Results for the year ended 31 December 2014

10 March 2015

esure Group plc preliminary results for the year ended 31 December 2014

Solid results achieved through a disciplined approach in a challenging environment

Headlines

· In-force policies up 0.7% to 1.946 million (2013: 1.933 million)

· Gross written premiums down 3.4% to £517.8 million (2013: £535.8 million)

· Profit before tax down 12.8% to £103.3 million (2013: £118.4 million) impacted by current market conditions and costs associated with the acquisition of Gocompare1

· Combined operating ratio2 increased by 2.2ppts to 91.9% (2013: 89.7%)

· Additional Services Revenue ("ASR")3 broadly flat at £103.0 million (2013: £103.9 million)

- ASR excluding Claims Income3 up 1.7% to £97.3 million (2013: £95.7 million)

· Pro forma earnings per share4 down 11.6% to 19.8 pence (2013: 22.4 pence)

· Final dividend of 11.7 pence per share (2013: 13.3 pence). Full year dividend of 16.8 pence per share (2013: 15.8 pence) represents a payout ratio of 85%. The payout ratio comprises a base dividend of 50% and a special dividend of 35%.

· Strong financial position with IGD5 coverage of 377% after the final dividend

· Acquisition of the outstanding 50% of Gocompare1 for £95.0 million; expected to complete on 31 March 2015, funded by the issue of £125.0 million 6.75% ten year tier two Subordinated Notes

Peter Wood, Chairman of esure Group plc, commented:

"esure's management team continue to make the right decisions to position the Business for further profitable growth when market conditions permit. As we wait for those conditions, 2014 has been another year of discipline. The recent acquisition of Gocompare is an exciting opportunity for the Group. It provides us with strategic control of a leading UK financial services brand with great potential.

"The Group has delivered a solid set of results and has a strong financial position. In light of this, I am pleased to announce that the Board has declared a final dividend of 11.7 pence per share, which together with the interim dividend of 5.1 pence per share, represents a payout ratio of 85%, demonstrating the Board's commitment to return excess capital to shareholders."

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

"The Group has delivered a solid set of results in 2014 against a backdrop of competitive market conditions. The Group's combined operating ratio of 91.9% is testament to our focused and disciplined approach to underwriting and the achievement of an efficient expense base. We continue to adopt a prudent approach to reserving and the Group's reserves remain in excess of 15% above our actuarial best estimate.

"Operationally we have been very busy, with progress on many fronts. In Motor, we have continued to rollout our segment re-entry programme and launched a number of new initiatives to expand our underwriting footprint. We have seen no consistent signs that rates are increasing in line with, or above claims inflation. We remain poised and ready for further growth when market conditions permit.

"I am pleased that we have received Competition and Markets Authority clearance to proceed with the acquisition of Gocompare. We expect to complete the acquisition on the 31 March 2015. In taking strategic control of Gocompare, we will invest in the business to take advantage of the significant opportunities in the medium term."

For further information:

Notes

1. Gocompare means Gocompare.com Holdings Limited, a company incorporated in England and Wales with registered number 6062003 whose registered office is Unit 6, Imperial Courtyard, Newport, Gwent NP10 8UL

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 as at the reporting date.

5. Insurance Groups Directive.

About esure Group

The Group is a customer focused UK personal lines insurer founded in 2000 by Peter Wood, the foremost general insurance entrepreneur in the UK and the Group's Chairman. The Group is one of the UK's leading providers of general insurance products, applying a data-led risk focus and underwriting approach to offer Motor and Home insurance products to customers through the esure and Sheilas' Wheels brands.

Cautionary statement

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

Chairman's statement

Introduction

Welcome to the esure Group plc 2014 preliminary results, as we look back on another year of discipline for the Group, in challenging market conditions.

The UK personal lines insurance markets remained competitive in 2014, with rate reductions characterising both the motor and home markets. Some signs of rating stabilisation did start to appear in the motor market in the latter part of the year, but claims inflation returned during the second half of the year, with market data showing an increase in the frequency of small bodily injury claims.

The industry has been through many rating cycles in the past, as indeed have I. The Board and management team continue to make the right decisions to position the Business for further profitable growth, when market conditions permit, with the aim of delivering long term stakeholder value.

In December, the Group announced that it is to acquire the outstanding 50% of Gocompare, for £95.0 million, valuing Gocompare at £190.0 million. Gocompare is one of the UK's leading financial services brands and a leading price comparison website in the UK. Personally, I am excited about the opportunities available to the Group through full ownership of Gocompare as we begin to drive its strategic direction.

Performance

The Group's approach to underwriting and focus on expenses enabled us to deliver a solid set of financial results in 2014. Gross written premiums reduced in 2014 to £517.8 million, as the Group remained disciplined in its rating actions during the industry's transition through the soft part of the motor rating cycle.

The Group has a strong financial position with robust reserves, a conservative investment portfolio and capital significantly in excess of the minimum regulatory requirement. In December 2014, the Group issued £125.0 million 6.75% ten year tier two Subordinated Notes ("the Notes") to fund the acquisition of the outstanding 50% of Gocompare.

In light of this performance and position, the Board has proposed a final dividend of 11.7 pence per share, which together with the interim dividend of 5.1 pence per share, takes the full year dividend to 16.8 pence per share. The full year dividend of 16.8 pence per share represents a payout ratio of 85% of post tax profits. The payout ratio comprises a base dividend of 50% and a special dividend of 35% demonstrating the Group's commitment to returning excess capital to shareholders. 

Market

We now have multiple third party pricing indices which track market pricing for motor and home insurance. In 2014, all the indices reported year-on-year rate reductions in both the motor and home markets. Signs of motor rate stabilisation were noted in the third quarter and these were followed by modest rate increases across the market in the fourth quarter of 2014. There were market movements in January, although perhaps not as significant as those in some years previously. We will watch with interest to see if the market is prepared to increase its rates as we move through 2015.

People

The Group has benefited from the Board's impressive breadth and depth as we continue to push forward with our strategic objectives.

On 3 December 2014, Dame Helen Alexander and Anthony Hobson announced that they will be stepping down from their respective positions on the Board at the completion of the Annual General Meeting in May 2015. Both Dame Helen Alexander and Anthony Hobson have been exceptionally valuable members of the Board pre, during and post the Group's IPO. I, along with the rest of the Board, would like to offer our sincerest thanks and best wishes to them both for the future.

Anthony Hobson will leave the Board after 12 years, having been with the Group through many of its significant milestones. Anthony Hobson's role as Chair of the Investment Committee has passed to Anne Richards, who assumed the role with effect from 1 January 2015.

Dame Helen Alexander has been with the Group for three years as Deputy Chairman and Senior Independent Director. On 1 January, the role of Chair of the Remuneration Committee passed from Dame Helen Alexander to Mike Evans. On completion of the Annual General Meeting, Dame Helen Alexander's role of Senior Independent Director will pass to Shirley Garrood.

There have also been two further personnel changes to two of the Group's Committees. I would like to take this opportunity to thank Peter Ward for his time as Audit Committee Chairman, and I am pleased that Shirley Garrood has taken over the role of Audit Committee Chair, with Peter Ward remaining on the Committee. María Dolores Dancausa has also joined the Nomination Committee.

The Group's executive management team has been led by Stuart Vann, CEO, Darren Ogden, CFO, and further strengthened by the addition of David Pitt, COO. This team continue to be supported by a highly skilled and dedicated workforce throughout the Group, for which the Board and I are grateful.

Customers

Finally, our customers are the lifeblood of this Business and I would like to thank them for their continued support. We will continue to listen to their feedback and enhance our propositions to meet their ever-changing needs.

Summary

During 2014, market expectations of inevitable rate increases in motor insurance grew, but as we suspected, rates did not move tangibly. We continue to focus on the opportunities for growth that will arise when conditions improve. In competitive conditions, we remain very well placed. Again, it is our people and customers who make esure Group what it is today and to all of them, I am thankful.

Peter Wood

Chairman

Chief Executive's review

2014 Overview

2014 has been a year of discipline and developments for the Group as we enhanced our customer propositions through operational and underwriting improvements.

The Group has delivered a solid set of results against a backdrop of competitive market conditions. The Group's combined operating ratio of 91.9% is a good performance and testament to our focused and disciplined approach to underwriting in combination with our efficient expense base. The Group continues to adopt a prudent approach to reserving and the Group's reserves remain comfortably in excess of our actuarial best estimate.

The UK motor rating environment was mixed in 2014, with rate declines in the first half of the year appearing to stabilise in the second half. We have not been afraid to increase rates above the market, slowing down new business volumes in the second half of 2014, as we aimed to protect the medium to long term profitability of the portfolio.

I am delighted that we have agreed to acquire the outstanding 50% of Gocompare for £95.0 million and expect to complete the acquisition on 31 March 2015, with the acquisition funded through the issuance of the Notes. Through full ownership, we will be able to drive the strategic direction of Gocompare and I strongly believe that there are opportunities to enhance the business over time. It will remain entirely separate in its partnership and comparison service functions, while benefiting from operating under the umbrella of the wider Group. Many exciting opportunities will be explored as we look to grow the business over the medium term, while taking further steps to diversify the Group's income streams.

Motor

We remained focused and disciplined in our approach to underwriting throughout the year and this resulted in a 3.9% reduction in Motor gross written premiums to £429.3 million. In 2014, the continued competitive rating environment in Motor was not conducive to profitable growth; however, the Group did manage to implement targeted rate increases in Motor as it looked to mitigate the impact of claims inflation. Despite the challenging market conditions in 2014, the Group achieved a combined operating ratio in Motor of 92.4%.

However, the inherent competitiveness of our market - where many participants are looking to grow or maintain market share - meant our rate increases resulted in a lower level of new business in the second half of the year. As a consequence, in-force policies were broadly flat at the year end compared to 2013, which is a position I am comfortable with, as we get nearer to a potential upturn in the rating cycle.

The Group's segment re-entry programme, where the Group has re-entered segments of the market that it had previously exited, continues to perform well and has provided great insight into further opportunities available to the Group across the wider motor market. A number of additional underwriting initiatives were rolled out on a "test and learn" basis in 2014, as the Group looks to expand its quote footprint over the medium to long term. The performance of these new segments has been encouraging and further initiatives will be rolled out in 2015, as we look to grow outside our core segments.

Home

In Home, we have continued to grow our portfolio, albeit at a slower rate than in previous years. The rating environment has been challenging, as in Motor, but we have remained disciplined in our approach to underwriting and only reduced rates to a level where we believe we can make an acceptable contribution to the Group.

We have delivered a combined operating ratio of 89.9% and this is testament to our good risk selection and efficient expense base.

The Group remains well placed to benefit from any shift in consumer buying behaviour towards price comparison websites as consumers look to obtain a more competitive rate for their home insurance.

People

The Group continues to benefit from our nimble, focused and adaptable approach. All my colleagues throughout the Business use their skill and expertise to service our customers, as we all work to deliver the Group's strategic objectives.

During the year, we have welcomed to the Group two new executive members, with David Pitt and Helen Taylor taking on the roles of Chief Operating Officer and Human Resources Director, respectively. I am delighted to have them both in my management team and we are already seeing the benefits of their expertise, enthusiasm, drive and fresh ideas, as we look to push the Business forward. I would also like to take this opportunity to thank Gordon Hannah, who has retired, and Carole Timms, who has left us, for their hard work and dedication during their time with the Group; and I wish them both all the best for the future.

In 2014, 95% of my colleagues in the Business completed a customer focused training programme called OPEN. This is a key stage in our mission to keep our customers firmly at the heart of all we do.

Our commitment to our people enables us to deliver a quality of service that I believe sets us apart from the competition. The drive from my colleagues to understand our customers' needs - and their desire to help those customers - really does give us an edge in a competitive market and there is more to come here too!

Customers

During 2014, a number of customer initiatives were rolled out across the Group, including The Voice of the Customer. This is a system of feedback loops which will allow us to identify better what our customers like about our Business and, what they don't like, helping us to improve continuously.

The Group achieved a customer retention rate of 78% in 2014, which is testament to our commitment to provide competitively priced products and excellent customer service.

In August 2014, the Group launched an Alternative Business Structure ("ABS"), in partnership with one of the UK's leading law firms, Irwin Mitchell, enhancing the customer experience for those unfortunate enough to be involved in an accident.

Outlook

We have made a positive start to 2015 and expect to achieve modest growth in in-force policies and gross written premiums in the first quarter. We expect the combined operating ratio trend in 2014 to continue into 2015 largely reflecting ongoing claims inflation. The Group continues to enhance its underwriting and customer platforms and remains well positioned for further growth when market conditions permit.

We have received Competition and Markets Authority clearance to proceed with the acquisition of Gocompare and expect to complete the acquisition on 31 March 2015. We will invest in Gocompare to take advantage of the significant opportunities available in the medium term.

Summary

In summary, 2014 has been a year of challenges from a market perspective, but also a year of developments. While competition never ceases in our market, there is much we can do to help ourselves to serve our customers and colleagues even better. We are delivering on this.

I would like to end by thanking all our customers for their continued support and all our colleagues in the Business for their dedication and hard work throughout 2014.

Thank you!

Stuart Vann

Chief Executive Officer

Financial review

Gross written premiums and in-force policies

The competitive rating environment across both Motor and Home, in combination with the Group's continued focus on underwriting discipline, resulted in a reduction in gross written premiums to £517.8 million in 2014 (2013: £535.8 million), with Motor and Home, 3.9% and 0.9% lower year-on year, respectively.

Motor in-force policies were broadly flat at 1.378 million (2013: 1.385 million) as the Group remained disciplined in its pricing actions throughout 2014 in continued challenging market conditions. In 2014, the Group launched a number of initiatives as it looks to cautiously expand its underwriting footprint, alongside the continuation of its segment re-entry programme which was launched in 2013. These opportunities have mitigated some of the impact from the soft rating environment with gross written premiums 3.9% lower at £429.3 million (2013: £446.5 million).

In Home, gross written premiums remained broadly flat at £88.5 million (2013: £89.3 million), reflecting the increasingly competitive conditions in the UK home market. Home in-force policies grew by 3.6% through pricing competitively the core insurance products, in combination with the Group's pricing strategy of its additional insurance products, which aids customer conversion.

Trading profit

The Group's trading profit at £115.4 million is lower than in 2013 as the impact of the soft rating environment continues to earn through in Motor, alongside higher claims frequency particularly on small bodily injury claims in Motor. In addition, the returns from the Group's assets under management are lower at £12.4 million (2013: £14.7 million) as a consequence of a lower investment return on lower average assets under management, alongside an increase in investment expenses.

A reconciliation of trading profit to profit before tax can be found on page 10.

Underwriting

The Group's contribution to trading profit from its underwriting activities was £39.5 million (2013: £50.6 million).

In Motor, the Group continued to focus on underwriting discipline as the soft rating environment prevailed, while maintaining its focus on cost control and expense management. However, as a consequence of the competitive rating environment and an increase in small bodily injury claims frequency in the second half of the year, partly offset by an increase in favourable development of prior accident year reserves in 2014 compared to 2013, trading profit in Motor was lower at £31.1 million (2013: £41.0 million).

Home underwriting continues to perform well and achieved a trading profit of £8.4 million (2013: £9.6 million). The current accident year performance was better than 2013; however a lower level of strong favourable development from prior accident year reserves partly offset the current accident year performance.

Combined operating ratio

The Group's combined operating ratio for 2014 is 91.9% compared to 89.7% in 2013. The combined operating ratio of 91.9% comprises of a loss ratio of 68.0% (2013: 65.9%) and an expense ratio of 23.9% (2013: 23.8%).

In Motor, the combined operating ratio of 92.4% is higher than in 2013, largely driven by a deterioration in the current accident year loss ratio. The Motor expense ratio has remained broadly flat at 22.5%, testament to the Group's efficient expense base and lower acquisition costs as a result of a lower new business run rate in the second half of 2014.

In Home, the combined operating ratio of 89.9% is higher than in 2013. There was a slight improvement in the loss ratio in 2014 to 59.1%; however this was offset by an increase in the expense ratio to 30.8% largely driven by the costs associated with an increase in in-force policies.

Net loss ratio

The Group continues to apply a prudent approach to reserving and has benefited from strong favourable development of prior accident year reserves in 2014. The deterioration in the Motor current year net loss ratio largely reflects the soft market rating environment earning through and an increase in small bodily injury claims frequency in the second half of the year.

Prior-year reserve releases

Prior year reserve releases increased to £90.0 million (2013: £82.4 million) reflecting the continued strong favourable development of prior accident year reserves across both Motor and Home.

The Group continues to apply a prudent approach to reserving and total net reserves remain comfortably in excess of its actuarial best estimate.

Expense ratio

The Group's net expense ratio remained broadly flat at 23.9% (2013: 23.8%), which is testament to the Group's focus on cost control and expense management. In 2014, the expense ratio benefited from lower acquisition costs as a result of a lower new business run rate in Motor and some one-off expense benefits.

Additional services revenues

(1) Non-underwritten additional insurance products revenue represents the commission margins for the Group generated from sales of such products.

(2) Policy administration fees comprise income received as a result of administration charges (for example, as a result of mid-term alterations to policy details by the policyholder) and cancellation charges. Other income includes introduction fees where the Group does not have a continuing relationship with the customer.

(3) Claims income comprises income generated by the Group from legal panel membership fees and fees generated from the appointment of firms used during the claims process, including medical and car hire suppliers.

(4) Total income from the Group's non-underwritten additional services reporting segment.

(5) Underwritten additional insurance products revenue is calculated by deducting the Group's claims costs associated with its underwritten additional insurance products from the gross written premiums relating to these products in a particular period.

The Group achieved total income from additional services of £103.0 million (2013: £103.9 million). The reduction is largely due to the decline in the receipt of legal panel membership fees, which were prohibited under the Legal Aid, Sentencing and Punishment of Offenders Act implemented in 2013.

In 2014, the Group has grown total income from additional services revenue broadly in line with in-force policies to £97.3 million (2013: £95.7 million) after adjusting for claims income.

Investments

The Group derives income from its investment portfolio and receives a share of profits from its 50% investment in the price comparison website, Gocompare. The Group has agreed to acquire the outstanding 50% of Gocompare which will increase its holding to 100%.

Investment income

The investment return of 2.0% is in line with the Group's targeted return of 2.0%. The Group's investment income of £12.4 million is lower than that achieved in 2013 as a result of a reduction in the Group's average assets under management in 2014 compared to 2013 and volatility in the investment markets in the second half 2014, which has impacted the investment return. In 2013, the Group appointed a new fund manager and subsequently a full year of management charges have been incurred in 2014, which along with a small reallocation of internal costs has impacted the Group's investment charges.

Gocompare

The Group's share of profit from Gocompare at £12.5 million is broadly in line with 2013 (2013: £12.9 million). Gocompare invested in a new advertising campaign in the first half of 2014 which benefited the business in the second half of the year.

Profit before tax

Profit before tax for the year was £103.3 million (2013: £118.4 million) which is lower than 2013 primarily due to the Group's underwriting performance, alongside £3.8 million of additional non-trading costs attributable to the acquisition of the outstanding 50% of Gocompare.

Taxation

The Group's tax expense was £20.9 million (2013: £25.2 million). The decrease in the Group's tax expense was largely due to a reduction in the Group's profit before tax and a reduction in the UK Corporation Tax rate from 23.0% to 21.0% with effect from 1 April 2014.

The Group incurred an effective tax rate of 20.2% (2013: 21.3%).

Pro forma earnings per share 

Pro forma earnings per share were 19.8 pence per share (2013: 22.4 pence). This is in line with the reduction in profit after tax.

Dividend per share

The Board has proposed a final dividend of 11.7 pence per share, which together with the interim dividend of 5.1 pence per share, gives a full year dividend of 16.8 pence per share. The full year dividend of 16.8 pence per share represents a payout ratio of 85% of post tax profits. The payout ratio comprises a base dividend of 50% and a special dividend of 35%.

The special dividend has been set with reference to the Group's capital resource requirements, prospective premium growth expectations and a prudent margin for contingencies.

The ex-dividend date is 9 April 2015, the record date is 10 April 2015 and the payment date is 22 May 2015.

Return on capital employed

The Group achieved a return on capital employed of 30.6% (2013: 37.7%) reflecting its solid financial performance and efficient capital base.

Financial position

The Group has a strong financial position with robust reserves, a conservative investment portfolio and capital significantly in excess of the minimum regulatory requirement. In December 2014, the Group issued the Notes to fund the acquisition of the outstanding 50% of Gocompare.

Investments and cash

The Group deploys a conservative investment strategy with the primary objectives of capital preservation and maintaining liquidity.

Asset allocation

The Group's assets under management increased to £835.1 million in 2014. In December 2014, the Group issued the Notes to fund the acquisition of Gocompare. While the Group awaits the completion of the acquisition, the net proceeds from the Notes, £122.1 million, have been placed into a 'AAA' rated liquidity fund. Upon completion of the acquisition, the majority of these funds will be used to fund the acquisition of Gocompare. Adjusting for this, the Group's assets under management are 7.3% lower than 2013 at £713.0 million.

The Group's strategic asset target remains unchanged compared to 2013 and is as follows:

- Fixed income: 80%

- Cash and liquidity funds: 15%

- Equities: 5%

As a result of the Group's transition towards its strategic asset allocation, the holding in equities increased to £40.8 million from £27.3 million in 2013. Adjusting for the net proceeds received from the Notes, the asset allocation at the end of 2014 is broadly in line with the strategic asset allocation.

The Group continues to manage its portfolio with the objective of achieving a shorter duration on its assets than its liabilities. In 2014, the duration was short at under one year largely driven by its fixed income portfolio.

Fixed income portfolio

Fixed income credit risk quality

The Group continues to hold the majority of its assets in investment grade instruments with 80% of the fixed income portfolio having a credit rating of "A" or above.

Debt

On 19 December 2014 the Group issued £125.0 million of 6.75% ten year tier two Subordinated Notes. The Notes were issued to fund the acquisition of the outstanding 50% in Gocompare and for general corporate purposes. The issue of the Notes resulted in the Group receiving net proceeds of £122.1 million.

Reserving

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

The ultimate costs and expenses of the claims for which these reserves are held are subject to a number of material uncertainties. As time passes between the reporting of a claim and the final settlement of the claim, circumstances can change that may require established reserves to be adjusted either upwards or downwards. Factors such as changes in the legal environment, results of litigation, propensity of personal injury claims in light of the recent Ministry of Justice reforms, changes in medical and care costs, and costs of vehicle and home repairs can all substantially impact overall costs and expenses of claims, and cause a material divergence from the bases and assumptions on which the reserves were calculated. Claims subject to periodic payment orders ("PPO") are an area of uncertainty relating to the claims reserves. For known PPOs and claims which have been identified as potential PPO awards, indexed cash flow projections are carried out in order to estimate an ultimate cost on a gross and net of reinsurance basis. The cash flow projections were undertaken on a discounted basis. The total net claims provision recognised for PPOs and potential PPOs in the consolidated statement of financial position represents less than 5% of net claims outstanding at 31 December 2014. These factors can cause actual developments to vary materially from the projections and assumptions on which the Group's technical reserves were calculated.

Given this uncertainty, the Group looks to maintain a consistent and prudent reserving philosophy and the Group has always established its Claims Outstanding Reserves and Incurred But Not Reported ("IBNR") Reserves at a prudent level in excess of the "best estimate" level determined through standard actuarial techniques.

This prudent approach to reserving has meant that the Group has historically experienced favourable development in its claims reserves over time as claims have ultimately settled at a lower cost than initially calculated for the purposes of its booked Claims Outstanding Reserves and IBNR Reserves. This prudent approach can be evidenced by the gross and net claims development triangles that are shown in Note 8. The triangles illustrate, that for all accident years, the latest booked loss ratio is lower than the initial booked loss ratio. In 2014, the total release from prior accident year reserves was £90.0 million (2013: £82.4 million) equivalent to 18.3% of net earned premiums (2013: 16.8%).

The amount of the Group's Claims Outstanding Reserves and IBNR Reserves, net of outward reinsurance, salvage and subrogation, together with the related reserve in respect of the requirement for claims handling expenses, is comfortably in excess of the actuarial best estimate.

Reinsurance

The Group purchases reinsurance as a risk transfer mechanism to mitigate risks that are outside the Group's appetite for individual claim or event exposure and to reduce the volatility caused by large individual and accumulation losses. By doing so, the Group protects its capital and the underwriting result of both Motor and Home.

Currently, the Group has in place non-proportional excess of loss reinsurance programmes for its Motor and Home underwriting activities. The purpose of these programmes is to provide cover for both individual large losses, for Motor and Home, and accumulation losses arising from natural and other catastrophe events for Home. Motor reinsurance treaties are in place covering all years in which the Group has underwritten Motor policies. In 2014, the Group renewed its Motor reinsurance programme with a deductible of £1.0 million (in 2013 the deductible was £0.5 million). The Group has no quota share reinsurance or co-insurance arrangements in place.

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

Cash flow

The Group's cash and cash equivalents at the end of the period are slightly lower than in 2013 at £25.1 million (2013: £27.6 million).

The net proceeds of £122.1 million received from the issue of the Notes are recognised as a cash outflow in the cash flow statement under the line item "operating activities" and a cash inflow under the line item "financing activities". See below for further details.

Net cash generated from financing activities includes the cash inflow of the net proceeds of £122.1 million received from the issue of the Notes and the cash outflow from dividend payments of £76.4 million made in 2014.

In 2013, the Group's net cash generated from financing activities included the cash outflow of £84.9 million to repay its capital instruments, the cash outflow of £50.0 million to repay its Perpetual Subordinated Loan Notes, the cash inflow of £44.0 million received from the net proceeds raised on Admission and the cash outflow of £10.4 million to pay its maiden interim dividend.

In 2014, net cash generated from operating activities includes the cash outflow of the £122.1 million net proceeds received from the issue of the Notes into a liquidity fund while the Group awaits completion of the acquisition of the outstanding 50% of Gocompare. In addition, the Group received a cash inflow from the net reduction in its assets under management of £55.8 million. In 2013, the Group received a cash inflow of £38.0 million from the net reduction in its assets under management which was used to partly fund the repayment of its capital instruments.

Further information can be found in the Group's cash flow statement on page 18.

Capital management

The Group's approach to capital management is outlined in Note 10 to the financial statements.

Solvency II

The Group remains on track for the implementation of Solvency II on 1 January 2016. There remains ambiguity around some specific details and the phasing of implementation; however, the Group is confident in the delivery of its Solvency II programme.

On implementation, the Group will report using the standard formula, while continuing to develop its internal model. The Group's Internal Economic Capital model continues to support its business and strategic decisions, including the assessment of the regulatory and business capital requirements.

The Group expects the Notes to be permitted as qualifying capital up to a maximum value of 50% of the solvency capital requirement under Solvency II.

Principal risks and uncertainties

To the best of the Directors' knowledge the principal risks and uncertainties of the Group are outlined in Note 12 to the financial statements. 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE FINANCIAL STATEMENTS

1. General information

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

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

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

2. Accounting policies

Basis of preparation

These financial statements present the esure Group plc group financial statements for the year ended 31 December 2014, comprising the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and related notes, as well as the comparatives.

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

These consolidated financial statements have been prepared on a going concern basis. The financial performance and position of the Group, its cash flows and its approach to capital management are set out in the financial review. The Group has a strong financial position with robust reserves, a conservative investment portfolio and capital significantly in excess of the minimum regulatory requirement. In addition, the Board has reviewed the Group's projections for the next 12 months and beyond, including cash flow forecasts and regulatory capital surpluses. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months.

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

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

Principal accounting policies

The Group's 2013 financial statements provide details of the Group's principal accounting policies. There have been no significant changes to these policies and they have been applied consistently throughout the periods presented in the preliminary results.

Changes to accounting policies

There have been no new standards or interpretations adopted by the Group during the period. The Group has adopted the following amendments to standards during the period, with a date of initial application of 1 January 2014:

· Amendments to IAS 32 Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities. These amendments address inconsistencies in current practice when applying the offsetting criteria in IAS 32 for financial assets and liabilities. The adoption of these amendments has had no impact on the Group's accounting policies.

· Amendments to IAS 39 Financial Instruments: Recognition and Measurement - Novation of Derivatives and Continuation of Hedge Accounting. These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. The adoption of these amendments has had no impact on the Group as the Group has not novated its derivatives during the current or prior year.

· Amendments to IAS 36 Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets. These amendments remove the unintended consequences of IFRS 13 Fair Value Measurement on the disclosures required under IAS 36 Impairment of Assets. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units (CGUs) for which an impairment loss has been recognised or reversed during the period. The adoption of these amendments has had no impact on the disclosure provided in the Group's financial statements.

There are a number of other new standards and amendments to standards with a date of initial application of 1 January 2014, the adoption of which has had no material effect on the Group's accounting policies.

At the date of approval of these financial statements, there were no standards, amendments or interpretations in issue and endorsed by the EU which the Group had not adopted. The following IFRIC interpretation has been endorsed by the EU, but is not mandatory for the year ended 31 December 2014 and has not been early adopted by the Group:

· Effective for reporting periods beginning on or after 17 June 2014: IFRIC 21 - Levies. This interpretation clarifies that a government (or governmental agency) levy is not recognised until the obligating event specified in legislation/regulation occurs, even if there is no realistic opportunity to avoid the obligation. The adoption of this interpretation is expected to have no material effect on the Group's accounting policies.

There are a number of standards, amendments and interpretations which have been issued by the IASB but which have not yet been endorsed by the EU thus the date and impact of applying these is uncertain.

Basis of consolidation

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

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

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

Joint ventures

A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. The Group's interests in jointly controlled entities are accounted for using the equity method of accounting.

The Group recognises the cost of the investments which, together with the Group's share of the joint ventures' post-acquisition changes to shareholders' funds, is included in the consolidated statement of financial position. The Group's share of post-acquisition profit or loss and other comprehensive income is stated after appropriate adjustments to align the accounting policies of the joint venture with those of the Group. In addition, adjustments are made for the amortisation of separately identifiable intangible assets recognised on acquisition and to eliminate unrealised profits relating to commission charged to esure Group plc by the joint venture. Carrying values are reviewed at each reporting date to determine whether there are any indications of impairment. If any such indications exist, the asset's recoverable amount is estimated and compared to the carrying value. Impairment losses are recognised through the income statement. Impairment may be reversed if conditions subsequently improve and credited through the income statement.

Business combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of non-controlling interest in the acquiree, plus if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree. For each business combination, the Group has an option to measure any non-controlling interests in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's identifiable net assets.

Goodwill is recognised at the date of acquisition as the excess of the cost of the acquisition over the fair value of the identifiable assets acquired and liabilities assumed. Where the excess is negative, a gain is recognised in the income statement at the date of acquisition.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. All acquisition-related costs are expensed in the income statement when incurred.

3. Critical accounting judgements and estimates

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

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

Key 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 in line with the Institute and Faculty of Actuaries Technical Actuarial Standards. These techniques use past claims information and development patterns of these claims to project the expected future claims cost both for notified and non-notified claims.

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

4. Segmental information

Operating segments

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

Motor underwriting

This segment incorporates the revenues and expenses directly attributable to the Group's Motor insurance underwriting activities inclusive of additional insurance products underwritten by the Group.

Home underwriting

This segment incorporates the revenues and expenses directly attributable to the Group's Home insurance underwriting activities.

Non-underwritten additional services

This segment represents the revenue and expenses relating to sales of third party additional insurance

products to Motor and Home insurance customers; policy administration fees; instalment interest income; fees generated from the appointment of firms used during the claims process, car hire suppliers; and, prior to the implementation of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 during the year ended 31 December 2013, applicable legal panel membership fees.

Investments

This segment represents income from investments (to manage liabilities under insurance contracts and generate return for shareholders) and an equity holding in a joint venture.

Segmental revenues, expenses and other information

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

The average number of in-force policies during the year ended 31 December 2014 was 1.96m.

4. Segmental information (continued)

The average number of in-force policies during the year ended 31 December 2013 was 1.86m.

4. Segmental information (continued)

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

Trading profit, being earnings before interest, tax, non-trading expenses and amortisation of acquired intangible assets, is management's measure of the overall profitability of the Group's operating activities. The Group's segmental trading profit, comprised of Motor underwriting, Home underwriting, investments and non-underwritten additional services is £115.4m (2013: £130.6m).

The Group's profit after tax is £82.4m (2013: £93.2m).

The Group incurred non-trading costs of £5.3m in 2014 relating to activities associated with the acquisition of Gocompare and share-based payments in respect of the long service and one-off awards. The Group incurred non-trading costs of £2.8m in 2013 associated with the listing of esure Group plc on the London Stock Exchange and share-based payments in respect of the long service and one-off awards.

Segmental profit drivers

Motor and Home underwriting

The performance of the Motor and Home underwriting segments is measured by reference to a number of performance metrics, including in-force policies and the combined operating ratio.

Profitability of segmental underwriting activities is measured by reference to the net loss ratio, being net incurred claims as a percentage of earned premiums, net of reinsurance. For the year ended 31 December 2014, the Motor underwriting net loss ratio was 69.9% (2013: 67.2%) and the Home underwriting net loss ratio was 59.1% (2013: 59.3%). The total net loss ratio was 68.0% (2013: 65.9%).

Overall profitability of the Group's underwriting activities is measured by reference to the combined operating ratio, being the net expense ratio (net insurance expenses plus claims handling costs as a percentage of earned premiums, net of reinsurance) plus the net loss ratio. For the year ended 31 December 2014, the net expense ratio was 23.9% (2013: 23.8%) giving a combined operating ratio of 91.9% (2013: 89.7%).

All Motor and Home underwriting income is generated in the UK.

Additional services

The performance of additional services (inclusive of underwritten additional insurance products that are reported within the Motor underwriting segment), is measured by reference to revenue per in-force policy (IFP) on a rolling 12 month basis. At 31 December 2014, revenue per IFP was £52.5 (2013: £56.0).

Since the implementation of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, which came into effect during the year ended 31 December 2013, applicable legal panel membership fees are no longer received. For comparability, Motor additional services income has been measured by reference to additional services revenue, excluding claims income, per Motor IFP. At 31 December 2014, revenue per IFP under this metric was £62.0 (2013: £64.3).

Statement of financial position

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

Reconciliation of segmental reporting to the consolidated statement of comprehensive income

The Group's segmental reporting presents amortisation of acquired intangible assets separately from other operating expenses. The Group's share of joint venture profit is presented before tax and amortisation.

5. Dividends

An interim dividend of 5.1 pence per share (£21.3m) was declared by the Board of Directors on 1 August 2014 (2013: interim dividend 2.5 pence per share, £10.4m). Subsequent to the year end, a 2014 final dividend per share of 11.7 pence per share (£48.8m) was declared by the Board of Directors (2013: final dividend per share of 13.3 pence, £55.4m).

6. Earnings per share

Basic

Basic earnings per share is calculated by dividing the earnings attributable to the owners of the Group by the weighted average of ordinary shares in issue during the period, 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 Group by the weighted average of ordinary shares in issue during the period adjusted for any dilutive potential ordinary shares.

The difference between the basic and diluted weighted average number of shares outstanding during the year, being 607,206 (2013: 135,848), relates to the dilutive potential of the share-based payment arrangements. 

Year ended 31 December 2013

During the year ended 31 December 2013, the Group undertook a number of capital transactions, in anticipation of Admission to trading on the London Stock Exchange.

On 21 February 2013, the share capital of the Group was reduced by the cancellation of 4,000,000,000 Non-Voting Old Ordinary Shares of £0.01 each and £40.0m cash was paid to Tosca Penta Investments LP 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 share.

On Admission the Group repurchased from Tosca Penta Investments LP the remaining 4,485,014,000 Non-Voting Ordinary Shares of £0.01 each at par (amounting in total to £44.9m) and the 1,000 Redeemable Priority Return Shares of £0.01 each.

The Group issued 17,241,380 new ordinary shares with a nominal value of 1/12 pence each on 27 March 2013 for a total aggregate amount of £50.0m.

Basic and diluted earnings per ordinary share

Pro forma earnings per ordinary share

Pro forma earnings per ordinary share is calculated as profit after tax divided by the number of ordinary shares in issue as at the reporting date.

7. Financial assets and liabilities

7.1 Financial assets

Included in deposits with credit institutions as at 31 December 2014 is £122.1m relating to the net proceeds of the Notes issued. Financial investments are held to support the Group's insurance activities and may be required to be realised in order to meet the obligations arising out of those activities at any time. On that basis, the investments are deemed to be recoverable within 12 months.

Derivative financial instruments at fair value through profit or loss

To eliminate as far as possible the effect of exchange rate fluctuations on the value of investments denominated in currencies other than Sterling, the Group has purchased over-the-counter forward currency contracts. The Group also uses government bond futures as a mechanism to adjust investment portfolio duration. 

7.2 Financial liabilities

Derivative financial instruments are due within one year.

Subordinated Notes

£125.0m ten year tier two Subordinated Notes were issued by esure Group plc on 19 December 2014 at the rate of 6.75% per annum, with payments made biannually. Directly attributable fees were £2.9m, the carrying amount of the Notes approximates their fair value.

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

Perpetual Subordinated Loan Notes

On 11 February 2010, esure Finance Limited, a wholly owned subsidiary undertaking, created and issued 50,000,000 unsecured perpetual subordinated loan notes of £1 each (the "Perpetual Subordinated Loan Notes"). The interest rate was 18.9% per annum, paid annually.

The Perpetual Subordinated Loan Notes were listed on the Channel Islands' Stock Exchange.

On 28 March 2013, the Perpetual Subordinated Loan Notes were repaid by the Group following Admission.

7.3 Financial risk management

Credit risk

Credit risk is the risk that a counterparty will not be able to pay amounts in full when due in accordance with the term of the contract, causing the Group to incur a financial loss.

Key areas where the Group is exposed to credit risk are:

· Credit instruments held within the investment portfolio;

· Other amounts due from investment counterparties;

· Reinsurers' share of insurance contract liabilities;

· Amounts due from reinsurers in respect of claims already paid;

· Amounts due from policyholders;

· Subrogation and salvage recoveries; and

· Amounts due from claims suppliers.

Reinsurance is used to manage insurance risk. This does not, however, discharge the Group's liability as primary insurer. If a reinsurer fails to pay a claim, the Group remains liable for the payment to the policyholder.

The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract. In addition, management assesses the creditworthiness of all reinsurers by reviewing credit grades provided by rating agencies and other publicly available financial information. An analysis of the credit grade of the Group's 10 largest exposures to reinsurers by Standard & Poor's (S&P) and A.M. Best ratings is produced and reviewed on a monthly basis. The minimum credit rating that the Group requires for participation in its reinsurance programmes is Standard & Poor's A- or the A.M. Best equivalent.

The Group manages the levels of investment counterparty credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of counterparties, and on geographical counterparties and geographical segments. Such risks are subject to regular review by the Investment Committee.

Investments bearing credit risk, and cash and cash equivalents, are summarised below, together with an analysis by credit rating as at the reporting date:

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

The analysis by credit rating illustrates an improvement in credit quality over the period under review, with a higher proportion of assets rated "AAA" in 2014 compared to 2013. This is due to the net proceeds from the Group's issuance of the Notes being entirely invested in a "AAA" rated liquidity fund.

Insurance receivables due from policyholders and other debtors are not subject to credit rating and are not included in the table above. Owing to the high number of individual policyholders through which the Group has minimal individual exposure, the overall risk of default to the Group is considered to be insignificant. The Group regularly reviews the ageing and individual characteristics of the counterparties of insurance receivables and other debtors to manage credit risk and to ensure that impairments are made where necessary. No credit limits were exceeded during the year, and no significant financial assets are past due but not impaired at the reporting date.

7.4 Fair value estimation

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

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

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

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

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

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

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

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

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

The Group's policy, should there be a change to the valuation techniques or level of activity in the market in which that asset is traded, is to transfer the asset between levels effective from the beginning of the reporting period. As a result of the application of IFRS 13 Fair Value Measurement, from 1 January 2013, the Group 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, £14.0m was transferred from Level 1 to Level 2 in the year ended 31 December 2013.

£7.5m of debt securities have been transferred from Level 2 to Level 1 in the year ended 31 December 2014. £2.5m of the assets have been transferred as a result of regular pricing data being sourced and evidenced during the year from quoted prices in active markets where there is now sufficient frequency and volume of trades to recognise these assets at Level 1 and £5.0m has been transferred as a result of the reclassification of a financial asset that is Government backed (2013: £3.0m of debt securities transferred from Level 1 to Level 2 in the year as a result of insufficient trade frequency).

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

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

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. The Group held Level 3 available for sale financial assets of £0.3m as at 31 December 2014, representing an investment in an unquoted equity investment which has been valued using a discounted cash flow valuation model. There were no Level 3 assets, other than land and buildings, as at 31 December 2013.

Under IFRS 13 Fair Value Measurements, land and buildings with a carrying value of £11.6m (2013: £11.6m) are classified as Level 3 assets. Owner-occupied properties are stated at their revalued amounts, as assessed by qualified external valuers annually, all with recent relevant experience. These values are assessed in accordance with the relevant parts of the current RICS Valuation Standards in the UK ("Red Book"). The valuer's opinion of fair value was primarily derived using comparable recent market transactions on arm's length terms. No sensitivity analysis has been performed due to the nature of the valuation.

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

8. Reinsurance assets and insurance contract liabilities

a. Analysis of recognised amounts

b. Claims development

(a) Insurance claims - gross ultimate claims (£m)

(b) Insurance claims - net ultimate claims (£m)

(c) Insurance claims - net loss ratio development