Half Yearly Report

6 August 2013

esure Group plc interim results for the six months ended 30 June 2013

esure Group plc ("the Group") today announces interim results with gross written premiums up 6.7% to £265.4m and profit after tax up 16.9% to £44.3m.

Financial highlights

·; Gross written premiums up 6.7% to £265.4m (1H 2012: £248.8m)

·; In-force policies up 5.5% to 1.855 million (FY 2012: 1.759 million)

·; Trading profit1 up 7.2% to £65.2m (1H 2012: £60.8m)

·; Profit before tax up 15.2% to £56.9m (1H 2012: £49.4m)

·; Combined operating ratio2 improved by 4.8ppts to 89.6% (1H 2012: 94.4%)

·; Additional Services Revenue ("ASR")3 up 2.8% to £51.0m (1H 2012: £49.6m)

- ASR excluding Claims Income3 up 8.9% to £45.4m (1H 2012: £41.7m)

·; Pro forma earnings per share4 up 16.9%5 to 10.6 pence (1H 2012: 9.1 pence)

·; Interim dividend per share of 2.5p (1H 2012: nil), a payout ratio of 70% (1H 2012: nil) reflecting the strong operational performance and financial position of the Group.

Peter Wood, Chairman of esure Group plc, commented:

"Our first interim results as a listed company show continued volume and profit growth with improvements in our combined operating ratio and underwriting performance. Our strategy has enabled us to adapt well to our changing marketplace and has stood us in good stead.

"We have been listed for three months and are pleased to declare an interim dividend of 2.5 pence per share, representing a payout ratio of 70%."

Stuart Vann, Chief Executive Officer of esure Group plc, commented:

"The first half of 2013 has yielded good results for our business with some expected developments starting to bear fruit for the Group. Our retention of Sheilas' Wheels customers following the ECJ gender-neutral pricing changes in December 2012 is yielding the predicted benefits. The Government's civil justice reforms earlier this year are starting to show promising trends in the efforts to reduce gratuitous personal injury claims; however, it's still early days.

 "Gross written premiums and profit after tax are both showing steady improvements, the Group remains prudently reserved and we continue to work on further enhancing our pro-consumer additional insurance products. We are pleased with our progress in a competitive market through our nimble, focused and adaptable approach."

For further information:

Notes

1. Trading profit is defined as earnings before interest, non-trading costs, amortisation of acquired intangible assets and tax. Trading profit is a non-IFRS measure which management uses to evaluate Group performance. It may not be comparable with similarly titled measures used by other companies.

2. Combined operating ratio is calculated as the sum of the net loss ratio and net expense ratio. Net loss ratio is claims incurred, net of reinsurance as a percentage of earned premiums, net of reinsurance. Net expense ratio is net insurance expenses plus claims handling costs as a percentage of earned premiums, net of reinsurance.

3. Additional Services Revenue includes four main components: (i) sales of underwritten and non-underwritten additional insurance products to motor and home insurance customers; (ii) instalment interest on premium payment plans; (iii) policy administration fees; and (iv) legal panel membership fees and fees generated from the appointment of firms used during the claims process, including medical, vehicle repair and car hire suppliers ("Claims Income"). Additional Services Revenue is stated before the deduction of any internal costs of acquisition or administration. Non-underwritten Additional Insurance Products revenue represents the commission margins for the Group generated from sales of such products. Underwritten Additional Services Revenue is stated after the deduction of claims costs. Additional Services Revenue is a non-IFRS measure which management uses to evaluate Group performance. It may not be comparable with similarly titled measures used by other companies.

4. Pro forma earnings per share is calculated as profit after tax divided by the number of Ordinary Shares in issue on Admission and as at 30 June 2013.

5. Pro forma earnings per share growth has been calculated using pro forma earnings per share to two decimal places.

About esure

The Group is a UK-focused personal lines insurer founded in 2000 by Peter Wood, the foremost general insurance entrepreneur in the UK and the Group's Chairman. The Group also owns 50 per cent of top-four UK insurance price comparison website, Gocompare.com. The Group has established a strong platform for growth and a track record of profitability.

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, esure does not undertake to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. 

Business overview

The Group was successfully admitted to the premium segment of the London Stock Exchange on 27 March 2013 ("Admission"), before entering the FTSE 250 on 21 June 2013. The Group is now debt free after using the proceeds from the issuance of 17,241,380 new Ordinary Shares upon Admission to repay £50m of Perpetual Subordinated Loan Notes.

The Group has made a positive start to the first half of 2013 which continued to provide challenges and opportunities in both the motor and home markets on the back of a highly competitive environment and regulatory developments. The Group has not been immune to the rating environment but despite this has continued to grow both the top and bottom line through a nimble, focused and adaptable approach.

The European Court of Justice ("ECJ") ruling on gender-neutral pricing came into effect on 21 December 2012 providing the Group with advantages in its predominantly-female Sheilas' Wheels motor book. Females have experienced the greatest level of rating increases in the motor market, particularly for younger drivers, and the Group has been able to price competitively on renewal, providing a benefit to both customers and the Group.

Civil justice reforms have provided the Group with a unique opportunity to start growing carefully the motor portfolio into market segments previously exited during the personal injury phenomenon of 2009/10. The Legal Aid, Sentencing and Punishment of Offenders Act 2012 ("LASPO") banned the payment and receipt of referral fees in personal injury cases. In addition, civil justice reforms reduced the level of legal fixed costs. Whilst a temporary increase in personal injury claims was noted pre LASPO, there have been encouraging indications of improvement, but it's still early days.

The home portfolio has performed well with a strong underwriting performance and continues to provide a good source of diversified income.

The roll-out of the Group's new bespoke claims management system was completed during quarter one. The Group launched two new additional insurance products in 2012 and continues to develop and evolve the way in which these products are sold, including the introduction of motor excess protection cover in January 2013 and travel cover to be launched in late 2013. The Group's esure and Sheilas' Wheels branded Broker service which enables the Group, via a panel of selected third party motor insurers, to underwrite beyond its own underwriting risk parameters and provides a platform for the Group's telematics offering following the launch of Sheilas' Wheels Broker Model Driver in January 2013. The Group continues to further develop its distribution capability via its R&D function in areas such as social media and recent IT enhancements to enable customers to generate esure and Sheilas' Wheels insurance quotes and purchase policies quickly and easily via smartphones and tablets.

Outlook

The UK personal lines motor market has seen an increase in price competitiveness as demonstrated in the recently published indices which show significant rate reductions. This has been most noticeable during the latter part of quarter two and into quarter three.

The Group continues to target profitable business through its underwriting discipline as well as its nimble, focused and adaptable approach to market conditions. The Group has reported a strong combined operating ratio of 89.6% and sees a number of positive trends including early encouraging signs for claims performance post LASPO; a favourable impact from our new and innovative claims system; and continued benefits from our female focused brand, Sheilas' Wheels, as well as a strong home underwriting performance.

In light of market conditions, the Group now expects full year premium growth to be lower than that achieved in the first half of the year. However, the positive factors outlined above should serve substantially to mitigate any earnings impact from the lower premium growth.

Financial highlights

Gross written premiums

Gross written premiums have increased by 6.7% to £265.4m (1H 2012: £248.8m). Motor gross written premiums grew by 6.8% to £221.9m (1H 2012: £207.7m), against a backdrop of competitive market conditions. This has been driven by natural growth from the strength of our brands and distribution strategy as well as an increase in the retention rate on the Sheilas' Wheels book following the introduction of gender-neutral pricing and, following the introduction of the first of the civil justice and LASPO reforms in April 2013, the Group's planned re-entry to certain segments of the UK motor insurance market that it had exited between 2009 and 2011 as a result of the increase in personal injury claims.

Home gross written premiums grew by 5.8% to £43.5m (1H 2012: £41.1m) benefiting from the Group's competitive pricing for new customers predominantly via price comparison websites and for existing customers upon renewal.

Trading profit

Trading profit increased by 7.2% to £65.2m (1H 2012: £60.8m) largely driven by a strong underwriting performance. The 1H 2012 result included a number of exceptional items1 and adjusting for these items the trading profit is up 4.8% from £62.2m.

The motor underwriting result of £18.3m is £1.9m better than 1H 2012 largely reflecting the benefit from normal weather in 1H 2013.

The home underwriting result of £6.6m is £9.8m better than 1H 2012 reflecting a £6.0m benefit from normal weather in 1H 2013, higher premium volumes and a good period for claims frequency.

Profits from non-underwritten additional services were broadly stable in the period at £26.1m. An increase in instalment income and administration fees has been offset by a reduction in Claims Income following the ban on the payment or receipt of personal injury referral fees for legal services, which was effective from 1 April 2013 as part of the civil justice and LASPO reforms.

Investments performed broadly in line with expectations at £14.2m, but £7.2m lower than 1H 2012 which benefited from an exceptional investment income return. Investment income of £7.5m, represents a return of 1.1%, and reflects a solid return in volatile market conditions during the later part of quarter two. The trading profit from the Group's 50% holding in Gocompare.com Holdings Limited ("Gocompare.com") was up 4.7% to £6.7m (1H 2012: £6.4m), with the group receiving an interim dividend from Gocompare.com of £2.75m.

1 Normalised 1H 2012 trading profit - £62.2m (adjustments of £8.0m exceptional weather, £7.1m exceptional investment income gain and £0.5m incremental broker expenses)

Profit before tax

Profit before tax grew 15.2% to £56.9m. In addition to the improvement in trading profit, the Group has also benefited from a reduction in finance costs following the repayment of all outstanding debt in March 2013 and a reduction in the amortisation of acquired intangibles compared to 1H 2012.

Profit after tax

Profit after tax has increased 16.9% to £44.3m. The Group incurred an effective tax rate of 22.1% (1H 2012: 23.3%). The corporation tax rate has changed from 24% to 23% with effect from 1 April 2013.

Key performance indicators

* Movement is calculated against FY 2012

1 ASR per IFP is calculated on a rolling 12 months basis. The average number of in-force policies on a rolling 12 month basis as at 30 June 2013 was 1.783m, 1.652m as at 30 June 2012 and 1.718m as at 31 December 2012.

Combined operating ratio

The combined operating ratio of 89.6% is 4.8ppts better than 1H 2012 driven by an improvement in the net loss ratio. The 1H 2012 net loss ratio included 3.4ppts in relation to exceptional weather claims and thus the improvement in the underlying net loss ratio is 1.3ppts. The net expense ratio of 23.9% is 0.1ppts better than 1H 2012 and the Group maintains its focus on carefully managing its cost base.

In-force policies

In-force policies have increased by 5.5% to 1.855m since the end of 2012. Motor has increased by 73,000 polices (5.8%) through a combination of natural growth, the increased retention in the Sheilas' Wheels portfolio and following the introduction of the first of the civil justice and LASPO reforms in April 2013, the Group's planned re-entry to certain segments of the UK motor insurance market that it had exited between 2009 and 2011 as a result of the increase in personal injury claims. Home has increased by 23,000 policies (4.6%). The Group's focus remains on targeting profitable motor and home growth within our underwriting risk appetite, rather than simply to gain market share.

Additional Services Revenue

ASR has grown 2.8% to £51.0m (1H 2012: £49.6m) through increased sales of additional insurance products underwritten by the Group as well as growth in instalment income and administration fees in line with IFP growth, partly offset by the reduction in Claims Income post LASPO.

ASR per IFP of £59.2 is £0.3 up on 1H 2012 but £1.4 down on FY 2012, with the reduction since FY 2012 largely reflecting the reduction in Claims Income. On an adjusted basis (excluding Claims Income) ASR per IFP has grown to £51.9 compared to £51.6 for the full year 2012.

Pro forma earnings per share

Pro forma earnings per share have increased 16.9% from 9.1 pence per share at 1H 2012 to 10.6 pence per share at 1H 2013.

Dividend per share

An interim dividend of 2.5 pence per share (2012: nil) has been declared and approved by the Board. The dividend comprises a 1.8 pence base dividend and a further special dividend of 0.7 pence.

The interim dividend represents a pro-rata amount equal to half of the interim dividend which would have been paid if the company had been listed for the full six months of the interim period.

The special dividend has been calculated with reference to the economic capital requirements of the Group and its subsidiaries, with excess capital above what is required (including an appropriate buffer) distributed as a dividend to shareholders.

The interim dividend will be paid on 17 October 2013 to all holders of Ordinary Shares on the Register of Members at close of business on 20 September 2013.

Investment Portfolio and Income

1 Represents total financial assets less insurance and other receivables as disclosed in note 7.1 to the financial statements.

The reduction in investments of 10.3% since FY 2012 to £733.9m is predominantly driven by the repayment of £84.9m of capital instruments upon Admission. The Group continues to have no direct exposure to Eurozone sovereign debt or to the economies of Portugal, Ireland, Italy, Greece, Spain or Cyprus. The portfolio remains of short duration (1 year) with 87% of assets having a credit rating of 'A' or above.

The portfolio performed in line with expectations during 1H 2013, despite significant market volatility in the later part of quarter two. Overall, interest income has been broadly in line with 1H 2012 year, with fair value gains on investments being significantly lower than the exceptional gains seen in H1 2012.

Reserving

The Group continues to benefit from favourable development of prior accident year reserves, with total prior year releases of £36.9m in 1H 2013 (1H 2012: £35.0m). The Group continues to adopt a prudent approach to reserving and total net reserves remain in excess of 15% above the actuarial best estimate.

Further analysis of claims development is included within note 8 to the financial statements.

Principal risks and uncertainties

To the best of the directors' knowledge the principal risks and uncertainties of the Group for the remaining six months of the year are outlined in note 12 to the financial statements.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

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 condensed consolidated interim financial statements present the Group's financial information for the six months ended 30 June 2013 and have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union (EU). They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at the year ended 31 December 2012 which are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU.

As required by the FCA's Disclosure and Transparency Rules, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2012.

There have been no new or revised standards adopted by the Group during this period other than the adoption of IFRS 13 Fair Value Measurement with effect from 1 January 2013. There has been no material impact on results from applying this standard to the results of any period presented in these condensed interim financial statements. There have been no changes to the presentation of financial assets and liabilities.

These condensed interim financial statements have been prepared on a going concern basis. In considering the appropriateness of this assumption, the Board has reviewed the Group's projections for the next twelve months and beyond, including cash flow forecasts and regulatory capital surpluses. Consequently, the directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future.

The financial information contained in these interim results does not constitute statutory accounts of esure Group plc within the meaning of Section 435 of the Companies Act 2006. Statutory accounts for esure Group plc for the year ended 31 December 2012 have been delivered to the Registrar of Companies. The auditors have reported on the accounts, their report was:

(i) Unqualified;

(ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and

(iii) did not constitute a statement under Section 498 (2) or (3) of the Companies Act 2006.

The Group was previously unlisted and was not, therefore, required to prepare a half-yearly report. This is the first half yearly report for esure Group plc containing a condensed set of financial statements. As a consequence the review procedures set out in the Independent Review Report on page 37 have not been performed in respect of the comparative period for the six months ended 30 June 2012.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

3. Critical accounting judgements and estimates

The Group's 2012 financial statements provide details of significant judgements and estimates used in the application of the Group's accounting policies. There have been no significant changes to the judgements and estimates during the interim period.

Key source of estimation uncertainty

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 and for some types of claims, IBNR claims account for the majority of the liability in the statement of financial position.

The ultimate cost of outstanding claims is estimated by carrying out standard actuarial projections on triangles of number of reported claims, claims paid and incurred claims as at the reporting date for each type of claim.

The main assumption underlying these techniques is that a Company's past claims development experience can be used to project future claims development and hence ultimate claims cost.

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.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

4. Segmental information

Segmental revenues, expenses and other information

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

The Group incurred non-trading costs of £1.7m in respect of activities associated with the listing of the Company, and a share based payment charge in respect of the long service and one-off awards disclosed in note 10. Additionally, the Group incurred £5.8m of transaction costs which were charged directly to equity as disclosed in note 9. 

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

4. Segmental information (continued)

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

4. Segmental information (continued)

Reconciliation of segmental information to IFRSs statement of comprehensive income

The Group's segmental information presents amortisation of acquired intangible assets separately from other operating expenses.

Additionally, the Group's share of joint venture profit is presented before tax and amortisation. These items, which are presented within share of profit after tax of joint venture in the condensed consolidated income statement are presented within amortisation of acquired intangible assets and tax expense in the segmental information.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

5. Dividends

No dividends were declared in the six months ended 30 June 2013 by the Company. Subsequent to the interim period end, an interim dividend per share of 2.5p was declared by the Board of directors.

6. Earnings per share

Basic

Basic earnings per share is calculated by dividing the earnings attributable to the owners of the Company and the weighted average of Ordinary Shares in issue during the period, excluding Ordinary Shares held as employee trust shares.

Diluted

Diluted earnings per share is calculated by dividing the earnings attributable to the owners of the Company and the weighted average of Ordinary Shares in issue during the period adjusted for any dilutive potential Ordinary Shares. The Company has share options and contingently issuable shares as categories of dilutive potential Ordinary Shares.

The difference between the basic and diluted weighted average number of shares outstanding during the period, being 129,643 (1H 2012 and FY 2012: nil), relates to the dilutive potential of the share-based payment arrangements. Details of share awards are set out in note 10.

During the six months ended 30 June 2013, the Group undertook a number of capital actions, in anticipation of Admission to trading on the London Stock Exchange, to restructure the capital base and thereby improve capital efficiency.  

On 21 February 2013, the capital of the Company was reduced by the cancellation of 4,000,000,000 Non-Voting Old Ordinary Shares of £0.01 each and £40 million cash was paid out of existing financial resources.

On 25 February 2013, each A, B and C Ordinary Share was subdivided into 12 shares of the same class. Immediately prior to Admission, these 399,600,000 shares of 1⁄12 pence, were converted into a single class of ordinary shares.

On Admission the Group repurchased the remaining 4,485,014,000 Non-Voting Ordinary Shares of £0.01 each at par (amounting, in total, to £44.85 million) and the 1,000 Redeemable Priority Return Shares of £0.01 each.

The Group also issued 17,241,380 new shares with a nominal value of 1/12 pence each on 27 March 2013 for £50 million.

The calculation of basic and diluted earnings per share for comparative periods has been adjusted accordingly. Where there has been no change in existing resources, the calculation has been adjusted retrospectively to reflect these changes; where there has been a change in resources, the calculation has been adjusted from the date of that change in resources.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

6. Earnings per share (continued)

Basic and diluted earnings per Ordinary Share

The IAS 33 earnings per share calculation is disclosed above and is based on a weighted average number of shares in issue for the six months ended 30 June 2013. An additional pro forma earnings per share calculation has been included below to reflect the share structure of the Group on Admission and as at 30 June 2013.

Pro forma earnings per Ordinary Share

Pro forma earnings per share is calculated as profit after tax divided by the number of Ordinary Shares in issue on Admission and as at 30 June 2013.  

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

7. Financial assets and liabilities

7.1 Financial assets

Of the financial investments and cash above, £235.7m have a credit rating of AAA as at 30 June 2013 (30 June 12: £371.2m, 31 December 12: £365.2m), £160.0m have a credit rating of AA (30 June 12: £92.7m, 31 December 12: £99.5m), £234.8m have a credit rating of A (30 June 2012: £187.5m, 31 December 12: £229.7m) and £41.4m have a credit rating of BBB (30 June 12: £83.3m, 31 December 12: £58.1m). The shares and other variable yield securities, units in unit trusts and derivative financial instruments as shown above are not subject to credit rating.

The main reduction in AAA rated financial investments is, as stated in note 9 "Share Capital & Other Reserves", due to the repayment upon Admission to the LSE of £84.9m of capital instruments funded by a commensurate reduction in money market funds. The remaining change in AAA rated financial investments reflects a general decrease in the rating environment in the current economic climate. The Group continues to hold the majority of its assets in strong investment grade instruments.

7.2 Financial liabilities

The size, nature and composition of the Group's liabilities remained materially unchanged during the interim period except for the repayment on 28 March 2013 of the £50 million Perpetual Subordinated Loan Notes following Admission to the London Stock Exchange.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

7.3 Fair value estimation

The Group's financial instruments are measured at fair value by reference to a fair value measurement hierarchy which is presented within the Group's financial statements for the year ended 31 December 2012.

In accordance with IFRS 7 financial instruments held at fair value through profit or loss ("FVTPL") 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 are derived from inputs other than quoted prices included in Level 1, if all

significant inputs required to fair value an instrument are observable, the instrument is 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

publically;

• Inputs that are derived principally from, or corroborated by, observable market data by

correlation;

• For forward foreign exchange contracts, the use of observable forward exchange rates at the

reporting date, with the resulting value discounted back to present value; and

• Other techniques, such as discounted cash flow analysis, which consider on a prudent basis the

likely realisable value.

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.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

7.3 Fair value estimation (continued)

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

The classification of each asset within the fair value hierarchy is determined by valuation techniques used in pricing each asset and the level of liquidity, as described in the Group's 2012 financial statements. There are no changes to the fair value valuation techniques or measurement methods in the interim period. 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.

As a result of the application of IFRS 13 Fair Value Measurement from 1 January 2013, the Group has revisited the fair value hierarchy and now classifies all corporate bonds as Level 2 assets with the exception of Government backed securities which are classified as Level 1 unless they are illiquid. As a result of the change, £14m has been transferred from Level 1 to Level 2 in the interim period. There were no other transfers during the period.

Following the Group's decision to sell its holding in a managed fund, there are no Level 3 assets, other than land and buildings, as at 30 June 2013. The carrying value of the managed fund investment at 31 December 2012 was £17.8m. The total sales proceeds for these financial assets was £21.7m. Cumulative unrealised losses of £3.0m were reversed on the sale of these Level 3 financial assets and realised gains of £1.0m were recorded in investment income as a result of the sale.

Under IFRS 13, land and buildings with a carrying value of £11.3m (30 June 2012: £12.3m, 31 December 2012: £11.4m) are now classified as Level 3 assets. As stated in the Group's 2012 consolidated financial statements, owner-occupied properties are stated at their revalued amounts, as assessed by qualified external valuers every three years, 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"). More frequent revaluations are performed by management to assess that the carrying amount does not materially differ from its fair value.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

8. Reinsurance assets and insurance contract liabilities

a. Analysis of recognised amounts

b. Claims development

The movements in claims reported, including claims handling expenses net of reinsurance, are shown below:

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

Claims incurred and claims handling expenses as disclosed in the consolidated statement of comprehensive income comprise:

9. Share capital and other reserves

Allotted, called up and fully paid share capital of the Company as at 30 June 2013 was 416,841,380 ordinary shares of 1/12 pence each. The shares have full voting and dividend rights.

No shares are held in Treasury. The esure Employee Benefit Trust holds 1,646,828 ordinary shares and the Trustees have waived their rights to dividend payments, unless and to the extent otherwise directed by the Company from time to time.

On 21 February 2013, the capital of the Company was reduced by the cancellation of 4,000,000,000 Non-Voting Old Ordinary Shares (referred to as 'ordinary shares' ) of £0.01 each and £40 million in cash was paid in consideration by the Company to Tosca Penta Investments LP out of existing financial resources, the holder of the non-voting old ordinary shares so cancelled.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

On 25 February 2013, each A Ordinary Share, B Ordinary Share and C Ordinary Share was subdivided into 12 shares of the same class (each having a nominal value of 1⁄12 pence). Immediately prior to Admission, the resulting A Ordinary Shares, B Ordinary Shares and C Ordinary Shares, in total amounting to 399,600,000 shares of 1⁄12 pence each, converted into a single class of ordinary shares ("Existing Ordinary Shares") in accordance with the Company's articles of association such that, following conversion, there are in aggregate 399,600,000 Existing Ordinary Shares of 1⁄12 pence each.

Pursuant to a share purchase agreement dated 25 February 2013, the Group agreed on Admission to repurchase the remaining 4,485,014,000 Non-Voting Ordinary Shares of £0.01 each at par (amounting, in total, to £44.85 million) and the 1,000 Redeemable Priority Return Shares of £0.01 each for an amount equal to the Priority Return (as defined and determined in accordance with the Company's previous articles of association) out of existing financial resources. A capital redemption reserve was created for the £44.85 million share repurchase. The amount payable on admission to Tosca Penta Investments LP in respect of the Priority Return was £0.6 million. As a result of the contractual obligations to deliver cash to satisfy the Priority Return on Admission, the Priority Return Shares were reclassified as a financial liability. The fair value at the date of the reclassification (being £0.6million) was deducted from equity. The Group also issued 17,241,380 New Ordinary Shares with a nominal value of 1/12 pence each on 27 March 2013 for £50 million, with associated transaction costs of £5.8m debited directly to share premium.

10. Share based payments

As disclosed at IPO, the Group has set up a number of equity-settled, share-based compensation plans.

An award will not be granted under the executive plans if it would cause the number of shares allocated in the 10 calendar year period following flotation to exceed 5% of the ordinary share capital in issue at that time.

Similarly, an award will not be granted under the employee plans if it would cause the number of shares allocated in the 10 calendar year period following flotation to exceed 10% of the ordinary share capital in issue at that time.

Holders of these awards will receive dividend equivalents in respect of the dividends that would have been paid between grant date and vesting date for Ordinary Shares which vest under their awards, calculated on a basis and paid in a manner to be determined by the Remuneration Committee before the awards vest.

Details of the share-based compensation plans and their financial effect are set out below.

(a) Performance Share Plan

The Performance Share Plan ("PSP") is a discretionary executive share plan.

As disclosed at IPO, the first awards made under PSP were:

Under the scheme, the shares vest at the end of a three-year period dependent upon continued employment by the Group and achieving predefined performance conditions associated with the Group's earnings per share ("EPS") and total shareholder return ("TSR").

The awards are subject to both non-market and market-based performance conditions.

Two-thirds of each award will be based on EPS performance and one-third on TSR performance (with the two measures applying independently to different parts of each award).

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

10(a). Share based payments (continued)

EPS performance

The EPS performance measure involves a comparison of the pro forma EPS figure for the year ended 31 December 2012 as disclosed in note 6 (calculated as the profit after taxation for the year ended 31 December 2012 divided by the aggregate number of Existing Ordinary Shares and New Ordinary Shares in existence on Admission) and the EPS figure reported in the Group's audited consolidated financial statements for the year ending 31 December 2015.

For the portion of the award subject to the EPS measure:

(i) 25 per cent will vest if EPS for the year ending 31 December 2015 exceeds the EPS for the year ended

31 December 2012 (calculated on the basis described above) by 21 per cent;

(ii) 100 per cent will vest if EPS for that year for the year ending 31 December 2015 exceeds the EPS for

the year ended 31 December 2012 (calculated on the basis described above) by 39 per cent; and

(iii) if EPS for the year ending 31 December 2015 falls between these targets, vesting will occur on a

straight-line basis.

TSR performance

TSR performance will be measured by comparing the Group's TSR from the date of Admission to 31 December 2015 to the TSR of the constituents of the FTSE 250 Index (excluding investment trusts and the Company) over the same period. For the first PSP awards, the opening TSR of the Company will be the Offer Price. For the portion of the award subject to the TSR measure:

(i) 25 per cent will vest if the Group achieves median TSR performance against this comparator Group;

(ii) 100 per cent will vest if the Group's TSR performance is at the upper quartile or above; and

(iii) if TSR performance is between the median and the upper quartile, vesting will occur on a straight-line basis.

In addition, the first PSP awards will be subject to an additional term, which will allow the Remuneration Committee to reduce the level of vesting of each award if it considers that the vesting level is not appropriate having regard to the growth in profitability over the performance period.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

10(a). Share based payments (continued)

This PSP award will vest at the later of 3 years service and satisfaction of the performance conditions (as determined by the Remuneration Committee)

The fair value of the options at the date of grant was £1,832,012.

Valuation

As one-third of the award is subject to a share-price related performance condition, the fair value of the awards has been calculated using a Stochastic (Monte-Carlo) model.

The remaining two-thirds of the award is not subject to a share-price related performance condition and has been valued using a Black Scholes valuation model.

The inputs into the models were:

10(b). Free share awards

During the half year ended 30 June 2013, upon listing on the London Stock Exchange, the Group offered employees a 'free share' award granting shares to each eligible employee free of charge. These awards, comprised of Long Service awards and One-off awards, will be satisfied under the PSP using shares held by the Group employee benefit trust.

Long Service awards

These awards were made to eligible employees who did not already own shares in the Group and had been employed by the Group for more than 2 years at the point of Admission. The award levels were determined by length of service.

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

10(b). Share based payments (continued)

The details of the award are set out below:

The awards outstanding at 30 June 2013 have no performance criteria attached, other than the requirement that the employee remains in employment with the Group for three years and shall not be subject to clawback.

The estimated fair value of the free shares granted under the award at grant date is £4,088,917. The fair value of each award is based upon the market value of the award at grant date of £2.96.

One-off awards

These awards were made to a number of senior employees of the Group.

The details of the award are set out below:

The awards outstanding at 30 June 2013 have no performance criteria attached, other than the requirement that the employee remains in employment with the Group for one year and shall not be subject to clawback.

The estimated fair value of the free shares granted under the award at grant date is £730,661. 

NOTES TO THE FINANCIAL STATEMENTS

for the six months ended 30 June 2013

10(b). Share based payments (continued)

The fair value of each award is based upon the market value of the award at grant date of £2.96.