover financial liabilities under investment contracts is incorporated within the analysis set out in (a) above.

At the balance sheet date the analysis of financial investments by currency denomination is as follows, US dollars: 71% (2021: 68%); euro: 8% (2021: 10%); sterling: 21% (2021: 21%); other: 1% (2021: 1%).

3.2 Credit risk

Credit risk is the risk that the Group is exposed to lower returns or loss if another party fails to perform its financial obligations to the Group. The Group has adopted a risk averse approach to such risk and has a stated policy of not actively pursuing or accepting credit risk except when necessary to support other objectives.

The clearing and custody operations for the Group's security transactions are mainly concentrated with one broker, namely Capital International Limited, a member of the London Stock Exchange. At 30 June 2022 and 2021, substantially all contract holder cash and cash equivalents, balances due from investment brokers and financial investments are placed in custody with Capital International Limited. These operations are detailed in a formal contract that incorporates notice periods and a full exit management plan. Delivery of services under the contract is monitored by a dedicated relationship manager against a documented Service Level Agreement and Key Performance Indicators, and attested periodically by external advisors. Investment risk is borne by the contract holder.

The Group has an exposure to credit risk in relation to its deposits with credit institutions and its investments in unitised money market funds. To manage these risks; deposits are made, in accordance with established policy, with credit institutions having a short-term rating of at least F1 or P1 from Fitch IBCA and Moody's respectively and a long-term rating of at least A or A3. Investments in unitised money market funds are made only where such fund is AAA rated. Additionally, maximum counterparty exposure limits are set both at an individual subsidiary company level and on a Group-wide basis.

These assets are considered to have a high degree of credit worthiness and no assets of a lower credit worthiness are held. The following table sets out information about the credit quality of the Group's deposits with credit institutions and its investments in unitised money market funds.

Within cash at bank, the primary balances were invested in credit institutions as follows: £3.9m with a rating of AA+, £10.1m with a rating of A+ and £9.0m with a rating of A.

Financial assets held at amortised cost, as disclosed in the table above, are impaired using an expected credit loss model. The model splits financial assets into those which are performing, underperforming and non-performing based on changes in credit quality since initial recognition. At initial recognition financial assets are considered to be performing. They become underperforming where there has been a significant increase in credit risk since initial recognition, and non-performing when there is objective evidence of impairment. Twelve months of expected credit losses are recognised in the statement of comprehensive income and netted against the financial asset in the statement of financial position for all performing financial assets, with lifetime expected credit losses recognised for underperforming and non-performing financial assets.

Trade receivables are designated as having no significant financing component. The Group applies the IFRS 9 simplified approach to measuring expected credit losses for trade receivables by using a lifetime expected loss allowance.

Expected credit losses are based on the historic levels of loss experienced for the relevant financial assets, with due consideration given to forward looking information. The Group expected credit loss charged in the year was £1.4m (2021: £0.5m) with the balance at 30 June 2022 being £1.8m. This amount relates to balances likely to be irrecoverable from funds in the process of liquidation. This does not affect the expected loss position of other financial assets.

There have been no changes in the assets in the year ended 30 June 2022 attributable to changes in credit risk (30 June 2021: nil).

At the balance sheet date, an analysis of the Group's cash and deposit balances was as follows:

3.3 Liquidity risk

Liquidity risk is the risk that the Group, though solvent, does not have sufficient financial resources to enable it to meet its obligations as they fall due, or can only secure them at excessive cost. The Group is averse to liquidity risk and seeks to minimise this risk by not actively pursuing it except where necessary to support other objectives.

The Group's objective is to ensure that it has sufficient liquidity over short-term (up to one year) and medium-term time horizons to meet the needs of the business. This includes liquidity to cover, amongst other things, new business costs, planned strategic activities, servicing of equity capital as well as working capital to fund day-to-day cash flow requirements.

Liquidity risk is principally managed in the following ways:

· Assets of a suitable marketability are held to meet contract holder liabilities as they fall due.

· Forecasts are prepared regularly to predict required liquidity levels over both the short-term and medium-term.

The Group's exposure to liquidity risk is considered to be low since it maintains a high level of liquid assets to meet its liabilities.

3.3.1 Undiscounted contractual maturity analysis

Set out below is a summary of the undiscounted contractual maturity profile of the Group's assets.

There is no significant difference between the value of the Group's assets on an undiscounted basis and the balance sheet values.

Assets held to cover financial liabilities under investment contracts are deemed to have no fixed maturity since the corresponding unit-linked liabilities are repayable and transferable on demand. In certain circumstances the contractual maturities of a portion of the assets may be longer than one year, but the majority of assets held within the unit-linked funds are highly liquid. The Group actively monitors fund liquidity.

Set out below is a summary of the undiscounted contractual maturity profile of the Group's liabilities.

Any difference between the total liabilities in the above table and the total liabilities per the consolidated balance sheet represents the impact of discounting liabilities with a maturity profile of more than one year.

3.4 Insurance risk

Insurance risk is the risk of loss arising from actual experience being different than that assumed when an insurance product was designed and priced. For the Group, the key insurance risks are lapse risk, expense risk and mortality risk. However, the size of insurance risk is not deemed to be materially significant. From an accounting perspective all contracts have been classified as investment contracts.

3.4.1 Lapse risk

A key risk for investment contracts is policyholder behaviour risk - in particular the risk that contracts are surrendered or significant cash withdrawals are made before sufficient fees have been collected to cover up-front commissions paid by the Group. The risk is mitigated by charging penalties on the early surrender of contracts.

3.5 Classification and subsequent measurement of financial assets and liabilities

The Group recognises deposits with financial institutions and loans and borrowings on the date on which they are originated. All other financial instruments are recognised on the trade date, which is the date on which the Group becomes a part to the contractual provisions of the instrument.

A financial asset or financial liability is initially measured at fair value plus, for a financial asset or financial liability not measured at 'fair value through profit and loss' ("FVTPL"), transaction costs that are directly attributable to its acquisition or issue.

On initial recognition, a financial asset is classified as measured at amortised cost, 'fair value through other comprehensive income' ("FVOCI") or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

· It is held within a business model whose objective is to hold assets to collect contractual cash flows; and

· Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest.

A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

· It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

· Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest.

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. The classification of each financial asset and liability is commented on within each respective financial statement note. As at 30 June 2022 and 30 June 2021, only financial assets measured at amortised cost and FVTPL are held.

The subsequent measurement of each class of financial assets is defined in the below table:

On initial recognition, a financial liability is designated as amortised cost or FVTPL. The criteria for classification and subsequent measurement mirrors that of the financial assets, albeit the classification of 'FVOCI' does not exist for financial liabilities. Therefore, any liabilities which do not meet the amortised cost classification criteria, are designated as FVTPL.

3.6 Fair value of financial assets and liabilities

The Group closely monitors the valuation of assets in markets that have become less liquid. Determining whether a market is active requires the exercise of judgement and is determined based upon the facts and circumstances of the market for the instrument being measured. Where the Directors determine that there is no active market for a particular financial instrument, for example where a particular collective investment scheme is suspended from trading, fair value is assessed using valuation techniques based on available, relevant, information and an appraisal of all associated risks. When a collective investment scheme recommences regular trading, the value would be transferred back to Level 1. This process requires the exercise of significant judgement on the part of Directors.

Due to the linked nature of the contracts administered by the Group's insurance undertakings, any change in the value of financial assets held to cover financial liabilities under those contracts will result in an equal and opposite change in the value of contract liabilities. The separate effect on financial assets and financial liabilities is included in investment income and investment contract benefits, respectively, in the consolidated statement of comprehensive income.

IFRS 13 requires the Group to classify fair value measurements into a fair value hierarchy by reference to the observability and significance of the inputs used in measuring that fair value. The hierarchy is as follows:

· Level 1: fair value is determined using quoted prices (unadjusted) in active markets for identical assets.

· Level 2: fair value is determined using inputs other than quoted prices included within Level 1 that are observable for the asset either directly (i.e. as prices) or indirectly (i.e. derived from prices).

· Level 3: fair value is determined using inputs for the asset that are not based on observable market data (unobservable inputs).

The following table analyses the Group's financial assets and liabilities at fair value through profit or loss, at 30 June 2022:

All other financial assets and liabilities are designated as held at amortised cost which approximates to fair value.

During the year ended 30 June 2022, £4.0m of collective investment scheme investments were transferred from Level 1 to Level 2 following a review of their pricing frequency. A further £2.1m of similar assets were reclassified from Level 1 to Level 3 as a result of the same classification review, reflecting that the value of these assets are not based on observable market data.  £43.8m of structured notes were transferred from Level 2 to Level 3 during the year. This move was a reflection of the underlying market volatility in that asset class experienced in the latter part of the financial year and the resulting impact on the observable and unobservable inputs used in the valuation methodologies for this type of security.

Financial liabilities at fair value through profit or loss are classified as level 2 on the basis that they relate to policies investing in financial assets at fair value through profit and loss.

The following tables analyse the Group's financial assets and liabilities at fair value through profit or loss, at 30 June 2021:

During the year ended 30 June 2021, £52.3m of fixed income securities, bonds and structured notes were transferred from Level 1 to Level 2 following a review of their classification. A further £5.2m of similar assets were reclassified from Level 1 to Level 3 as a result of the same classification review, reflecting that the value of these assets are not based on observable market data.