2017 Preliminary results

7 March 2018

esure Group plc preliminary results for the year ended 31 December 2017

Delivering now; positioning for the future

Highlights

· Gross written premiums up 25.2% to £820.2m (2016: £655.0m)

· In-force policies up 9.2% to 2.373 million (2016: 2.174 million)

· Profit before tax from continuing operations up 35.6% to £98.6m (2016: £72.7m)

· Combined operating ratio improved 2.1ppts to 96.7% (2016: 98.8%)

· Full year dividend of 13.5p per share (2016: 13.5p per share) reflects a payout ratio of 70% of earnings per share, inclusive of a 20% special dividend; and is 31% higher after adjusting for the impact of Gocompare.com in 2016(1)

· Solvency coverage(2) 3ppts higher at 155% (2016: 152%)

Sir Peter Wood, Chairman, said: "2017 has been a year of positive momentum for the Group as it delivered for its customers, colleagues and shareholders.

"The Board have declared a final dividend of 9.4 pence per share, inclusive of a special dividend, and the Group's capital coverage of 155% is ahead of its normal operating range. The strong capital position allows us to pursue both our current strategy and to position the business for the future, as we look to stay at the forefront of our industry in an increasingly digital and data driven world.

"esure is a great business today and I am excited about the many opportunities we have to ensure we continue to be a great business in the future."

Darren Ogden, Interim Chief Executive Officer, said: "During 2017, we increased in-force policies by 9% to 2.373 million and gross written premiums by 25% to £820m, as more customers were attracted to our excellent products at competitive prices. Our footprint expansion in Motor continues to build momentum and we now have over 300,000 in-force policies in these new segments.

"Our digital proposition continues to evolve as we deploy innovative technologies across the business to deliver for our customers. I am continually impressed by my colleagues' hard work, energy and dedication in making sure we provide a great service to all our customers.

"We continue to deliver profitable growth and remain on track for our three million in-force policy target by 2020."

For further information:

Note

1. The adjustment reflects the impact that the Group's share of Gocompare.com profits had on its 2016 full year dividend, assuming a consistent payout ratio of 70%

2. Group solvency coverage is estimated, unaudited and after allowing for the final dividend as at 31 December 2017. The 2016 solvency coverage is audited.

About esure Group plc

esure Group plc is an efficient, customer-focused personal lines insurer, founded in 2000 by Chairman, Sir Peter Wood, Britain's foremost general insurance entrepreneur. The Group is one of the UK's leading providers of Motor and Home insurance products through the esure and Sheilas' Wheels brands.

Cautionary statement

Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and assumptions and are subject to a number of known and unknown risks and uncertainties that may cause actual events or results to differ materially from any expected future events or results expressed or implied in these forward-looking statements. Persons receiving this announcement should not place undue reliance on forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, the Group does not undertake to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

Disclaimer

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation which came into effect on 3 July 2016.

The esure Group plc LEI number is 213800KOI3F5LM54PT80.

The person responsible for arranging the release of this announcement on behalf of the esure Group is Alice Rivers.

Chairman's statement

2017 has been a year of positive momentum for the Group. We have delivered for our customers, colleagues and shareholders, while positioning the business for the future.

Five years on from the Group's listing on the London Stock Exchange we are a bigger and better business. The Group has grown in this period to 2.4m in-force policies and delivered gross written premiums of over £800m in 2017. In addition, over a five year period we will have returned just under £300m to shareholders through dividends and created significant value for our shareholders through the acquisition and subsequent demerger of Gocompare.com. Customers have been at the centre of what we do throughout our history and it is encouraging to see our service metrics continue to improve and we were recently ranked the third most customer-friendly insurer by Insurance Times.

However, that is all in the past and we are focused on staying at the forefront of our industry to deliver for all our stakeholders in the near and long term.

In the near term, we remain on track to achieve our three million in-force policy target by 2020 through our footprint expansion programme in Motor, supported by our Home account.

As we look to the future, it is clear that the world is changing at an increasing pace, with advances in digital and data analytics, shaping customer expectations of all businesses.

The Board and Stuart Vann agreed that he would step down as Chief Executive Officer on 18 January 2018. This will allow new leadership, steeped in digital and data experience to take the business to the next level. Our search for a successor has commenced and we are looking for a leader with significant expertise and experience in a broad spectrum of customer facing businesses.

I worked closely with Stuart throughout his 17 years with the Group and he has been instrumental in helping to create the great business we have today and the value we have created for shareholders over the years. In the interim period, while we find a successor, Darren Ogden, CFO, will be Interim CEO, subject to regulatory approval, and I will be taking a more active role in the business. I have worked closely with Darren for many years and have no doubt that he is the right person to lead esure through this interim period, providing the continuity and experience we need to press on with our positive momentum.

The Board continue to demonstrate the value they add and with the addition of Alan Rubenstein and Peter Shaw in March 2017, the business has benefited from their wide breadth of skills and insight. Maria Dolores Dancausa will not be seeking re-election at the Annual General Meeting in May. I would like to thank Maria for her enormous contribution to the business in the four years she has been with the Group.

Today the Board has recommended a final dividend of 9.4 pence per share, taking the full year dividend to 13.5 pence per share. This represents a payout ratio of 70%, inclusive of a 20% special dividend. Excluding the contribution from Gocompare.com in 2016, this represents a year-on-year increase in the dividend of 31%, underpinned by a strong solvency coverage ratio of 155%. This demonstrates the Group's capital generative operations and the Board's commitment to returning excess capital to shareholders, while maintaining sufficient capital to fund its growth ambitions.

In summary, we have a great business today and I am excited about the many opportunities we have to ensure we have a great business in the future.

Sir Peter Wood

Chairman 

Interim Chief Executive Officer's review

Introduction

In January 2018 it was an honour to be asked by Sir Peter Wood and the Board to lead the business in the interim period during the search for a new Chief Executive Officer.

We have a great business and our performance in 2017 demonstrates this. We exceeded our premium growth expectations for the year with an increase of 25.2% to £820.2m, we grew in-force policies by 9.2% to 2.373 million, and we increased profits by 35.6% to £98.6m. This is an outstanding achievement by all my colleagues, and I am continually impressed by their hard work, energy and dedication in making sure we provide a great service to all our customers.

Customers

During 2017 we increased in-force policies by almost 200,000 as customers were attracted to the Group through its strong brands, competitive pricing and excellent customer service. In Motor, we continue to build momentum in our new segments and have over 300,000 policies in these segments. It is encouraging to see more and more new customers choosing the Group for their Motor insurance alongside a significant proportion of customers choosing to stay with us year after year.

Customers are demanding more of businesses and I am pleased that our Net Promoter Score increased to 45 in 2017, demonstrating the customer centric approach we take. I was delighted to see that our Sheilas' Wheels brand ranked first for sales, renewals and service in a recent benchmarking exercise across insurance brands (source: ServiceTick Q4 2017).

It is important, however, that we do not stand still and continue to evolve our proposition and digital offering to meet and exceed our customers' expectations. As a Group, we have delivered digital sales for over a decade primarily through our focus on price comparison website distribution. During 2017 we implemented a number of changes to help customers administer their policy, such as live chat and self service forms, or to make a claim online. We are also in the process of finalising our new online customer portal that will be launched in 2018 making it even easier for customers to interact digitally with us.

Our moment of truth is when a customer makes a claim and in 2017 we settled over 270,000 claims and made payments totalling £450m. While many of our customers like to talk to us during a claim, we are piloting new technologies to provide an omni-channel approach for our customers. This will allow them to submit and assess claims electronically and through the use of artificial intelligence techniques the Group will be able to settle claims more quickly.

Colleagues

The Group has 1,851 colleagues who are the lifeblood of our business and we strive to make esure a great place to work. We continue to invest in our people agenda and it was encouraging to see the Group's engagement score improve to 72% in 2017 (2016: 65%). Through improved communications, better training and development and leadership courses, colleagues are well informed and possess the skills necessary to keep delivering for our customers. We are proud of the work and support we provide to our local communities in Glasgow, Manchester and Reigate.

Shareholders

The growth in premiums, policies and profits has been achieved all while positioning the business for the future. Through strong profitable growth, we are able to retain sufficient capital to continue our positive momentum, while paying a significant proportion of our profits to shareholders through strong dividends. As we move forward, we will remain disciplined in our capital management strategy, balancing growth with returns to shareholders.

Summary & Outlook

2017 has been a year of significant delivery and I look forward to 2018 with great confidence. In 2018, we are targeting a similar combined operating ratio to 2017, assuming normal weather, as we look to deliver a positive contribution and grow the business. We remain on track to achieve our three million in-force policy target by 2020.

Darren Ogden

Interim Chief Executive Officer

Financial Review - 2017

Group

 \* The 2017 solvency coverage is estimated, unaudited and after allowing for the final dividend. The 2016 solvency coverage is audited.

Premiums, policies and profit

Gross written premiums increased 25.2% to £820.2m (2016: £655.0m) through strong growth in Motor in-force policies and higher average written premiums. In-force policies increased 9.2% to 2.373 million (2016: 2.174 million) as the Group delivered growth across all its Motor segments. Profit before tax from continuing operations increased 35.6% to £98.6m (2016: £72.7m) reflecting the Group's positive momentum in underwriting and non-underwritten additional services profit streams.

Motor

Gross written premiums increased 30.3% to £734.3m (2016: £563.7m) through a combination of in-force policy growth and market pricing. In-force policies increased by 18.0% to 1.895 million (2016: 1.606 million) with all customer segments growing year-on-year through the Group's footprint expansion programmes. In addition, the Group continues to retain a significant proportion of its customers.

Trading profit is 35.7% higher at £102.7m (2016: £75.7m). The underwriting performance of £24.9m (2016: £8.9m) reflects an improvement in the current accident year loss ratio of 5.0 percentage points to 76.9%, as the Group's positive rating actions earned through ahead of claims inflation, more than offsetting the reduction in favourable development of prior accident year reserves. Favourable development of prior accident year reserves of £22.2m equated to 3.7% of net earned premiums (2016: £29.4m; 6.2%).

Non-underwritten additional services increased 29.8% to £65.8m (2016: £50.7m) largely due to an increase in in-force policies.

The combined operating ratio improved by 2.3ppts to 95.8% (2016: 98.1%) and this was driven by an improvement in the loss ratio of 2.5ppts to 73.2% (2016: 75.7%), with the expense ratio broadly stable at 22.6% (2016: 22.4%).

Home

Gross written premiums reduced 5.9% to £85.9m (2016: £91.3m) and in-force policies reduced 15.9% to 478 thousand (2016: 568 thousand) as a consequence of disciplined underwriting in soft market conditions. The Group implemented price increases ahead of the wider market during 2017 as it looked to mitigate against claims inflation and this impacted its competitiveness to attract and retain customers.

Trading profit is marginally lower than 2016 at £8.6m (2016: £8.9m). The Group's underwriting loss of £2.3m was similar to 2016 (loss of £2.4m), albeit 2017 has benefited from weather event costs that were lower than normal. Favourable development of prior accident year reserves of £4.7m equated to 5.8% of net earned premiums (2016: £9.3m; 11.0%).

Non-underwritten additional services increased by 6.5% to £9.9m (2016: £9.3m) aided by an improvement in non-underwritten additional insurance products.

The combined operating ratio was stable year-on-year at 102.8% (2016: 102.9%).

Additional services revenues

Total income from additional services increased 17.7% to £125.3m (2016: £106.5m) driven by a strong performance across all income lines. Non-underwritten additional services trading profit increased 26.2% to £75.7m (2016: £60.0m) ahead of the Group's in-force policy growth and leveraged the efficient expense base. Instalment income, where customers choose to pay monthly, has also benefited from an increase in both Motor and Home average written premiums in the year.

Investment return

The Group's net investment return of £9.8m (2016: £14.6m) was aided by another year of strong equity returns, albeit to a lesser extent than that seen in 2016. In addition, increases in the shorter end of the UK Gilt Curve resulted in a reduction in the fair value for a number of fixed income positions, partly offsetting the one-off gain of £2.0m from the partial disposal of a long dated Gilt.

Other income reduced to £3.2m (2016: £3.5m) primarily as a result of lower income from the Group's investment in IMe Law Limited, operated by the Group's partner, Irwin Mitchell.

Trading profit

Trading profit from continuing operations, being earnings before interest, tax, non-trading expenses and amortisation of acquired intangible assets, is management's measure of the overall profitability of the Group's operating activities. The Group's reportable segments are Motor and Home and these delivered a trading profit of £111.3m (2016: £84.6m).

The Group generated a trading profit from discontinued operations (Gocompare.com) of £nil (2016: £24.5m). Gocompare.com was demerged from the Group on 3 November 2016.

Reconciliation of trading profit from continuing operations to profit before tax from continuing operations

The Group incurred £8.7m in finance costs (2016: £8.7m) relating to the £125.0m of 6.75% ten year tier two Subordinated Notes issued on 19 December 2014 ("the Notes").

Profit after tax

Profit after tax from continuing operations

The Group's profit after tax from continuing operations increased 35.1% to £80.4m (2016: £59.5m) largely driven by an improvement in the underwriting and non-underwritten additional service revenues performance.

Profit after tax from discontinued operations

The Group generated profit after tax from discontinued operations (Gocompare.com) of £nil (2016: £209.7m). In 2016, the Group recognised a fair value gain on disposal of Gocompare.com of £213.6m. Gocompare.com was demerged from the Group on 3 November 2016.

Earnings per share

Earnings per share from continuing operations

Earnings per share from continuing operations increased by 34.3% to 19.2 pence (2016: 14.3 pence) broadly in line with the increase in profit after tax from continuing operations.

Earnings per share

Earnings per share decreased 70.3% to 19.2 pence (2016: 64.6 pence) as a consequence of the profit after tax on discontinued operations not recurring.

Dividend per share

The Board has proposed a final dividend of 9.4 pence per share, comprised of a base dividend and special dividend, which together with the interim dividend of 4.1 pence per share, takes the full year dividend to 13.5 pence per share. The full year dividend of 13.5 pence per share represents a payout ratio of 70% of the Group's earnings per share. Excluding the profit contribution from Gocompare.com in 2016, this represents a year-on-year increase in the dividend of 31%. The dividend has been set with reference to the Group's profit after tax and allows for the approximate proportion of one-third (interim dividend) and two-thirds (final dividend), respectively.

The ex-dividend date is 12 April 2018, the record date is 13 April 2018 and the payment date is 25 May 2018. These dates are in respect of both the base and special dividend.

Cash flow

The Group's cash and cash equivalents at the end of the period are £46.6m (2016: £25.5m).

Operating activities were a net inflow of £99.5m (2016: net outflow of £3.8m) largely driven by the Group's strong premium growth over the year ahead of the settlement of expected claims in the future. In 2016, the net outflow was largely driven by cash flows being invested into the Group's investment portfolio.

Investing activities were a net outflow of £9.4m (2016: net outflow of £25.7m) reflecting the Group's investment in property, plant, equipment and software. In 2016, investing activities included fees of £14.5m relating to the demerger of Gocompare.com that did not repeat in 2017.

Financing activities were a net outflow of £69.0m (2016: net inflow of £23.1m) of which £61.0m reflects the Group's 2016 final and 2017 interim dividends, and £8.4m relating to the interest payable on the Notes. In 2016, the financing activities included the Group's dividend payments of £42.9m, the inflow of cash from Gocompare.com of £73.1m prior to the demerger of Gocompare.com and the interest payable on the Notes.

The Group's cash flow statement can be found on page 18.

Investments

The Group manages its investment portfolio to maintain liquidity and preserve capital. Investments are held to meet the Group's cashflow requirements, pay customers' claims and seek a suitable return for an acceptable level of risk.

Strategic investment allocations

The Group's investment portfolio is in the process of transitioning towards the following strategic asset allocations and target returns. The Group's target allocations and target returns are outlined below:

As a result of the Group's strategic asset allocation review in 2017, capital commitments of £150m to new asset classes are recognised within its surplus liquidity funds at year end, ahead of these commitments being invested in 2018.

As at the 31 December 2017 the Group held the following investments:

The Group's total assets under management are 13.1% higher at £975.9m (2016: £862.9m), driven by the growth in premiums.

The Cash & Liquidity portfolio continues to reflect accessible cash for operational activities and includes a buffer for adverse events. At 8%, the allocation is higher than the Group's target allocation due to the timing of certain contractual outflows payable in early January 2018. The target allocation of 5% is in line with the Board-approved liquidity risk appetite.

The Claims portfolio is constructed with reference to the expected future cost of the Group's technical liabilities as defined under Solvency II. The duration of the Group's assets and liabilities has remained broadly stable across the period at 3.7 years (2016: 3.6 years) and 2.9 years (2016: 3.4 years) respectively. The Group continues to designate newly acquired assets within this portfolio as available for sale ('AFS') to minimise the impact of interest rate changes on the Group's earnings. At 31 December 2017 the Group has designated £342.0m as AFS (2016: £192.6m) and £160.3m as fair value through profit and loss (2016: £359.2m).

The Surplus portfolio seeks to deliver returns in asset classes that are aligned with the Group's risk appetite, in particular with reference to its solvency capital requirements. The Group's strategic asset allocation review was finalised in 2017. This resulted in a divestment from its high yield fixed income assets and a subsequent commitment of £150.0m to infrastructure equity and direct lending. Commitments are expected to be invested during 2018.

The remaining surplus assets continue to be invested across a mixture of liquidity funds, equities and fixed income.

The Group's total investment duration was 2.2 years (2016: 2.6 years).

Claims portfolio - Fixed income

Claims portfolio - Credit risk quality

The credit risk quality of the claims backed fixed income portfolio remains strong with 79% held in assets rated 'A' or above.

Reserving

The Group holds claims reserves, to cover the future cost of settling claims that have been incurred but not settled at the balance sheet date, whether already known to the Group or not yet reported, net of associated reinsurance recoveries.

For known periodic payment orders ("PPOs") and potential PPO awards, indexed cash flow projections are carried out in order to estimate an ultimate cost on a gross and net of reinsurance basis. The Group currently has 11 PPOs (2016: 11). The cash flow projections were undertaken on a discounted basis.

Due to the inherent uncertainties in reserving, the Group adopts a prudent approach to reserving through reserving in excess of the actuarial best estimate. Over time the inherent uncertainties in the actuarial best estimate reduce and the Group releases the margin above the best estimate. The Group's current reserve margin is comfortably in excess of its actuarial best estimate.

On 27 February 2017, the Lord Chancellor changed the Ogden discount rate from plus 2.5% to minus 0.75%, effective 20 March 2017. The impact of this change on the Group's 2017 performance was not material.

The Group benefited from favourable development of prior accident year reserves, with total prior year releases of £26.9m in 2017 (2016: £38.7m). The favourable development represents 4.0% of net earned premium (2016: 7.0%). 

Reinsurance

The Group purchases reinsurance as a risk transfer mechanism to mitigate risks that are outside the Group's appetite for individual claim or event exposure and to reduce the volatility caused by large individual and accumulation losses. By doing so, the Group reduces the impact that an event can have on its capital position and its underwriting results in both Motor and Home.

Currently, the Group has in place excess of loss reinsurance programmes for its Motor and Home underwriting activities. The purpose of these programmes is to provide cover for both individual large losses, for Motor and Home, and accumulation losses arising from natural and other catastrophe events for Home. Motor and Home reinsurance treaties are in place covering all years in which the Group has underwritten policies in each line of business.

The Group's Motor reinsurance programme was renewed on 1 July 2017 and subsequently extended for six months to the end of 2018:

The like-for-like cost increase of the programme renewed on 1 July 2017 was 33%, equating to an increase of £10 per vehicle, as a consequence of the change in the Ogden discount rate in February 2017 from 2.5% to minus 0.75%. The Home reinsurance programme was renewed on 1 July 2017 with no material changes to the programme.

The Group's reinsurance programmes are reviewed on an annual basis and capital modelling is used to identify the most appropriate structure and risk retention profile, taking into account the Group's business objective of minimising volatility and the prevailing cost and the availability of reinsurance in the market.

The Group has no quota share reinsurance or co-insurance arrangements in place.

Capital

The Group seeks to manage its capital in order to maintain a level of capitalisation and solvency to ensure that regulatory requirements are met with an appropriate buffer and that there is sufficient capital available to fund profitable growth opportunities.

The solvency capital requirement ("SCR") is the level of capital the Group is required to hold to meet its obligations if a 1 in 200 year event were to occur in the next 12 months. The Group's normal operating range of coverage of its SCR is 130-150%. The capital surplus above the SCR provides an appropriate level of capital coverage and should enable the Group to continue to meet its regulatory capital requirements. The Group adopts the standard formula to calculate its capital requirements under Solvency II.

The Group's capital position, after allowing for the final dividend, is outlined below:

\* The 2017 figures quoted are estimated, unaudited and after allowing for the final dividend. The 2016 solvency coverage is audited.

The Group's Own Funds have increased 15.8% to £411m (2016: £355m) reflecting the capital generative nature of its operations and the increase in qualifying Tier 2 capital, net of its foreseeable dividends. The SCR increased 13.7% to £265m (2016: £233m) as a consequence of the Group's strong growth in the year, albeit the SCR at year end has benefited from a timing difference of £7m as the Group transitions its investment portfolio towards its strategic asset allocation.

Own Funds comprise Tier 1 and Tier 2 qualifying capital. The Notes meet the qualifying criteria of a Tier 2 capital instrument and qualify up to a maximum of 50% of the SCR. The quality of the Group's capital remains strong with 70% in Tier 1 and 30% in Tier 2.

Solvency Capital Requirement

The Group's SCR allocation by risk type, based upon the undiversified capital requirement, can be seen below:

The main risk driver is underwriting, consisting of premium, reserve and catastrophe risk, reflecting the capital requirements of the core business activities for the Group. The movement between Underwriting risk and Market risk is a timing difference as the Group transitions its investment portfolio towards its strategic asset allocation.

Sensitivities

The Group's capital structure is positioned to minimise the impact that adverse capital events have on its ability to meet its solvency capital requirements, were they to occur. The adverse capital events below are outlined to demonstrate the Group's capital resilience to such events.

* Capital coverage movements are stated after earnings, tax and dividend impact.

Dividend Policy

The Group's dividend policy is to target a base dividend of 50% of profit after tax and enhance the base dividend with a further special dividend, if the Group has excess capital and distributable reserves. In determining the level of special dividend at the interim and final stage the Board will consider a number of factors which include but are not limited to: the level of available distributable reserves; opportunities for growth; potential strategic opportunities; the outlook for future capital generation; and headroom required to absorb adverse capital events. The Board remains committed to returning excess capital to shareholders where it does not believe it can utilise the retained capital for further opportunities to enhance shareholder value. The interim dividend will be paid in October of the relevant financial year and the final dividend in May of the following financial year, in the approximate proportions of one-third and two-thirds, respectively.

esure Group plc, the parent company of the Group, is a non-trading holding company that derives its profits from dividends paid by its subsidiary companies. The Board reviews the level of distributable reserves at least bi-annually, to align with the proposed interim and final dividend declaration dates, and aims to maintain distributable reserves that provide sufficient cover for these dividends.

Segmental Reporting

In 2017, the Group changed its reportable segments to Motor and Home to reflect its contribution approach. In 2016, the Group's reportable segments were: Motor underwriting; Home underwriting; Non-underwritten additional services; Investments; and prior to the demerger of Gocompare.com, Price Comparison.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

1. General information

esure Group plc is a Company incorporated in England and Wales. Its registered office is The Observatory, Reigate, Surrey RH2 0SG.

The nature of the Group's operations is the writing of general insurance for private cars and homes. The Company's principal activity is that of a holding company.

All of the Company's subsidiaries are located in the United Kingdom, except for esure S.L.U., which is incorporated in Spain.

2. Accounting policies

Basis of preparation

These financial statements present the esure Group plc group financial statements for the year ended 31 December 2017, comprising the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and related notes, as well as the comparatives.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

At a General Meeting on 1 November 2016, the Company's shareholders approved the demerger of Gocompare.com plc and on 3 November 2016 the demerger was completed.

Under IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations the results and the cash flows of the Gocompare.com business are, in line with the prior year financial statements, presented as discontinued operations.

These consolidated financial statements have been prepared on a going concern basis. As detailed in the Strategic Report (2017 Annual Report), the Directors have assessed the Group's prospects and viability for the three year period to 31 December 2020. Based on this robust assessment, the Directors confirm that they have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the next 12 months.

These consolidated financial statements have been presented in Sterling and rounded to the nearest hundred thousand. Throughout these consolidated financial statements any amounts which are less than £0.05m are shown by 0.0, whereas a dash (-) represents that no balance exists.

The consolidated financial statements have been prepared on the historical cost basis except for certain financial assets and land and buildings that are measured at fair value at the reporting date. The principal accounting policies adopted are set out below.

New and amended accounting standards adopted with no significant impact on the Group

The Group has applied the following standards and amendments for the first time for its annual reporting period commencing 1 January 2016:

· Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)

· Disclosure Initiative (Amendments to IAS 7)

· Annual Improvements to IFRS Standards 2014-2016 Cycle - Amendments to IFRS 12

The adoption of these amendments did not have any impact on the current or prior periods.

New and amended accounting standards that have been issued but are not yet effective

The following standards have been issued and are effective for accounting periods ending on or after 31 December 2017 and are expected to have an impact on the Group financial statements.

IFRS 9 Financial Instruments

As an insurance Group, the Group is expecting to take the option to defer the effective date of the new standard to 1 January 2021, in line with IFRS 17. The standard includes requirements for recognition and measurement, impairment, derecognition of financial instruments and general hedge accounting. The Group's current analysis is that this will not have a material impact on our results.

IFRS 15 Revenue from Contracts with Customers

The new standard is effective for periods beginning on or after 1 January 2018. The standard specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. The Group has evaluated the impact of the new standard and believe that this will not have a material impact on our results.

IFRS 16 Leases

The new standard is effective for periods beginning on or after 1 January 2019. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. This is in contrast to the current standard which differentiates between operating and finance leases. The Group has evaluated the impact of the new standard and believe that this will increase both fixed assets and leasing liabilities but will not have a material impact on our income statement.

IFRS 17 Insurance Contracts

The new standard is effective for periods beginning on or after 1 January 2021. The standard establishes principles for the recognition, measurement, presentation and disclosure of insurance and reinsurance contracts. The Group is currently evaluating the impact of the standard on our results.

Basis of consolidation

Subsidiaries are entities over which the Group has control. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiary companies are consolidated using the acquisition method.  

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtained control, and continue to be consolidated until the date when such control ceases.

In preparing these consolidated financial statements, any intra-group balances, unrealised gains and losses or income and expenses arising from intra-group trading are eliminated. Where accounting policies used in individual financial statements of a subsidiary company differ from Group policies, adjustments are made to bring these policies in line with Group policies.

3. Critical accounting judgements and estimates

The preparation of these consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates; however the consolidated financial statements presented are based on conditions that existed at the balance sheet date.

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

Key sources of estimation uncertainty and critical judgements in applying the Group's accounting policies 

Insurance contract liabilities 

Estimates have to be made both for the expected ultimate cost of claims reported at the reporting date and for the expected ultimate cost of claims incurred but not reported ("IBNR") at the reporting date. It can take a significant period of time before ultimate claims cost can be established with certainty for some types of claims.

The ultimate cost of outstanding claims is estimated by carrying out standard actuarial projections in line with the Institute and Faculty of Actuaries Technical Actuarial Standards. These techniques use past claims information and development patterns of these claims to project the expected future claims cost both for notified and non-notified claims.

Similar judgements, estimates and assumptions are employed in the assessment of adequacy of provisions for unearned premium and hence whether there is a requirement for an unexpired risk provision.

4. Segmental information

Differences to the Group's 2016 annual report and accounts in the basis of segmentation

The Group makes decisions on customer acquisition and retention based on contribution. In addition to the underwriting contribution from Motor and Home, a diversified suite of additional insurance products and services provide opportunities to deliver enhanced customer contribution.

In order to facilitate the management of the Group and post the demerger of Gocompare.com the reporting to the Board of Directors has changed and the reportable segments under IFRS 8 Operating Segments reflect this change. The 2016 segments have been restated to reflect the new segmental reporting.

Operating segments

The Group has two operating segments as described below. These segments are also the Group's reportable segments and represent the manner in which the business is regularly reported to the Group's executive and Board of Directors.

Motor

This segment incorporates the revenues and expenses directly attributable to the Group's Motor insurance underwriting activities inclusive of additional insurance products underwritten by the Group and related non-underwritten additional services. Investment income is allocated to the segment on the basis of premium income.

Home

This segment incorporates the revenues and expenses directly attributable to the Group's Home insurance underwriting activities and related non-underwritten additional services. Investment income is allocated to the segment on the basis of premium income.

Segmental revenues, expenses and other information

An analysis of the Group's results by reportable segment is shown below:

The average number of in-force policies during the year ended 31 December 2017 was 2.28m.

The average number of in-force policies during the year ended 31 December 2016 was 2.08m.

There are no other material components of income and expense or non-cash items.

Trading profit from continuing operations, being earnings before interest, tax, non-trading expenses and amortisation of acquired intangible assets, is management's measure of the overall profitability of the Group's operating activities. The Group's segmental trading profit, comprising of Motor and Home is £111.3m (2016: £84.6m).

The Group's profit in respect of continuing operations after tax is £80.4m (2016: £59.5m).

The Group incurred non-trading costs of £1.8m in 2017 of which £1.7m related to share-based payments in respect one-off awards. The Group incurred non-trading costs of £0.9m in 2016 of which £0.4m related to share-based payments in respect of the long service and one-off awards and £0.2m related to stamp duty and legal fees in respect of a new lease.

In 2016 the Group generated a trading profit of £24.5m on its discontinued operation (Gocompare.com) prior to the demerger on 3 November 2016.

Segmental profit drivers

Motor

Trading profit is 35.7% higher at £102.7m (2016: £75.7m). The underwriting performance of £24.9m (2016: £8.9m) reflects an improvement in the Group's current accident year loss ratio in the year as higher pricing earned through ahead of claims inflation. Instalment and other income net of other operating expenses increased 29.8% to £65.8m (2016: £50.7m) largely due to an increase in in-force policies.

The combined operating ratio improved by 2.3ppts to 95.8% (2016: 98.1%) and this was largely driven by an improvement in the loss ratio of 2.5ppts to 73.2% (2016: 75.7%), with the expense ratio broadly stable at 22.6% (2016: 22.4%).

Home

Trading profit is marginally lower at £8.6m (2016: £8.9m). The Group's underwriting loss of £2.3m was similar to 2016 (loss of £2.4m), albeit 2017 has benefited from weather event costs that were lower than normal. Instalment and other income net of other operating expenses increased 6.5% to £9.9m (2016: £9.3m) aided by an improvement in non-underwritten additional insurance products.

The combined operating ratio was stable year-on-year at 102.8% (2016: 102.9%).

Statement of financial position

The assets and liabilities of the Group are reported on an aggregated consolidated basis. They are not allocated to reportable segments and are reported on the same basis as disclosed in the consolidated statement of financial position on page 16.

5. Other income

6. Insurance and other operating expenses

During the year ended 31 December 2017, a reclassification of £0.1m is included within other operating expenses in relation to a revaluation of the Group's land and buildings (2016: £0.1m charge).

7. Dividends

A 2017 interim dividend per share of 4.1p (£17.1m) was declared by the Board of Directors in August 2017 (2016: interim dividend per share of 3.0p, £12.5m). Subsequent to the year end, a 2017 final dividend per share of 9.4p (£39.2m) was declared by the Board of Directors (2016: final dividend per share of 10.5p, £43.9m). 

8. Earnings per share

Basic

Basic earnings per share is calculated by dividing the earnings attributable to the owners of the Group and the weighted average of Ordinary Shares in issue during the period, excluding Ordinary Shares held as employee trust shares. A calculation is also shown based on the earnings from continuing operations attributable to the owners of the Group.

Diluted

Diluted earnings per share is calculated by dividing the earnings attributable to the owners of the Group by the weighted average of Ordinary Shares in issue during the period adjusted for any dilutive potential Ordinary Shares. A calculation is also shown based on the earnings from continuing operations attributable to the owners of the Group.

The difference between the basic and diluted weighted average number of shares outstanding during the year, being 5,586,240 (2016: 2,009,742), relates to the dilutive potential of the share-based payment arrangements.

Basic and diluted earnings per Ordinary Share

Continuing operations earnings per share

Discontinued operations earnings per share

9. Taxation

The tax rate used for the calculations is the Corporation Tax rate of 19.25% (2016: 20.00%) payable by the corporate entities in the UK on taxable profits under tax law in that jurisdiction.

10. Goodwill and intangible assets

Goodwill of £127.7m as at 1 January 2016 relates to goodwill arising on the acquisition of Gocompare.com by the Group.

Included in acquired brands and customer relationships are the Gocompare.com brand and the Gocompare.com customer relationships recognised on application of IFRS 3 to the acquisition of the outstanding 50% of the ordinary share capital of Gocompare.com on 31 March 2015.

11. Financial assets and liabilities

11.1 Financial assets

Shares and other variable yield securities and units in unit trusts do not bear credit risk. Cash and cash equivalents are "A" rated

Available for sale financial assets

During 2017, the Group continued to refine and enhance its asset and liability matching for capital management purposes by designating some financial assets acquired during the year as available for sale. Any movements in fair value of these assets is accounted for in other comprehensive income, reducing volatility in the income statement. These assets continue to have a longer average duration of 4.1 years (2016: 2.6 years) which leads to an increased sensitivity to interest rate changes but are closely aligned to the Group's liability exposure.

Infrastructure equity and direct lending

As a result of the Group's strategic asset allocation review in 2017, capital commitments to new asset classes are recognised within its surplus liquidity funds at year end, ahead of these commitments being invested in 2018.

The Surplus portfolio seeks to deliver returns in asset classes that are aligned with the Group's risk appetite, in particular with reference to its solvency capital requirements. The Group's strategic asset allocation review was finalised in 2017. This resulted in a divestment from its high yield fixed income assets and a subsequent commitment to infrastructure equity and direct lending. Commitments are expected to be invested during 2018.

11.2 Financial liabilities

The £125m 10 year Subordinated Notes were issued by esure Group plc on 19 December 2014 at the rate of 6.75% per annum, with payments made biannually.

The nominal £125m Subordinated Notes have a maturity date of 19 December 2024. The Notes are direct, unsecured and subordinated obligations of the Group, ranking pari passu and without preference amongst themselves, and will, in the event of the winding-up of the Group or in the event of an administrator of the Group being appointed and giving notice that it intends to declare and distribute a dividend, be subordinated to the claims of all Senior Creditors and policy holders of the Group.

11.3 Capital management and regulation

The Group maintains a capital structure consistent with the Group's risk profile and the regulatory market requirements of its business. The Group's objectives in managing its capital are:

- to match the profile of its assets and liabilities, taking account of the risk inherent in the business;

- to satisfy the requirements of its policyholders and regulators;

- to maintain financial and capital strength to support growth; and

- to retain financial flexibility by maintaining strong liquidity and access to a range of capital markets.

Solvency II is the solvency framework implemented on 1 January 2016 as the capital adequacy regime for the European insurance industry. It established a set of EU-wide capital requirements and risk management standards with the aim of increasing protection for policyholders. The Group is regulated by the Prudential Regulation Authority ("PRA") on both a Group basis and, for the Group's principal underwriter, esure Insurance Limited, on a solo basis.

The esure Board has considered the risk appetite of the Group as part of the Own Risk and Solvency Assessment process under Solvency II. The esure Board believe an appropriate level of capital coverage of its Solvency Capital Requirement ("SCR") to be in the region of 130-150%. The capital surplus above the SCR provides sufficient headroom to absorb adverse capital events and should enable the Group to continue to meet its regulatory capital requirements. As expected the Group has operated in the middle to upper end of the range, providing flexibility to fund further profitable growth.

The Group's dividend policy is to target a base dividend of 50% of profit after tax and enhance the base dividend with a further special dividend, if the Group has sufficient capital and distributable reserves, after allowing for an appropriate level of capital coverage of the Group's SCR and future growth opportunities. The Board remains committed to returning excess capital to shareholders where it does not believe it can utilise retained capital for further profitable growth.

Refer to page 12 for further information about the Group's draft and unaudited 31 December 2017 Solvency II capital position.

11.4 Fair value estimation

In accordance with IFRS 13 Fair Value Measurement financial instruments reports at fair value and revalued properties have been categorised into a fair value measurement hierarchy as follows:

Quoted prices (unadjusted) in active markets for identical assets or liabilities - (Level 1)

Inputs to Level 1 fair values are quoted prices (unadjusted) in active markets for identical assets. An active market is a market in which transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) - (Level 2)

Fair value measurements that are derived from inputs other than quoted prices included in Level 1, if all significant inputs required to fair value an instrument are observable, would result in the instrument being included in Level 2. The majority of assets classified as Level 2 are over-the-counter corporate bonds, where trades are less frequent owing to the nature of the assets. Inputs used in pricing the Group's level 2 assets include:

· quoted prices for similar (i.e. not identical) assets in active markets;

· quoted prices for identical or similar assets in markets that are not active, the prices are not current, or price quotations vary among market makers, or in which little information is released publicly;

· inputs that are derived principally from, or corroborated by, observable market data by correlation; and

· for forward exchange contracts, the use of observable forward exchange rates at the balance sheet date, with the resulting value discounted back to present value.

The Group's policy, should there be a change to the valuation techniques or level of activity in the market in which that asset is traded, is to transfer the asset between levels effective from the beginning of the reporting period. In line with the requirements of IFRS 13 Fair Value Measurement, the Group classifies all debt securities as Level 2 assets with the exception of Government backed securities which are classified as Level 1 unless they are illiquid.

Following a review the liquidity funds held by the Group have been reclassified from Level 2 to Level 1 in both the current year and the comparatives.

Inputs for the asset or liability that are not based on observable market data (unobservable inputs) - (Level 3)

Unobservable inputs have been used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset at the measurement date (or market information for the inputs to any valuation models). As such, unobservable inputs reflect assumptions about the inputs that market participants would use in pricing the asset.

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. The Group held Level 3 AFS financial assets of £4.1m as at 31 December 2017 (2016: £3.2m), representing an investment in an unquoted equity investment which has been valued using a discounted cash flow valuation model.

Under IFRS 13, land and buildings with a carrying value of £13.6m (2016: £12.9m) are classified as Level 3 assets. Owner-occupied properties are stated at their revalued amounts, as assessed by qualified external valuers annually, all with recent relevant experience. These values are assessed in accordance with the relevant parts of the current RICS Valuation Standards in the UK (''Red Book''). The valuer's opinion of fair value was primarily derived using comparable recent market transactions on arm's length terms. No sensitivity analysis has been performed due to the nature of the valuation.

The following table presents the Group's financial assets and liabilities measured at fair value: