Ecclesiastical Insurance Office - Annual Financial Report

Highlights

·      Profit before tax of £15.4m (2017: £82.2m)

·      Strong underwriting profit of £29.2m (2017: £27.1m), with Group COR1 of 86.4% (2017: 86.9%). This is the fifth consecutive year of growth in underwriting profit, which has benefited from favourable development of prior year claims on the Group's liability business and improvements in current year performance

·      Reduced investment returns of £4.0m (2017: £72.3m), reflecting the downturn in equity markets in 2018

·      Gross written premium (GWP) increased by 4% to £357.0m (2017: £342.9m), with high retention levels demonstrating the strength of our proposition in a very competitive market

·      £18.8m was donated to good causes during 2018 (2017: £25.5m). We have now reached £64m towards our target of £100m in charitable donations by the end of 2020

·      Continued external recognition of the Group as a trusted and specialist financial services organisation, including being named as the UK's best and most trusted insurer for the eighth time by independent ratings agency Fairer Finance, and EdenTree winning MoneyFacts Best Ethical Investment Provider for the 10th year in a row.

Chairman's Statement

A strong underwriting performance

In 2018 the Group delivered another strong set of underwriting results1, underpinned by its pursuit of sustainable, profitable growth over the longer-term.

Performance remained robust, with underwriting profit of £29.2m (2017: £27.1m) and GWP growth across all our territories. Pre-tax profits of £15.4m (2017: £82.2m) were lower than in recent years, reflecting the effect of short-term stock market fluctuations on our investment portfolio. Nonetheless, these results and our underlying financial strength enabled us to make donations of £17.0m to our charitable owner and £1.8m to the causes we support directly.

1 Alternative performance measure, refer to the Reconciliation of Alternative Performance Measures note to this announcement for further explanation.

Putting customers first

I have been privileged to be a member of the Ecclesiastical Board since 2007. As I step down after two years as its chair, I have been reflecting on the differences that drew me to Ecclesiastical eleven years ago, and which remain intrinsic to the Group today.

We are a specialist financial services group with a portfolio of insurance, investment management, broking and advisory businesses that are quite different from each other. Yet all these businesses are united by a common purpose - they put the customer at the centre of everything they do.

I believe that our aim of being the most expert, trusted and ethical provider in our specialist markets has seen us take customer care to a very different level. In an increasingly commoditised world, we still take the time to understand their particular issues and needs, as befits a true specialist. Thanks to that understanding, we provide products, services and advice that are right for them. And when they are in difficulty, we respond with exceptional levels of service and care.

 

I mentioned last year how struck I have been by the positive and affectionate feedback we receive from those who know us. It speaks to the emphasis we place on understanding and looking after our communities, both through our work and our charitable support.

Energy and pace

The Ecclesiastical Group has been through a significant period of change during my tenure. In the last five years in particular, an ambitious change programme has been central to the Group's turnaround and consistent financial performance. In that time, we have seen a strengthening of our core insurance business and ongoing development of all the companies in our portfolio. As a result, we have delivered on one ambitious target of giving £50m to good causes and we are well on the way to reaching our current goal of giving £100m by the end of 2020.

I applaud the energy of leadership that has taken our Group forward with such pace, by harnessing its distinctive strengths - a deep understanding of customers' needs, true specialism in our chosen sectors and the unique charitable purpose that sets us apart.

Governance

In 2018 we reached a major milestone, securing approval from the Prudential Regulation Authority for our internal model to meet the Solvency II regulations for insurance firms. In doing so, we have provided our Board and management team with important tools to improve the Group's risk management framework, measure performance and ensure that its decisions contribute to our capital strength.

Board developments

During the year two non-executive directors, Denise Wilson and Anthony Latham, retired from the Board after eight and ten years' service respectively. I would like to express my particular thanks to them, for the valuable expertise they brought to the Group during a period of considerable change.

In January 2019 it was announced that with effect from 19 March 2019, I will step down as chairman and David Henderson, who has been on the Board since 2016, will take my place. Also during the year Ian Campbell left the Group after four years as our Group Chief Financial Officer. We thank Ian for his service to the Group and wish him well in his future career.

The Ecclesiastical Board is strong and diverse, with an unflagging commitment to the Group and its future. It says much about Ecclesiastical that it is able to attract Board members of their calibre, given the relatively small scale of the Group. The skills of my fellow directors are exceptional and I would like to thank them all for their insight and support over the past year.

Our people

This also holds true for our employees. Over the years I have been continually impressed by the exceptional ability of our people. Above all, I have been inspired by their propensity to go above and beyond the call of duty as a matter of course, whether caring for their customers, improving business performance or supporting good causes. This, I believe, speaks to the culture that is fostered by our charitable purpose.

I will miss many things when I leave Ecclesiastical, but it is these good and talented people whom I will miss most. On behalf of the Board, I would like to thank and congratulate them for the successes of 2018 and wish them well as they forge an exciting future for the Group.

In support of our established diversity policy, 2018 saw us publish our second gender pay gap report, which shows a falling pay gap due to a higher proportion of senior roles being filled by women. We also published our progress against the Women in Finance Charter; two years since signing up to its goals, we were pleased to report that women now make up 29.9% of our senior management roles compared with 23.3% in 2017.

Looking to the future

As you would expect, I wish the Group the most successful of futures. But what does that actually mean? For me, the Group's future success lies in continuing to do what we do well - creating competitive advantage from our deep understanding of customers' needs, our position as a trusted specialist and our responsible approach to doing business.

The Group's success also lies in taking what we do well to a bigger audience, so that a broader group of customers and partners can benefit from the unique products and services we offer. With motivated teams across the Group and a robust change programme that has already delivered so much, I know that this future is entirely possible.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the year ended 31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

2017

 

 

 

 

£000

£000

 

 

Revenue

 

 

 

 

 

Gross written premiums

 

 356,971

 342,917

 

 

Outward reinsurance premiums

 

(137,640)

(129,387)

 

 

Net change in provision for unearned premiums

 

(5,241)

(6,318)

 

 

Net earned premiums

 

 214,090

 207,212

 

 

 

 

 

 

 

 

Fee and commission income

 

 62,996

 60,864

 

 

Other operating income

 

 1,039

 1,935

 

 

Net investment return

 

 3,994

 72,294

 

 

Total revenue

 

 282,119

 342,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

Claims and change in insurance liabilities

 

(111,873)

(119,913)

 

 

Reinsurance recoveries

 

 26,188

 32,196

 

 

Fees, commissions and other acquisition costs

 

(66,346)

(65,153)

 

 

Other operating and administrative expenses

 

(114,388)

(107,143)

 

 

Total operating expenses

 

(266,419)

(260,013)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 15,700

 82,292

 

 

Finance costs

 

(329)

(96)

 

 

Profit before tax

 

 15,371

 82,196

 

 

Tax expense

 

(958)

(14,054)

 

 

Profit for the year (attributable to equity holders of the Parent)

 

 14,413

 68,142