Half-year Report

2018 INTERIM RESULTS

Ecclesiastical Insurance Office plc 21 August 2018

Ecclesiastical Insurance Office plc ("Ecclesiastical"), the specialist financial services group, today announces its interim 2018 results. A copy of the interim results will be available on the Company's website at www.ecclesiastical.com.

Highlights

· Gross written premiums (GWP) up 4% from the same period last year at £172.7m (H1 2017: £166.0m), supported by strong retention and new propositions

· Profit before tax of £19.4m (H1 2017: £42.2m)

· Investment returns of £17.7m (H1 2017: £40.1m), returning to more normal levels following exceptional gains last year

· Underwriting profit of £8.0m giving a combined operating ratio (COR) of 92.3% (H1 2017: profit of £9.6m, COR 90.5%) supported by risk management initiatives and continued favourable claims settlements in the UK

· Continued external recognition of the Group as a trusted and specialist financial services organisation, including 1st place Gold Ribbon by Fairer Finance as most trusted provider of UK Home Insurance, Insurance Times Claims Excellence Award, and three Insurance Post Claims Awards for Ecclesiastical, and SEIB winning Personal Lines Broker of the Year at the British Claims Awards

· Confirmation that the Group's Canadian Business retained its Top Employer for Young People status for the sixth consecutive year

· Continued investment in our Art & Private Client capability, with a number of new appointments made and systems enhancements in plan. Successfully developed new relationships with key brokers in the Schemes market. Also supported brokers with the delivery of our insight programme, helping them to understand and address key issues and challenges facing clients in their sectors. Major investment planned in new systems to make it easier for brokers to do business with us

· Publication of the Group's first Impact Report, demonstrating how the Group is changing people's lives for the better

· £5m will be granted to our charitable owner in September 2018 to give to good causes. This will take our donations to over £100m to charity over the last five years

Mark Hews, Group Chief Executive Officer of Ecclesiastical, said: "I am delighted to be announcing that a further £5m will be donated to charity following our financial performance in 2018. This is a major personal milestone for me as it means that we have now donated over £100m to charitable causes since I took the role of CEO just over five years ago. Alongside this, we have provided financial support directly to a number of programmes and projects with key partners including The Princes Foundation, Historic England, and children's charity Coram.

"Ecclesiastical is unlike any other financial services group - we are a commercial company with a wholly charitable purpose and one of the top five corporate donors in the UK. On behalf of the thousands of beneficiaries worldwide I would like to thank all our customers, brokers, business partners, colleagues and supporters. Together we are transforming people's lives for the better.

"The achievement is made all the more special through independent feedback from the UK's home insurance customers that recognised Ecclesiastical once again as the most trusted insurer in the UK.

"Our ambition is that, together, we can build a movement for good and champion a more caring, ethical and trusted way of doing business."

Key Financial Performance Data

*Alternative performance measures as detailed in note 13.

** Solvency II capital requirements are only calculated at the year end, unless there is a material change in business activity or environment. There were no such changes in business activity or environment during the six months to 30 June 2018.

Interim Management Report

It has been a good first half of the year with our continued investment driving growth across the group. We report a profit before tax of £19.4m (H1 2017: £42.2m), more in line with what we would expect following the exceptional investment returns we achieved last year.

Our focus continues to be on building a sustainable, ethical, values-driven business over the longer term as we work towards our strategic goal of being the most trusted and ethical business in our chosen markets.

We continue to apply rigour in our underwriting discipline, focusing on profitability over growth, and have again delivered stable underwriting profits in the first half. The underwriting profit of £8.0m (H1 2017: £9.6m) reflects more normal weather and large loss experience in most of our territories compared to previous years with the COR of 92.3% (H1 2017: 90.5%) closer to what we expect over the longer term.

Gross written premiums grew by 4% to £172.7m (H1 2017: £166.0m), a level of growth that we are aiming to achieve.

Investment markets have performed very differently this year after a long period of low volatility. Equity markets in particular saw strong gains in the last quarter of 2017, reaching all-time highs in the UK, and we were prepared for low returns in 2018. This proved to be the case in the first quarter of the year as volatility returned to the markets, interest rates rose and equity markets fell. However, performance recovered quickly in the second quarter, with rising equity markets and slower than expected interest rate rises meaning that our overall investment return for the first half of the year is close to what we had expected at £17.7m (H1 2017: £40.1m).

These positive half-year results allow us to make a grant of £5m (H1 2017: £12m) to our charitable owner, Allchurches Trust, which has been approved by the Board and will be paid in September.

Strategic Update

We continue to invest in our businesses and our people with a broad range of initiatives. Our General Insurance Academy is well established, providing targeted training and further deepening the expertise of our people in our underwriting businesses. Our new competency framework has been rolled out to provide consistency of approach and striving for excellence in our behaviours.

A major investment programme has been approved to implement a new policy administration system for the UK and Ireland insurance businesses. Significant work is underway to develop systems enhancements to support our propositions in Art and Private Client and in the Faith sector and development is advancing for the implementation of a new claims workflow and document repository system. New products have been launched for charities which are traded online through the Acturis platform.

We have continued to innovate to support our business operations, and have a number of projects underway. For example, thermography is being used to assist with the early detection and prevention of electrical faults and water leakages. Our Australian business is offering surveys using drone technology as a key element of its strategic risk management support for its customers.

Our purpose is to contribute to the greater good of society. By September we will have donated over £100m to charity over the last five years. Together with our customers and business partners, we are building a movement for good - championing a more caring, ethical and trusted way of doing business.

General Insurance - UK and Ireland

UK and Ireland report an underwriting profit of £11.8m and a net combined ratio of 83.8% (H1 2017: £9.9m profit, COR 85.7%). The property result has been more as we would expect in the first half of the year with close to average weather and large loss experience, but the strong performance of our liability business has continued in 2018. Current year liability claims experience has been similar to last year, but the levels of reserve releases as historical claims have settled and prudence released was relatively low in the first half of 2017 and returned to expected levels in the first half of this year leading to a higher overall reported profit. We continue to expect a reduction in the level of these releases in the years ahead as the run-off of claims in respect of the unprofitable business we exited in 2012 and 2013 is now well progressed.

UK and Ireland GWP grew by 4% to £119.3m in the six months to 30 June 2018 (H1 2017: £115.0m). This is driven by good performance in our Art & Private Client business together with continued growth in our Heritage business as we demonstrate our position as a leading insurer of heritage, listed and period properties.

General Insurance - Canada

Canada reports stable GWP of £22.4m (H1 2017: £22.5m), an increase of 3% in local currency. Retention remains strong and, although the market remains very competitive with loss making accounts moving at a discount, new business wins have continued.

The underwriting loss of £3.7m and net combined ratio of 119.1% (H1 2017: £1.2m loss, COR 106.2%) resulted mainly from a high number of small catastrophe and medium size individual losses that have been below the reinsurance recovery point. Targeted actions are being taken where appropriate to address this issue.

General Insurance - Australia

Our Australian business continues to be very successful in generating new business which has been a key driver of a 16% increase in GWP in local currency. After the negative effects of exchange reported GWP was £29.4m (H1 2017: £26.9m). A strong pipeline of opportunities means we expect to see growth continue into the second half of the year.

The underwriting loss for the period has remained stable at £0.3m with a net combined ratio of 103.0% (H1 2017: £0.3m loss, COR 102.4%). The small loss reflects the investment we are currently making in the business.

Group Investment Returns

Overall, investment performance has been broadly in line with our expectations in the first half of the year, although there has been more volatility from quarter to quarter than we have seen in recent years.

Our investment portfolio delivered profit of £17.7m (H1 2017: £40.1m). The returns were predominantly driven by dividend and interest income. Small capital gains on equities in the period were more than offset by fair value losses on fixed interest investments as yields rose moderately and corporate bond spreads widened.

We discount some of our liability claims reserves in respect of physical and sexual abuse and asbestosis. The reserves relate to liability policies, written over many decades, and represent very long-tail risks. The movement in yields from the year end has resulted in a positive movement of £2.3m which was equal to and offset the fair value losses on our financial investments.

We remain cautious on our expectations for investment return given the prospect of continued uncertainty and volatility as the date for the UK's exit from the EU approaches and the US's international trade disputes continue to unsettle markets. Our approach to management of risks resulting from the Group's exposure to financial markets is outlined in note 4 to our latest annual report.

Asset Management - EdenTree

EdenTree made excellent progress over the first half of the year against a more volatile investment market environment. OEIC pooled funds flows were particularly strong delivering £94m (H1 2017: £13m) net new flows which were driven by continued support of our multi asset product the Higher Income Fund. Elsewhere the mandate with our European partner saw increased activity levels delivering 35m euro net new flows.

Overall net new flows from all sources exceeded £125m.

Total assets under management (AUM) increased by 4% over the six months to stand at £2.8bn (H1 2017: £2.6bn). The growth in fund values over the course of 2017 and 2018, combined with robust net inflows, have had a positive effect on fee income which increased by 7%. Profit before tax remained stable at £0.7m (H1 2017: £0.8m), reflecting our continued strategic investment in the brand, people and technology.

Broking and Advisory - SEIB Insurance Brokers

SEIB has delivered turnover growth of 10% in the first half of the year with new business wins across many of its specialist sectors whilst maintaining high renewal retention rates. SEIB continues to deliver stable returns to the Group reporting a half year profit before tax of £1.8m (H1 2017: £1.5m).

Life Business

Our life insurance business, which is closed to new business, reported a profit before tax of £0.4m at the half year (H1 2017: £0.4m). Assets and liabilities are well matched, and the small profit is in line with what we would expect as the business runs off.

Balance Sheet and Capital Position

Total shareholders' equity increased by £17.9m to £610.4m in the first six months of the year. Profits in the period and actuarial gains on retirement benefit plans were partially offset by a small exchange loss on overseas operations.

We paid the normal first-half dividend to preference shareholders of £4.6m (H1 2017: £4.6m) and also expect to make a grant of £5m (H1 2017: £12m) to our charitable owner in September 2018.

Our Solvency II regulatory capital position remains strong. Own funds increased in line with profits and our standard formula capital requirement has increased in line with the growth in our business. Overall, the level of Solvency II cover is similar to the position at the end of 2017, and in line with our expectations.

In the period we also received confirmation that the PRA has approved our Internal Model to be used to calculate our regulatory capital requirement. This means that, from Q3 2018 onwards, we will be able to assess our regulatory solvency position based on the internal solvency capital requirement (SCR), as opposed to the Standard Formula. The model better reflects our unique risks and leads to a lower capital requirement, which ensures that we have more flexibility to use our capital as efficiently as possible. We have used the model to understand our risks and support key business decisions for over a decade. However, gaining approval gives us increased capability and confidence to use the model more widely in order to support our strategy.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Group and our approach to managing them are outlined in our latest annual report and in note 1 to these condensed financial statements.

Group Outlook

We remain confident about the future, although acknowledge the potential for challenges in the period ahead. We have delivered a fourth consecutive year of strong underwriting profits at the half year but, as always, our short term results are subject to volatile items such as weather and large losses.

We expect to continue to deliver moderate, profitable growth as we seek to acquire good quality business in competitive markets.

Our outlook on investment returns remains cautious and we are anticipating market conditions comparable to the first half of the year during the remainder of 2018, including the potential for further short term volatility. We are well placed to withstand any such volatility and have substantial headroom over our Solvency II capital requirement.

Our strong understanding and management of the risks we accept, the strength of our capital base and our reputation for providing trusted, specialist expertise means we are confident of delivering measured and sustainable growth over the longer term.

This will enable us to continue delivering a strong return to our ultimate shareholder, enabling us to benefit not only our customers but also the wider community.

By order of the Board

Mark Hews

Group Chief Executive

21 August 2018

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the 6 months to 30 June 2018

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 6 months to 30 June 2018

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 6 months to 30 June 2018

The revaluation reserve represents cumulative net fair value gains on owner-occupied property. Further details of the translation and hedging reserve are included in note 9.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 30 June 2018

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the 6 months to 30 June 2018

NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS

1. General information

The information for the year ended 31 December 2017 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor reported on those accounts: its report was unqualified, did not draw attention to any matters by way of emphasis without qualifying the report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The half-yearly financial report was approved by the Board on 21 August 2018. The Group results for the six month periods to 30 June 2018 and 30 June 2017 are unaudited, but have been reviewed by Deloitte LLP whose review report for the period ended 30 June 2018 is at the end of this report.

The principal risks and uncertainties of the Group are in respect of insurance risk and financial risk. The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount and timing of the resulting claim. Factors such as the business and product mix, the external environment including market competition and reinsurance capacity all may vary from year to year, along with the actual frequency, severity and ultimate cost of claims and benefits. The Group's underwriting strategy is designed to ensure that the underwritten risks are well diversified in terms of type and amount of risk and geographical spread. In all operations pricing controls are in place, underpinned by sound statistical analysis, market expertise and appropriate external consultant advice. Gross and net underwriting exposure is protected through the use of a comprehensive programme of reinsurance using both proportional and non-proportional reinsurance and supported by proactive claims handling. The overall reinsurance structure is regularly reviewed and modelled to ensure that it remains optimum to the Group's needs. The optimum reinsurance structure provides the Group with sustainable, long-term capacity to support its specialist business strategy, with effective balance sheet and profit and loss protection at a reasonable cost.

The Group derives insurance premiums from a range of geographical locations and classes of business. Depending on the location and class of the risk, there may be a seasonal pattern to the incidence of claims. However, given the mix of business that the Group writes, overall the half-yearly results are not subject to any significant impact arising from the seasonality or cyclicality of operations.

The most important components of financial risk are interest rate risk, credit risk, currency risk and equity price risk. The Group is exposed to equity price risk because of financial investments held by the Group which are stated at fair value through profit or loss. The Group mitigates this risk by holding a diversified portfolio across geographical regions and market sectors, and through the use of derivative contracts from time to time which would limit losses in the event of a fall in equity markets. The Group's exposure to interest rate risk arises primarily from movements on financial investments that are measured at fair value and have fixed interest rates, which represent a significant proportion of the Group's assets, and from those insurance liabilities for which discounting is applied at a market interest rate. The Group's investment strategy is set in order to control the impact of interest rate risk on anticipated cash flows and asset and liability values. The fair value of the Group's investment portfolio of fixed income securities reduces as market interest rates rise as does the present value of discounted insurance liabilities, and vice versa. These principal risks and uncertainties, together with details of the financial risk management objectives and policies of the Group, are disclosed in the latest annual report.

The Directors have a reasonable expectation that the Group will continue in operation for at least twelve months from the date of this report. They assessed the going concern of the Group with reference to its considerable financial resources, high percentage of liquid investments, zero borrowings, strong solvency position, resilience to stress testing and strong risk management framework. Accordingly, the Directors continue to adopt the going concern basis in preparing the half-yearly financial report.

2. Accounting policies

Ecclesiastical Insurance Office plc (hereafter referred to as the "Company"), a public limited company incorporated and domiciled in England, together with its subsidiaries (collectively the "Group") operates principally as a provider of general insurance and in addition offers a range of financial services, with offices in the UK & Ireland, Australia and Canada.

The annual financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34, Interim Financial Reporting.

Other than those detailed below, the same accounting policies and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest audited annual financial statements.

IFRS 9, Financial Instruments, which provides a new model for the classification and measurement of financial instruments, is effective for periods beginning on or after 1 January 2018. However the Group has taken the option available to insurers to defer the application of IFRS 9 as permitted by IFRS 4, Insurance Contracts. The Group qualifies for the temporary exemption, which is available until annual periods beginning on or after 1 January 2021, since at 31 December 2015 greater than 90% of the Group's liabilities were within the scope of IFRS 4. There has been no significant change to the Group's operations since that date and, as a result, the Group continues to apply IAS 39, Financial Instruments. The decision to defer the adoption of IFRS 9 and to continue applying IAS 39, which previously was mandatory, is a change in accounting policy since the latest audited annual financial statements. However, the change in policy has no effect on the way in which financial instruments are classified and measured.

IFRS 15, Revenue from Contracts with Customers, became effective for periods beginning on or after 1 January 2018 and has been adopted by the Group using the cumulative effect method. Minor amendments have been made to the Group's accounting policies as shown below, which had no impact on the amounts recognised in the financial statements. Revenue from insurance contracts is not within the scope of IFRS 15 and continues to be accounted for in accordance with IFRS 4 Insurance contracts.

· Income generated from insurance placements through the Group's insurance broking activities was previously recognised at inception date of the cover. Under IFRS 15 it is recognised at the point at which the performance obligation is satisfied, being the inception date of the cover, or, where this income is variable, the point at which it is reasonably certain that no significant reversal of the amount recognised would occur.

· Fees charged for investment management services were previously recognised when the services were provided. Under IFRS 15 the fees are variable and are recognised over time as the services are provided, and once it is reasonably certain that no significant reversal of the amount recognised would occur.

The adoption of IFRS 15 did not have a material effect on the Group's financial statements and the financial statements have not been restated.

There have been no newly issued Standards or changes to existing Standards during the interim period which significantly impact on the condensed set of financial statements.

IFRS 17, Insurance Contracts, was issued in May 2017 and is effective for periods beginning on or after 1 January 2021. The standard establishes revised principles for the recognition, measurement, presentation and disclosure of insurance contracts. IFRS 16, Leases, was issued in January 2016 and is effective for periods on or after 1 January 2019. The standard requires lessees to recognise assets and liabilities for all leases with terms of greater than 12 months. The Group has progressed implementation of both standards in line with expectations.

3. Segment information

The Group segments its business activities on the basis of differences in the products and services offered and, for general insurance, the underwriting territory. Expenses relating to Group management activities are included within 'Corporate costs'. This reflects the management and internal Group reporting structure.

The activities of each operating segment are described below.

Segment revenue

The Group uses gross written premiums as the measure for turnover of the general and life insurance business segments. Turnover of the non-insurance segments comprises fees and commissions earned in relation to services provided by the Group to third parties. Segment revenues do not include net investment return or general business fee and commission income, which are reported within revenue in the consolidated statement of profit or loss.

Group revenues are not materially concentrated on any single external customer.

Segment result

General business segment results comprise the insurance underwriting profit or loss, investment activities and other expenses of each underwriting territory. The Group uses the industry standard net combined operating ratio (COR) as a measure of underwriting efficiency. The COR expresses the total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums. Further details on the underwriting profit or loss and COR, which are alternative performance measures that are not defined under IFRS, are detailed in note 13.

The life business segment result comprises the profit or loss on insurance contracts (including return on assets backing liabilities in the long-term fund), shareholder investment return and other expenses.

All other segment results consist of the profit or loss before tax measured in accordance with IFRS.

4. Tax

Income tax for the six month period is calculated at rates representing the best estimate of the average annual effective income tax rate expected for the full year, applied to the pre-tax result of the six month period.

5. Dividends

Interim dividends paid on the 8.625% Non-Cumulative Irredeemable Preference shares amounted to £4.6m (H1 2017: £4.6m).

6. Retirement benefit schemes

The Group's IAS 19 net pension surplus increased by £9.5m during the first half of the year, from £20.0m to £29.5m, restricted to £26.8m due to the effects of the asset ceiling. The £2.7m asset restriction is recognised in accordance with International Financial Interpretations Committee 14 (IFRIC 14) on the basis of the maximum economic benefit available through a reduction in future contributions. A small increase in the discount rate and a small decrease in the RPI in the first half of the year resulted in actuarial gains from changes in financial assumptions of £12.0m. These were partially offset by losses on scheme assets in excess of the discount rate which totalled £1.8m. These movements have been recognised in the statement of other comprehensive income.

There was also a £0.7m decrease in the scheme surplus as the Employer's agreed level of contributions was lower than the current annual service cost.

7. Financial instruments' fair value disclosures

IAS 34 requires that interim financial statements include certain of the disclosures about the fair value of financial instruments set out in IFRS 13, Fair Value Measurement and IFRS 7, Financial Instruments Disclosures.

The fair value measurement basis used to value those financial assets and financial liabilities held at fair value is categorised into a fair value hierarchy as follows:

Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. This category includes listed equities in active markets, listed debt securities in active markets and exchange-traded derivatives.

Level 2: fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes listed debt or equity securities in a market that is not active and derivatives that are not exchange-traded.

Level 3: fair values measured using inputs for the asset or liability that are not based on observable market data (unobservable inputs). This category includes unlisted debt and equities, including investments in venture capital, and suspended securities. Where a look-through valuation approach is applied, underlying net asset values are sourced from the investee, translated into the Group's functional currency and adjusted to reflect current market conditions.

There have been no transfers between investment categories in the current period.

Fair value measurements in level 3 consist of financial assets, analysed as follows:

All the above gains included in profit or loss for the period are presented in net investment return within the statement of profit or loss.

The valuation techniques used for instruments categorised in Levels 2 and 3 are described below.

Listed debt and equity securities not in active market (Level 2)

These financial assets are valued using third party pricing information that is regularly reviewed and internally calibrated based on management's knowledge of the markets. Where material, these valuations are reviewed by the Group Audit Committee.

Non exchange-traded derivative contracts (Level 2)

The Group's derivative contracts are not traded in active markets. Foreign currency forward contracts are valued using observable forward exchange rates corresponding to the maturity of the contract and the contract forward rate. Over-the-counter equity or index options and futures are valued by reference to observable index prices.

Unlisted equity securities (Level 3)

These financial assets are valued using observable net asset data, adjusted for unobservable inputs including comparable price-to-book ratios based on similar listed companies, and management's consideration of constituents as to what exit price might be obtainable. Where material, these valuations are reviewed by the Group Audit Committee.

The valuation is most sensitive to the level of underlying net assets, the Euro exchange rate, the price-to-book ratio chosen, an illiquidity discount and a credit rating discount applied to the valuation to account for the risks associated with holding the asset. If the price-to-book ratio, illiquidity discount and credit rating discount applied changes by +/-10%, the value of unlisted equity securities could move by +/-£5m (H1 2017: +/-£5m).

The increase in value during the period is the result of an increase in the price / book ratio based on comparator companies and an increase in the underlying net assets, partially offset by the strengthening of Sterling against the Euro.

Unlisted debt (Level 3)

Unlisted debt is valued using an adjusted net asset method whereby management uses a look-through approach to the underlying assets supporting the loan, discounted using observable market interest rates of similar loans with similar risk, and allowing for unobservable future transaction costs. Where material, these valuations are reviewed by the Group Audit Committee.

The valuation is most sensitive to the level of underlying net assets, but it is also sensitive to the interest rate used for discounting and the projected date of disposal of the asset, with the exit costs sensitive to an expected return on capital of any purchaser and estimated transaction costs. Reasonably likely changes in unobservable inputs used in the valuation would not have a significant impact on shareholders' equity or the net result.

8. Changes in estimates

The estimation of the ultimate liability arising from claims made under general insurance business contracts is a critical accounting estimate. There are various sources of uncertainty as to how much the Group will ultimately pay with respect to such contracts. There is uncertainty as to the total number of claims made on each class of business, the amounts that such claims will be settled for and the timing of any payments.

During the six month period, changes to claims reserve estimates made in prior years as a result of reserve development resulted in a net release of £16.8m (H1 2017: £15m) and a £2.3m (H1 2017: £0.4m increase) reduction in reserves due to discount rate movements.

The estimation of the ultimate liability arising from claims made under life insurance business contracts is also a critical accounting estimate. Estimates are made as to the expected number of deaths in each future year until claims have been paid on all policies, as well as expected future real investment returns from assets backing life insurance contracts. During the six month period there was a £1.0m (H1 2017: £0.7m) reduction in reserves due to discount rate movements.

Changes in the value of the retirement benefit schemes as a result of changes in estimates are disclosed in note 6.

9. Translation and hedging reserve

The translation reserve arises on consolidation of the Group's foreign operations. The hedging reserve represents the cumulative amount of gains and losses on hedging instruments in respect of net investments in foreign operations.

10. Insurance liabilities and reinsurance assets

11. Related party transactions

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

Charitable grants to the ultimate parent company are disclosed in the condensed consolidated statement of changes in equity.

There have been no material related party transactions in the period or changes thereto since the latest annual report which require disclosure.

12. Holding company

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

13. Reconciliation of Alternative Performance Measures

The Group uses alternative performance measures (APM) in addition to the figures which are prepared in accordance with IFRS. The financial measures in our key financial performance data include the combined operating ratio (COR). This measure is commonly used in the industries we operate in and we believe it provides useful information and enhances the understanding of our results.

Users of the accounts should be aware that similarly titled APM reported by other companies may be calculated differently. For that reason, the comparability of APM across companies might be limited.

In line with the European Securities and Markets Authority guidelines, we provide a reconciliation of the combined operating ratio to its most directly reconcilable line item in the financial statements.

The underwriting profit of the Group is defined as the operating profit of the general insurance business.

The Group uses the industry standard net combined operating ratio as a measure of underwriting efficiency. The COR expresses the total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums. It is calculated as( [1] - [2] ) / [1].