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Half Yearly Report

21st Aug 2013 14:24

RNS Number : 2081M

Ecclesiastical Insurance Office PLC

21 August 2013

ECCLESIASTICAL INSURANCE OFFICE PLC HALF-YEARLY FINANCIAL REPORT FOR THE PERIOD ENDED 30 JUNE 2013

INTERIM MANAGEMENT REPORT

This is my first statement as Group Chief Executive following my appointment in May. I joined the Group in 2009 as Chief Financial Officer and am privileged to have been asked to lead the Group forward.

We are very proud of our history of charitable giving, our strong position in specialist markets and reputation for claims management. We believe our financial strength and committed ethical approach give our business strong foundations.

We are very clear about the challenges ahead, and what we must do to face up to them. We must continue to focus on our core specialist areas - the reasons why we were established, and the reasons why we continue to be successful today. As a result we need to tackle unprofitable areas of our business and shape it for the future.

We have already made some key changes in leadership to support this including the appointment of Jacinta Whyte, the General Manager of our Canadian branch since 2003, as our Deputy Group Chief Executive, member of the Board and interim Managing Director of our UK general insurance business.

We have also re-shaped our management structure into three key business divisions - general insurance, investment management and broking and advisory. In doing so we can bring distinct focus to each part of our business and ensure that each has a clear vision, strategy, plans and leadership to succeed.

Financial performance

Our results for the first half of the year are positive overall. We have delivered a pre-tax profit of £24.4m (H1 2012: £8.0m profit), which was ahead of our expectations. This is a result of a mixed underwriting performance and a strong investment return.

General Insurance

Gross written premiums decreased to £205.7m (H1 2012: £240.7m) as we took action to address profitability issues in motor and liability. Our exit from motor business in the UK and Ireland contributed £12.2m of this reduction. Business written in Australia has reduced by £10.3m following our exit from personal lines and action taken to reduce our exposure to catastrophe events. The balance is due to reductions in our exposure to liability business in the UK and Ireland, particularly in the Care sector.

Our underwriting performance for the half year was a loss of £8.9m (H1 2012: £14.4m loss). Our UK business delivered an overall underwriting profit of £4.8m (COR 95.6%). Our UK property portfolio continued to perform strongly, supported by generally favourable weather conditions in the first half, but we have, however, continued to experience losses on liability business which reduced the overall underwriting profit.

Whilst we remain confident in the actions we have taken and continue to take to improve liability underwriting performance, we expect it to take time to restore the account to acceptable levels of profit.

As in the UK, the property portfolio of our business in Ireland was profitable, with losses on liability business driving the reported first half underwriting loss of £5.5m (H1 2012: £1.2m loss).

Our business in Australia reported an underwriting loss of £7.8m in the first half (H1 2012: £8.1m loss). The January floods in Brisbane contributed to this loss, as has the reduced level of premiums, but it is the cost of reinsurance that continues to be the biggest challenge to profitability. We achieved a step change reduction in reinsurance cost for 2013 following actions taken during 2012, and work continues to ensure that future reinsurance costs are at a sustainable level.

Our Canadian business was impacted by the Calgary floods in June 2013 and reported an underwriting loss of £1.5m (H1 2012: £0.6m loss).

Investment management

We are proud that our investment team has continued to outperform the market and contributed £33.2m to profit at the half year (H1 2012: £22.3m). The optimism that drove investment markets in 2012 carried through into May 2013 as evidence mounted of an improving US economic backdrop.

In the latter part of the period uncertainty over the scale and longevity of the Federal Reserve's Quantitative Easing programme led to heightened volatility across all asset classes. There followed a sharp sell-off in the bond markets and global equities retrenched from highs in May. Strong performance from our equities and a positive contribution from corporate bonds more than offset moderate losses from government securities.

Our retail investment business continues to build a presence in the socially responsible investment market, bringing in a profit of £1.0m (H1 2012: £0.6m profit) and growing funds under management by £155.0m in the first six months of the year.

Broking and Advisory

South Essex Insurance Brokers (SEIB) continued to provide a steady income to the Group with a profit before tax of £1.2m (H1 2012: £1.2m), a growth of 5% on the prior year period.

We have made changes to our life insurance business during the first half of the year. In April, we signed an agreement with a third party provider, Reliance Mutual Insurance Society, which now underwrites the life insurance policies that support the National Association of Funeral Directors' (NAFD) funeral plan offering.

This arrangement has ensured that NAFD's customer requirements are met with Ecclesiastical continuing to provide advisory and administration services to support NAFD.

ELL reported a loss before tax of £0.4m at the half year (H1 2012: £0.1m profit). New business strain up to April was offset by better than expected performance of corporate bond investments, but the cessation of future new business has resulted in an increased provision for expenses leading to a small loss overall at the half year.

Our small financial advisory business Ecclesiastical Financial Advisory Services Limited (EFAS) has changed a great deal in the past few years to tackle the challenges of the Retail Distribution Review and is clearly focused on the clergy market. Losses from our IFA business have more than halved compared to this time last year with EFAS reporting a loss before tax of £0.4m (H1 2012: £0.9m).

Related party transactions

Related party transactions and changes to them since the last annual report are disclosed in note 7 to the condensed set of financial statements. The latest annual report is available from the registered office and at www.ecclesiastical.com/general/investorrelations/reportandaccounts.

Principal risks and uncertainties

The principal risks and uncertainties that could have a material impact on the Group's performance, such that actual results differ from expected and historical results, are detailed in note 1 to the condensed set of financial statements. The principal risks and uncertainties that were disclosed in the Risk Management section of the Business Review and notes 3 and 4 to our latest annual report still apply.

Going concern

The Group has considerable financial resources: financial investments of £955.3m, 96% of which are liquid (H1 2012: financial investments of £842.1m, 96% liquid); cash and cash equivalents of £104.3m and no bank borrowings (H1 2012: cash and cash equivalents of £148.6m and no bank borrowings); and a regulatory enhanced capital resources cover of 2.7 (H1 2012: 2.8). As a consequence, the Directors have a reasonable expectation that the Group is well-placed to manage its business risks successfully and continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly financial report.

There have been no material subsequent events to disclose in this report.

Outlook

The first half of 2013 has been a period of change for us as we continue to address unprofitable areas of our business and shape it for the future. We are clear about the challenges ahead, but are cautiously pleased with the progress made to date, particularly the improved property results from our UK business in the first half of the year.

We believe that liability performance will remain under pressure for some months to come, and we will continue with our actions on rates and exposure to improve performance in the medium term.

We believe that there is plenty of room for growth in our core profitable markets and we will invest in profitable growth where rates and underwriting terms are appropriate.

Mark Hews

Group Chief Executive

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

(a)

the condensed set of financial statements has been prepared in accordance with IAS 34, "Interim Financial Reporting";

(b)

the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c)

the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

The Board of Directors is as per the latest audited annual financial statements, with the following changes:

T.J. Carroll was appointed to the Board on 2 April 2013;

M.C.J. Hews was appointed Group Chief Executive on 1 May 2013;

M.H. Tripp resigned from the Board on 21 May 2013;

S.A. Wood resigned from the Board on 12 June 2013; and

S.J. Whyte was appointed to the Board on 16 July 2013.

By order of the Board,

Mark Hews

Will Samuel

Group Chief Executive

Chairman

21 August 2013

CONDENSED CONSOLIDATED INCOME STATEMENT

for the 6 months to 30 June 2013
	30.06.13	30.06.12	31.12.12
	6 Months	6 Months	12 Months
	£000	£000	£000
Revenue
Gross written premiums	212,267	251,420	481,334
Outward reinsurance premiums	(67,448)	(78,348)	(157,843)
Net change in provision for unearned premium	11,085	(16,622)	(12,846)
Net earned premiums	155,904	156,450	310,645

Fees and commission income	29,414	26,573	53,657
Net investment return	34,975	25,315	64,991
Total revenue	220,293	208,338	429,293

Expenses
Claims and change in insurance liabilities	(114,941)	(139,330)	(256,057)
Reinsurance recoveries	3,232	24,320	41,447
Fees, commissions and other acquisition costs	(43,532)	(47,481)	(97,454)
Other operating and administrative expenses	(40,623)	(37,827)	(79,311)
Total operating expenses	(195,864)	(200,318)	(391,375)


Operating profit	24,429	8,020	37,918
Finance costs	(61)	(61)	(115)
Profit before tax	24,368	7,959	37,803
Tax expense	(2,594)	(965)	(4,448)
Profit for the financial period from continuing operations	21,774	6,994	33,355
Net loss attributable to discontinued operations *	-	(5,737)	(5,737)
Profit for the financial period attributable to equity holders of the parent	21,774	1,257	27,618

* On 15 May 2012, the Group disposed of its wholly owned subsidiary, ACS (NZ) Limited. Further details are contained in the 2012 annual report.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the 6 months to 30 June 2013
		Restated*
	30.06.13	30.06.12	31.12.12
	6 Months	6 Months	12 Months
	£000	£000	£000
Items that will not be reclassified to profit or loss:
Fair value losses on property	-	-	(313)
Actuarial gains/(losses) on retirement benefit schemes	5,265	(666)	(1,331)
Attributable tax	(1,211)	211	511
	4,054	(455)	(1,133)
Items that may be reclassified subsequently to profit or loss:

Loss on currency translation differences	(1,889)	(2,277)	(3,784)
Net income/(expense) recognised directly in equity	2,165	(2,732)	(4,917)

Profit for the period after tax	21,774	1,257	27,618
Total comprehensive income attributable to equity holders of the parent	23,939	(1,475)	22,701

* The Group adopted IAS 19 (Revised), Employee Benefits for the 2012 year end. Further details are contained in the 2012 annual report and in note 2 of this report.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the 6 months to 30 June 2013
	Share	Share	Equalisation	Revaluation	Translation	Retained
	capital	premium	reserve	reserve	reserve	earnings	Total
	£000	£000	£000	£000	£000	£000	£000
2013
At 1 January	120,477	4,632	25,590	752	24,411	279,795	455,657
Profit for the period	-	-	-	-	-	21,774	21,774
Other net (expense)/income	-	-	-	-	(1,889)	4,054	2,165
Total comprehensive income	-	-	-	-	(1,889)	25,828	23,939
Dividends	-	-	-	-	-	(4,591)	(4,591)
Reserve transfers	-	-	502	-	-	(502)	-
At 30 June	120,477	4,632	26,092	752	22,522	300,530	475,005

2012
At 1 January	120,477	4,632	22,719	971	28,195	259,090	436,084
Changes in accounting policies *	-	-	-	-	-	9,177	9,177
As restated	120,477	4,632	22,719	971	28,195	268,267	445,261
Profit for the period	-	-	-	-	-	1,257	1,257
Other net income/(expense)	-	-	-	2	(2,277)	(457)	(2,732)
Total comprehensive income	-	-	-	2	(2,277)	800	(1,475)
Dividends	-	-	-	-	-	(4,591)	(4,591)
Reserve transfers	-	-	1,880	-	-	(1,880)	-
At 30 June (restated)	120,477	4,632	24,599	973	25,918	262,596	439,195

2012
At 1 January	120,477	4,632	22,719	971	28,195	259,090	436,084
Changes in accounting policies *	-	-	-	-	-	9,177	9,177
As restated	120,477	4,632	22,719	971	28,195	268,267	445,261
Profit for the year	-	-	-	-	-	27,618	27,618
Other net expense	-	-	-	(219)	(3,784)	(914)	(4,917)
Total comprehensive income	-	-	-	(219)	(3,784)	26,704	22,701
Dividends	-	-	-	-	-	(9,181)	(9,181)
Net charitable grant to ultimate parent	-	-	-	-	-	(3,020)	(3,020)
Group tax relief in excess of standard rate	-	-	-	-	-	(104)	(104)
Reserve transfers	-	-	2,871	-	-	(2,871)	-
At 31 December	120,477	4,632	25,590	752	24,411	279,795	455,657

The equalisation reserve is not distributable and must be kept in compliance with the insurance companies' reserves regulations. The revaluation reserve represents cumulative net fair value gains on owner-occupied property. The translation reserve arises on consolidation of the Group's foreign operations.


* Further details are contained in the 2012 annual report and note 2 of this report.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 June 2013
		Restated*
	30.06.13	30.06.12	31.12.12
	£000	£000	£000
Assets
Goodwill and other intangible assets	23,992	24,920	24,349
Deferred acquisition costs	31,549	34,168	34,626
Deferred tax assets	4,776	6,315	3,202
Pension assets	37,336	36,584	36,521
Property, plant and equipment	7,741	8,585	8,414
Investment property	30,214	29,454	27,315
Financial investments	955,336	842,052	922,109
Reinsurers' share of contract liabilities	123,797	163,252	141,011
Current tax recoverable	1,134	-	316
Other assets	153,203	175,679	145,714
Cash and cash equivalents	104,270	148,564	112,584
Total assets	1,473,348	1,469,573	1,456,161

Equity
Share capital	120,477	120,477	120,477
Share premium account	4,632	4,632	4,632
Retained earnings and other reserves	349,896	314,086	330,548
Total shareholders' equity	475,005	439,195	455,657

Liabilities
Insurance contract liabilities	870,177	900,531	878,691
Finance lease obligations	1,651	1,736	1,812
Provisions for other liabilities	7,046	7,744	7,273
Retirement benefit obligations	10,161	13,768	14,810
Deferred tax liabilities	44,432	35,608	38,653
Current tax liabilities	712	5,713	290
Deferred income	14,725	15,743	14,782
Other liabilities	49,439	49,535	44,193
Total liabilities	998,343	1,030,378	1,000,504

Total shareholders' equity and liabilities	1,473,348	1,469,573	1,456,161

* The revised IAS 19 standard and a change of accounting policy were adopted for the 2012 year end accounts. Further details are contained in the 2012 annual report and note 2 of this report.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the 6 months to 30 June 2013
	30.06.13	30.06.12	31.12.12
	6 Months	6 Months	12 Months
	£000	£000	£000

Profit before tax	24,368	7,959	37,803
Adjustments for:
Loss before tax on discontinued operations	-	(834)	(834)
Depreciation of property, plant and equipment	959	974	2,132
(Gains)/losses on disposal of property, plant and equipment	(1)	50	79
Amortisation of intangible assets	1,136	991	2,125
Loss on disposal of intangible assets	-	14	83
Net fair value gains on financial instruments and investment property	(14,274)	(2,555)	(23,498)
Dividend and interest income	(19,378)	(21,737)	(38,867)
Finance costs	61	61	115

Changes in operating assets and liabilities:
Net decrease in insurance contract liabilities	(3,539)	(4,883)	(23,201)
Net decrease in reinsurers' share of contract liabilities	16,134	50,419	71,872
Net decrease in deferred acquisition costs	3,187	1,531	1,037
Net (increase)/decrease in other assets	(8,027)	(28,519)	1,404
Net increase/(decrease) in operating liabilities	9,424	(655)	(8,971)
Net increase/(decrease) in other liabilities	58	(685)	(877)
Cash generated by operations	10,108	2,131	20,402

Dividends received	4,449	5,732	9,358
Interest received	12,975	14,613	28,967
Interest paid	(61)	(61)	(115)
Tax (paid)/recovered	(303)	2,955	303
Net cash from operating activities	27,168	25,370	58,915

Cash flows from investing activities
Purchases of property, plant and equipment	(286)	(499)	(1,633)
Proceeds from the sale of property, plant and equipment	-	-	51
Purchases of intangible assets	(791)	(595)	(1,237)
Disposal of business, net of cash transferred	-	(12,734)	(12,734)
Purchases of financial instruments and investment property	(116,043)	(101,719)	(256,467)
Sale of financial instruments and investment property	90,292	87,985	180,742
Net cash used by investing activities	(26,828)	(27,562)	(91,278)

Cash flows from financing activities
Payment of finance lease liabilities	(211)	(251)	(527)
Payment of group tax relief in excess of standard rate	-	-	(463)
Dividends paid to company's shareholders	(4,591)	(4,591)	(9,181)
Donations paid to ultimate parent undertaking	(4,000)	-	-
Net cash used by financing activities	(8,802)	(4,842)	(10,171)

Net decrease in cash and cash equivalents	(8,462)	(7,034)	(42,534)
Cash and cash equivalents at the beginning of the period	112,584	155,024	155,024
Exchange gains on cash and cash equivalents	148	574	94
Cash and cash equivalents at the end of the period	104,270	148,564	112,584

NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE PERIOD ENDED 30 JUNE 2013

1. General information

The information for the year ended 31 December 2012 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 2013. The Group results for the six month periods to 30 June 2013 and 30 June 2012 are unaudited, but have been reviewed by Deloitte LLP whose review report is presented on page 19.

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 underwriting exposure is protected through the use of a comprehensive programme of reinsurance and proactive claims handling. Net retention limits are in place and the Group arranges catastrophe reinsurance cover to protect against aggregations of losses.

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 and 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 options and futures contracts from time to time which would limit losses in the event of a fall in equity markets. 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 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 Group has considerable financial resources and, as a consequence, the directors have a reasonable expectation that the Group is well-placed to manage its business risks successfully and continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the 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 in addition to offering a range of financial services with offices in the UK, Ireland, Canada and Australia.

The annual financial statements are prepared in accordance with International Financial Reporting Standards 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.

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, with the following exceptions:

The Group has adopted an Amendment to IAS 1 (Revised), Presentation of Items of Other Comprehensive Income and IFRS 13, Fair Value Measurement. The Amendment to IAS 1 requires items of other comprehensive income to be grouped by those items that will be reclassified subsequently to profit or loss and those that will never be reclassified, along with their associated tax. The amendments have been applied retrospectively and the presentation of items of other comprehensive income have been restated to reflect the change.

IFRS 13 clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. The adoption has had no impact on the measurement of fair value of financial assets and financial liabilities in the Group, and the disclosures required for interim reporting are shown in note 9.

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

The early adoption of the IAS 19 (Revised) and the change of accounting policy for the remeasurement of designated insurance liabilities in 2012 are described in full in the 2012 annual report. These were not adopted as at 30 June 2012 and as a result certain statements and notes in this half-yearly report have been restated. There has been no restatement of profit or loss but shareholders' equity as at 30 June 2012 has increased by £8,720,000 as a result of the change in policies.

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. This reflects the management and internal Group reporting structure. Group activities that are not reportable operating segments on the basis of size are included within an 'Other activities' category. A change has been made to segments during 2013 as follows:

The 'Broking' segment has been renamed 'Broking and Advisory' and includes Ecclesiastical Financial Advisory Services, which had previously been included in 'Other activities'.

Prior periods have been restated to the revised basis.

The activities of each operating segment are described below.

General business

United Kingdom

The Group's principal general insurance business operation is in the UK, where it operates under the Ecclesiastical and Ansvar brands.

Ireland

The Group operates an Ecclesiastical branch in the Republic of Ireland underwriting general business across the whole of Ireland.

Australia

The Group has a wholly owned subsidiary in Australia undertaking general insurance business under the Ansvar brand.

Canada

The Group operates a general insurance Ecclesiastical branch in Canada.

Central operations

This includes the Group's internal reinsurance function, corporate underwriting costs and operations that are in run-off or not reportable due to their immateriality.

Investment management

The Group provides investment management services both internally and to third parties through Ecclesiastical Investment Management Limited.

Broking and Advisory

The Group provides insurance broking through South Essex Insurance Brokers Limited and financial advisory services through Ecclesiastical Financial Advisory Services.

Life business

Ecclesiastical Life Limited provides long-term insurance policies to support funeral planning products.

Other activities

This includes corporate costs relating to acquisition and disposal of businesses.

Inter-segment and inter-territory transfers or transactions are entered into under normal commercial terms and conditions that would also be available to unrelated third parties.

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 income statement.

Group revenues are not materially concentrated on any single external customer.
					Restated
	6 months ended			6 months ended
	30.06.13			30.06.12
	Gross	Non-		Gross	Non-
	written	insurance		written	insurance
	premiums	services	Total	premiums	services	Total
	£000	£000	£000	£000	£000	£000
General business
United Kingdom	153,786	-	153,786	176,991	-	176,991
Ireland	7,880	-	7,880	7,344	-	7,344
Australia	24,905	-	24,905	35,182	-	35,182
Canada	17,840	-	17,840	15,513	-	15,513
Central operations	1,252	-	1,252	5,627	-	5,627
	205,663	-	205,663	240,657	-	240,657
Investment management	-	5,064	5,064	-	4,040	4,040
Broking and Advisory	-	4,134	4,134	-	3,837	3,837
Life business	6,604	-	6,604	10,763	-	10,763
Group revenue from continuing operations	212,267	9,198	221,465	251,420	7,877	259,297

					Restated
				12 months ended
				31.12.12
				Gross	Non-
				written	insurance
				premiums	services	Total
				£000	£000	£000
General business
United Kingdom				336,579	-	336,579
Ireland				14,046	-	14,046
Australia				65,126	-	65,126
Canada				36,995	-	36,995
Central operations				8,380	-	8,380
				461,126	-	461,126
Investment management				-	8,396	8,396
Broking and Advisory				-	7,979	7,979
Life business				20,208	-	20,208
Group revenue from continuing operations				481,334	16,375	497,709

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.

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.

6 months ended	Combined
30 June 2013	operating	Insurance	Investments	Other	Total
	ratio	£000	£000	£000	£000
General business
United Kingdom	95.6%	4,835	27,020	(60)	31,795
Ireland	205.9%	(5,485)	290	-	(5,195)
Australia	148.7%	(7,842)	1,813	-	(6,029)
Canada	110.7%	(1,495)	405	-	(1,090)
Central operations		1,100	(125)	-	975
	106.0%	(8,887)	29,403	(60)	20,456
Investment management		-	1,046	-	1,046
Broking and Advisory		-	-	892	892
Life business		(431)	2,741	(2)	2,308
Other activities		-	-	(334)	(334)
Profit before tax		(9,318)	33,190	496	24,368


Restated
6 months ended	Combined
30 June 2012	operating	Insurance	Investments	Other	Total
	ratio	£000	£000	£000	£000
General business
United Kingdom	100.2%	(240)	14,423	(59)	14,124
Ireland	126.0%	(1,246)	563	-	(683)
Australia	155.5%	(8,115)	5,400	-	(2,715)
Canada	104.6%	(580)	503	(2)	(79)
Central operations		(4,213)	10	-	(4,203)
	109.9%	(14,394)	20,899	(61)	6,444
Investment management		-	604	-	604
Broking and Advisory		-	-	352	352
Life business		73	839	(2)	910
Other activities		-	-	(351)	(351)
Profit before tax		(14,321)	22,342	(62)	7,959

Restated
12 months ended	Combined
31 December 2012	operating	Insurance	Investments	Other	Total
	ratio	£000	£000	£000	£000
General business
United Kingdom	105.5%	(12,333)	41,255	(113)	28,809
Ireland	162.8%	(6,213)	1,130	-	(5,083)
Australia	122.1%	(5,194)	8,663	-	3,469
Canada	101.1%	(297)	1,257	(2)	958
Central operations		(559)	12	-	(547)
	108.5%	(24,596)	52,317	(115)	27,606
Investment management		-	1,194	-	1,194
Broking and Advisory		-	-	596	596
Life business		5,947	3,113	(5)	9,055
Other activities		-	-	(648)	(648)
Profit before tax		(18,649)	56,624	(172)	37,803

4. 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 release of £10m (H1 2012: £18m).





5. 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.


6. Dividends
Dividends paid on the 8.625% Non-Cumulative Irredeemable Preference shares amounted to £4.6m (H1 2012: £4.6m).


7. 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 other changes to related party transactions in the period which require disclosure.

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

9. 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 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 and adjusted to reflect illiquidity where appropriate, with the fair values disclosed being directly sensitive to this input.

There have been no material transfers between the different levels of investments in the period and there are no non-recurring fair value measurements. The Directors consider that the carrying value amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements are approximately equal to their fair values.

	Fair value measurement at the
Group	end of the reporting period based on
	Level 1	Level 2	Level 3	Total
At 30 June 2013	£000	£000	£000	£000
Financial assets at fair value through profit or loss
Financial investments
Equity securities	292,551	291	20,183	313,025
Debt securities	621,735	6,132	3,472	631,339
Derivatives	-	2,219	-	2,219
	914,286	8,642	23,655	946,583

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

		Financial assets at fair value
		through profit or loss
Group		Equity	Debt
		securities	securities	Total
At 30 June 2013			£000	£000

Opening balance		18,558	6,176	24,734
Total gains/(losses) recognised in profit or loss in 'net investment return'		1,625	(2,704)	(1,079)
Closing balance		20,183	3,472	23,655
Total gains/(losses) for the period included in profit or loss for assets held at the end of the reporting period		1,625	(2,704)	(1,079)


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.

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 and interest rates corresponding to the maturity of the contract. Over-the-counter equity or index options and futures are valued by reference to observable index prices.

Unlisted equity securites (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 companies, and management consideration of expected future performance and associated risks of holding the asset.

The valuation is most sensitive to the level of underlying net assets, the Euro exchange rate, the price-to-book ratio chosen and an uncertainty margin applied to the valuation to account for the risks associated with holding the asset. If the price-to-book ratio and prudence margin applied changed by +/- 10% the value of unlisted equity securities could move by +/- £3m.

The increase in value during the period is the result of an increase in underlying net assets and the movement in the Euro exchange rate, with the other inputs remaining unchanged from the year end.

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.

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.

The decrease in value during the period is primarily the result of a decrease in underlying net assets.


10. Non-adjusting event after the reporting period
A change in the UK standard rate of corporation tax from 23% to 21% effective from 1 April 2014 and a further 1% reduction (such that the standard rate reaches 20%) effective from 1 April 2015 were substantively enacted on 2 July 2013. Had the changes been substantively enacted at the balance sheet date the deferred tax liability would have reduced by £5.8m.

INDEPENDENT REVIEW REPORT TO ECCLESIASTICAL INSURANCE OFFICE PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated statement of financial position, the condensed consolidated statement of cash flows and related notes 1 to 10. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with 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 International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

21 August 2013

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR GMGZRFMNGFZM

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