As expected, following our exit from the motor business,
non-charity care and schemes not aligned to our niches, GWP
decreased in the year, falling by 20% to GBP234.0m (2013:
GBP291.3m). While we recognise that GWP has fallen significantly we
are satisfied that we have taken the correct decisions, as
demonstrated by the more consistent underwriting profitability in
the UK over the last two years. Moderate sustainable profitable
growth is being targeted as we build on our strengths and continue
to position ourselves as the insurer of choice in our chosen
segments.
Ireland
Our operations in Ireland generated an underwriting profit of
GBP0.6m, a significant improvement on the 2013 loss of GBP9.1m,
which was driven by performance in the liability portfolio. The
team identified and implemented a series of corrective actions,
commencing in late 2013 and continuing throughout 2014.
These actions included lapsing unprofitable business in selected
niches and, while they resulted in a 12% fall in GWP, before
translation, to GBP11.5m (2013: GBP13.6m), the quality of the
portfolio was improved and there were notable new business wins
during the year. Retention was in line with expectations and the
team was strengthened by proactive recruitment across all
areas.
Australia
Australia reported an underwriting loss of GBP1.1m (2013:
GBP4.2m loss). The improvement in the underwriting performance was
mainly due to the impact of new property reinsurance arrangements
and a reduction in operating expenses. The Australian business
delivered an underlying profit before discount rate movements
relating to reductions in market interest rates. The negative
reserve movements were more than offset by corresponding market
gains in Ansvar Australia's investment portfolio which are not
included within the underwriting result.
A new Chief Executive Officer, Warren Hutcheon, was appointed on
1 May 2014. Following a review of the business, a new operating
model was announced on 1 September 2014. The key objective of the
model is to better align the business with our specialist insurer
strategy and the needs of our broker partners.
In 2014, GWP reduced by 12% to GBP40.1m (2013: GBP45.7m),
primarily due to a 12% weakening of the Australian dollar against
sterling during the year. Retention rates improved significantly in
2014 following the completion of the remediation of the business's
property portfolio in mid-2013 and increasing focus on retaining
core business.
Canada
Our Canadian branch reported an underwriting profit of GBP1.7m
(2013: GBP1.1m loss), as the territory did not suffer the same
levels of catastrophe weather events that had driven the losses in
the previous year.
The 12% fall in the value of the Canadian dollar against
sterling meant that the branch's contribution to Group GWP fell to
GBP39.4m (2013: GBP41.2m) but GWP grew by 7% before translation,
with strong retention rates of 94%, continuing a trend that has
seen its premiums more than double since 2008.
Central operations
Profits from internal reinsurance arrangements in this segment
were offset by corporate costs and a further modest strengthening
of reserves in respect of adverse development reinsurance cover
sold to ACS (NZ) Limited in 2012, resulting in an overall loss of
GBP1.7m (2013: GBP3.7m loss).
Investments
The effects of persistent weak global economic activity and
muted inflation were offset by the monetary policy measures
deployed by the world's major central banks which helped to support
positive returns across most asset classes during the year. Over
the course of 2014, the FTSE All Share Index produced a return of
1.2% while the FTSE 100 Index generated a return of 0.7%. Our UK
equity portfolio increased by 2.7%, outperforming both indices,
reflecting its lower weighting in poorly performing sectors such as
oil and mining.
Government bond yields decreased across the developed world over
the course of the final quarter and gilts followed the global
trend. The prospect of the Bank of England raising base rates has
been pushed further into the future as inflation pressures have
diminished, with wage inflation remaining restrained and falling
commodity prices placing downward pressure on prices. Yields on
corporate bonds reached record lows at the end of the year,
although they failed to keep pace with gilts as credit spreads
widened, reflecting both the deteriorating economic picture
globally and the move towards gilts as risk aversion increased.
Longer dated gilts performed strongly while shorter dated gilts
(<5 years) produced total returns of 2.9%. Our UK bond portfolio
produced a total return of 3.6% in 2014, reflecting good
performance of corporate bonds and preference shares which helped
achieve returns above the shorter dated index.
Investment management
EIM's funds under management grew again in 2014, as new business
inflows and positive market movements saw a 5% growth to
GBP2.3bn.
For a second year in succession EIM attracted nearly GBP100m net
new flows from third parties into Ecclesiastical investment funds.
A further GBP5m was invested into our special charity investment
vehicle. Overall fee income for EIM increased by 11% to GBP14.3m
and pre-tax profits increased to GBP3.2m.
EIM further consolidated its position as a leader in sustainable
and responsible investment, with the company winning the Moneyfacts
Best Ethical Investment Provider Award for a sixth consecutive
year, with it and its funds continuing to win awards, as shown in
the Strategic Report in the full financial statements. EIM was
rated Platinum by Citywire and Andrew Jackson was awarded Fund
Manager of the Year for the UK Growth sector. Across the team our
fund managers continue to be highly rated, with Robin Hepworth, Sue
Round and Chris Hiorns all holding Citywire ratings.
Long-term insurance
As reported last year, Ecclesiastical Life Limited ceased
writing new business from the end of April 2013. The result for
2014 was a small loss of GBP0.2m (2013: GBP0.4m profit) as pressure
on index linked bond yields offset the underlying expected
favourable run-off of the business.
Broking and Advisory
SEIB continued to provide a steady income stream to the Group,
with the acquisition of the business of Lansdown Insurance Brokers
widening its offering to a number of specialist areas and further
building its capacity and expertise. The acquisition and SEIB's
operations in niche markets saw commission and fee income grow by
25% to GBP9.1m (2013: GBP7.3m). Net profit before tax increased to
GBP3.0m (2013: GBP2.5m).
EFAS, our small financial advisory business, has reported a loss
before tax of GBP1.0m. The continuing business improved its
performance following the rationalisation of its independent
financial advisers business, reducing its loss from GBP0.8m to
GBP0.4m. The company agreed to sell its mortgage book as part of
the rationalisation of its operations. This sale completed on 20
January 2015 and a loss on disposal of GBP0.7m was recognised in
2014.
Directors' Report
Principal Activities
The Group operates principally as a provider of general
insurance in addition to offering a range of financial services,
with offices in the UK, Ireland, Canada and Australia.
Ownership
At the date of this report the entire issued Ordinary share
capital of the Company and none of the issued 8.625% Non-Cumulative
Irredeemable Preference shares of GBP1 each ('Preference shares')
were owned by Ecclesiastical Insurance Group plc. In turn, the
entire issued Ordinary share capital of Ecclesiastical Insurance
Group plc was owned by Allchurches Trust Limited (ATL), the
ultimate parent of the Group.
Dividends
Dividends paid on the Preference shares were GBP9,181,000 (2013:
GBP9,181,000).
The Directors do not recommend a final dividend on the Ordinary
shares (2013: GBPnil), and no interim dividends were paid in
respect of either the current or prior year.
Charitable and political donations
Charitable donations paid, and provided for, by the Group in the
year amounted to GBP25.2 million (2013: GBP5.5 million).
During the last 10 years, a total of GBP115.1 million (2013:
GBP95.3 million) has been provided by Group companies for church
and charitable purposes.
It is the Group's policy not to make political donations.
Principal risks and uncertainties
The Directors have carried out a robust assessment of the
principal risks facing the Group including those that threaten its
business model, future performance, solvency and liquidity. The
principal risks and uncertainties, together with the financial risk
management objectives and policies of the Group, are included in
the Risk Management section.
Going concern
The Group has considerable financial resources: financial
investments of GBP892.4m (including current assets classified as
held for sale), 98% of which are liquid (2013: financial
investments of GBP946.5m, 97% liquid); cash and cash equivalents of
GBP107.5m and no borrowings (2013: cash and cash equivalents of
GBP107.2m and no borrowings); and a regulatory enhanced capital
cover of 2.9 (2013: 2.6). As a consequence, the Directors have a
reasonable expectation that the Group is well placed to manage its
business risks successfully and continue in operational existence
for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the annual report and
accounts.
Risk Management
Introduction
The core business of Ecclesiastical is general insurance. Thus,
risk selection, pricing, reinsurance strategy, portfolio management
and regulatory compliance play an important part in our business
model.
An enterprise-wide risk management framework has been embedded
across the Group, with the purpose of providing the tools,
guidance, policies, standards and defined responsibilities which
will enable us to achieve our strategy and objectives, and ensure
that all individual and aggregated risks to our objectives are
identified and managed on a consistent basis.
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