REG - Hansard Global plc - Results for the year ended 30 June 2022
22/09/2022 07:00
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RNS Number : 2211A Hansard Global plc 22 September 2022
22 September 2022
Hansard Global plc
Results for the year ended 30 June 2022
Dividend maintained in challenging year for new business
Hansard Global plc ("Hansard" or "the Group"), the specialist long-term
savings provider, issues its full-year results for the year ended 30 June 2022
("FY 2022").
Summary
FY 2022 FY 2021
New business sales - PVNBP (1) basis £120.5m £173.0m
IFRS profit before tax £3.8m £5.1m
Underlying profit £5.9m £6.8m
Recommended final dividend per share (2) 2.65p 2.65p
IFRS earnings per share 2.6p 3.6p
As at 30 June 30 June
2022 2021
Assets under Administration £1.09bn £1.22bn
Value of In-Force £128.5m £145.8m
(1) Present Value of New Business Premiums
(2) Subject to approval at the AGM
Graham Sheward, Group Chief Executive Officer, commented:
"Our results for the 2022 financial year reflect a challenging year for new
business together with £1.0m of provisions made at the time of our half-year
results to write-down all amounts receivable from a set of external legacy
funds in liquidation.
We are working hard to improve new business levels through a combination of
new product development, new broker relationships and the deployment of
additional experienced sales management executives into the business.
We are also making encouraging progress with additional distribution options
for our Japanese proposition.
Excellent progress has been made with our major systems project to replace our
policy administration system and portals which will support our next
generation of products whilst realising associated cost and efficiency gains.
Given the underlying strength of the business as we manage through this cycle,
the Board has recommended maintaining our dividend in line with last year."
NEW BUSINESS
As previously announced, our new business levels were £120.5m on a Present
Value of New Business Premiums ("PVNBP") basis, down 30.3% from £173.0m in FY
2021.
New business was impacted by economic uncertainty, geopolitical developments,
the aftermath of Covid-19 restrictions around the world and a general
hesitancy by clients to commit to long-term savings products, particularly
those with contractual regular premiums. The prior year comparative figures
also benefited from a number of high net-worth single premium policies which
did not repeat in FY 2022.
We have taken a number of actions to improve new business generation. We
have recruited two senior additions to our sales team: a Head of Sales and a
Head of New Business Development, to help develop and grow future new business
levels.
The expanded sales team will drive a number of broker and product initiatives
to increase new business in the 2023 financial year and beyond. This includes
the development and launch of new products for key target markets, updates and
improvements to existing products and the recruitment of additional localised
sales colleagues into key growth regions.
TRADING RESULTS
IFRS profit before tax for the year was £3.8m, down from £5.1m in FY 2021.
Excluding litigation defence costs and other non-recurring provisions,
underlying profit was £5.9m compared with £6.8m in FY 2021.
Fee and commission income was £48.8m for the year (FY 2021: £50.5m) with
lower transactional based income in Hansard International and lower income
from Hansard Europe which continues to run-off since closing to new business
in 2013.
Administrative and other expenses were £29.8m for the year (FY 2021: £29.5m)
as a £1.0m provision for amounts receivable from a set of legacy funds in
liquidation was mitigated by lower litigation-related expenditure and tight
management of overheads, despite inflationary pressures.
VIF represents the present value of expected future shareholder profits less
the present value cost of holding capital required to support the in-force
business. VIF totalled £128.5m as at 30 June 2022 compared to £145.8m at
30 June 2021 reflecting new business levels being lower in volume and
profitability than the unwind of older business written and lower assets under
administration.
Assets under administration were £1.1bn as at 30 June 2022, down from £1.2bn
at 30 June 2021, primarily reflecting declines in global stock markets over
the latter part of the year.
Strategy IMPLEMENTATION
During the past financial year the primary focus has continued to be on
delivering our two most significant near-term strategic initiatives:
· bringing to market our locally-licensed investment product in Japan;
and
· upgrading and streamlining our systems and IT infrastructure.
As previously noted, we have completed internally the development of our
Japanese product. Whilst the timetable for launching with our first
distribution partner in Japan remains unclear despite vigorous efforts,
additional forward-looking strategic and tactical product developments
commenced in earnest earlier this year, with a view to mitigating the impact
of this delay. These revenue accretive initiatives are progressing well.
Positive progress has been made with our major systems project to replace our
policy administration system and portals to support our next generation of
products and secure significant cost and efficiency gains. The primary core
system functionality has now been delivered and we are working through the
final project stages which will allow us to implement a full migration from
our legacy systems in 2023.
policyholder LITIGATION
The Group continues to manage carefully its litigation exposures relating to
the legacy operations of Hansard Europe. We continue to believe we have
strong defences against the claims being made.
Contingent liabilities arising out of outstanding writs were £21.2m as at 30
June 2022 compared to £22.7m at 30 June 2021. The exposure has fallen from
the prior year primarily due to the settlement of a significant case which was
covered by our corporate insurance and which reduced contingent liabilities by
£2.9m.
In addition, the Group successfully defended 24 cases during the year with net
exposures of approximately £3.2m, 11 of which have been appealed by the
plaintiffs. These successes continue to affirm confidence in the Group's legal
arguments. Our policy is to maintain contingent liabilities even where we win
cases in the court of first instance if such cases have been subsequently
appealed.
DIVIDENDS
The Board has proposed a final dividend of 2.65p per share, the same level as
last year.
This dividend, if approved by the shareholders at the Annual General Meeting
on 2 November 2022, represents a total dividend of 4.45p (2021: 4.45p) per
share in respect of the financial year. Upon approval, the dividend will be
paid on 10 November 2022 to shareholders on the register on 30 September 2022.
The associated ex-dividend date is 29 September 2022.
CURRENT TRADING
New business levels to date in Q1 FY 2023 are broadly in line with those of
the prior year. There have been no significant post balance sheet events to
report.
NEXT TRADING UPDATE
The first trading update in respect of the year ending 30 June 2023 is
expected to be published on 3 November 2022.
For further information:
Hansard Global
plc
+44 (0) 1624 688 000
Graham Sheward, Group Chief Executive Officer
Tim Davies, Chief Financial Officer
Email: investor-relations@hansard.com
Camarco
+44 (0) 7990 653 341
Ben Woodford, Hugo Liddy
Notes to editors:
· Hansard Global plc is the holding company of the Hansard Group of
companies. The Company was listed on the London Stock Exchange in December
2006. The Group is a specialist long-term savings provider, based in the Isle
of Man.
· The Group offers a range of flexible and tax-efficient investment
products within a life assurance policy wrapper, designed to appeal to
affluent, international investors.
· The Group utilises a controlled cost distribution model via a network
of independent financial advisors, and the retail operations of certain
financial institutions who provide access to their clients in more than 170
countries. The Group's distribution model is supported by Hansard OnLine, a
multi-language internet platform, and is scalable.
· The principal geographic markets in which the Group currently
services contract holders and financial advisors are the Middle East &
Africa, the Far East and Latin America. These markets are served by Hansard
International Limited and Hansard Worldwide Limited.
· Hansard Europe dac previously operated in Western Europe but closed
to new business with effect from 30 June 2013.
· The Group's objective is to grow by attracting new business and
positioning itself to adapt rapidly to market trends and conditions. The
scalability and flexibility of the Group's operations allow it to enter or
develop new geographic markets and exploit growth opportunities within
existing markets often without the need for significant further investment.
Forward-looking statements:
This announcement may contain certain forward-looking statements with respect
to certain of Hansard Global plc's plans and its current goals and
expectations relating to future financial condition, performance and results.
By their nature forward-looking statements involve risk and uncertainties
because they relate to future events and circumstances which are beyond
Hansard Global plc's control. As a result, Hansard Global plc's actual future
condition, performance and results may differ materially from the plans, goals
and expectations set out in Hansard Global plc's forward-looking statements.
Hansard Global plc does not undertake to update forward-looking statements
contained in this announcement or any other forward-looking statement it may
make. No statement in this announcement is intended to be a profit forecast or
be relied upon as a guide for future performance.
This announcement contains inside information which is disclosed in accordance
with the Market Abuse Regime.
Legal Entity Identifier: 213800ZJ9F2EA3Q24K05
Chairman's Statement
Introduction
I am delighted to present to you my first annual report as Chairman of Hansard
Global plc ("Hansard" or "Group") and I would like to begin by thanking Graeme
Easton, my predecessor, for the leadership and guidance that he has provided
to the Group. Graeme will be retiring from the Group and its boards and will
not be offering himself for re-election at the AGM of the Company. He has
worked tremendously hard both as a Non-Executive Director and as Chairman of
the Group and its subsidiaries. Our best wishes go with him. We are actively
seeking a new Independent Non-Executive Director.
Hansard, like many other businesses, has continued to experience a challenging
external environment as we navigate our way through the constraints and
economic aftermath of the Covid-19 global pandemic. While new business was
lower than the prior year comparative, the business has remained resilient,
with our systems and client services function fully operational at all times.
The Board and I remain confident in the future opportunities for the business.
We are operationally ready to launch our innovative new product in Japan and
will move to do so when our preferred distribution partner is in a position to
launch. In the interim, we are progressing other distribution channels to
ensure we capitalise on the development work which we have completed to date.
We have also made significant progress with the project to upgrade our key
systems. This will provide an advanced, modern platform that will benefit our
customers, our distribution partners and the Group through enhanced
operational efficiency and cost savings.
New business
New business for the 2022 financial year was £120.5m (using the PVNBP
metric), down 30.3% from £173.0m in 2021. New business levels were impacted
by economic uncertainty, geopolitical developments, the aftermath of Covid-19
restrictions around the world, and a general hesitancy by clients to commit to
long-term savings products, particularly those with contractual regular
premiums.
The Board is very conscious that new business levels need to improve and the
initiatives which are underway are further outlined in the Business and
Financial Review.
Financial performance
Our IFRS profit before tax for the year was £3.8m compared to £5.1m in
2021.
Fees and commissions were down £1.7m to £48.8m for the year (2021: £50.5m),
reflecting lower transactional income within Hansard International and the
continuing run-off of Hansard Europe.
Administrative and other expenses were £29.8m for the year, compared to
£29.5m in 2021. This incorporates a £1.0m provision for fees and other
balances likely to be irrecoverable from a set of legacy funds in the process
of liquidation which has been significantly mitigated by lower net litigation
expenditure and tight control over general overheads and expenses.
Further detail and analysis are contained in the Business and Financial
Review.
Capitalisation and solvency
The Group remains well capitalised to meet the requirements of regulators,
contract holders, intermediaries and other stakeholders.
On a risk-based capital basis, total Group Free Assets in excess of the
Solvency Capital Requirements of the Group were £50.7m (2021: £58.7m), a
coverage of 165% (2021: 168%). We have maintained our prudent investment
policy for shareholder assets, which minimises market risk and has provided a
stable and resilient solvency position over many years and economic cycles.
Dividends
The Board has resolved to pay a final dividend of 2.65p per share (2021:
2.65p). In making this decision, the Board has carefully considered its
current and future cash flows, the risks and potential impact introduced by
Covid-19 and the on-going Russia-Ukraine conflict, the outlook for future
growth and profitability and the views of key stakeholders, including
shareholders and regulators.
The dividend is subject to approval at the Annual General Meeting. If
approved, this will represent total dividends for the financial year of 4.45p
per share (2021: 4.45p). Upon approval, the final dividend will be paid on
10 November 2022. The ex-dividend date will be 29 September 2022 and the
record date will be 30 September 2022.
Philip Kay
Chairman
21 September 2022
GROUP CEO REVIEW
My first full financial year with the Hansard Group has been dominated by
successfully restructuring parts of the business to drive transformational
organisational change capable of delivering on our two core strategic
objectives of Japan product launch and systems replacement.
A pleasing result of this activity is the positive progress we have made with
our major IT project to replace our policy administration systems and portals
to support our next generation of products and secure significant cost and
efficiency gains. All the primary system functionality has now been
delivered and we are working through the final project stages which will allow
us to implement a full migration from our legacy systems in 2023.
Whilst the timetable for launching our new product with our first distribution
partner in Japan remains unclear despite vigorous efforts, additional
forward-looking strategic and tactical product developments commenced in
earnest earlier this year, with a view to mitigating the impact of this delay.
These accretive revenue initiatives are progressing well.
Our sales and commercial team has been substantially restructured and
redeployed to work better on generating additional new business opportunities
in the key markets they serve.
Our cost base has been tightly managed throughout the year with close scrutiny
of all expenditure and accountability across our management team. Despite
seeing inflationary pressures in certain areas, we have achieved a £0.4m
saving on the prior year in our administrative and other expenses excluding
litigation and provisions for doubtful debts.
I am confident that the hard work and change programme effected over the past
year will begin to deliver positive business results during this financial
year. This progress is largely due to my colleagues at all levels across the
Group. I'm also delighted with the quality and depth of talent we have been
able to recruit over the past 12 months to help support business improvement
initiatives. I would like to take this opportunity to thank all Hansard
colleagues for their contribution, since I joined, to the journey we have
commenced together.
Finally, the Hansard Group has embarked on a major cultural change programme
across a wide range of behaviours intended to support business success and
necessary change by encouraging activities and skillsets across areas such as
innovation, learning and development, communication and leadership whilst
delivering required business results.
RESULTS FOR THE YEAR UNDER REVIEW
We believe that the following areas are the fundamental factors for the
success of the Group:
· Diversification of our product and distribution channels to
enable origination of significant flows of new business from identified target
markets;
· Managing our exposure to business risks;
· Positioning ourselves to incorporate increasing levels of
regulation into our business model;
· Leveraging our award-winning technology and systems; and
· Managing our cash flows through the cycle to fund the appropriate
balance of investment in new business and dividends.
I draw your attention to the following items below. Additional information
is contained in the Business and Financial Review.
1. New business distribution
New business for the 2022 financial year was £120.5m (using the PVNBP
metric), down 30.3% from £173.0m in FY 2021. New business levels were
impacted by economic uncertainty, geopolitical developments, the aftermath of
Covid-19 restrictions around the world, and a general hesitancy by clients to
commit to long-term savings products, particularly those with contractual
regular premiums. The prior year comparative figures benefited from a number
of high net worth single premium policies which did not repeat in FY 2022.
Activities in train to improve new business levels are further outlined in the
Business and Financial Review.
2. Operational, Business and Financial Risks
Our business model involves the acceptance of a number of risks on a managed
and controlled basis. The Group's Enterprise Risk Management ("ERM") Framework
provides for the identification, assessment, management, monitoring and
control of current and emerging risks, recognising that systems of internal
control can only provide reasonable and not absolute assurance against
material misstatement or loss. The Group's internal control and risk
management processes have operated satisfactorily throughout the year under
review.
2.1 Litigation Risk
As explained more fully in the Business and Financial Review, we continue to
manage complaints and litigation arising from our closed book, Hansard Europe,
where the performance of assets linked to contracts written before 2014 have
suffered or become illiquid. We continue to maintain that we have never
given investment advice and are not party to the selection of assets and
therefore believe that such claims have no merit.
As at 30 June 2022, the Group had been served with cumulative writs with a net
exposure totalling €24.6m, or £21.2m in sterling terms (30 June 2021:
€26.5m / £22.7m) arising from contract holder complaints and other asset
performance-related issues.
During the year, we successfully settled a significant claim with a contingent
liability exposure of £2.9m. This settlement was covered in full by our
insurers and involved no additional cost to our 2022 financial result.
We also successfully defended twenty-four cases with net exposures of
approximately £3.2m, 11 of which have been appealed by the plaintiffs. These
successes continue to affirm confidence in the Group's legal stance.
3. Hansard OnLine
Our award-winning IT systems and online customer platform are key aspects of
our proposition. Hansard OnLine is a powerful sales and business
administration tool that is used by independent financial advisors ("IFAs")
and clients the world over. It is an integral part of the Group's operating
model and allows us to better service IFAs and clients, embed process
efficiencies and be flexible in operational deployment.
Hansard OnLine provides IFAs and clients with a reliable online self-service
model which they can access 24/7 from anywhere around the world with an
internet connection. It provides an important foundation to our strategic goal
of the delivery of excellent customer service.
As noted in previous reports, we have embarked on a project to replace our
core administration systems and ensure our infrastructure is future-proofed
for our next generation of products and strategic development. We expect
this project to be completed in our 2023 financial year.
Additional information concerning Hansard OnLine is set out in the Business
and Financial Review.
4. Operating cash flows and dividends
The Group generates operating cash flows to fund investment in new business
and support dividend payments.
As outlined in the Cash Flow analysis section of the Business and Financial
Review, the Group generated £5.3m in overall net cash inflows before
dividends (2021: inflows of £3.6m), after commission and other new business
acquisition costs of £11.5m (2021: £16.5m) and the investment of £4.5m
(2021: £3.8m) in IT software and equipment expenditure. Dividends of £6.1m
were paid in the financial year (2021: £6.1m).
A final dividend of 2.65p per share has been proposed by the Board and will be
considered at the Annual General Meeting on 2 November 2022. If approved,
this will represent total dividends for the financial year of 4.45p per share
(2021: 4.45p).
FINANCIAL PERFORMANCE
Results for the year
Financial performance is summarised as follows. A detailed review of
performance is set out in the Business and Financial Review that follows this
report.
FY 2022 FY 2021
£m £m
New business sales - PVNBP 120.5 173.0
IFRS profit before tax 3.8 5.1
Underlying IFRS profit 5.9 6.8
Assets under Administration 1,092.3 1,224.2
Value of In-Force (regulatory basis) 128.5 145.8
IFRS results
IFRS profit before tax for the year was £3.8m, down from £5.1m in 2021.
After eliminating litigation and non-recurring items, the underlying IFRS
profit (a non-GAAP metric) was £6.0m, down from £6.8m in 2021.
Fees and commissions were £48.8m for the year (2021: £50.5m). Fees from
Hansard International and Hansard Worldwide were down £1.2m to £46.3m from
2021, reflecting lower transactional based income and lower new business
generally. Income from our closed book, Hansard Europe, has continued to
fall, as expected, and was £0.5m down on the prior year.
Administrative and other expenses were £29.8m for the year, compared to
£29.5m in 2021. This incorporates a £1.0m provision for fees and other
balances likely to be irrecoverable from a set of legacy funds in the process
of liquidation which has been was significantly mitigated by lower net
litigation expenditure and tight control over general overheads and
expenses.
Origination costs to acquire new business were down £0.2m to £16.2m as lower
2022 commission expenditure was offset by increased amortisation of prior
years' deferred origination costs.
Further detail and analysis is contained in the Business and Financial Review.
Capitalisation and solvency
Our key financial objective is to ensure that the Group's solvency is managed
safely through the economic cycle to meet the requirements of regulators,
contract holders, intermediaries and shareholders. The Group continues to be
well capitalised.
Under risk-based capital methodologies, total Group Free Assets in excess of
the Solvency Capital Requirements of the Group were £50.7m (2021: £58.7m), a
coverage of 165% (2021: 168%). Shareholder assets are typically held in a
wide range of deposit institutions and in highly-rated money market liquidity
funds. This prudent investment policy for shareholder assets minimises market
risk and has provided a stable and resilient solvency position over recent
years.
Covid-19 & russia-ukraine conflict
As reported previously, our business demonstrated great operational resilience
throughout the pandemic without any significant disruption to our corporate
systems or customer service.
The financial year began with a slow return to pre-pandemic business practice
and we were able to start reconnecting face-to-face with our broker
community. Since the escalation of the Russia-Ukraine conflict in February
2022, the knock-on challenges to the rest of the world are becoming clearer as
energy and food prices spike and can be expected to increase further over the
winter period.
The direct impacts to our business are expected to be two-fold. Firstly, it
has exacerbated hesitancy amongst our target clients in investing in long term
savings plans and this has impacted our 2022 new business results. Secondly,
we can expect cost pressures within our business in our 2023 financial year as
energy costs increase, suppliers and professional advisors increase their
charges and inflationary pressure is felt across our workforce.
We will seek to manage both these challenges. We aim to build on our
existing market by opening new channels and new product opportunities and we
will be targeting cost savings to help mitigate inflationary pressures
elsewhere.
our people
Our people are critical to our success. We have a dedicated dynamic
workforce across a number of locations around the world. I would like to
recognise and thank each of my colleagues for their continued commitment,
flexibility and resilience in managing both our on-going day-to-day operations
and our key strategic projects.
I have been delighted by the level of engagement seen within our programme of
cultural change referenced earlier and look forward to continuing in our goals
of fostering an engaged and innovative workforce to meet our goals and the
expectations of our stakeholders.
Graham Sheward
Group Chief Executive Officer
21 September 2022
BUSINESS AND FINANCIAL REVIEW
Our Business Model and Strategy
Hansard is a specialist long-term savings provider that has been providing
innovative financial solutions for international clients since 1987. We focus
on helping financial advisors and institutions to provide their clients
(individual and corporate investors) with savings and investment products in
secure life assurance wrappers to meet long-term savings and investment
objectives.
We administer assets in excess of £1 billion for just under 40,000 client
accounts around the world.
Business Model
The Company's head office is in Douglas, Isle of Man, and its principal
subsidiaries operate from the Isle of Man, The Bahamas and the Republic of
Ireland.
Hansard International is regulated by the Isle of Man Financial Services
Authority and has a branch in Malaysia, regulated by the Labuan Financial
Services Authority, to support business flows from Asian growth economies and
one in Japan to support its Japanese proposition, regulated by the Japanese
Financial Services Agency. Through its relationship with a local insurer in
the UAE, Hansard International reinsures business written in the UAE.
Launched in 2019, Hansard Worldwide underwrites international and expatriate
business around the world. It is regulated by the Insurance Commission of
The Bahamas.
Hansard Europe is regulated by the Central Bank of Ireland. Hansard Europe
ceased accepting new business with effect from 30 June 2013.
Our products are designed to appeal to affluent international investors,
institutions and wealth-management groups. They are distributed exclusively
through independent financial advisers (IFAs) and the retail operations of
financial institutions.
Our network of Regional Sales Managers provides local language-based support
services to independent financial advisors in key territories around the
world, supported by our multi-language online platform, Hansard OnLine.
Vision and Strategy
Our vision for the Hansard Group is:
"to share success with our clients by providing simple, understandable and
innovative financial solutions".
To deliver this vision, client outcomes will be the central focus within our
business and, consequently, we will seek to evolve all aspects of our
products, processes and distribution in order to constantly improve.
Our talented people are the foundation of our business. We have created an
empowering culture, which values innovation, quality, integrity and respect.
Our strategy to improve, grow and future-proof our business will be delivered
through three key areas of strategic focus:
i. Improve our business: We will improve customer
outcomes through the introduction of new disclosures, the provision of new
products and services, focusing on the quality of our IFAs with whom we work
with and continuing to drive up the engagement of our people within our
business.
ii. Grow our business: In recent years we established a
new life company in The Bahamas and entered into a strategic alliance with
Union Insurance in the UAE. We have acquired the necessary licence and
approvals to access the Japanese market. We will continue to seek out
opportunities for locally licenced business in other targeted jurisdictions
over the coming years.
iii. Future-proof our business: We actively consider new and
innovative technologies, propositions and business models. It remains
critical to support the online and digital needs of our clients alongside
improving organisational efficiency and scalability.
Strategy DEVELOPMENT
Our current strategy has three main aims:
i) to capitalise on near term strategic opportunities;
ii) to ensure the Group is correctly positioned for future
regulatory developments and change; and
iii) to consider and plan for longer term industry and
technological evolution.
During the past financial year the primary focus has continued to be on
delivering our two most significant near-term strategic initiatives:
· bringing to market our locally-licensed investment product in
Japan; and
· upgrading and streamlining our systems and IT infrastructure.
We have completed internally the development of our Japanese product. We
intend to launch with our first distribution partner on our new policy
administration system when our partner is operationally ready to launch new
products into the post-Covid-19 marketplace.
Core functionality for our new IT platform has been delivered as at 30 June
2022. Additional change requests and development will take place in the
first half our 2023 financial year prior to an expected full migration later
in the financial year.
Regulatory change
The Isle of Man Financial Services Authority (the "Authority") remains
committed to maintaining a robust and up to date insurance supervisory
framework appropriate to the Island's insurance businesses.
The Island's reputation as a well-regulated and internationally responsible
jurisdiction is of vital importance to maintaining consumer confidence and
therefore market share. The international standards applicable to effective
insurance supervision are the Insurance Core Principles (ICPs), issued by the
International Association of Insurance Supervisors (IAIS). The ICPs
emphasise the need for insurers and regulators to understand the nature and
degree of risks assumed and provide for them appropriately thus addressing
financial stability risks with the ultimate aim of protecting the interests of
consumers and wider stakeholders.
The Authority has continued its work to ensure the framework for insurance
regulation and supervision maintains a high level of observance with the IAIS
Insurance Core Principles. The Authority has developed and implemented
revisions in a way which is appropriate and proportionate for the Isle of
Man's diverse insurance sector whilst promoting regulatory best practice and
preserving the continued reputation of the Isle of Man as a stable and
well-regulated jurisdiction.
Major milestones have been enacted in recent years with the implementation of
new risk-based capital corporate governance, enterprise risk management,
conduct of business requirements and a Group Supervision regime.
We have continued our work to adapt the Hansard model and our strategic and
business plans in line with the intent and objectives of the regulatory
changes, working transparently with our regulators to shape the practical
implementation of the Authority's roadmap and embed associated changes. The
Group continues to monitor developments in our other regulatory jurisdictions.
Products
The Group's products are unit-linked regular or single premium life assurance
and investment contracts which offer access to a wide range of investment
assets. The contracts are flexible, secure and held within "wrappers" allowing
life assurance cover or other features depending upon the needs of the client.
The contract benefits are directly linked to the value of those assets that
are selected by, or on behalf of, the client and held within the wrapper. The
Group does not offer investment advice. Contract holders bear the investment
risk.
The Group's products do not include any contracts with financial options
and/or guarantees regarding investment performance and, hence, unlike the
situation faced by some other life assurers, the Group carries no guarantee
risk that can cause capital strain.
As a result of high levels of service, the nature of the Group's products, the
functionality of Hansard OnLine, and the ability of the contract holder to
reposition assets within a contract, we aim to retain the contract holder
relationship over the long term.
Contract holder servicing and related activities are performed by Hansard
Administration Services Limited, which is authorised by the Financial Services
Authority of the Isle of Man Government to act as an Insurance Manager to
insurance subsidiaries of the Group.
Revenues
The main sources of income for the Group are the fees earned from the
administration of insurance contracts. These fees are largely fixed in nature
and amount. Approximately 30% of the Group's revenues, under IFRS, are based
upon the value of assets under administration. The new business generated in a
particular year is expected to earn income for an average period of 14 years.
Our business is therefore long term in nature both from a contract holder
perspective and with regards to the income that is generated.
From this income we meet the overheads of the business, invest in our
business, remunerate our distribution network and pay dividends.
Managing Risk
Risk can arise from a combination of macro events and company-specific
matters. On the macro side, events such as the UK's exit from the EU, the
Covid-19 pandemic, the Russia-Ukraine conflict and other geo-political
tensions can cause significant volatility to stock markets, foreign exchange
markets and cost inflation. We therefore continue to maintain a robust, low
risk balance sheet. We believe this prudent approach to be appropriate to meet
the requirements of regulators, contract holders, intermediaries and
shareholders.
We are conscious that managing operational risk is critical to our business
and we are continuously developing our enterprise risk management system and
controls. Further details of our approach to risk management and the
principal risks facing the Group are outlined in the Risk Management and
Internal Control Section.
Hansard OnLine
Hansard OnLine is a powerful and secure tool that is used by our IFAs around
the world. Available in multiple languages, it allows them to access
information about their clients, to generate reports for their clients, to
submit new business applications online, to place dealing and switch
instructions online, to access all client correspondence and to access a
library of forms and literature.
Almost all investment transactions are processed electronically by
intermediaries, on behalf of their clients, using Hansard OnLine and over 90%
of all new business applications are submitted via the platform.
The straight-through processing of contract holder instructions (whether
received directly or through their appointed agents) reduces the Group's
operational risk exposures, as does the ability of the Group to communicate
electronically with contract holders and intermediaries, irrespective of
geographical boundaries. Data validation happens in real-time to ensure
there are no delays to the investment of client funds.
Hansard Online Lite provides prospective IFAs with easy access to a subset of
the online system. Its purpose is to showcase our online proposition to
prospective and new IFAs and to allow easy access to non-sensitive documents
and functionality. Users can access our online document library, the Unit Fund
Centre, company news and submit new business online.
The benefit of Hansard OnLine is recognised by many IFAs as market leading and
our online proposition has been nominated for and won a number of independent
industry awards. Most recently this included winning International
Investment's "Excellence in Fintech" award in October 2021.
Online Accounts
Whilst many of our IFAs are technologically sophisticated and have been
utilising our online offering for years, our client base has typically lagged
behind. However, we are now observing a growing trend amongst our clients to
take more control of their financial wellbeing by embracing mobile technology
to better monitor and manage their finances.
To support our commitment to delivering 'excellent customer service', we
believe it is vital to provide our clients with a modern and secure online
platform that allows them to access their finances easily and comprehensively,
24/7. We provide this through our client-facing version of Hansard OnLine,
called Online Accounts.
Similar to our IFA-facing online platform, the client's Online Account allows
them to access all their policy information, valuation statements, transaction
history, premium reports, switch funds online, access all correspondence,
access a library of forms and literature, and more.
A large and increasing number of clients have signed up for this service which
allows them to view all documentation and communications relating to their
contracts via their Online Account as well as choosing to receive post
electronically, rather than in hard-copy form. This not only provides a more
secure, more efficient and cost-effective means of communication with clients
but also the convenience to manage their own contract within a timeframe which
is more suitable. This has gained further traction during the restrictions
encountered during the Covid-19 pandemic.
Continuous Improvements to our Online Proposition
When it comes to improving how we operate and the proposition we offer, we
value the views of our clients and IFAs. This means that we regularly seek
feedback through surveys and office visits in order to identify ways in which
we can improve our systems and processes to best meet their needs. However,
it is not just functionality that is important, we also have a continuous
programme to enhance the overall user experience, for both IFA's and our
clients.
Cyber Security
As cyber crime continues to increase and target commercial and public
enterprises alike (further heightened by the current geo-political situation
relating to the Russia-Ukraine conflict), Hansard has continued to invest in
its cyber security. This includes continuous upgrades to our firewall
protection, encryption of data, tokenisation of sensitive data and annual
external review and testing.
Excellent Customer Service
We strive to provide excellent customer service and turn-around times to our
clients and our IFA community. We have won a number of external awards in
this area over the years, most recently in October 2020 when we won
'Excellence in Client Service - Industry' from International Investor for both
the Asian region and as overall global winner. We also maintained our
five-star rating for customer service by AKG Financial Analytics in their 2021
review.
Key performance indicators
The Group's senior management team monitors a wide range of Key Performance
Indicators, both financial and non-financial, that are designed to ensure that
performance against targets and expectations across significant areas of
activity are monitored and variances explained.
The following is a summary of the key indicators that were monitored during
the financial year under review.
New Business - The Group's internal indicator of calculating new business
production, Compensation Credit ("CC") reflects the amount of base commission
payable to intermediaries. Incentive arrangements for intermediaries and the
Group's Regional Sales Managers incorporate targets based on CC (weighted
where appropriate).
New business levels are reported daily and monitored weekly against target
levels. Compensation credit was down £3.7m compared to 2021 due to the
impact of Covid-19 and other economic challenges on sales activity.
Administrative Expenses (excl. litigation and non-recurring items) - The Group
maintains a rigorous focus on expense levels and the value gained from such
expenditure. The objective is to develop processes to restrain increases in
administrative expenses to the rates of inflation assumed in the charging
structure of the Group's policies.
The Group's administrative and other expenses for the year (excl. litigation
and non-recurring items) were £22.1m compared to £22.5m in the previous
year. Further detail is contained in the section on Administrative and other
expenses.
Cash - Bank balances and significant movements on balances are reported
monthly. The Group's cash and deposits at the balance sheet date were £74.5m
(2021: £63.5m). Movements are reflective of cash earned from new and existing
business, commissions and expenses paid and the level of dividends paid to
shareholders. The increase in 2022 is reflective of cash in transit payable to
contract holders.
Business continuity - Maintenance of continual access to data is critical to
the Group's operations. This has been achieved throughout the year through a
robust infrastructure. The Group is pro-active in its consideration of threats
to data, data security and data integrity. Business continuity and penetration
testing is carried out regularly by internal and external parties. Business
continuity was further evidenced by successful switches to remote-working at
various points throughout the Covid-19 pandemic.
Risk profile - The factors impacting on the Group's risk profile are kept
under continual review. Senior management review operational risk issues at
least monthly. The significant risks faced by the Group are summarised later
in this Strategic Report.
business AND FINANCIAL REVIEW
NEW BUSINESS PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2022
The Group continues to focus on the distribution of regular and single premium
products in a range of jurisdictions around the world, achieving well
diversified new business growth.
New business performance for the year is summarised in the table below:
2022 2021 %
Basis £m £m change
Present Value of New Business Premiums 120.5 173.0 (30.3%)
Annualised Premium Equivalent 16.4 23.1 (29.0%)
In Present Value of New Business Premiums ("PVNBP") terms, new business for
the year to 30 June 2022 was £120.5m, 30.3% down compared to the prior year.
The Annualised Premium Equivalent ("APE") measure shows a decline of 29.0%
from 2021.
Present Value of New Business Premiums
New business flows on the PVNBP basis for the Group are further analysed as
follows:
2022 2021 %
PVNBP by product type £m £m change
Regular premium 76.9 109.6 (29.8%)
Single premium 43.6 63.4 (31.2%)
Total 120.5 173.0 (30.3%)
2022 2021 %
PVNBP by region £m £m change
Middle East and Africa 44.3 68.3 (35.1%)
Rest of World 33.9 50.7 (33.1%)
Latin America 28.2 40.3 (30.0%)
Far East 14.1 13.7 2.9%
Total 120.5 173.0 (30.3%)
New business for the financial year was impacted by economic uncertainty,
geopolitical developments, the aftermath of Covid-19 restrictions around the
world, and a general hesitancy by clients to commit to long-term savings
products, particularly those with contractual regular premiums. The prior year
comparative figures benefited from a number of high net worth single premium
policies which did not repeat in FY 2022.
We have taken a number of actions to improve new business generation. We
have recruited two senior additions to our sales team: a Head of Sales and a
Head of New Business Development, to help develop and grow future new business
levels. This has also been supplemented by the addition of an experienced new
regional sales manager for our Middle East and Africa region. With the
relaxation of Covid-19 restrictions in a number of regions we are also
re-locating two regional sales managers permanently into their regions to grow
business locally.
The Head of Sales has taken oversight of our global IFA-channel sales team and
is tasked to deliver a number of our key distribution and relationship
initiatives, enhancing our overall broker proposition.
The Head of New Business Development is tasked with developing business
relationships with new distributors and further invigorating relationships
with current distributors. A number of new developments have already been
delivered, including streamlining the onboarding process for new brokers as
part of our plan to expand further our networks of distributors.
The expanded sales team will drive a number of broker and product initiatives
to increase new business in the 2023 financial year and beyond. This includes
the development and launch of new products for key target markets, updates and
improvements to existing products and the recruitment of additional localised
sales colleagues into key growth regions.
The currencies premiums were received in remained relatively consistent, with
the predominant currency being US Dollars:
2022 2021
Currency denominations (as a percentage of PVNBP) % %
US dollar 82 81
Sterling 15 15
Euro 3 4
100 100
New business margin
Our new business margin (calculated on a PVNBP basis) is sensitive to sales
levels and product mix (regular premium products and smaller single premium
sizes typically have a higher margin). While positive on a marginal cost
basis, current levels of new business continue to result in a negative new
business margin. We expect the primary catalyst for margin improvement to be a
successful launch of our new product into the Japanese market in the 2023
financial year.
Presentation of financial results
Our business is long term in nature. The nature of the Group's products means
that new business flows have a limited immediate impact on current earnings
reported under International Financial Reporting Standards as adopted by the
United Kingdom ("IFRS"), as initial fees and acquisition costs from the
contracts sold are mostly deferred and amortised over the life of the
contract. The benefit of sales to fee income levels are felt in future
financial periods, noting also that our newer products have a longer earning
period than our older products.
Results for the year
The following is a summary of key items to allow readers to better understand
the results for the year.
IFRS profit before tax for the year was £3.8m, down from £5.1m in 2021.
The primary drivers in the reduction relate to reduced fee income and the
provision in full of fees and other balances of £1.0m likely to be
irrecoverable from a set of primarily Hansard Europe legacy funds which are in
the process of liquidation.
Operating profit prior to litigation and non-recurring items was £5.9m in
2022, down from £6.8m in 2021.
Abridged consolidated income statement
The consolidated statement of comprehensive income presented under IFRS
reflects the financial results of the Group's activities during the year. This
income statement however, as a result of its method of presentation,
incorporates a number of features that might affect an understanding of the
results of the Group's underlying transactions. These relate principally to:
· Investment losses attributable to contract holder assets were
£102.5m (2021: gain of £163.3m). These assets are selected by the contract
holder or an authorised intermediary and the contract holder bears the
investment risk. They are also reflected within 'Change in provisions for
investment contract liabilities' and together have a net nil impact on IFRS
profit.
· Third party fund management fees collected and paid onwards by
the Group to third parties having a relationship with the underlying
contract. In 2022 these were £5.6m (2021: £5.3m). These are reflected on a
gross basis in both income and expenses under the IFRS presentation.
Deducting the £5.6m from £48.8m for fees and commissions and £29.8m for
administrative and other expenses in the consolidated statement of
comprehensive income results in the figures of £43.2m, £22.1m and £2.1m
presented below.
An abridged non-GAAP consolidated income statement in relation to the Group's
own activities is presented below, adjusted for the items of income and
expenditure indicated above.
2022 2021
£m £m
Fees and commissions attributable to Group activities 43.2 45.2
Investment and other income 1.0 0.5
44.2 45.7
Origination costs (16.2) (16.4)
Administrative and other expenses attributable to the Group, before
litigation and non-recurring items (22.1) (22.5)
Operating profit for the year before litigation and non-recurring items 5.9 6.8
Litigation and non-recurring expense items (2.1) (1.7)
Profit for the year before taxation 3.8 5.1
Taxation (0.2) (0.2)
Profit for the year after taxation 3.6 4.9
Fees and commissions
Fees and commissions for the year attributable to Group activities were
£43.2m, 4.4% lower than the 2021 total of £45.2m.
Contract fee income totalled £30.1m for the year, down £2.1m on the 2021
comparative of £32.2m. Contract fee income includes the amortised element
of up-front income deferred under IFRS and contract-servicing charges.
Amortisation of deferred income in Hansard International was broadly similar
to the prior year, whilst immediately recognised fees, including surrender
charges from redemptions, decreased compared to the prior year. This was
reflective of lower levels of redemptions compared to the prior year. The
continuing run-off of Hansard Europe which closed to new business in 2013
resulted in lower contract fee income of £0.5m compared to 2021.
Fund management fees accruing to the Group and commissions receivable from
third parties totalling £8.3m were unchanged from 2021. Such fees are
related directly to the value of assets under administration and are affected
by market movements, currency rates and valuation judgements.
A summary of fees and commissions is set out below:
2022 2021
£m £m
Contract fee income 30.1 32.2
Fund management fees accruing to the Group 8.3 8.3
Commissions receivable 4.8 4.7
43.2 45.2
Included in contract fee income is £16.6m (2021: £16.7m) representing the
amortisation of fees prepaid in previous years, as can be seen in the analysis
set out below:
2022 2021
£m £m
Amortisation of deferred income 16.6 16.7
Income earned during the year 13.5 15.5
Contract fee income 30.1 32.2
Investment and other income
Historically low UK and US interest rates continue to result in relatively
modest levels of interest income earned on the Group's deposits and money
market funds. More recently rates have started to improve as central bank
base rates are raised.
The below table shows the investment and other income excluding losses
attributable to contract holder assets of £102.5m (2021: gain of £163.3m).
2022 2021
£m £m
Bank interest and other income receivable 1.3 1.4
Foreign exchange losses on revaluation of net operating assets (0.3) (0.9)
1.0 0.5
Origination costs
Under IFRS, new business commissions paid, together with the directly
attributable incremental costs incurred on the issue of a contract, are
deferred and amortised over the anticipated life of that contract to match the
longer-term income streams expected to accrue from the contracts issued this
year. Typical terms range between 6 years and 16 years, depending on the
nature of the product. Other elements of the Group's new business costs, for
example recruitment costs, which reflect investment in distribution resources
in line with our strategy, are expensed as incurred.
Origination costs incurred in 2022 have decreased by £0.2m from the prior
year. Origination costs were lower in line with lower new business levels
but offset by increased amortisation of prior year balances.
2022 2021
£m £m
Origination costs - deferred to match future income streams 11.3 16.9
Origination costs - expensed as incurred 2.3 2.3
Investment in new business in year 13.6 19.2
Net amortisation of deferred origination costs 2.6 (2.8)
16.2 16.4
Amounts totaling £13.9m (2021: £14.1m) have been expensed to match contract
fee income earned this year from contracts issued in previous financial years,
as can be seen in the analysis below. Summarised origination costs for the
year were:
2022 2021
£m £m
Amortisation of deferred origination costs 13.9 14.1
Other origination costs incurred during the year 2.3 2.3
16.2 16.4
Administrative and other expenses
We continue to manage our expense base robustly to control administrative
expenses while supporting our strategic developments and other new business
growth activities with targeted expenditure.
An analysis of administrative and other expenses is set out in notes 8 and 9
to the consolidated financial statements under IFRS. The following summarises
some of the expenses attributable to the Group's own activities, excluding the
third party fund management fees collected and paid onwards by the Group to
third parties having a relationship with the underlying contract of £5.6m
(2021: £5.3m).
2022 2021
£m £m
Administrative salaries and other employment costs 10.8 11.0
Other administrative expenses 7.7 8.0
Professional fees, including audit 2.8 2.6
Recurring administrative and other expenses 21.3 21.6
Growth investment spend 0.8 0.9
Administrative and other expenses, excl. litigation and non-recurring expense 22.1 22.5
items
Litigation defence and settlement costs 1.1 1.9
Provision for doubtful debts 1.0 (0.2)
Total administrative and other expenses 24.2 24.2
Salaries and other employment costs have decreased by £0.2m or 2% to £10.8m,
reflecting active cost control and limited variable compensation being
awarded.
The average Group headcount for the 2021 financial year was 189 people (2021:
191 people).
Other administrative expenses decreased to £7.7m from £8.0m, reflecting
active cost control and a reduction in property costs following the completed
relocation of our head office premises.
Professional fees including audit increased by £0.2m to £2.8m primarily
driven by audit and recruitment fees. These costs include amounts totalling
£0.5m paid to the Group's auditor (2021: £0.4m); £0.5m (2021: £0.5m) for
administration, custody, dealing and other charges paid under the terms of the
investment processing outsourcing arrangements; recruitment costs of £0.2m
(2021: £0.1m), costs of investor relations activities of £0.2m (2021:
£0.2m) and general legal and professional fees of £1.4m (2021: £1.4m).
Growth investment spend represents internal and external strategic costs to
generate opportunities for growth. This includes the costs of our commercial
development team and costs associated with developing our Japanese proposition
which have reduced in the current year as the project has neared conclusion.
Litigation defence and settlement costs represent those costs (net of
insurance recoveries) incurred in defending Hansard Europe against writs taken
against it, as described more fully in note 26 to the consolidated financial
statements. Legal costs recovered from insurers were £0.5m, in line with
the previous year. The prior year included the provision of £0.5m for
expected future settlements but no further additional provisions have been
required in the current year with the balance of the provision as at 30 June
2022 being £0.2m (2021: £0.4m).
Provision for doubtful debts relate to the provision in full of fees and other
balances likely to be irrecoverable from a set of primarily Hansard Europe
legacy funds which are in the process of liquidation.
Cash Flow ANALYSIS
The operational cash surplus (fees deducted from contracts and commissions
received, less operational expenses paid) for the year was £21.1m (2021:
£23.8m). Operating cash flows have decreased this year as a result of the
decrease in new business and fee income levels.
Writing new business, particularly regular premium business, produces a
short-term cash strain as a result of the commission and other costs incurred
at the inception of a contract. Annual management charges offset this strain
and produce a positive return over time.
Future increases in new business levels can be funded where necessary by the
Group's significant cash resources, but over time as the level of contract
holder assets is built up, the annual management charges that are earned from
the Group's newer products will become sufficient to sustain new business
growth and dividends.
During 2022, the Group invested £4.2m (2021: £3.3m) as part of a project to
replace its administration systems. These costs are capitalised as computer
software on the Group's consolidated balance sheet.
Net cash inflows before dividends of £5.3m have improved from 2021 (£3.6m)
and are closer to covering in full the current dividend of £6.1m.
Overall Group cash and deposits have increased from £63.5m at 30 June 2021 to
£74.5m at 30 June 2022. The increase is primarily driven by an increase in
cash which is due to be paid out to contract holders as result of product
maturities and redemptions.
The following non-GAAP tables summarise the Group's own cash flows in the
year:
2022 2021
£m £m
Net cash surplus from operating activities 21.1 23.8
Interest received 0.3 0.4
Net cash inflow from operations 21.4 24.2
Net cash investment in new business (11.5) (16.5)
Purchase of property and computer equipment (4.5) (3.8)
Corporation tax paid (0.1) (0.3)
Net cash inflow before dividends 5.3 3.6
Dividends paid (6.1) (6.1)
Net cash outflow after dividends (0.8) (2.5)
2022 2021
£m £m
Net cash outflow after dividends (0.8) (2.5)
Increase in amounts due to contract holders 9.8 3.6
Net Group cash movements 9.0 1.1
Group cash and deposits - opening position 63.5 60.8
Effect of exchange rate movements 2.0 1.6
Group cash and deposits - closing position 74.5 63.5
The below table reconciles the key lines for the current year in the above
non-GAAP cash flow to the key lines in the consolidated cash flow.
Non-GAAP Consolidated Cash Flow Statement
Cash Flow
£m £m
Net cash flow from operations before tax 21.4 11.4
Adjust for net movement in policyholder financial assets and liabilities - 8.5
21.4 19.9
Purchase of property and computer equipment (tangible and intangible) (4.5) (4.5)
Corporation tax paid (0.1) (0.1)
Dividends paid (6.1) (6.1)
Net cash investment in business (11.5)
Increase/decrease in amounts due to contract holders 9.8
Net movement in assets and liabilities relating to contract holders (0.2)
(1.7) (0.2)
Net Group cash movements 9.0 9.0
Group bank deposits and money market funds
The Group holds its liquid assets in highly-rated money market liquidity funds
and with a wide range of deposit institutions to minimise market risk.
Deposits totalling £15.6m (2021: £6.8m) have original maturity dates
typically greater than 3 months and are therefore excluded from the definition
of "cash and cash equivalents" under IFRS and are instead included within
'Deposits and money market funds' in the consolidated balance sheet. The
following table summarises the total shareholder cash and deposits at the
balance sheet date.
2022 2021
£m £m
Money market funds and immediately available cash 54.2 52.6
Short-term deposits with credit institutions 4.7 4.1
Cash and cash equivalents under IFRS 58.9 56.7
Longer-term deposits with credit institutions 15.6 6.8
Group cash and deposits 74.5 63.5
Abridged consolidated balance sheet
The consolidated balance sheet presented under IFRS reflects the financial
position of the Group at 30 June 2022. As a result of its method of
presentation, the consolidated balance sheet incorporates the financial assets
held to back the Group's liability to contract holders, and also incorporates
the net liability to those contract holders of £1,092.3m (2021: £1,224.2m).
Additionally, that portion of the Group's capital that is held in bank
deposits is disclosed in "cash and cash equivalents" based on original
maturity terms, as noted above.
The abridged consolidated balance sheet presented below, adjusted for those
differences in disclosure, allows a better understanding of the Group's own
capital position.
2022 2021
£m £m
Assets
Deferred origination costs 122.5 125.1
Other assets 20.4 15.2
Bank deposits and money market funds 74.5 63.5
217.4 203.8
Liabilities
Deferred income 145.1 142.5
Other payables 50.1 36.6
195.2 179.1
Net assets 22.2 24.7
Shareholders' equity
Share capital and reserves 22.2 24.7
Deferred origination costs
The deferral of origination costs reflects that the Group will earn fees over
the long-term from contracts issued in a given financial year. These costs are
recoverable out of future net income from the relevant contract and are
charged to the consolidated statement of comprehensive income on a
straight-line basis over the life of each contract.
The movement in value over the financial year is summarised below.
2022 2021
Carrying value £m £m
At beginning of financial year 125.1 122.3
Origination costs deferred during the year 11.3 16.9
Origination costs amortised during the year (13.9) (14.1)
122.5 125.1
Deferred income
The treatment of deferred income ensures that contract fees are taken to the
consolidated statement of comprehensive income in equal instalments over the
longer-term, reflecting the services to be provided over the period of the
contract. This is consistent with the treatment of deferred origination costs.
Deferred income at the balance sheet date is the unamortised balance of
accumulated initial amounts received on new business.
The proportion of income deferred in any one year is dependent upon the mix
and volume of new business flows in previous years. The Group's focus on
regular premium business means that these fees are received over the initial
period of the contract, rather than being received up front, as is often the
case with single premium contracts.
The majority of initial fees collected during the year relates to charges
taken from contracts issued in prior financial years demonstrating the cash
generative nature of the business. Regular premium contracts issued in this
financial year will generate the majority of their initial fees over the next
18 months on average.
The movement in value of deferred income over the financial year is summarised
below.
2022 2021
Carrying value £m £m
At beginning of financial year 142.5 137.8
Initial fees collected in the year and deferred 19.2 21.4
Income amortised during the year to fees income (16.6) (16.7)
145.1 142.5
CONTRACT HOLDER Assets under administration
In the following paragraphs, contract holder assets under administration
("AuA"), refers to net assets held to cover financial liabilities, as analysed
in note 17 to the consolidated financial statements presented under IFRS.
Such assets are selected by or on behalf of contract holders to meet their
investment needs.
The Group receives investment inflows to its AuA from single and regular
premium contracts which are offset by withdrawals, charges, premium holidays
affecting regular premium policies and by market valuation movements.
The majority of premium contributions are designated in currencies other than
sterling, reflecting the wide geographical spread of those contact holders.
The currency composition of AuA at the balance sheet date is similar to that
as at 30 June 2021, with 71% of AuA designated in US dollar (2021: 68%) and 8%
in euro (2021: 10%).
Certain collective investment schemes linked to customers' contracts can from
time to time become illiquid, suspended or be put into liquidation. In such
cases, the Directors are required to exercise their judgement in relation to
the fair value of these assets. The cumulative impact on the balance sheet
is not material.
The value of AuA at 30 June 2022 was £1,092.3m, 10.8% lower than 30 June
2021. During 2022, global stock markets fell in value largely due to
economic concerns arising out of the Russia/Ukraine conflict and the impact of
monetary tightening with high levels of inflation. Significantly lower
single premiums were somewhat offset by lower withdrawals.
The following table summarises the movements in the year:
2022 2021
£m £m
Deposits to investment contracts - regular premiums 86.2 84.7
Deposits to investment contracts - single premiums 43.8 64.1
Withdrawals from contracts and charges (158.4) (167.2)
Effect of market and currency movements (103.5) 162.1
Movement in year (131.9) 143.7
Opening balance 1,224.2 1,080.5
Closing balance 1,092.3 1,224.2
The analysis of AuA held by each Group subsidiary to cover financial
liabilities is as follows:
2022 2021
Fair value of AuA at 30 June £m £m
Hansard International 1,024.5 1,134.8
Hansard Europe 67.8 89.4
1,092.3 1,224.2
Assets acquired by Hansard Worldwide are administered by Hansard International
and therefore are included within Hansard International's total AuA.
Since it closed to new business in 2013, Hansard Europe's AuA has been
declining broadly in line with expectations as contracts are surrendered or
mature.
DIVIDENDS
An interim dividend of 1.8p per share was paid in April 2022. This amounted to
£2.5m.
The Board has resolved to recommend a final dividend of 2.65p per share (2021:
2.65p) for shareholder approval at the AGM. In making this recommendation,
the Board has carefully considered its current and future cash flows, the
risks and potential impacts introduced by Covid-19 and the on-going
Russia-Ukraine conflict, the outlook for future growth and profitability and
the views of key stakeholders, including shareholders and regulators.
Subject to approval at the AGM, this dividend will be paid on 10 November
2022.
complaints and potential litigation
In valuation issues such as those referred to above, financial services
institutions can be drawn into disputes in cases where the performance of
assets selected directly by or on behalf of contract holders through their
advisors fails to meet their expectations. This is particularly relevant in
the case of more complex products distributed throughout Europe prior to 2014.
Even though the Group have never given any investment advice, as this is left
to the contract holder directly or through an agent, advisor or an entity
appointed at their request or preference, the Group has been subject to a
number of complaints in relation to the performance of assets linked to
contracts.
As at 30 June 2022, the Group had been served with cumulative writs with a net
exposure totalling €24.6m, or £21.2m in sterling terms (30 June 2021:
€26.5m / £22.7m) arising from contract holder complaints and other asset
performance-related issues. These are disclosed as contingent liabilities in
note 26 to the consolidated financial statements. The primary reason for the
reduction in contingent liabilities relates to a significant case which was
covered by our insurance cover which was agreed to be settled by our
insurers. This reduced our pre-insurance contingent liabilities by £2.9m.
During the year, the Group successfully defended twenty-four cases with net
exposures of approximately £3.2m, eleven of which have been appealed by the
plaintiffs (2021: successfully defended sixteen cases with net exposures of
£1.6m). These successes continue to affirm confidence in the Group's legal
arguments.
Our policy is to maintain contingent liabilities even where we win cases in
the court of first instance if such cases have been subsequently appealed.
This includes our largest single case in Belgium.
We have previously noted that we expect a number of our larger claims to
ultimately be covered by our Group insurance cover. During FY 2022 we
recorded £0.5m in insurance recoveries in relation to litigation expenses.
We expect such reimbursement to continue during the course of those claims.
As a result we also expect that a significant amount of the £22.7m of
contingent liabilities referred to above would be covered by insurance should
those cases be ruled against us. We continue to estimate insurance coverage
to be in the range of £3m to £10m.
While it is not possible to forecast or determine the final results of such
litigation, based on the pleadings and advice received from the Group's legal
representatives and experience with cases previously successfully defended, we
believe we have a strong chance of success in defending these claims. Other
than smaller cases where based on past experience it is expected a settlement
might be reached, the writs have therefore been treated as contingent
liabilities and are disclosed in note 26 to the consolidated financial
statements. Where there is an established pattern of settlement for a
grouping of claims, a provision has been made for the remaining exposures and
included in note 20 'Provisions'.
Net asset value per shaRE
The net asset value per share on an IFRS basis at 30 June 2022 is 16.1p (2021:
17.9p) based on the net assets in the Consolidated Balance Sheet divided by
the number of shares in issue, being 137,557,079 ordinary shares (2021:
137,557,079).
Risk management and internal control
The Group is naturally exposed to both existing and emerging internal and
external risks as it pursues its strategic and business plan objectives. All
such risks, are identified, assessed, monitored, managed and reported under
the governance, risk management and internal control protocols, which
constitute the Group's ERM Framework, and which remain central to the Board's
oversight, direction and control of the Company.
For the year ended 30 June 2022 the Board has remained cognisant of the range
of possible societal, economic and corporate level risks attaching to recovery
from the pandemic and any threats these might continue to pose. Particular
attention has been maintained on diverging trajectories and approaches within
and between jurisdictions and the capacity for these risks to impede the
visibility of other emerging challenges, including climate transition risks,
increased cyber vulnerabilities, greater barriers to international mobility,
supply chain disruptions, protectionism, geopolitical instabilities and
inflationary pressures.
Concurrently, the escalation of the Russia-Ukraine conflict during Q3 of the
reporting period has remained prominent on the risk agenda. In addition to
this, the attention of the Board has been focused on the potential impacts to
economic and global financial markets, the exacerbation of existing
macroeconomic challenges, such as rising inflation and supply chain disruption
and the rapid escalation of cyber risks. The nature and duration of uncertain
and unpredictable events, such as further escalation of the conflict,
additional sanctions and reactions to ongoing developments in global financial
markets remain under close scrutiny.
Approach
Having regard to the Financial Reporting Council's 'Guidance on Risk
Management, Internal Control and Related Financial and Business Reporting',
the ERM Framework encompasses the policies, processes, tasks, reporting
conventions, behaviours and other aspects of the Group's environment, which
cumulatively:
· Support the Board's assessment of existing and emerging risks,
together with combinations of those risks in the form of plausible stresses
and scenarios, which have the potential to threaten the Company's business
model, future performance, solvency, liquidity or reputation. Such assessment
includes analysis of the likelihood, impact and time horizon over which such
risks, or combinations of risks might emerge or crystallise.
· Facilitate the effective and efficient operation of the Group and
its subsidiary entities by enabling a consolidated and comprehensive approach
to the management of risks across the Group, with specific attention to
aggregate impacts and effects, enabling appropriate responses to be made to
significant business, operational, financial, compliance and other risks to
business objectives, so safeguarding the assets of the Group.
· Help to ensure the quality of internal and external reporting.
This requires the maintenance of proper records and processes that generate a
flow of timely, relevant and reliable information from within and outside the
Group, enabling the Board to form their own view on the effectiveness of risk
management and internal control arrangements through the regular provision of
relevant information and assurances.
· Seek to ensure continuous compliance with applicable laws and
regulations as well as with internal policies governing the conduct of
business.
· Drive the cultural tone and expectations of the Board in respect
of governance, risk management and internal control arrangements and the
delegation of associated authorities and accountabilities.
The Board has overall responsibility for the effective operation of the ERM
Framework and the Directors retain responsibility for determining, evaluating
and controlling the nature and extent of the risks which the Board is willing
to accept across the spectrum of risk types, taking account of varying levels
of strategic, financial and operational stresses, potential risk scenarios and
emerging as well as existing risk exposures. This approach ensures that risk
appetite remains an integral element of decision-making by both the Board and
the Executive Management Team, including in the setting of strategy, ongoing
business planning and business change initiatives.
The ERM Framework has been designed to be appropriate to the nature, scale and
complexity of the Group's business at both corporate and subsidiary level. The
Framework components are reviewed on at least an annual basis and refined, if
necessary, to ensure they remain fit for purpose in substance and form and
continue to support the Directors' assessment of the adequacy and
effectiveness of the Group's risk management and internal control systems.
Such assessment depends upon the Board maintaining a thorough understanding of
the Group's risk profile, including the types, characteristics,
interdependencies, sources and potential impact of both existing and emerging
risks on an individual and aggregate basis.
During the year ended 30 June 2022 a new 'Group Risk Forum' (GRF) was
established to replace the pre-existing Executive and Operational Risk
Committees, as part of the annual ERM Framework review. The GRF is designed to
further enhance the evidencing and demonstration of risk ownerships, ensuring
responsibilities and accountabilities for risk management and risk-based
decision making are transparent and proactively owned at all business levels.
The GRF has also helped to drive clearer and more dynamic interfaces between
the governance, risk management and internal control conventions of the ERM
Framework and those constituting the Group and subsidiary ORSA cycles.
The disciplines of the ERM Framework seek to coordinate risk management in
respect of the Group as a whole, including for the purpose of ensuring
compliance with capital adequacy requirements, liquidity adequacy requirements
and regulatory capital requirements, in line with the Isle of Man Financial
Services Authority Risk-Based Capital Regime.
Governance, risk management and internal control protocols remain structured
upon a 'three lines' model, which determines how specific duties and
responsibilities are assigned and coordinated. Front line management are
responsible for identifying risks, executing effective controls and escalating
risk issues and events to the Group's Control Functions. The Group Risk and
Compliance Functions oversee and work in collaboration with the First Line,
ensuring that the business is conducted in a manner consistent with rules,
limits and risk appetite constraints. The Group Internal Audit Department
provides independent assurance services to the Board and Executive Management
Team on the adequacy and effectiveness of the Group's governance, risk
management and internal control arrangements.
The ERM Framework seeks to add value through embedding risk management and
effective internal control systems as continuous and developing processes
within strategy setting, programme level functions and day-to-day operating
activities. The ERM Framework also acknowledges the significance of
organisational culture and values in relation to risk management and their
impact on the overall effectiveness of the internal control framework.
Emerging Risks
The ERM Framework promotes the pursuit of its overarching performance,
information and compliance objectives through focus on five interrelated
elements, which enable the management of risk at strategic, programme and
operational level to be integrated, so that layers of activity support each
other. The five interrelated elements are defined as: -
· Management oversight and the control culture
· Risk recognition and assessment
· Control activities and segregation of duties
· Information and communication
· Monitoring activities and correcting deficiencies
Risk management processes are undertaken on both a top-down and bottom-up
basis, structured to promote improved organisational performance through
better integration of strategy, risk, control and governance.
The top-down aspect involves the Board assessing, analysing and evaluating
what it believes to be the principal risks facing the Group, with focus on
current and forward-looking risks. The bottom-up approach involves the
identification, review and monitoring of risk issues and emerging risks at
functional and divisional levels, with analysis and formal reporting to the
Group Risk Forum on a quarterly basis and onward analytical reporting to the
Board.
Stress and scenario testing is used to explore emerging risks as well as to
analyse and assess any changes in existing aspects of the 'Risk Universe',
which are monitored via the ERM Framework. Such analyses use both quantitative
tests and qualitative assessments to consider reasonably plausible risk
events, including those stresses and scenarios that could lead to failure of
the business, approximated to the range of impact types which can be
envisaged. The results of the stress and scenario testing are considered and
explored by the Group Risk Forum, the Audit and Risk Committee and the Board,
as necessary and appropriate.
The system of internal control is designed to understand and manage rather
than eliminate risk of failure to achieve business objectives and can only
provide reasonable, rather than absolute assurance against material
misstatement or loss.
Review of risk management and internal control systems
The results of the risk management processes combine to facilitate
identification of the principal business, financial, operational and
compliance risks and any associated key risks at a subordinate level.
Established reporting cycles enable the Board to maintain oversight of the
quality and value of risk management and internal control activities
throughout the year and ensure that the entirety of the governance, risk
management and internal control frameworks, which constitute the ERM
Framework, are operating effectively and as intended. These processes have
been in place throughout the year under review and up to the date of this
report.
Independently of its quarterly and ad hoc risk reporting arrangements the
Board has conducted its annual review of the effectiveness of the Company's
risk management and internal control systems including financial, operational
and compliance controls. This review is undertaken in collaboration with the
Audit and Risk Committee and is based upon analysis and evaluation of:
· Attestation reporting from the key subsidiary companies of the
Group as to the effective functioning of the risk management and internal
control frameworks and the ongoing identification and evaluation of risk
within each subsidiary.
· Formal compliance declarations from senior managers at divisional
level that key risks are being managed appropriately within the functional and
operational areas falling under their respective span of control and that
controls have been examined and are effective.
· The cumulative results of cyclical risk reporting by senior and
executive management via the GRF, covering financial, operational and
compliance controls.
· Independent assurance work by the Group Internal Audit Department
to identify any areas for enhancements to internal controls and work with
management to define associated action plans to deliver them.
The Board has determined that there were no areas for enhancement which
constituted a significant weakness for the year under review and they are
satisfied that the Group's governance, risk management and internal control
systems are operating effectively and as intended.
Financial reporting process
Integral to ERM monitoring and reporting arrangements are the conventions
which ensure that the Board maintains a continuous understanding of the
financial impacts of the Group failing to meet its objectives, due to
crystallisation of an actual or emerging risk, or via the stress and scenario
events, which the Board considers to be reasonably plausible. This includes
those stresses and scenarios that could lead to a failure of the business.
Planning and sensitivity analyses incorporate Board approval of forecast
financial and other information. The Board receives regular representations
from Senior Executives in this regard.
Performance against targets is reported to the Board quarterly through a
review of Group and subsidiary company results based on accounting policies
that are applied consistently throughout the Group. Financial and management
information is prepared quarterly by the Chief Financial Officer (CFO) and
presented to the Board and Audit Committee. The members of the Audit Committee
review the interim financial statements for the half year ending 31 December
and for the full financial year and meet with the CFO to discuss and challenge
the presentation and disclosures therein. Once the draft document is approved
by the Audit Committee, it is reviewed by the Board before final approval at a
Board meeting.
Outsourcing
The majority of investment dealing and custody processes in relation to
contract holder assets are outsourced to Capital International Limited (CIL),
a company authorised by the Isle of Man Financial Services Authority and a
member of the London Stock Exchange.
These processes are detailed in a formal contract that incorporates notice
periods and a full exit management plan. Delivery of services under the
contract is monitored by a dedicated Relationship Manager against a documented
Service Level Agreement, which includes Key Performance Indicators.
CIL is required to confirm on a monthly basis that no material control
weaknesses have been identified in their operations; this is overseen via
service delivery monitoring performed by the Relationship Manager. Each year
CIL are required to confirm and evidence the adequacy and effectiveness of
their internal control framework through a formal Assurance Report on Internal
Controls, with an external independent review performed every second year.
The last such independent report was issued on 9 July 2021 and did not
reveal any material control deficiencies in the relevant period. CIL's
Internal Audit department conducted the 2022 review and issued their report
dated 30 June 2022. This report did not reveal any material control
deficiencies for the period.
Risks relating to the Group's financial and other exposures
Hansard's business model involves the controlled acceptance and management of
risk exposures. Under the terms of the unit-linked investment contracts issued
by the Group, the contract holder bears the investment risk on the assets in
the unit-linked funds, as the policy benefits are directly linked to the value
of the assets in the funds. These assets are administered in a manner
consistent with the expectations of the contract holders. By definition, there
is a precise match between the investment assets and the contract holder
liabilities, and so the market risk and credit risk lie with contract holders.
The Group's exposure on this unit-linked business is limited to the extent
that income arising from asset management charges and commissions is generally
based on the value of assets in the funds, and any sustained falls in value
will reduce earnings. In addition, there are certain financial risks (credit,
market and liquidity risks) in relation to the investment of shareholders'
funds. The Group's exposure to financial risks is explained in note 3 to the
consolidated financial statements.
The Board believes that the principal risks facing the Group's earnings and
financial position are those risks which are inherent to the Group's business
model and operating environment. The regulatory landscape continues to evolve
at both a local and international level and the risk management and internal
control frameworks of the Group must remain responsive to developments which
may change the nature, impact or likelihood of such risks, or the time horizon
within which they might crystallise.
Principal Risks
The following table sets out the principal inherent risks that may impact the
Group's strategic objectives, profitability or capital and provides an
overview of how such risks are managed or mitigated. The Board robustly
reviews and considers its principal risks on at least an annual basis and for
the year ended 30 June 2022 have continued to consider specifically the
likelihood, impacts and timescales within which such risks might crystallise,
together with assessment of contingent uncertainties and any emerging risks.
Risk Risk Factors and Management
Market Risk: While the Group does not invest shareholder funds in assets subject to any
significant market risk, the Group's earnings and profitability are influenced
by the performance of contract holder assets and the fees derived from their
value. Significant changes in equity markets and interest rates can adversely
Arising from major market stresses, or fluctuation in market variables, affect fee income earned.
resulting in falls in equity or other asset values, currency movements or a
combined scenario manifesting
In addition, the Group operates internationally and earns income in a range of
different currencies, the most significant being US dollars. The vast majority
of its operational cost base is denominated in Sterling. A significant adverse
currency movement over a sustained period would present an exposure to
reported income levels.
Extreme market conditions also have the capacity to influence the selection
and purchase of financial services products and the period over which business
is retained.
How we manage the risk:
· The Board recognise that market volatilities and currency
movements are unpredictable and driven by a diverse range of factors and these
risks are inherent in the provision of investment-linked products.
· The currencies of shareholder assets and liabilities are matched
within set tolerances and certain expenses invoiced in US Dollars to match
against US Dollar income streams.
· Business plans are modelled across a broad range of market and
economic scenarios and take account of alternative commercial outlooks within
overall business strategy. This promotes a greater understanding of market and
currency risk, the limits of the Company's resilience and the range of
possible mitigating options.
· Stress testing performed during the year-ended 30 June 2022
assessed the impacts of reasonably plausible market risk events and scenarios,
including those resulting from macroeconomic challenges flowing from the
pandemic and the impacts of geopolitical instabilities and uncertainties
resulting in commodity price and currency volatilities.
· The long-term nature of the Group's products serves to smooth
currency movements over time reducing the need for active hedging policies.
However, long term trends are monitored and considered in pricing models.
Credit Risk: In dealing with third party financial institutions, including banking, money
market and settlement, custody and other counterparties, the Group is exposed
to the risk of financial loss and potential disruption of core business
functional and operational processes.
Arising from the failure of a counterparty
Financial loss can also arise when the funds in which contract holders are
invested become illiquid, resulting in past and future fee income not being
received. The failure of Independent Financial Agents (IFAs) can also result
in loss where unearned commissions can be due back to the Group.
How we manage the risk:
· The Group seeks to limit exposure to loss or detriment via
counterparty failure through robust selection criteria, minimum rating agency
limits, pre-defined risk-based limits on concentrations of exposures and
continuous review of positions to identify, evaluate, restrict and monitor
various forms of exposure on an individual and aggregate basis.
· During the reporting period we have closely monitored
geopolitical developments and the potential for disruptions to international
payment systems and capital markets arising from the severe sanctions
introduced against Russia in the context of the Russia-Ukraine conflict.
Liquidity Risk: If the Group does not have sufficient levels of liquid assets to support
business activities or settle its obligations as they fall due, the Group may
be in default of its obligations and may incur significant sanction, loss or
cost to rectify the position.
Arising from a failure to maintain an adequate level of liquidity to meet
financial obligations under both planned and stressed conditions How we manage the risk:
· The Group maintains highly prudent positions in accordance with
its risk appetite and investment policies which ensures a high level of
liquidity is available in the short term at all times. Generally, shareholder
assets are invested in cash or money market instruments with highly-rated
counterparties.
· During the reporting period we have maintained a prudent approach
to the availability of short-term cash, but have not identified any material
change in risk exposures.
Legal and Regulatory Risk: The scale and pace of change in regulatory and supervisory environments,
including the continued emergence of new and/or updated compliance obligations
and data submissions pre-date the pandemic environment. Changes to rule sets
and supervisory expectations have gathered pace with the easing of pandemic
Arising from changes in the regulatory landscape, which adversely impact the related restrictions, requiring efficient and effective ways to evidence and
Group's business model, or from a failure by the Group, or one of its demonstrate how compliance obligations are met, whilst compliance analytics
subsidiary entities, to meet its legal, regulatory or contractual obligations, and high-quality data driven insights are becoming increasingly important.
resulting in the risk of loss or the imposition of penalties, damages or fines
The direction of regulatory travel and the bridges now firmly established
between prudential and conduct risk demand special attention to the capacity,
competence and capability of resourcing across all business areas, having
particular regard to the extent of risk interdependencies and the embedding of
personal accountability regimes.
The interpretation or application of regulation over time may impact market
accessibility, broker relationships and / or competitive viability. If the
Group fails to monitor the regulatory environment or adequately integrate the
management of associated obligations within strategic, business model or
business planning processes there may be material risk to the achievement of
strategic objectives both in the short and longer term.
How we manage the risk:
· Robust strategic planning processes informed by analytical review
of the external environment and consideration of associated risk in the short
and longer term.
· Continuous monitoring and review of developments in international
law and regulation and proactive management of how such developments might
shape jurisdictional specific reaction.
· Active and transparent engagement with regulatory authorities and
industry bodies on a multi-jurisdictional basis, including active engagement
in and responding to regulatory consultation exercises.
· Maintenance of robust governance, risk management and internal
control arrangements to ensure that legal and regulatory obligations are
substantively met on a continuing basis.
· Active engagement with professional advisors to address specific
risks and issues that arise.
Fraud and Financial Crime Risk: The potential for an increase in fraudulent activity due to exploitation of
economic stimulus schemes in response to the pandemic and any temporary
adjustment to control environments coincided with the emergence of an
unprecedented suite of sanctions against Russia. Growing inflationary
Economic challenges flowing from the pandemic persist, provoking an increase pressures, the threats of recession and increased pressures on profitability
in the source and form of fraud and financial crime risks. These have combined are also recognised to present an increased risk of poor-quality business
with geopolitical instabilities and the mobilisation of unprecedented levels being written by market participants and potentially diminishing third party
of sanctions against Russia in the context of the Russia-Ukraine conflict attention to due diligence procedures and processes.
How we manage the risk:
· An increasingly holistic approach to mitigating heightened
financial crime risks. Rigorous anti-money laundering, counter-terrorist
financing and anti-bribery and corruption measures.
· Rapid, scalable and effective sanctions screening mechanisms to
ensure robust, effective and compliant understanding of the landscape on a
continuing basis.
· Implementation of controls to identify and mitigate any emerging
risks associated with the exploitation of economic stimulus schemes, prolonged
dependencies upon remote working or other measures to counteract the impacts
of the pandemic.
· Continuous review of measures to support activity in the context
of divergent economic recoveries from the pandemic, including those measures
relied upon by key business partners.
Distribution Risk: The business environment in which the international insurance industry
operates is subject to continuous change as new market and competitor forces
come into effect and as technology continues to evolve. Hansard may be unable
to maintain competitive advantage in commercially significant jurisdictions,
Arising from market changes, technological advancement, loss of key or market segments, or be unable to build and sustain successful distribution
intermediary relationships or competitor activity relationships, particularly in the event of any prolonged uncertainties
consequent to the pandemic environment.
How we manage the risk:
· Close monitoring of marketplaces and competitor activity for
signs of threats to forecast new business levels.
· Stress and scenario modelling considers the consequences of
production falling materially above or below target and enables the Board to
ensure that forecasting and planning activities are sufficiently robust and
revised product and distribution strategies are designed to add additional
scale to the business, on a more diversified basis, through organic growth at
acceptable levels of risk and profitability.
· Continuous investment in and development of technology. During
the reporting period we have continued to maintain close contact with our
distribution partners and deploy technological solutions, where appropriate,
to overcome challenges presented by the residual impacts of the Covid-19
environment.
Conduct Risk: Failure to adequately assess, monitor, manage and mitigate risks to the
delivery of fair customer outcomes, or to market integrity, can be expected to
Arising from any failure of governance, risk management and internal control result in material detriment to the achievement of strategic objectives and
arrangements, via corporate or individual actions, leading to customer could incur regulatory censure, financial penalty, contract holder litigation
detriment and / or reputational damage.
How we manage the risk:
· Iterative enhancements to the Group's ERM framework continue to
drive and deliver the integration of conduct risk management at both a
cultural and practical level.
· Business activities designed to manage the volume and velocity of
regulatory change include a fundamental focus on ensuring compliance with
conduct risk obligations, managing conflicts of interest, preventing market
abuse and building robust governance arrangements around new product
development and product suitability processes.
· Forward looking risk indicators and executive leadership in
respect of understanding and addressing the drivers of conduct risk focus on
all core areas with assessment at strategic, functional and operational
levels.
· The Group maintains regular dialogue with its regulatory
authorities and with its advisors in relation to developments in the
regulatory environments in which we operate.
Operational Resilience Risk: The pandemic environment demonstrated the scale and speed with which
disruptive operational risk events might impact the availability of important
Arising from any exposure to risk events with the capacity to cause business services and cause wide-ranging harm to customers, stakeholders,
operational failures or wide scale disruptions in financial markets individual firms, financial market infrastructures and the financial sector as
a whole.
Global supervisory attention is focussed on regulating for resilience by
ensuring that strategies such as grounding resilience analyses in key delivery
requirements, appreciating the potential for systemic vulnerabilities and
embracing a diversity of approaches combine to strengthen the ability of
financial services firms to withstand operational risk related events.
How we manage the risk:
· ERM conventions are guiding the identification and assessment of
events or scenarios presenting risk to operational resilience - typically
pandemics, cyber incidents, technology failures or natural disasters - as well
as supply chain disruption impacts to critical processes, business continuity
and good governance.
· Impact tolerances, together with mapping and testing allow the
identification of services which could cause harm, if disrupted and identify
any areas of vulnerability.
· Stress testing, continuity planning and recovery and resolution
strategies provide for continuous review of the adequacy and effectiveness
with which the business is able to respond to and recover from disruptions.
Information Systems and Cyber Risk: The mounting sophistication and persistence of cybercrime and the growing
adoption of highly advanced, nation-state type tools by cyber criminals,
Arising from the increased digitalisation of business activities and growing underscore the challenges that both regulators and the industry face in
dependence upon technology in the context of exposure to elevated and more understanding and anticipating the nature of cyber threats they will face
pernicious forms of digital and cyber risk next.
The pandemic served to accelerate the efforts of organised crime to exploit
weaknesses in cyber defences and explicitly target remote working
vulnerabilities, whilst new technological capabilities and use of third-party
platforms add to the complexity of understanding the extent of cyber
exposures, which may originate outside the traditional regulatory perimeter.
Geopolitical tensions at a global level and the escalation of the
Russia-Ukraine conflict specifically are considered to have triggered the most
acute cyber risks western governments and corporations have ever faced.
Building resilience to continuously evolving cyber risk is a priority for all
stakeholders. Growing levels of regulatory scrutiny, focussed on three core
areas - cyber risk identification, cyber risk governance and cyber risk
resilience - is clearly foreseeable. Increased pressure for regulated
entities to evidence and demonstrate how they are addressing emerging
regulatory concerns and the timeliness of their actions can also be expected.
In the event of any material failure in our core business systems, or business
processes, or if the Group fails to take adequate and appropriate measures to
protect its systems and data from the inherent risk of attack, disruption
and/or unauthorised access by internal or external parties, this could result
in confidential data being exposed and/or systems interruption. A significant
cybercrime event could result in reputational damage, regulatory censure and
financial loss.
How we manage the risk:
· Continuous focus on the maintenance of a robust, secure and
resilient IT environment that protects customer and corporate data as a core
element of our operational resilience mapping.
· Control techniques deployed to evaluate the security of systems
and proactively address emerging threats both internally within the
organisation and externally, through regular engagement with internet and
technology providers and through industry forums.
· Maintenance of detailed and robust Business Continuity and
Disaster Recovery Plans, including full data replication at an independent
recovery centre, which can be invoked when required.
· Frequent and robust testing of business continuity and disaster
recovery arrangements.
· Periodic independent third party systems penetration testing and
review of controls.
· Horizon scanning to identify and assess supervisory initiatives
advocating and promoting good practice in cyber resilience and associated
industry developments.
Environmental, Social and Governance (ESG) Risk: Climate Change Risk and broader ESG considerations are well marked on
international regulatory agendas. The World Economic Forum (WEF) Global Risks
Arising from a failure to anticipate and respond to emerging sustainability Report 2022 flags societal and environmental risks as presenting the most
risks or successfully integrate ESG considerations and policy positions into immediate concern over the short-term. Climate action failure, extreme weather
strategy and business planning and biodiversity loss present the top three most severe risks over a ten-year
time horizon whilst the highest societal risks include livelihood crises and
infectious diseases. Social cohesion erosion is perceived as a critical global
threat across all time horizons driven by economic, political, technological
and intergenerational inequalities.
Advances in regulatory conduct obligations continue to converge with
stakeholder interest in and scrutiny of ESG practices, whilst clear
connections are being drawn between the issues affecting firms' culture and
functioning and lack of progress on diversity and inclusion. These
developments demonstrate the reach of ESG considerations across the risk
portfolio.
How we manage the risk:
· Actively building sustainability considerations into strategy
development and business planning processes through structured analysis,
formal assessment mechanisms and cross-functional collaboration.
· Factoring emerging sustainability risk issues into key
decision-making and understanding the impacts for the tools and methodologies
currently used to manage risk, including governance structures, risk
ownerships, risk and control self-assessment principles, regulatory
developments, third party service provisions and effective reporting.
· Developing and updating relevant components in relation to the
sustainability risk domain - including policies, procedures, risk indicators,
management data and stress testing.
· 'In flight' initiatives addressing cultural alignment and
structural resilience encompass core ESG considerations.
Employee Engagement and Cultural Risk: Delivery of the Group's strategy has core dependencies on attracting and
retaining experienced and high-performing management and staff and building a
Arising from any failure to drive and support the right corporate culture and strong and sustainable culture, driven by our purpose, our leadership, our
attract, develop, engage and retain key personnel performance management regime and our governance principles and objectives.
The knowledge, skills, attitudes and behaviours of our employees, and the
success with which these shape and define our culture, are central to our
success.
Clear and heightened regulatory expectations of individual and corporate
accountability continue to connect governance, risk and compliance obligations
directly to cultural imperatives and the responsibilities assigned to
individual Senior Managers.
How we manage the risk:
· Significant investment in initiatives to address and support
cultural change and development, shape strategy and inform tactical solutions.
· Establishment of a 'Culture Programme' with clearly defined
workstreams and timebound deliveries targeting business fundamentals including
learning and innovation, leadership and communication and performance
management. These remain in active progress led by the Executive Management
Team with oversight by the Board.
Further detail around financial risks is outlined in note 3 (Financial Risk
Management) to the consolidated financial statements.
Philip Kay
Chairman
21 September 2022
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2022
Year ended Year ended
30 June 30 June
2022 2021
Notes £m £m
Fees and commissions 5 48.8 50.5
Investment income 6 (103.5) 163.3
Other operating income 1.0 0.9
(53.7) 214.7
Change in provisions for investment contract liabilities 17 103.5 (163.7)
Origination costs 7 (16.2) (16.4)
Administrative and other expenses 8 (29.8) (29.5)
57.5 (209.6)
Profit before taxation 3.8 5.1
Taxation 10 (0.2) (0.2)
Profit and total comprehensive income for the year
after taxation 3.6 4.9
Earnings per share
2022 2021
Note (p) (p)
Basic 11 2.6 3.6
Diluted 11 2.6 3.6
Consolidated Statement of Changes in Equity
for the year ended 30 June 2022
Share Other Retained
capital reserves earnings Total
£m £m £m £m
At 1 July 2020 68.8 (48.3) 5.4 25.9
Profit and total comprehensive income for the - - 4.9 4.9
year after taxation
Transactions with owners
Dividends paid - - (6.1) (6.1)
At 30 June 2021 68.8 (48.3) 4.2 24.7
Share Other Retained
capital reserves earnings Total
£m £m £m £m
At 1 July 2021 68.8 (48.3) 4.2 24.7
Profit and total comprehensive income for the - - 3.6 3.6
year after taxation
Transactions with owners
Dividends paid - - (6.1) (6.1)
At 30 June 2022 68.8 (48.3) 1.7 22.2
Consolidated Balance Sheet
As at 30 June 2022
30 June 2022 30 June 2021
Notes £m £m
Assets
Intangible assets 13 13.4 9.2
Property, plant and equipment 13 2.7 3.3
Deferred origination costs 14 122.5 125.1
Financial investments
Measured at fair value:
Equity securities 3 55.7 58.0
Investments in collective investment schemes 3 903.4 1,033.1
Fixed income securities, bonds and structured notes 3 50.6 57.5
Measured at amortised cost:
Deposits and money market funds 99.7 84.2
Other receivables 15 4.3 2.7
Cash and cash equivalents 16 58.9 56.7
Total assets 1,311.2 1,429.8
Liabilities
Financial liabilities under investment contracts 17 1,092.3 1,224.2
Deferred income 18 145.1 142.5
Amounts due to investment contract holders 17 37.3 27.4
Other payables 19 14.1 10.6
Provisions 20 0.2 0.4
Total liabilities 1,289.0 1,405.1
Net assets 22.2 24.7
Shareholders' equity
Called up share capital 22 68.8 68.8
Other reserves 23 (48.3) (48.3)
Retained earnings 1.7 4.2
Total shareholders' equity 22.2 24.7
Consolidated Cash Flow Statement
for the year ended 30 June 2022
2022 2021
£m £m
Cash flow from operating activities
Profit before tax for the year 3.8 5.1
Adjustments for:
Depreciation 0.8 0.9
Dividends (4.6) (5.7)
receivable
Dividends received 4.6 5.7
Interest receivable (0.3) (0.4)
Interest received 0.3 0.3
Foreign exchange (gains) (2.0) (1.6)
Changes in operating assets and liabilities
(Increase) / decrease in other receivables (1.6) 2.5
Decrease / (increase) in deferred origination costs 2.6 (2.8)
Increase in deferred income 2.6 4.7
Increase in creditors 13.7 3.1
Decrease / (increase) in financial investments 123.3 (135.3)
(Decrease) / increase in financial liabilities (131.8) 149.6
Cash flow from operations 11.4 26.1
Corporation tax paid (0.1) (0.3)
Cash flow from operations after taxation 11.3 25.8
Cash flows from investing activities
Investment in intangible assets (4.2) (3.2)
Investment in property, plant and equipment (0.3) (0.6)
Proceeds from sale of investments - 0.1
Purchase of investments - (0.1)
Cash flows used in investing activities (4.5) (3.8)
Cash flows from financing activities
Dividends paid (6.1) (6.1)
Principal elements of leased liabilities (0.5) (0.4)
Cash flows used in financing activities (6.6) (6.5)
Net increase in cash and cash equivalents 0.2 15.5
Cash and cash equivalents at beginning of year 56.7 39.6
Effect of exchange rate movements 2.0 1.6
Cash and cash equivalents at year end 58.9 56.7
Notes to the consolidated financial statements
1 General Information
Hansard Global plc ("the Company") is a limited liability company,
incorporated in the Isle of Man, whose shares are publicly traded. The
principal activity of the Company is to act as the holding company of the
Hansard group of companies. The activities of the principal operating wholly
owned subsidiaries include the transaction of life assurance business and
related activities. Hansard Europe was closed to new business with effect from
30 June 2013. The principal subsidiaries of the Company are as follows:
Company
name
Incorporated Activity
Hansard International
Limited Isle of
Man Life Assurance
Hansard Worldwide
Limited The
Bahamas Life Assurance
Hansard Europe Designated Activity Company
Ireland Life Assurance
Hansard Administration Services Limited Isle of
Man Administration Services
Hansard Development Services Limited Isle of
Man Marketing and
Development Services
The registered office of the Company is 55 Athol Street, Douglas, Isle of Man,
IM99 1QL.
The Company has its primary listing on the London Stock Exchange.
1.1 Principal accounting policies
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below or, in the case of
accounting policies that relate to separately disclosed values in the primary
statements, within the relevant note to these consolidated financial
statements. These policies have been consistently applied, unless otherwise
stated.
1.2 Basis of presentation
The consolidated financial statements have been prepared in accordance with UK
Adopted International Accounting Standards ("IFRSs") (previously IFRS as
adopted by the European Union), International Financial Reporting Standards
Interpretations Committee ("IFRSIC") interpretations, and with the Isle of Man
Companies Acts 1931 to 2004. The financial statements have been prepared under
the historical cost convention as modified by the revaluation of financial
investments and financial liabilities at fair value through profit or loss.
The Group has applied all International Financial Reporting Standards adopted
by the United Kingdom and effective at 30 June 2022.
The Group's products are designated as investment rather than insurance
products under IFRS 4 'Insurance Contracts' as they do not transfer
significant insurance risk.
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting year. The estimates and associated assumptions
are based on historical experience and various other factors that are believed
to be reasonable under the circumstances. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the year in which the
estimate is revised if the revision affects only that year or in the year of
the revision and future years if the revision affects both current and future
years.
The areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated financial
statements, are disclosed in note 2.
Except where otherwise stated, the financial statements are presented in
pounds sterling, the functional currency of the Company, rounded to the
nearest one hundred thousand pounds.
The following new standards, amendments and interpretations are in issue but
not yet effective and have not been early adopted by the Group and are not
expected to have a significant impact;
· Onerous Contracts - Cost of Fulfilling a Contract (Amendments to
IAS 37) - effective from January 2022
· 2022 Annual Improvements to IFRS Standards 2018 - 2020 -
effective from January 2022
· Property, Plant and Equipment: Proceeds before Intended Use
(Amendments to IAS 16) - effective from January 2022
· Reference to the Conceptual Framework (Amendments to IFRS 3) -
effective from January 2022
· IFRS 17 Insurance Contracts - effective from January 2023
· Classification of liabilities as current or non-current
(Amendments to IAS 1) - effective from January 2023
· Amendments to IFRS 17 - effective from January 2023
· Disclosure of Accounting Policies (Amendments to IAS1 and IFRS
Practice Statement 2) - effective from January 2023
· Definition of Accounting Estimate (Amendments to IAS 8)
· Deferred Tax related Asset and Liabilities Arising from a Single
Transaction - Amendments to IAS 12 Income Taxes - effective 1 January 2023
· Sale or Contribution of Assets between an Investor and its
Associate or Joint Ventures (Amendments to FRS 10 and IAS 28)
There are no other standards, amendments or interpretations to existing
standards that are not yet effective, that would have a material impact on the
Group's reported results.
1.3 Basis of consolidation
The Group's financial statements consolidate those of the parent company and
all its subsidiaries as at 30 June 2022.
All transactions between Group companies are eliminated on consolidation,
including unrealised gains and losses on transactions between Group companies.
Amounts reported in the financial statements of subsidiaries have been
adjusted where necessary to ensure consistency with the accounting policies
adopted by the Group.
1.4 Going concern
As shown within the Business and Financial Review, the Group's capital
position is strong and well in excess of regulatory requirements. The
long-term nature of the Group's business results in considerable recurring
cash inflows arising from existing business. The Directors believe that the
Group is well placed to manage its business risks successfully.
The Directors are satisfied that the Company and the Group have adequate
resources to continue to operate as a going concern for the foreseeable future
and have prepared the consolidated financial statements on that basis.
In making this statement, the Directors have given specific consideration to
the impact on the business arising out of the Covid-19 pandemic, the
Russia-Ukraine conflict and the resulting economic conditions. They have
reviewed financial forecasts that include plausible downside scenarios such as
reduced levels of new business and higher expenses arising from increased
inflation. These show the Group continuing to generate profit over the next
12 months and that the Group has sufficient cash reserves to enable it to meet
its obligations as they fall due.
The Directors expect the acquisition of new business will continue to be
challenging in the current climate with the direct impact of the pandemic
turning towards wider economic challenges with inflation and interest rates
increasing. The impact of lower new business is not immediate to the Group's
profit and cash flows and therefore allows for longer term adjustments to
operations and the cost base. Long periods of lower new business or indeed
lower AuA would be addressed by reducing the cost base and where necessary,
the dividend paid.
The following factors are considered as supportive to the Group's resilience
to external market and economic challenges:
· The Group's business model focuses on long term savings products,
a majority of which are regular premium paying products which continue to
receive cash inflows regardless of the amount of new business sold.
· The Group earns approximately a third of its revenues from
asset-based income which is not immediately dependent on sourcing new
business.
· New business channels are geographically dispersed and therefore
less exposed to specific regional challenges such as geo-political
conflicts.
· The largest expense associated with new business is commission
expenditure which reduces directly in line with reduced sales.
· The Group has, and continues to the date of this report to have,
a strong capital position with significant levels of liquidity and cash (as
outlined in the Business and Financial Review).
· The business has demonstrated operational resilience in being
able to operate remotely from its offices without any material impact to
processing and servicing levels. Its control environment continued to
operate effectively during this time.
· The Group places its shareholder assets into conservative,
highly-liquid, highly-rated bank deposits and money market funds. These are
typically not subject to price fluctuation and protect the Group's assets
against potential market volatility.
· The Group has no borrowings.
2 Critical accounting estimates and judgements in applying
accounting policies
Estimates, assumptions and judgements are used in the application of
accounting policies in these financial statements. Critical accounting
estimates are those which involve the most complex or subjective judgements or
assessments. Estimates, assumptions and judgements are evaluated continually
and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the
circumstances. Actual outcomes may differ from assumptions and estimates made
by management.
2.1 Accounting estimates and assumptions
The principal areas in which the Group applies accounting estimates and
assumptions are and the period and method of amortisation of deferred
origination costs and deferred income. Estimates are also applied in
determining the recoverability of deferred origination costs.
2.1.1 Amortisation of deferred origination costs and deferred income
Deferred origination costs and deferred income are amortised on a
straight-line basis over the estimated life of the underlying investment
contract. Estimates are made based on recent experience.
2.1.2 Recoverability of deferred origination costs
Formal reviews to assess the recoverability of deferred origination costs on
investment contracts are carried out at each balance sheet date to determine
whether there is any indication of impairment based on the estimated future
income levels.
If, based upon a review of the remaining contracts, there is any indication of
irrecoverability or impairment, the contract's recoverable amount is
estimated. Impairment losses are reversed through the consolidated statement
of comprehensive income if there is a change in the estimates used to
determine the recoverable amount. Such losses are reversed only to the extent
that the contract's carrying amount does not exceed the carrying amount that
would have been determined, net of amortisation where applicable, if no
impairment loss had been recognised.
2.1.3 Fair value of financial investments
Where the Directors determine that there is no active market for a particular
financial instrument, fair value is assessed using valuation techniques based
on available relevant information and an appraisal of all associated risks as
detailed in Note 3.
2.2 Judgements
The primary areas in which the Group has applied judgement in applying
accounting policies are as follows:
· to determine whether a provision or contingent liability is
required in respect of any pending or threatened litigation;
· the type of management expenses that are treated as
origination costs to be deferred. Any other expenses are expensed as
incurred.
3 Financial risk management
Risk management objectives and risk policies
The Group's objective in the management of financial risk is to minimise,
where practicable, its exposure to such risk, except when necessary to support
other objectives. The Group seeks to manage risk through the operation of
unit-linked business whereby the contract holder bears the financial risk. In
addition, shareholder assets are invested in highly rated investments.
Overall responsibility for the management of the Group's exposure to risk is
vested in the Board. To support it in this role, an Enterprise Risk Management
("ERM") framework is in place comprising risk identification, risk assessment,
control and reporting processes. Additionally, the Board and the Boards of
subsidiary companies have established a number of Committees with defined
terms of reference. These are the Audit & Risk, Executive and Investment
Committees. Additional information concerning the operation of the Board
Committees is contained in the Corporate Governance section of this Annual
Report and Accounts.
The main significant financial risks to which the Group is exposed are set out
below. For each category of risk, the Group determines its risk appetite and
sets its investment, treasury and associated policies accordingly.
3.1 Market risk
This is the risk that the fair value of future cash flows of a financial
instrument will fluctuate because of changes in market prices, analysed
between price, interest rate and currency risk. The Group adopts a risk averse
approach to market risk, with a stated policy of not actively pursuing or
accepting market risk except where necessary to support other objectives.
However, the Group accepts the risk that the fall in equity or other asset
values, whether as a result of price falls or strengthening of sterling
against the currencies in which contract holder assets are denominated, will
reduce the level of annual management charge income derived from such contract
holder assets and the risk of lower future profits.
Sensitivity analysis to market risk
The Group's business is unit-linked and the direct associated market risk is
therefore borne by contract holders (although there is a secondary impact as
shareholder income is dependent upon the fair value of contract holder
assets). Other financial assets and liabilities held outside of contract
holder unitised funds primarily consist of units in money market funds, cash
and cash equivalents, and other assets and liabilities. Cash held in unitised
money market funds and at bank is valued at par and is unaffected by movements
in interest rates. Other assets and liabilities are similarly unaffected by
market movements.
As a result of these combined factors, the Group's financial assets and
liabilities held outside unitised funds are not materially subject to market
risk, and movements at the reporting date in interest rates and equity values
have an immaterial impact on the Group's profit after tax and equity. Future
revenues from annual management charges may be affected by movements in
interest rates, foreign currencies and equity values. The Group does not
control the asset selection strategy as assets are chosen by the contract
holders.
(a) Price risk
Unit linked funds are exposed to securities price risk as the investments held
are subject to prices in the future which are uncertain. The fair value of
financial assets (designated at fair value through profit or loss) exposed to
price risk at 30 June 2022 was £1,009.7m (2021: £1,148.6m). In the event
that investment income is affected by price risk then there will be an equal
and opposite impact on the value of the changes in provisions for investment
contract liabilities in the same accounting period. The impact on the profit
or loss before taxation in a given financial year is negligible.
An overall change in the market value of the unit-linked funds would affect
the annual management charges accruing to the Group since these charges, which
are typically 1% per annum, are based on the market value of contract holder
assets under administration. The approximate impact on the Group's profits and
equity of a 10% change in fund values, either as a result of price, interest
rate or currency fluctuations, is £1.7m (2021: £1.7m).
(b) Interest rate risk
Interest rate risk is the risk that the Group is exposed to lower returns or
loss as a direct or indirect result of fluctuations in the value of, or income
from, specific assets arising from changes in underlying interest rates.
The Group is primarily exposed to interest rate risk on the balances that it
holds with credit institutions and in money market funds. The Group partially
mitigates its exposure to cash flow interest rate risk by placing a proportion
of its cash holdings on longer-term, fixed-rate deposits.
Taking into account the proportion of Group funds held on longer-term,
fixed-rate deposits, a change of 1% per annum in interest rates will result in
an increase or decrease of approximately £0.7m (2021: £0.6m) in the Group's
annual investment income and equity.
A summary of the Group's liquid assets at the balance sheet date is set out in
note 3.2.
(c) Currency risk
Currency risk is the risk that the Group is exposed to higher or lower returns
as a direct or indirect result of fluctuations in the value of, or income
from, specific assets and liabilities arising from changes in underlying
exchange rates.
(c)(i) Group foreign currency exposures
The Group is exposed to currency risk on the foreign currency denominated bank
balances, contract fees receivable and other liquid assets that it holds to
the extent that they do not match liabilities in those currencies. The impact
of currency risk is minimised by regular conversion of excess foreign currency
funds to sterling. The Group does not hedge foreign currency cash flows. At
the balance sheet date the Group had exposures in the following currencies:
2022 2022 2022 2021 2021 2021
US$m €m ¥m US$m €m ¥m
Gross assets 26.3 13.9 164.3 20.8 6.3 223.7
Matching currency liabilities (24.1) (12.8) (217.6) (17.3) (5.7) (239.9)
Uncovered currency exposures 2.2 1.1 (53.3) 3.5 0.6 (16.2)
Sterling equivalent (£m) 1.8 1.0 (0.3) 2.6 0.5 (0.1)
The approximate effect of a 5% change: in the value of US dollars to sterling
is £0.1m (2021: £0.1m); in the value of the euro to sterling is less than
£0.1m (2021: less than £0.1m); and in the value of the yen to sterling is
less than £0.1m (2021: less than £0.1m).
(c)(ii) Financial investments by currency
Certain fees and commissions are earned in currencies other than sterling,
based on the value of financial investments held in those currencies from time
to time.
The sensitivity of the Group to the currency risk inherent in investments held
to cover financial liabilities under investment contracts is incorporated
within the analysis set out in (a) above.
At the balance sheet date the analysis of financial investments by currency
denomination is as follows, US dollars: 71% (2021: 68%); euro: 8% (2021: 10%);
sterling: 21% (2021: 21%); other: 1% (2021: 1%).
3.2 Credit risk
Credit risk is the risk that the Group is exposed to lower returns or loss if
another party fails to perform its financial obligations to the Group. The
Group has adopted a risk averse approach to such risk and has a stated policy
of not actively pursuing or accepting credit risk except when necessary to
support other objectives.
The clearing and custody operations for the Group's security transactions are
mainly concentrated with one broker, namely Capital International Limited, a
member of the London Stock Exchange. At 30 June 2022 and 2021, substantially
all contract holder cash and cash equivalents, balances due from investment
brokers and financial investments are placed in custody with Capital
International Limited. These operations are detailed in a formal contract that
incorporates notice periods and a full exit management plan. Delivery of
services under the contract is monitored by a dedicated relationship manager
against a documented Service Level Agreement and Key Performance Indicators,
and attested periodically by external advisors. Investment risk is borne by
the contract holder.
The Group has an exposure to credit risk in relation to its deposits with
credit institutions and its investments in unitised money market funds. To
manage these risks; deposits are made, in accordance with established policy,
with credit institutions having a short-term rating of at least F1 or P1 from
Fitch IBCA and Moody's respectively and a long-term rating of at least A or
A3. Investments in unitised money market funds are made only where such fund
is AAA rated. Additionally, maximum counterparty exposure limits are set both
at an individual subsidiary company level and on a Group-wide basis.
These assets are considered to have a high degree of credit worthiness and no
assets of a lower credit worthiness are held. The following table sets out
information about the credit quality of the Group's deposits with credit
institutions and its investments in unitised money market funds.
2022 2021
£m £m
Deposits with credit institutions and investments in unitised money market
funds
(Based on Standards & Poor's ratings)
AAA 29.9 30.1
AA- to AA+ 4.9 2.9
A- To A+ 15.4 9.1
Cash at bank 24.3 21.4
Group cash and deposits 74.5 63.5
Within cash at bank, the primary balances were invested in credit institutions
as follows: £3.9m with a rating of AA+, £10.1m with a rating of A+ and
£9.0m with a rating of A.
Financial assets held at amortised cost, as disclosed in the table above, are
impaired using an expected credit loss model. The model splits financial
assets into those which are performing, underperforming and non-performing
based on changes in credit quality since initial recognition. At initial
recognition financial assets are considered to be performing. They become
underperforming where there has been a significant increase in credit risk
since initial recognition, and non-performing when there is objective evidence
of impairment. Twelve months of expected credit losses are recognised in the
statement of comprehensive income and netted against the financial asset in
the statement of financial position for all performing financial assets, with
lifetime expected credit losses recognised for underperforming and
non-performing financial assets.
Trade receivables are designated as having no significant financing
component. The Group applies the IFRS 9 simplified approach to measuring
expected credit losses for trade receivables by using a lifetime expected loss
allowance.
Expected credit losses are based on the historic levels of loss experienced
for the relevant financial assets, with due consideration given to forward
looking information. The Group expected credit loss charged in the year was
£1.4m (2021: £0.5m) with the balance at 30 June 2022 being £1.8m. This
amount relates to balances likely to be irrecoverable from funds in the
process of liquidation. This does not affect the expected loss position of
other financial assets.
There have been no changes in the assets in the year ended 30 June 2022
attributable to changes in credit risk (30 June 2021: nil).
At the balance sheet date, an analysis of the Group's cash and deposit
balances was as follows:
2022 2021
£m £m
Longer term deposits with credit institutions 15.6 6.8
Cash and cash equivalents 58.9 56.7
74.5 63.5
3.3 Liquidity risk
Liquidity risk is the risk that the Group, though solvent, does not have
sufficient financial resources to enable it to meet its obligations as they
fall due, or can only secure them at excessive cost. The Group is averse to
liquidity risk and seeks to minimise this risk by not actively pursuing it
except where necessary to support other objectives.
The Group's objective is to ensure that it has sufficient liquidity over
short-term (up to one year) and medium-term time horizons to meet the needs of
the business. This includes liquidity to cover, amongst other things, new
business costs, planned strategic activities, servicing of equity capital as
well as working capital to fund day-to-day cash flow requirements.
Liquidity risk is principally managed in the following ways:
· Assets of a suitable marketability are held to meet contract
holder liabilities as they fall due.
· Forecasts are prepared regularly to predict required liquidity
levels over both the short-term and medium-term.
The Group's exposure to liquidity risk is considered to be low since it
maintains a high level of liquid assets to meet its liabilities.
3.3.1 Undiscounted contractual maturity analysis
Set out below is a summary of the undiscounted contractual maturity profile of
the Group's assets.
2022 2021
£m £m
Maturity within 1 year
Deposits and money market funds 74.5 63.5
Other assets 4.3 4.2
78.8 67.7
Maturity from 1 to 5 years
Other assets - -
- -
Assets with maturity values 78.8 67.7
Other shareholder assets (no defined maturity profile) 140.1 135.4
Shareholder assets 218.9 203.1
Gross assets held to cover financial liabilities under investment contracts 1,092.3 1,226.7
Total assets 1,311.2 1,429.8
There is no significant difference between the value of the Group's assets on
an undiscounted basis and the balance sheet values.
Assets held to cover financial liabilities under investment contracts are
deemed to have no fixed maturity since the corresponding unit-linked
liabilities are repayable and transferable on demand. In certain circumstances
the contractual maturities of a portion of the assets may be longer than one
year, but the majority of assets held within the unit-linked funds are highly
liquid. The Group actively monitors fund liquidity.
Set out below is a summary of the undiscounted contractual maturity profile of
the Group's liabilities.
2022 2021
£m £m
Maturity within 1 year
Amounts due to investment contract holders 37.3 27.4
Other payables 12.1 8.4
Provisions 0.2 0.4
49.6 36.2
Maturity from 1 to 5 years
Other payables 2.0 2.6
2.0 2.6
Liabilities with maturity values 51.6 38.8
Other shareholder liabilities (no defined maturity profile) 145.1 142.5
Shareholder liabilities 196.7 181.3
Financial liabilities under investment contracts 1,092.3 1,224.2
Total liabilities 1,289.0 1,405.5
Any difference between the total liabilities in the above table and the total
liabilities per the consolidated balance sheet represents the impact of
discounting liabilities with a maturity profile of more than one year.
3.4 Insurance risk
Insurance risk is the risk of loss arising from actual experience being
different than that assumed when an insurance product was designed and priced.
For the Group, the key insurance risks are lapse risk, expense risk and
mortality risk. However, the size of insurance risk is not deemed to be
materially significant. From an accounting perspective all contracts have been
classified as investment contracts.
3.4.1 Lapse risk
A key risk for investment contracts is policyholder behaviour risk - in
particular the risk that contracts are surrendered or significant cash
withdrawals are made before sufficient fees have been collected to cover
up-front commissions paid by the Group. The risk is mitigated by charging
penalties on the early surrender of contracts.
3.5 Classification and subsequent measurement of financial assets and
liabilities
The Group recognises deposits with financial institutions and loans and
borrowings on the date on which they are originated. All other financial
instruments are recognised on the trade date, which is the date on which the
Group becomes a part to the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair value
plus, for a financial asset or financial liability not measured at 'fair value
through profit and loss' ("FVTPL"), transaction costs that are directly
attributable to its acquisition or issue.
On initial recognition, a financial asset is classified as measured at
amortised cost, 'fair value through other comprehensive income' ("FVOCI") or
FVTPL.
Financial assets are not reclassified subsequent to their initial recognition.
A financial asset is measured at amortised cost if it meets both of the
following conditions and is not designated as at FVTPL:
· It is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
· Its contractual terms give rise on specified dates to cash flows
that are solely payments of principal and interest.
A financial asset is measured at FVOCI if it meets both of the following
conditions and is not designated as at FVTPL:
· It is held within a business model whose objective is achieved by
both collecting contractual cash flows and selling financial assets; and
· Its contractual terms give rise on specified dates to cash flows
that are solely payments of principal and interest.
All financial assets not classified as measured at amortised cost or FVOCI as
described above are measured at FVTPL. The classification of each financial
asset and liability is commented on within each respective financial statement
note. As at 30 June 2022 and 30 June 2021, only financial assets measured at
amortised cost and FVTPL are held.
The subsequent measurement of each class of financial assets is defined in the
below table:
Class of asset Subsequent measurement
Financial assets at FVTPL Measured at fair value. Net gains and losses, including any interest or
dividend income and foreign exchange gains and losses, are recognised in
profit or loss.
Financial assets at amortised cost Measured at amortised cost using the effective interest method. Interest
income, foreign exchange gains and losses and impairment are recognised in
profit or loss. Any gain or loss on derecognition is also recognised in profit
or loss.
On initial recognition, a financial liability is designated as amortised cost
or FVTPL. The criteria for classification and subsequent measurement mirrors
that of the financial assets, albeit the classification of 'FVOCI' does not
exist for financial liabilities. Therefore, any liabilities which do not meet
the amortised cost classification criteria, are designated as FVTPL.
3.6 Fair value of financial assets and liabilities
The Group closely monitors the valuation of assets in markets that have become
less liquid. Determining whether a market is active requires the exercise of
judgement and is determined based upon the facts and circumstances of the
market for the instrument being measured. Where the Directors determine that
there is no active market for a particular financial instrument, for example
where a particular collective investment scheme is suspended from trading,
fair value is assessed using valuation techniques based on available,
relevant, information and an appraisal of all associated risks. When a
collective investment scheme recommences regular trading, the value would be
transferred back to Level 1. This process requires the exercise of significant
judgement on the part of Directors.
Due to the linked nature of the contracts administered by the Group's
insurance undertakings, any change in the value of financial assets held to
cover financial liabilities under those contracts will result in an equal and
opposite change in the value of contract liabilities. The separate effect on
financial assets and financial liabilities is included in investment income
and investment contract benefits, respectively, in the consolidated statement
of comprehensive income.
IFRS 13 requires the Group to classify fair value measurements into a fair
value hierarchy by reference to the observability and significance of the
inputs used in measuring that fair value. The hierarchy is as follows:
· Level 1: fair value is determined using quoted prices
(unadjusted) in active markets for identical assets.
· Level 2: fair value is determined using inputs other than quoted
prices included within Level 1 that are observable for the asset either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
· Level 3: fair value is determined using inputs for the asset that
are not based on observable market data (unobservable inputs).
The following table analyses the Group's financial assets and liabilities at
fair value through profit or loss, at 30 June 2022:
Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or loss £m £m £m £m
Equity securities 55.7 - - 55.7
Collective investment schemes 892.6 4.0 6.8 903.4
Fixed income securities, bonds and structured notes - 6.8 43.8 50.6
Total financial assets at fair value through profit or loss
948.3 10.8 50.6 1,009.7
All other financial assets and liabilities are designated as held at amortised
cost which approximates to fair value.
During the year ended 30 June 2022, £4.0m of collective investment scheme
investments were transferred from Level 1 to Level 2 following a review of
their pricing frequency. A further £2.1m of similar assets were
reclassified from Level 1 to Level 3 as a result of the same classification
review, reflecting that the value of these assets are not based on observable
market data. £43.8m of structured notes were transferred from Level 2 to
Level 3 during the year. This move was a reflection of the underlying market
volatility in that asset class experienced in the latter part of the financial
year and the resulting impact on the observable and unobservable inputs used
in the valuation methodologies for this type of security.
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial liabilities at fair value through profit or loss
- 1,092.3 - 1,092.3
Financial liabilities at fair value through profit or loss are classified as
level 2 on the basis that they relate to policies investing in financial
assets at fair value through profit and loss.
The following tables analyse the Group's financial assets and liabilities at
fair value through profit or loss, at 30 June 2021:
Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or loss £m £m £m £m
Equity securities 58.0 - - 58.0
Collective investment schemes 1,026.1 - 7.0 1,033.1
Fixed income securities, bonds and structured notes - 52.3 5.2 57.5
Total financial assets at fair value through profit or loss
1,084.1 52.3 12.2 1,148.6
During the year ended 30 June 2021, £52.3m of fixed income securities, bonds
and structured notes were transferred from Level 1 to Level 2 following a
review of their classification. A further £5.2m of similar assets were
reclassified from Level 1 to Level 3 as a result of the same classification
review, reflecting that the value of these assets are not based on observable
market data.
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial liabilities at fair value through profit or loss - 1,224.2 - 1,224.2
Valuation techniques and significant unobservable inputs
The following tables show the valuation techniques used in measuring Level 2
and Level 3 fair values for financial instruments in the statement of
financial position, as well as the significant unobservable inputs used.
Type Valuation technique Significant unobservable input Sensitivity to changes in unobservable inputs
Suspended assets £6.8m (2021: £7m) Latest available information including or such as net asset values (NAV) or Discount factor and NAV If the NAV was higher/lower, the fair value would be higher/lower.
other communication received
If the discount factor was higher/lower, the fair value would be lower/higher.
Bonds and structured notes Market comparison/ discounted cash flow: The fair value is estimated Level 2: Not applicable. Level 2: Not applicable.
considering:
Level 2: £6.8m (2021: £52.3m)
(i) current or recent quoted prices for identical securities in markets that
Level 3: £43.8m (2021: £5.2m) are not active; and Level 3: Level 3:
(ii) a net present value calculated using discount rates which are determined Underlying volatility Significant increases or decreases in this input in isolation would result in
with reference to observable market transactions in instruments with
higher or lower fair value
substantially the same terms and characteristics including credit quality, the
remaining term to repayments of the principal and the currency in which the
payments are made.
Significant unobservable inputs are developed as follows:
Underlying Volatility
In the absence of implied volatility until the maturity and moneyness of the
instrument, the best estimate is the use of extrapolated implied volatility or
historical volatility. The inputs used are derived against other independent
valuation sources and the reasonableness of the assumptions is evaluated as
part of the process.
The reconciliation between opening and closing balances of Level 3 assets are
presented in the table below:
2022 2021
£m £m
Opening balance 12.2 16.6
Unrealised losses (1.5) (1.7)
Transfers in to level 3 46.3 5.4
Transfers out of level 3 (5.2) (0.3)
Purchases, sales, issues and settlements (1.2) (7.8)
Closing balance 50.6 12.2
4 Segmental information
Disclosure of operating segments in these financial statements is consistent
with reports provided to the Chief Operating Decision Maker ("CODM") which, in
the case of the Group, has been identified as the Executive Committee of
Hansard Global plc.
In the opinion of the CODM, the Group operates in a single reportable segment,
that of the distribution and servicing of long-term investment products. New
business development, distribution and associated activities undertaken by its
Irish subsidiary, Hansard Europe Designated Activity Company, ceased with
effect from 30 June 2013. All other activities of the Group are continuing.
The Group's Executive Committee uses two principal measures when appraising
the performance of the business: Net Issued Compensation Credit ("NICC")
(weighted where appropriate by product line) and expenses. NICC is the amount
of basic initial commission payable to intermediaries for business sold in a
period and is calculated on each piece of new business. It excludes override
commission paid to intermediaries over and above the basic level of
commission.
The following table analyses NICC geographically and reconciles NICC to direct
origination costs incurred during the year as set out in the Business and
Operating Review section of this Annual Report and Accounts.
2022 2021
£m £m
Middle East and Africa 2.9 4.7
Latin America 2.9 3.8
Rest of World 1.0 1.4
Far East 0.7 0.8
Net Issued Compensation Credit 7.5 10.7
Other commission costs paid to third parties 3.6 5.3
Enhanced unit allocations 1.2 1.7
Direct origination costs incurred during the year 12.3 17.7
Revenues and expenses allocated to geographical locations contained in
sections 4.1 to 4.4 below reflect the revenues and expenses generated in or
incurred by the legal entities in those locations.
4.1 Geographical analysis of fees and commissions by origin
2022 2021
£m £m
Isle of Man 45.7 46.8
Republic of Ireland 2.5 3.0
The Bahamas* 0.6 0.7
48.8 50.5
* Hansard Worldwide, which is based in the Bahamas, fully reinsures its
business to Hansard International. All external fees and commissions for
Hansard Worldwide are therefore presented within the Isle of Man category.
These amounted to £2.0m in 2022 and £0.8m in 2021. The fees shown in the
table above in respect of Hansard Worldwide represent fees received from
Hansard International.
4.2 Geographical analysis of profit before taxation
2022 2021
£m £m
Isle of Man 4.2 5.5
Republic of Ireland (0.9) (1.0)
The Bahamas 0.5 0.6
3.8 5.1
4.3 Geographical analysis of gross assets
2022 2021
£m £m
Isle of Man* 1,216.5 1,314.1
Republic of Ireland 92.5 114.0
The Bahamas 2.2 1.7
1,311.2 1,429.8
* Includes assets held in the Isle of Man in connection with policies written
in The Bahamas. As at 30 June 2022 these amounted to £134.9m (30 June 2021:
£111.6m).
4.4 Geographical analysis of gross liabilities
2022 2021
£m £m
Isle of Man 1,074.8 1,194.5
Republic of Ireland 77.6 98.2
The Bahamas 136.6 112.4
1,289.0 1,405.1
5 Fees and commissions
Fees are charged to the contract holders of investment contracts for contract
administration services, investment management services, payment of benefits
and other services related to the administration of investment contracts. Fees
may be chargeable on either a fixed fee basis, a fee per transaction or as a
percentage of assets under administration. Fees are recognised as revenue as
the services are provided. Initial fees that exceed the level of recurring
fees and relate to the future provision of services are deferred in the
balance sheet and amortised on a straight-line basis over the life of the
relevant contract. These fees are accounted for on the issue of a contract and
on receipt of incremental premiums on existing single premium contracts.
Regular fees charged to contracts are recognised on a straight-line basis over
the period in which the service is provided. Transactional fees are recorded
when the required action is complete.
Commissions receivable arise principally from fund houses with which
investments are held. Commissions are recognised on an accruals basis in
accordance with the relevant agreement.
2022 2021
£m £m
Contract fee income 30.1 32.2
Fund management charges 13.9 13.6
Commissions receivable 4.8 4.7
48.8 50.5
Fund management charges and commissions receivable (38% of the total above;
2021: 36%) are a function of the level of assets under administration.
6 Investment income
Investment income comprises dividends, interest and other income receivable,
realised and unrealised gains and losses on investments. Movements are
recognised in the consolidated statement of comprehensive income in the period
in which they arise. Dividends are accrued on the date notified. Interest is
accounted for on a time proportion basis using the effective interest method.
2022 2021
£m £m
Interest income - 0.1
Dividend income 4.6 5.7
Gains on realisation of investments 63.4 9.8
Movement in unrealised (losses)/gains (171.5) 147.7
(103.5) 163.3
7 Origination costs
Origination costs include commissions, intermediary incentives and other
distribution-related expenditure. Origination costs which vary with, and are
directly related to, securing new contracts and incremental premiums on
existing single premium contracts are deferred to the extent that they are
recoverable out of future net income from the relevant contract. Deferred
origination costs are amortised on a straight-line basis over the life of the
relevant contracts. Typical terms range between 6 years and 16 years.
Origination costs that do not meet the criteria for deferral are expensed as
incurred.
2022 2021
£m £m
Amortisation of deferred origination costs 13.9 14.1
Other origination costs 2.3 2.3
16.2 16.4
8 Administrative and other expenses
Included in administrative and other expenses are the following:
2022 2021
£m £m
Auditors' remuneration:
- Fees payable for the audit of the
Company's annual accounts 0.2 0.1
- Fees payable for the audit of the Company's subsidiaries
pursuant to legislation 0.3 0.3
- Other services provided to the Group - -
Employee costs (see note 9) 11.0 11.4
Directors' fees 0.4 0.4
Fund management fees 5.7 4.9
Renewal and other commission 0.7 0.3
Professional and other fees 3.5 3.8
Litigation fees and settlements 1.1 1.9
Credit loss allowance 1.4 0.5
Licences and maintenance fees 2.4 2.0
Insurance costs 0.9 1.0
Depreciation of property, plant and equipment 0.8 0.9
Communications 0.2 0.4
9 Employee costs
The Group provides a range of benefits to employees, including annual bonus
arrangements, paid holiday arrangements and defined contribution pension
plans.
Short term benefits, including holiday pay and other similar non-monetary
benefits, are recognised as an expense in the period in which the service is
received.
The Group pays fixed pension contributions on behalf of its employees (defined
contribution plans). Once the contributions have been paid the Group has no
further payment obligations. The contributions are recognised as an expense
when they are due. Amounts not paid are shown in accruals in the balance
sheet. The assets of the plan are held separately from the Group in
independently administered funds.
The Group operates an annual bonus plan for employees. An expense is
recognised in the consolidated statement of comprehensive income when the
Group has a legal or constructive obligation to make payments under the plan
as a result of past events and a reliable estimate of the obligation can be
made.
9.1 The aggregate remuneration in respect of employees
(including sales staff and executive Directors) was as follows:
2022 2021
£m £m
Wages and salaries 10.2 10.6
Social security costs 0.9 1.1
Contributions to pension plans 0.9 0.9
12.0 12.6
Total salary and other staff costs for the year are incorporated within the
following classifications:
2022 2021
£m £m
Administrative and other expenses 10.9 11.3
Origination costs 1.1 1.3
12.0 12.6
The above information includes Directors' remuneration (excluding
non-executive directors' fees).
9.2 The average number of employees during the year
was as follows:
2022 2021
No. No.
Administration 136 133
Distribution and marketing 15 16
IT development 38 42
189 191
10 Taxation
Taxation is based on profits and income for the period as determined with
reference to the relevant tax legislation in the countries in which the
Company and its subsidiaries operate. Tax payable is calculated using tax
rates that have been enacted or substantively enacted by the balance sheet
date. Tax is recognised in the consolidated statement of comprehensive income
except to the extent that it relates to items recognised in equity. Tax on
items relating to equity is recognised in equity.
The corporation tax expense for the Group for 2022 was £0.2m (2021:
£0.2m). Corporation tax is charged on any profits arising at the following
rates depending on location of the company or branch:
Isle of Man 0% (2021: 0%)
Republic of Ireland 12.5% (2021: 12.5%)
Japan branch 23.4% (2021: 23.4%)
Labuan 24% (2021: 24%)
The Bahamas 0% (2021: 0%)
2022 2021
£m £m
Current year tax provisions 0.2 0.2
Adjustment to prior year tax provisions - -
0.2 0.2
No deferred tax asset is currently being recorded in relation to losses
arising in Hansard Europe.
There is no material difference between the current tax charge in the
consolidated statement of comprehensive income and the current tax charge that
would result from applying standard rates of tax to the profit before tax.
11 Earnings per share
2022 2021
Profit after tax (£m) 3.6 4.9
Weighted average number of shares in issue (millions) 137.6 137.6
Basic and diluted earnings per share in pence 2.6 3.6
The Directors believe that there is no material difference between the
weighted average number of shares in issue for the purposes of calculating
either basic or diluted earnings per share. Earnings under either measure is
2.6p per share (2021: 3.6p).
12 Dividends
Interim dividends payable to shareholders are recognised in the year in which
the dividends are paid. Final dividends payable are recognised as liabilities
when approved by the shareholders at the Annual General Meeting.
The following dividends have been paid by the Group during the year:
Per share Total Per share Total
2022 2022 2021 2021
p £m p £m
Final dividend in respect of previous
financial year 2.65 3.6 2.65 3.6
Interim dividend in respect of current
financial year 1.80 2.5 1.80 2.5
4.45 6.1 4.45 6.1
The Board has resolved to pay a final dividend of 2.65p per share on 10
November 2022, subject to approval at the Annual General Meeting, based on
shareholders on the register on 30 September 2022.
13 Intangible assets and property, plant and equipment
Intangible Assets
The historical cost of computer software is the purchase cost and the direct
cost of internal development. Computer software is recognised as an intangible
asset.
2022 2021
£m £m
Intangible assets 13.4 9.2
Amortisation is calculated so as to amortise the cost of intangible assets,
less their estimated residual values, on a straight-line basis over the
expected useful economic lives of the assets concerned and is included in
administration and other expenses in the consolidated statement of
comprehensive income.
The carrying amount, residual value and useful life of the Group's computer
software is reviewed annually to determine whether there is any indication of
impairment, or a change in residual value or expected useful life. If there is
any indication of impairment, the asset's carrying value is revised.
The economic lives used for this purpose are:
Computer software 3 to 15 years
The increase in intangible assets relates to capitalised costs associated with
the development of a replacement policy administration system. This
development is expected to be completed and put into use during 2023, at which
point amortisation will commence over an expected life of 15 years.
The cost of computer software at 30 June 2022 was £14.1m (2021: £9.9m), with
a net book value of £13.4m (2021: £9.2m). Accumulated amortisation at 30
June 2022 was £0.7m (2021: £0.7m). All amortisation currently relates to
externally generated costs.
The cost of computer software includes £7.5m of externally generated costs
(2021: £5.7m) and £6.6m of internally generated costs (2021: £4.2m).
Property, plant and equipment
Property, plant and equipment includes both tangible fixed assets and 'right
of use assets' recognised in accordance with IFRS 16 'Leases'.
2022 2021
£m £m
Property, plant and equipment 0.8 0.9
Right of use assets 1.9 2.4
2.7 3.3
Property, plant and equipment is stated at historical cost less depreciation
and any impairment. The historical cost of property, plant and equipment is
the purchase cost, together with any incremental costs directly attributable
to the acquisition.
Depreciation is calculated so as to amortise the cost of tangible assets, less
their estimated residual values, on a straight-line basis over the expected
useful economic lives of the assets concerned and is included in
administration and other expenses in the consolidated statement of
comprehensive income.
The carrying amount, residual value and useful life of the Group's plant and
equipment is reviewed annually to determine whether there is any indication of
impairment, or a change in residual value or expected useful life. If there is
any indication of impairment, the asset's carrying value is revised.
The economic lives used for this purpose are:
Freehold property 50 years
Computer equipment 3 to 5 years
Fixtures & fittings 4 years
Right of use assets are depreciated over the useful life of the lease.
The cost of property, plant and equipment at 30 June 2022 was £10.7m (2021:
£10.6m), with a net book value of £0.8m (2021: £0.9m).
Accumulated depreciation at 30 June 2022 was £9.9m (2021: £9.7m). The
depreciation charge for the year ending 30 June 2022 was £0.2m (2021:
£0.2m).
IFRS 16 - Leases
The right-of-use assets for property leases are measured at an amount equal to
the lease liability adjusted by the amount of any prepaid or accrued lease
payments recognised immediately before the date of initial application, being
the commencement date. The liabilities are measured at the present value of
the remaining lease payments, discounted using an incremental borrowing rate.
The weighted average incremental borrowing rate applied to the lease
liabilities on 30 June 2021 was 4%.
The Group leases various offices around the world to service its clients and
operations. Rental contracts are typically made for periods of 1 to 10 years,
incorporating break clauses where applicable. Lease terms are negotiated on an
individual basis and contain differing terms and conditions. The lease
agreements do not impose any covenants.
In determining the lease terms utilised in assessing the position under IFRS
16, management considers break clauses in leases, where appropriate. Potential
future outflows exist on one lease beyond the break clause of £1.6m. These
have not been included in the lease liability but would be payable in the
event that the relevant lease clauses were not exercised. The current position
assumes that these break clauses will be exercised. This is a judgement,
reviewed each year, based upon the length of time until the exercise date of
those leases (8 years) and the uncertainty around the office space needs of
the Group at that future time.
Leases (other than those classified as short-term leases or leases of
low-value assets) are recognised as a right-of-use asset and a corresponding
liability at the date at which the leased asset is available for use by the
Group. Each lease payment is allocated between the liability and a finance
cost. The finance cost is charged over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability
for each period. The right-of-use asset is depreciated over the shorter of the
asset's useful life and the lease term on a straight-line basis.
Short-term leases (those with a lease term or useful life of less than 12
months at inception) and leases of low value assets (comprising IT-equipment
and small items of office furniture) are recognised on a straight-line basis
as an expense in administration and other expenses in the consolidated
statement of comprehensive income.
During the year to 30 June 2022, the Group entered into extensions to existing
leases and recognised these under IFRS 16 accordingly. The weighted average
borrowing rate applied to the lease liabilities at 30 June 2022 was 4%.
The recognition of the right-of-use asset represents an increase in the
property, plant and equipment figure of £1.9m (30 June 2021: £2.4m). Lease
liabilities relating to the right-of-use asset are included within other
payables. The interest recognised on the lease liabilities in respect of the
right of use asset was £0.1m (30 June 2021: less than £0.1m).
The Group has entered into a sub-lease for part of a building that is reported
as a right of use asset and has classified the sub-lease as an operating
lease, as it does not transfer substantially all of the risks and rewards
incidental to the ownership of the sub-let asset. During the year ending 30
June 2022, the Group recognised rental income of less than £0.1m (2021: less
than £0.1m).
2022 2021
£m £m
Right of use asset recognised 1 July 2.4 3.0
Additions during the period 0.1 0.1
Depreciation (0.6) (0.7)
Net book value of right of use asset as at 30 June 1.9 2.4
Lease liability recognised 1 July 2.7 3.0
Additions during the period 0.1 0.1
Lease payments made during the period (0.5) (0.4)
Lease liability recognised as at 30 June 2.3 2.7
Of which are:
Current lease liabilities 0.3 0.5
Non-current lease liabilities 2.0 2.2
14 Deferred origination costs
Amortisation of deferred origination costs is charged within the origination
costs line in the consolidated statement of comprehensive income.
Formal reviews to assess the recoverability of deferred origination costs on
investment contracts are carried out at each balance sheet date to determine
whether there is any indication of impairment. If there is any indication of
irrecoverability or impairment, the asset's recoverable amount is estimated.
Impairment losses are reversed through the consolidated statement of
comprehensive income if there is a change in the estimates used to determine
the recoverable amount. Such losses are reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that would have
been determined, net of amortisation where applicable, if no impairment loss
had been recognised.
The amount of deferred origination costs amortised each year is determined by
the estimated lives of the Group's products. Reducing the estimated life of
the total portfolio by 1 year would increase the annual amortisation for the
next financial year by £1.8m. Increasing the estimated life of the total
portfolio by 1 year would reduce the annual amortisation for the next
financial year by £1.4m. Offsetting movements would also arise in deferred
income as outlined in Note18.
The movement in value over the financial year is summarised below.
2022 2021
£m £m
At beginning of financial year 125.1 122.3
Origination costs incurred and deferred during the year 11.3 16.9
Origination costs amortised during the year (13.9) (14.1)
122.5 125.1
2022 2021
Carrying value £m £m
Expected to be amortised within one year 12.2 11.8
Expected to be amortised after one year 110.3 113.3
122.5 125.1
15 Other receivables
Other receivables are initially recognised at fair value and subsequently
measured at amortised cost, less any provision for impairment.
2022 2021
£m £m
Commission receivable 1.2 1.4
Other debtors 1.9 0.1
Prepayments 1.2 1.2
4.3 2.7
Estimated to be settled within 12 months 4.3 2.7
Estimated to be settled after 12 months - -
4.3 2.7
Due to the short-term nature of these assets the carrying value is considered
to reflect fair value.
16 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with
banks, and other short-term highly liquid investments with a minimal cost to
be converted to cash, typically with original maturities of three months or
less, net of short-term overdraft positions where a right of set-off exists.
In the below table, Money market funds includes all immediately available
cash, other than specific short term deposits.
2022 2021
£m £m
Money market funds 54.2 51.4
Short-term deposits with credit institutions 4.7 5.3
58.9 56.7
The increase in cash and cash equivalents is as a result of the Group changing
its accounting policy with regards to the recognition of cash and cash
equivalents to better present its financial position. Cash and cash
equivalents are now recognised on receipt prior to investment to contract
holder funds. There is an equal increase recorded within contract holder
amounts payable. This gross presentation presents a clearer and more relevant
position of cash received by the Group and amounts repayable should funds not
be accepted.
In the current year this change of policy has resulted in the recognition of
an additional amount of cash of £6.6m. The prior period figures have not been
adjusted, however if presented on the same basis the amount of £7.8m would
have been recognised. The recognition of this cash is matched by an equivalent
increase in amounts due to investment contract holders and has no impact to
the consolidated statement of comprehensive income.
17 Financial liabilities under investment contracts
17.1 Investment contract liabilities, premiums and benefits paid
17.1.1 Investment contract liabilities
Investment contracts consist of unit-linked contracts written through
subsidiary companies in the Group. Unit-linked liabilities are measured at
fair value by reference to the underlying net asset value of the Group's
unitised investment funds, determined on a bid basis, at the balance sheet
date.
The decision by the Group to designate its unit-linked liabilities at fair
value through profit or loss is to eliminate a measurement inconsistency that
would otherwise arise from measuring the investments at FVTPL and the contract
liabilities at amortised cost.
17.1.2 Investment contract premiums
Investment contract premiums are not included in the consolidated statement of
comprehensive income but are reported as deposits to investment contracts and
are included in financial liabilities in the balance sheet. On existing
business, a liability is recognised at the point the premium falls due. The
liability for premiums received on new business is deemed to commence at the
acceptance of risk.
17.1.3 Benefits paid
Withdrawals from policy contracts and other benefits paid are not included in
the consolidated statement of comprehensive income but are deducted from
financial liabilities under investment contracts in the balance sheet.
Benefits are deducted from financial liabilities and transferred to amounts
due to investment contract holders on the basis of notifications received,
when the benefit falls due for payment or, on the earlier of the date when
paid or when the contract ceases to be included within those liabilities.
17.2 Movement in financial liabilities under investment contracts
The following table summarises the movement in liabilities under investment
contracts during the year:
2022 2021
£m £m
Deposits to investment contracts 130.0 148.8
Withdrawals from contracts and charges (158.4) (167.2)
Change in provisions for investment contract liabilities (103.5) 162.1
Movement in year (131.9) 143.7
At beginning of year 1,224.2 1,080.5
1,092.3 1,224.2
2022 2021
£m £m
Contractually expected to be settled within 12 months 32.3 40.2
Contractually expected to be settled after 12 months 1,060.0 1,184.0
1,092.3 1,224.2
The change in provisions for investment contract liabilities includes dividend
and interest income and net realised and unrealised gains and losses on
financial investments held to cover financial liabilities. Dividend income,
interest income and gains and losses are accounted for in accordance with note
6.
17.3 Investments held to cover liabilities under investment contracts
The Group classifies its financial assets into the following categories:
financial investments and trade receivables. Financial investments consist of
units in collective investment schemes, equity securities, fixed income
securities and deposits with credit institutions. Collective investment
schemes, equity securities and fixed income securities are designated at fair
value through profit or loss. Deposits with credit institutions are designated
at amortised cost.
The decision by the Group to designate its financial investments at fair value
through profit or loss reflects the fact that the investment portfolio is not
held in order to collect contractual cash flows.
The Group recognises purchases and sales of investments on trade date.
Investment transaction costs are written off in administration expenses as
incurred.
All gains and losses derived from financial investments, realised or
unrealised, are recognised within investment income in the consolidated
statement of comprehensive income in the period in which they arise.
The value of financial assets at fair value through profit or loss that are
traded in active markets (such as trading securities) is based on quoted
market prices at the balance sheet date. The quoted market price for financial
assets held by the Group is the current bid price. Investments in funds are
valued at the latest available net asset valuation provided by the
administrators or managers of the funds and companies, unless the Directors
are aware of good reasons why such valuations would not be the most
appropriate or indicative of fair value. Where necessary, the Group uses other
valuation methods to arrive at the stated fair value of its financial assets,
such as recent arms' length transactions or reference to similar listed
investments.
Loans and receivables are financial assets with fixed or determinable payments
that are not quoted on an active market. Loans and receivables consist,
primarily, of contract fees receivable, long-term cash deposits (i.e. with an
original maturity duration in excess of three months) and cash and cash
equivalents.
The following investments, cash and cash equivalents, other assets and
liabilities are held to cover financial liabilities under investment
contracts. They are included within the relevant headings on the consolidated
balance sheet.
2022 2021
£m £m
Equity securities 55.7 58.0
Investments in collective investment schemes 903.4 1,033.1
Fixed income securities, bonds and structured notes 50.6 57.5
Deposits and money market funds 84.4 78.1
Total assets 1,094.1 1,226.7
Other payables (1.8) (2.5)
Financial investments held to cover financial liabilities 1,092.3 1,224.2
The other receivables and other payables fair value approximates amortised
cost.
17.4 Amounts due to investment contract holders
Where financial liabilities under investment contracts mature or are redeemed
by contact holders, such amounts payable are recorded as amounts due to
investment contract holders.
The amount due to investment contract holders has increased in the current
year as a result of a change of accounting policy in respect of cash as
detailed in note 16.
18 Deferred income
Fees charged for services related to the management of investment contracts
are recognised as revenue as the services are provided. Initial fees which
exceed the level of recurring fees and relate to the future provision of
services are deferred. These are amortised over the anticipated period in
which services will be provided. The recognition of balances in the deferred
income reserve is based on actuarial assumptions regarding the estimated life
of each policy. These actuarial assumptions are complex in nature and are
subject to estimation uncertainty. The actuarial assumptions are reviewed
regularly by the Appointed Actuary.
The amount of deferred income amortised each year is determined by the
estimated lives of the Group's products. Reducing the estimated life of the
total portfolio by 1 year would increase the annual amortisation for the next
financial year by £2.3m. Increasing the estimated life of the total portfolio
by 1 year would reduce the annual amortisation for the next financial year by
£1.7m. Offsetting movements would also arise in deferred income as outlined
in Note14.
The movement in value of deferred income over the financial year is summarised
below.
2022 2021
£m £m
At beginning of financial year 142.5 137.8
Income received and deferred during the year 19.2 21.4
Income amortised and recognised in contract fees during the year (16.6) (16.7)
145.1 142.5
2022 2021
Carrying value £m £m
Expected to be amortised within one year 14.8 13.6
Expected to be amortised after one year 130.3 128.9
145.1 142.5
19 Other payables
Other payables are initially recognised at fair value and subsequently
measured at amortised cost. They are recognised at the point where service is
received but payment is due after the balance sheet date.
2022 2021
£m £m
Commission payable 2.0 1.7
Other creditors and accruals 9.8 6.2
Lease liabilities 2.3 2.7
14.1 10.6
20 Provisions
Provisions represent amounts to settle a number of the claims referred to in
Note 26 'Contingent Liabilities' where it is economically beneficial to do so.
Such provisions are calculated where there is an established pattern of
settlement for that grouping of claims. The following table reflects the
movement in the provision during the period under review.
2022 2021
£m £m
Settlement provision as at 1 July 0.4 0.1
Additional provisions made in the period - 0.5
Released from the provision for settlements (0.2) (0.2)
Settlement provision as at 30 June 0.2 0.4
Further information outlined within IAS 37.85 is not disclosed on the basis
that it may prejudice the Company's position.
With the exception of the lease liabilities shown in note 13, and the
provisions referred to above, all other payable balances, including amounts
due to contract holders, are deemed to be current. Due to the short-term
nature of these payables the carrying value is considered to reflect fair
value.
21 Capital management
It is the Group's policy to maintain a strong capital base in order to:
· satisfy the requirements of its contract holders, creditors and
regulators;
· maintain financial strength to support new business growth and
create shareholder value;
· match the profile of its assets and liabilities, taking account
of the risks inherent in the business and;
· generate operating cash flows to meet dividend requirements.
Within the Group each subsidiary company manages its own capital. Capital
generated in excess of planned requirements is returned to the Company by way
of dividends. Group capital requirements are monitored by the Board.
The Company monitors capital on two bases:
· the total shareholder's equity, as per the balance sheet
· the capital requirement of the relevant supervisory bodies, where
subsidiaries are regulated.
The Group's policy is for each company to hold the higher
of:
· the Company's internal assessment of the capital required; or
· the capital requirement of the relevant supervisory body, where
applicable.
There has been no material change in the Group's management of capital during
the period. The Group continued to perform additional modelling around risks
arising from the Covid-19 pandemic and subsequent economic challenges and to
give consideration to emerging market practice and regulatory expectations
around capital conservation. All regulated entities within the Group exceed
significantly the minimum solvency requirements at the balance sheet date.
The Group's lead regulator, Isle of Man FSA, monitors capital requirements for
the Group as a whole. The insurance subsidiaries are directly supervised by
their local regulators. The lead regulator's approach to the measurement of
capital adequacy is primarily based on monitoring the relationship of the
Solvency Capital Requirement ('SCR') to regulatory capital. All regulated
entities within the Group exceed the minimum solvency requirements at the
balance sheet date. The capital held within Hansard Europe is considered not
to be available for dividend to Hansard Global plc until such time as the
legal cases referred to in note 26 are substantially resolved.
22 Share
capital
2022 2021
£m £m
Authorised:
200,000,000 ordinary shares of 50p 100.0 100.0
Issued and fully paid:
137,557,079 (2021: 137,557,079) ordinary shares of 50p 68.8 68.8
No shares (2021: nil) were issued or bought back in the year.
23 Other reserves
Other reserves comprise the merger reserve arising on the
acquisition by the Company of its subsidiary companies on 1 July 2005, the
share premium account and the share save reserve. The merger reserve
represents the difference between the par value of shares issued by the
Company for the acquisition of those companies, compared to the par value of
the share capital and the share premium of those companies at the date of
acquisition.
2022 2021
£m £m
Merger reserve (48.5) (48.5)
Share premium 0.1 0.1
Share save reserve 0.1 0.1
(48.3) (48.3)
24 Equity settled share-based payments
The Company has established a number of equity-based payment programmes for
eligible employees. The fair value of expected equity-settled share-based
payments under these programmes is calculated at date of grant using a
standard option-pricing model and is amortised over the vesting period on a
straight-line basis through the consolidated statement of comprehensive
income. A corresponding amount is credited to equity over the same period.
At each balance sheet date, the Group reviews its estimate of the number of
options expected to be exercised. The impact of any revision in the number of
such options is recognised in the consolidated statement of comprehensive
income so that the charge to the consolidated statement of comprehensive
income is based on the number of options that actually vest. A corresponding
adjustment is made to equity.
The estimated fair value of the schemes and the imputed cost for the period
under review is not material to these financial statements.
24.1 SAYE programme
This is a standard scheme approved by the Revenue authorities in the Isle of
Man that is available to all employees where individuals may make monthly
contributions over three or five years to purchase shares at a price not less
than 80% of the market price at the date of the invitation to participate.
At the date of this report, the following options remain outstanding under
each tranche:
2022 2021
No. of No. of
Scheme year options Options
2017 20,717 20,717
2018 58,062 270,279
78,779 290,996
A summary of the transactions in the existing SAYE programmes during the year
is as follows:
2022 2021
Weighted Weighted
average Average
No. of exercise No. of Exercise
options price (p) options price (p)
Outstanding at the start of year 290,996 63 508,576 64
Granted - - - -
Exercised - - - -
Forfeited (212,217) 62 (217,580) 66
Outstanding at end of year* 78,779 65 290,996 63
* None of these options are exercisable as at 30 June 2022.
There were no new options granted during the current financial year.
24.2 Incentive Plan Employee Benefit Trust
An Employee Benefit Trust was established in February 2018 to hold shares
awarded to employees as an incentive on a deferred basis.
Shares awarded under the scheme are purchased by the Trust in the open market
and held until vesting. Awards made under the scheme would normally vest after
three years. There were no share awards which vested during the year (2021:
498,000 shares).
The Trust was funded with a loan of £446,000 during 2018 and as at 30 June
2022 the Trust held 12,000 shares (2021: 12,000). As at 30 June 2022, the
outstanding balance on the loan was £12,000 (30 June 2021: £12,000).
25 Related party transactions
25.1 Intra-group transactions
Various subsidiary companies within the Group perform services for other Group
companies in the normal course of business. The financial results of these
activities are eliminated in the consolidated financial statements.
25.2 Key management personnel compensation
Key management consists of 21 individuals (2021: 20), being members of the
Group's Executive Committee, executive Directors of direct subsidiaries of the
Company and the non-executive directors of both the Group and subsidiary
companies.
The aggregate remuneration paid to key management during the year-ended 30
June was as follows:
2022 2021
£m £m
Short-term employee benefits * 2.3 2.1
Post-employment benefits 0.3 0.3
Total 2.6 2.4
* 2021 has been restated to incorporate non-executive Director costs of
£0.3m.
There were no outstanding amounts as at 30 June 2022 (2021: nil).
The total value of investment contracts issued by the Group and held by key
management is nil (2021: nil).
25.3 Transactions with controlling shareholder
Dr L S Polonsky is regarded as the controlling shareholder of the Group, as
defined by the Listing Rules of the Financial Conduct Authority. In the year
ending 30 June 2022 there were no transactions with Dr Polonsky.
25.4 Incentive Plan Employee Benefit Trust
An Employee Benefit Trust was established in February 2018 to hold shares
awarded to employees as an incentive on a deferred basis. The Trust was funded
with a loan of £446,000 during 2018 and as at 30 June 2022 the Trust held
12,000 shares (2021: 12,000). No awards vested in the year ended 30 June
2022.
26 Contingent liabilities
26.1 Litigation
The Group does not and has never given any investment advice. Investment
decisions are taken either by the contract holder directly or through a
professional intermediary appointed by the contract holder. Contract holders
bear the financial risk relating to the investments underpinning their
contracts, as the policy benefits are linked to the value of the assets.
Notwithstanding the above, financial services institutions are frequently
drawn into disputes in cases where the value and performance of assets
selected by or on behalf of contract holders fails to meet their
expectations. At the balance sheet date a number of fund structures remain
affected by liquidity or other issues that hinder their sales or redemptions
on normal terms with a consequent adverse impact on policy transactions.
As reported previously, the Group has been subject to a number of complaints
in relation to the selection and performance of assets linked to contracts.
The Group has been served with a number of writs arising from such complaints
and other asset-related issues. All such writs relate to historic business
written by Hansard Europe prior to its closure to new business in 2013.
As at 30 June 2022, the Group had been served with cumulative writs with a net
exposure totalling €24.6m, or £21.2m in sterling terms (30 June 2021:
€26.5m / £22.7m) arising from contract holder complaints and other asset
performance-related issues. The primary reason for the reduction in contingent
liabilities relates to a significant case which was covered by our insurance
cover which was agreed to be settled by our insurers. This reduced our
pre-insurance contingent liabilities by £2.9m.
During the year, the Group successfully defended twenty-four cases with net
exposures of approximately £3.2m, eleven of which have been appealed by the
plaintiffs (2021: successfully defended sixteen cases with net exposures of
£1.6m). These successes continue to affirm confidence in the Group's legal
arguments.
Our policy is to maintain contingent liabilities even where we win cases in
the court of first instance if such cases have been subsequently appealed.
This includes our largest single case in Belgium.
We have previously noted that we expect a number of our larger claims to
ultimately be covered by our Group insurance cover. During 2022 we recorded
£0.5m in total recoveries during the year in relation to costs paid by the
Group (2021: £0.5m). We expect such reimbursement to continue during the
course of that litigation.
As a result, we also expect that a significant amount of the £21.2m of
contingent liabilities referred to above would be covered by insurance should
those cases be ruled against us. We estimate insurance coverage to be in the
range of £3m to £10m.
While it is not possible to forecast or determine the final results of pending
or threatened legal proceedings, based on the pleadings and advice received
from the Group's legal representatives, the Directors believe that the Group
has strong defences to such claims. Notwithstanding this, there may be
circumstances where in order to avoid the expense and distraction of
protracted litigation the Board may consider it in the best interests of the
Group and its shareholders to reach a commercial resolution with regard to
certain of these claims. Where an established pattern of settlement is
established for any grouping of claims, a provision for expected future
settlements is made in line with IAS 37. This is outlined in Note 20.
It is not possible at this time to make any further estimates of liability.
Between 30 June 2022 and the date of this report, there have been no material
developments.
26.2 Isle of Man Policyholders' Compensation Scheme
The Group's principal subsidiary, Hansard International is a member of the
Isle of Man Policyholders' Compensation Scheme governed by the Life Assurance
(Compensation of Policyholders) Regulations 1991. The objective of the Scheme
is to provide compensation for policyholders should an authorised insurer be
unable to meet its liabilities to policyholders. In the event of a levy being
charged by the Scheme members, Hansard International would be obliged to meet
the liability arising at the time. The maximum levy payable in accordance with
the regulations of the Scheme in respect of the insolvency of the insurer is
2% of long term business liabilities. Hansard International's products include
a clause in their terms and conditions permitting it to recover any monies
paid out under the Scheme from contract holders.
27 Foreign exchange rates
The Group's presentational currency is pounds sterling, being the currency of
the primary economic environment in which the Group operates.
Foreign currency transactions are translated into sterling using the
applicable exchange rate prevailing at the date of the transactions. Monetary
assets and liabilities denominated in foreign currencies are translated into
sterling at the rates of exchange prevailing at the balance sheet date, and
the gains or losses on translation are recognised in the consolidated
statement of comprehensive income.
Non-monetary assets and liabilities that are held at historical cost are
translated using exchange rates prevailing at the date of transaction; those
held at fair value are translated using exchange rates ruling at the date on
which the fair value was determined.
The closing exchange rates used by the Group for the conversion of significant
consolidated balance sheet items to sterling were as follows:
2022 2021
US Dollar 1.21 1.38
Japanese Yen 165 153
Euro 1.16 1.17
28 Non statutory accounts
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 June 2022 or 2021, but is derived
from those accounts. The auditor has reported on those accounts; their report
was (i) unqualified, (ii) did not include a reference to any matters to which
the auditors drew attention by way of emphasis without qualifying their
report.
29 Annual report
The Company's annual report and accounts for the year ended 30 June 2022 is
expected to be posted to shareholders by 5 October 2022. Copies of both this
announcement and the annual report and accounts will be available to the
public at the Company's registered office at 55 Athol Street, Douglas, Isle of
Man, IM99 1QL and through the Company's website at www.Hansard.com
(http://www.Hansard.com) .
Responsibility statement of the directors in respect of the annual financial
report
The Directors confirm to the best of their knowledge that:
· The financial statements have been prepared in
accordance with UK Adopted International Accounting Standards ("IFRSs") and
give a true and fair view of the assets, liabilities, financial position and
profit for the Company and the undertakings included in the consolidation as a
whole as required by the Disclosure and Transparency Rules Chapter 4.2.4; and
· Pursuant to Disclosure and Transparency Rules Chapter
4, the Directors' report of the Company's annual report and accounts includes
a fair review of the development and performance of the business and the
position of the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and
uncertainties faced by the business.
On behalf of the Board
G Sheward T Davies
Director Director
21 September 2022
OTHER INFORMATION
Risk Based Solvency Capital
A) Risk Based Solvency capital position
The Group is subject to the Isle of Man Insurance (Group Supervision)
Regulations 2019.
It has adopted the default consolidated accounts method ("Method 1") to
calculate the Group Solvency Capital Requirement ("SCR") and Own Funds as
required by these regulations. The solvency position as 30 June 2022 has been
reported below on this basis.
The Group Risk Based Solvency free assets at 30 June 2022 were £50.7m (30
June 2021: £58.7m;), before allowing for payment of the 2022 final ordinary
dividend.
All Risk Based Solvency and related data presented in this section is subject
to change prior to submission to regulatory authorities.
30 June 30 June
Group Risk Based Solvency capital position 2022 2021
Total Total
£m £m
Own Funds 129.1 145.5
Solvency Capital Requirement 78.4 86.8
Free assets 50.7 58.7
Solvency ratio (%) 165% 168%
All Own Funds are considered Tier 1 capital.
The following compares Own Funds as at 30 June 2022 and 30 June 2021:
30 June 30 June
2022 2021
Own Funds Own Funds
£m £m
Value of In-Force 128.5 145.8
Risk Margin (26.7) (29.4)
Net Worth 27.3 29.1
Total 129.1 145.5
B) Analysis of movement in Group Solvency surplus
A summary of the movement in Group Solvency surplus from £58.7m at 30 June
2021 to £50.7m at 30 June 2022 is set out in the table below.
£m
Risk Based Solvency surplus at 30 June 2021 58.7
Operating experience (3.9)
Investment performance (6.5)
Changes in assumptions 2.2
Impact of dividends paid (6.1)
Foreign exchange 6.3
Risk Based Solvency surplus at 30 June 2022 50.7
The Group Risk Based Solvency surplus in 2022 was decreased by negative market
movements, dividends paid and operating experience, offset by foreign exchange
movements and assumption changes.
New business written had a £0.7m impact on solvency surplus for the period.
C) Analysis of Group Solvency Capital Requirement
The analysis of the Group's Solvency Capital Requirement ("SCR") by risk type
is as follows:
Split of the Group's Solvency Capital Requirement * 30 June 30 June
2022 2021
Risks % of SCR % of SCR
Market
Equity 43% 52%
Currency 11% 12%
Insurance
Lapse 50% 44%
Expense 20% 20%
Default 1% 2%
Operational 19% 16%
* Figures are the capital requirements prior to diversification benefits
expressed as a percentage of the final diversified SCR.
D) Reconciliation of IFRS equity to Group Risk Based Solvency
Shareholder Own Funds
30 June 30 June
2022 2021
£m £m
IFRS shareholders' equity 22.2 24.7
Elimination of DOC (122.5) (125.1)
Elimination of DIR 145.1 142.5
Value of In-Force 128.5 145.8
Liability valuation differences* (4.1) (3.8)
Impact of risk margin (26.7) (29.4)
Other** (13.4) (9.2)
Risk Based Solvency Shareholder Own Funds 129.1 145.5
* Liability valuation differences relate to additional provisions made for
risk-based capital purposes, notably for contingent liabilities.
** Other is related to Intangible Assets not recognised on the solvency
balance sheet.
E) Sensitivity analysis
The sensitivity of the Own Funds of the Group and of the Group's life
insurance subsidiaries to significant changes in market conditions is as
follows:
30 June 30 June
2022 2021
Group Group
£m £m
Own Funds 129.1 145.5
Impact of:
10% instantaneous fall in equity markets (8.0) (10.5)
100 basis points decrease in interest rates (1.2) (2.8)
10% increase in expenses (8.4) (9.3)
1% increase in expense inflation (6.0) (7.1)
10% strengthening of sterling (12.0) (8.0)
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