REG - Sabre Insurance Grp - Final Results
14/03/2023 07:15
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230314:nRSN8776Sa&default-theme=true
RNS Number : 8776S Sabre Insurance Group PLC 14 March 2023
Full year results 2022
Delivered growth and profitability despite challenging market conditions.
Well-positioned to recover margins, whilst growing further, thanks to
assertive rating response and focused strategy
Sabre Insurance Group plc (the "Group", or "Sabre"), one of the UK's leading
motor insurance underwriters, reports its results for the year ended 31
December 2022.
SUMMARY OF RESULTS
Year to Year to
31 December 2022
31 December 2021
Gross written premium £171.3m £169.3m
Net loss ratio 68.7% 51.1%
Expense ratio 27.3% 28.3%
Combined operating ratio 96.0% 79.4%
Adjusted profit before tax £12.8m £37.2m
Profit before tax £12.8m £37.2m
Adjusted profit after tax £10.1m £30.1m
Profit after tax £10.1m £30.1m
Total dividend per share 4.50p 13.0p
Return on tangible equity (annualised) 12.4% 29.2%
Solvency coverage ratio (pre-interim/final dividend) 161.4% 207.9%
Solvency coverage ratio (post-interim/final dividend) 153.8% 164.0%
Geoff Carter, Chief Executive Officer of Sabre, said:
"Whilst the 2022 result is disappointing by our own standards, due to the
impacts of extraordinary levels of inflation, I am hugely encouraged by how
quickly we identified and corrected for these challenges, and the strong
foundation we have maintained. The actions we have taken have enabled us to
grow supplementary product lines, deliver a profit and announce a special
dividend in what has been a highly challenging market. I believe our
performance is highly creditable in a market context.
Our rapid response and focus mean that we still delivered a very strong
financial year loss ratio of 61.5% on our Motor book, and the new Motorcycle
and Taxi portfolios are firmly on track to deliver a meaningful contribution
to profit. We remain pleased with these new partnerships.
In recent weeks we are seeing some encouraging evidence of market price
increases resulting in weekly premium growth on the Motor line, and we are
already benefitting from improving loss ratios across the portfolio.
As we move through 2023, and earn out the inflation and new-product strain on
Motorcycle & Taxi, we are confident we will be able to build the business
profitably into the medium-term through a combination of organic growth if
market price increases sustain, and our own development initiatives.
We will continue to focus rigorously on treating volume as an output, and not
a target, and on maintaining our historic strengths. I look forward to
reporting on our progress."
STRATEGIC HIGHLIGHTS
- Continued adherence to strategic principles of underwriting discipline,
controlled growth when market conditions allow and maintaining a wide
underwriting footprint
- Maintained profitable footprint in Motor business through enhancement of
rating factors, while significantly enhancing position in Taxi and Motorcycle
markets
- Anticipating deployment of a new direct platform in mid-2023, with a
primary focus of migrating online the majority of customer interactions and
re-investing savings into price
- Expecting mid-2023 initial rollout of Insurer Hosted Pricing ('IHP'),
which will allow us to avoid 'software house' rating restrictions and begin to
implement more sophisticated rating enhancements at pace
FINANCIAL HIGHLIGHTS
- Dividend of 4.5p, consisting of the full-year payment of 1.7p and
interim dividend of 2.8p, in line with the dividend policy, which is to
distribute 70% of profit after tax plus excess capital
- Strong capital generation led to a pre-dividend solvency capital ratio
of 161.4%, and a post-dividend solvency capital ratio of 153.8%, comfortably
within our target range of 140% to 160%
- Year-on-year growth in gross written premium driven by motorcycle and
taxi business, with motor book remaining supressed in 2022 due to continued
market-wide under-pricing
- Profit before tax of £12.8m (2021: £37.2m), the year-on-year decrease
primarily a result of pressure on loss ratio due to rapid, unexpected
inflation
- In-year performance for the early stage Motorcycle and Taxi business was
below expectation, with a drag from a limited number of large losses against a
relatively low earned premium on Taxi, and higher Motorcycle loss ratio on
business written prior to our more sophisticated pricing and rating being
fully embedded. Our underwriting actions and the significant pricing action
taken in 2022 are anticipated to bring these loss ratios down materially in
2023
MARKET PRICING
- Despite some market rate increases towards the end of 2022 and into
2023, our view is that the motor market remains under-priced and that a
material correction is necessary
- Maintained a disciplined approach to pricing throughout the year,
deploying significant rate increase of c.30% in 2022, and c.50% since January
2020, across the Motor book in order to cover inflation and improve loss ratio
OUTLOOK
- Expecting to see an improvement in loss ratios across our Motor,
Motorcycle and Taxi business in the year ahead
- Having allowed Motor business to shrink in 2022 against a back-drop of
undisciplined market pricing, we anticipate a return to growth in our
traditional market in 2023 if more robust market pricing seen in recent weeks
sustains
- Overall combined operating ratio is predicted to fall to between 85% and
90% for 2023. Improvements in loss ratio are expected to be partially offset
by strain on expenses due to residual impact of high inflation. We remain
focussed on minimising these impacts
- Post-dividend capital ratio is expected to grow as we earn through
profitable business in 2023
- The roll-out of new initiatives in mid-2023 likely to benefit GWP and
loss ratio in 2024
ENQUIRIES
Sabre Insurance
Group
0330 024 4696
Geoff Carter, Chief Executive Officer
Adam Westwood, Chief Financial Officer
Tulchan Communications
020 7353 4200
James Macey White
Eleanor Pomeroy
ANALYST PRESENTATION
Sabre Insurance - 2023 Full Year Results - webcast & conference call
Date: 14 March 2023
Time: 9:30 am
Please join the event 5-10 minutes prior to scheduled start time. When
prompted, provide the confirmation code or event title.
Event Title: Sabre Full Year Results
Time Zone: Dublin, Edinburgh, Lisbon, London
Start Time/Date: 09:30 Tuesday, March 14, 2022
Duration: 60 minutes
Password: Quote 'Sabre Full Year Results' when prompted by the operator
Webcast: https://stream.brrmedia.co.uk/broadcast/63d29bae777efd4a8b5165b1
(https://stream.brrmedia.co.uk/broadcast/63d29bae777efd4a8b5165b1)
Location Phone Type Phone Number
United Kingdom, Local Local +44 (0) 33 0551 0200
A replay will be made available on the Sabre website following the conclusion
of the presentation.
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) No 596/2014.
DIVIDEND TIMETABLE
Ex-dividend date: 20 April 2023
Record date: 21 April 2023
Payment date: 1 June 2023
FORWARD-LOOKING STATEMENTS DISCLAIMER
Cautionary statement
This announcement may include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements may be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "plans", "projects", "anticipates", "expects",
"intends", "may", "will" or "should" or, in each case, their negative or other
variations or comparable terminology, or by discussions of strategy, plans,
objectives, goals, future events or intentions. These forward-looking
statements include all matters that are not historical facts and involve
predictions. Forward-looking statements may and often do differ materially
from actual results. Any forward-looking statements reflect Sabre's current
view with respect to future events and are subject to risks relating to future
events and other risks, uncertainties and assumptions relating to Sabre's
business, results of operations, financial position, prospects, growth or
strategies and the industry in which it operates.
Forward-looking statements speak only as of the date they are made and cannot
be relied upon as a guide to future performance. Save as required by law or
regulation, Sabre disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statements in this
announcement that may occur due to any change in its expectations or to
reflect events or circumstances after the date of this announcement.
The Sabre Insurance Group plc LEI number is 2138006RXRQ8P8VKGV98.
CHIEF EXECUTIVE OFFICER'S REVIEW
Delivered growth and profitability despite challenging market conditions.
Well-positioned to recover margins, whilst growing further, thanks to
assertive rating and response and focused strategy.
Reflecting on my Review in the 2021 Annual Report, I was struck by the sense
of optimism as we looked into 2022. We had remained consistent in our strategy
of margin over volume, meaning that Sabre started to emerge from the trough of
a cyclical soft market and on-going Pandemic issues with strong foundations
in place. However, our industry - and many others - have since been impacted
by the unforeseen, once-in-a-generation geopolitical event and subsequent
extraordinary period of inflation.
The impacts of the rapid increase in inflation were as significant for motor
insurance as the impact of the pandemic. While we addressed the inflationary
impacts early and assertively - ahead of many of our peers - this backdrop has
still led to a disappointing performance by our own standards. We do believe
that our prompt action restricted some of the potentially very significant
financial impacts from the rapid, unprecedented inflation, and we believe that
Sabre will recover fairly rapidly towards our target levels of performance
whilst still being able to capitalise on some exciting growth opportunities.
Looking back on 2022
The market backdrop has made 2022 a frustrating year. In the early stages of
the year we saw market price increases emerging, which we believe was in
response to the FCA pricing review. However, this encouraging positive trend
was interrupted by events out of our control.
At the start of Q2 the unfortunate events in Ukraine led to the now
well-publicised but unexpected and rapid increase in underlying cost
inflation. We, along with the rest of the market, were then faced with a
combination of challenges, either directly due to the conflict or as a
residual consequence from either the pandemic or Brexit. These included:
- Inability to source parts for repairs, driving extended repair times and
consequent increases in car hire costs
- Lack of new car supplies driving up used car prices - dramatically
increasing the cost of theft and total losses
- Severe shortage of staff in the car repair and healthcare industries
resulting in cost increases
- The need to reflect increased healthcare costs across all open claim
reserves
- The fact that polices over the past 12 months had been priced against
claims inflation assumptions which proved to be too low
- Other increases in overhead costs across the Group's operations
This required a one-off adjustment to our reserves and an increase in our (by
market standards) already high claims inflation assumption.
Throughout, we have stuck rigorously to our underlying philosophy that to
ensure long-term success, volume must be an output not a target. We have
continued to have focus on ensuring all polices are priced correctly for the
current environment. In order to meet rises in the cost of claims, we have
increased prices by nearly 30% in 2022, and by over 50% since January 2020.
In 2022 we continued to expand our position in the motorcycle and taxi
insurance markets through partnerships with MCE and Bennetts, and Freeway
Insurance respectively. We regularly review new business opportunities but
have a very high hurdle for returns before committing resources to them. These
partnerships increase our long-term growth opportunities while maintaining
margin discipline.
We saw benefits, in premium growth terms, from our new motorcycle and taxi
partnerships in 2022. In some ways the timing was slightly unfortunate, in
that we did not expect these to generate a significant contribution to profit
in the first year, but did not anticipate the concurrent profit challenges on
our motor book in the initial year of these relationships as well as the
claims inflation impacts on these portfolios.
While we knew elements of the motorcycle book required extensive
re-underwriting and pricing to get to a sustainably profitable level, the
scale of this was greater than anticipated and so the product performed below
expectations. However, our re-underwriting efforts have to date been
successful and the product is now on a firm pathway to profitability in 2023.
In conjunction with MCE insurance, we have since launched an innovative
subscription (pay-by-mile) product for motorcyclists.
The taxi portfolio got off to a slightly slower than assumed start as our
partner needed to re-platform their administration systems and they share our
philosophy of writing for profit not volume in a difficult market. This
re-platforming exercise is now complete and we focussing on capitalising on
the growth opportunities ahead as rates in this market increase.
The overall impact of reduced 'core' motor volume meant these first-year
products were a greater than planned proportion of our total business -
putting additional pressure on the overall loss ratio.
Given the extraordinary market challenges the business had to operate within,
I am pleased with the motor loss ratio of 61%, and the progress we have made
in setting up motorcycle and taxi for a sustainable, profitable, future.
Looking forward
Whilst the previous section is perhaps a little downbeat, that is not at all
how we feel as a business as we look ahead to 2023.
We anticipate that 2022 loss ratios across the market will be seen, in
retrospect, as a speedbump rather than the start of a trend.
At the end of 2022, we were writing new business across the portfolio at
around our target COR, with significantly improved expected loss ratios for
bike and taxi.
Our very early call on inflation and immediate pricing actions to correct
this, regardless of the effect on volumes, means we anticipate a relatively
rapid bounce back towards our target normal levels of profitability through
2023 and into 2024, albeit that inflation will provide some overhang in 2023.
Whilst some encouraging signs of market price increases started to emerge
towards the end of 2022, we expect that the market will still need to
implement further substantial increases to achieve underwriting profitability,
and while the timing is uncertain, we expect this will provide attractive
opportunities for organic growth. Indeed, this is supported by our volumes in
the most recent weeks of 2023, which have been encouraging.
The irrational pricing decisions of some market participants means our motor
premium at the end of 2022 was a little less than planned, which will clearly
impact both 2023 earned premium and consequently our expense ratio.
In 2022 we reviewed numerous new partnership opportunities, however we always
have a very high hurdle before we commit resources and are especially wary of
distraction in what is still a complicated market. We will continue to review
potentially attractive additional distribution routes going forward, but our
primary focus is on our current portfolios.
For our core motor product, we currently occupy less than 1% of the market. We
believe this position will provide additional medium-term growth
opportunities.
New developments
It is extremely pleasing that we are making great progress with the deployment
of two important new initiatives - insurer hosted pricing and re-platforming
our direct administration system. Both of these are on schedule to be rolled
out in Q3 this year, and are being implemented entirely by our own teams
without any consultancy support or spend.
Insurer hosted pricing has been a feature of the market for broker-based
insurers for several years, being introduced to speed up rate deployments by
avoiding 'software house' rate change processes. We have deliberately waited
until now to carry out this initiative - as we had no interest in rapid price
changes to manage volumes - and by waiting we have seen costs and
implementation challenges reduce significantly. Following implementation, we
will be able to begin the roll-out of more complex rating models that have
been developed by our pricing team.
Our existing direct administration platform has served us well for many years,
but lacks customer self-service functionality. Our ambition following roll-out
is to transition the vast majority of customer interactions online, and invest
the operational savings into pricing.
Market - Continuing uncertainty
There are still areas of ongoing uncertainty and opportunity.
Coming into early 2023 we have maintained a prudent view of claims inflation,
with a current forward-looking assumption of 8% to 10%. For clarity, this is
on top of our relatively high assumptions in previous years, so others may
experience higher cost inflation from a lower assumed base. There are reasons
to suspect some elements may soften as the year develops, such as used car
prices or parts availability, but there is limited evidence of this so far.
Conversely, care costs may inflate further, and it feels unlikely that repair
costs will reduce dramatically.
We will maintain a cautious approach here - we were amongst the first to spot
adverse trends developing and will apply equal rigour to spotting
opportunities.
The recent Court of Appeal decision on mixed injury cases, and subsequent
ABI-facilitated decision to seek leave to appeal to the Supreme Court, means
there is a risk of an elongated period of uncertainty for the total costs of
small injury claims. We will maintain our conservative view on the benefits of
these reforms pending clarity.
We believe the 1 January 2023 motor reinsurance renewals (ours was at 1 July
2022) resulted in average increases in the range of 15% to 20% across the
broader market. We will monitor developments and reflect any likely cost
changes in reinsurance in our pricing.
People
Our people have shown considerable commitment during the recent challenging
years, for which we are extremely grateful, and we have sought to reciprocate.
We maintained full employment during the pandemic and have continued to pay
the annual Christmas and performance bonuses. Additionally, we paid all staff
an £800 cost of living allowance over the winter period.
We continue to enjoy excellent engagement scores, and very low levels of
turnover.
During 2022 we have been actively recruiting in anticipation of future growth
opportunities, which has also created a need for several promotions.
Customers
During the recent periods we have remained focused on supporting customers
both through the COVID-19 challenges and the emerging cost of living crisis.
We have ensured our processes are appropriate for customers who may find
themselves in vulnerable circumstances.
In addition, we stepped in to offer cover to customers of MCE Insurance
following the previous underwriter being placed into administration and
policies cancelled.
Environmental, social and corporate governance ("ESG")
We have continued to make excellent progress in this important area. Full
details of our environmental and social reporting are contained in the
Sustainability and Responsibility report. We have enhanced our corporate
values, including a key value measure of 'Fair to the Planet'. Alongside this
we have taken several significant steps to improve our impact on the
environment, including a full refurbishment of our head office. This
investment will significantly enhance the working environment for our people,
and help us take further steps towards our net-zero ambitions. We have also
continued to support a number of charities.
Summary
While 2022 was a challenging year in terms of result, I am delighted that we
have maintained extremely firm foundations whilst delivering growth and
underwriting profit. We have demonstrated our strong solvency position and
proposed a special dividend - and have positioned ourselves well for growth as
many competitors seek to address their own performance. I believe our 2022
performance will look creditable in market terms and rebound quicker than many
others.
We anticipate that market price changes, as well as our own development
initiatives. will support organic growth.
I very much hope to be able to report strong progress along these lines next
year.
GEOFF CARTER
Chief Executive Officer
13 March 2023
CHIEF FINANCIAL OFFICER'S REVIEW
High target margins allow headroom for unexpected events
HIGHLIGHTS
2022 2021
Gross written premium £171.3m £169.3m
Net loss ratio 68.7% 51.1%
Expense ratio 27.3% 28.3%
Combined operating ratio 96.0% 79.4%
Adjusted profit after tax £10.1m £30.1m
Profit after tax £10.1m £30.1m
Solvency coverage ratio (pre-dividend) 161% 208%
Solvency coverage ratio (post-dividend) 154% 164%
Return on tangible equity 12.4% 29.2%
In my 2021 report, I highlighted the strong basis for growth that had been set
through prudent underwriting and cautious management throughout the pandemic.
This year, the same caution has allowed Sabre to generate underwriting profit
despite unprecedented economic challenges.
When the impact from the invasion of Ukraine fed through into rapid inflation
in the UK economy, it was clear that all insurers would face a significant
headwind in profitability. An insurance product by nature reflects the
insurer's best guess of the total cost of claims attaching to that policy,
which may not be fully realised for years after the policy has expired. So, a
rapid increase in costs will inevitably mean that policies already sold will
achieve less than planned profit margins, and claims already recorded but not
settled would cost more than expected, leading to deterioration in prior-year
reserves. This event occurred after an already extended period of
under-pricing in the motor insurance market. Sabre was not immune to the
effects of this, but was well-placed to face into the challenge because:
- While the motor insurance market had been systemically under-priced for
several years, Sabre had met increasing costs of claims with policy price
increases, meaning that the Group was on the 'front foot' when further
pressures emerged.
- Sabre's core margins were sufficient to absorb deterioration and still
generate an underwriting profit.
- Sabre is an agile business with short feedback loops and a sharp focus
on motor insurance costs. As soon as we identified the impact of rapidly
increasing inflation, pricing action was taken. The effects of this pricing
action show through the second half of 2022 and should support a strong
recovery into 2023 and beyond.
Beyond the core motor book, we saw rapid growth in the motorcycle and taxi
lines during 2022, having entered into material partnership arrangements in
November 2021 and February 2022 respectively. Given the infancy of these lines
of business we did not expect a significant contribution to profit in the
first year, however we had planned to absorb this through increased volumes in
the core motor book. Such increased volume did not materialise in 2022, a
direct result of Sabre's decisive pricing action set against the wider
industry's slow response to inflation - the Group again trading volume for
resilience and long-term profitability. The introduction of less profitable
bike and taxi business set against lower than expected volumes in motor
therefore had a clear negative contribution to the Group's net loss ratio.
The expense ratio has decreased year-on-year, to 27.3%, which has resulted
from an increased net earned premium and continued tight control of costs.
The Group's profit before and after tax reflects the combined operating ratio
for the year of 96.0%. The year-on-year decrease in profit is almost entirely
attributable to the increase in net loss ratio.
The Board have announced a special dividend of 1.7p, bringing the total
distribution in respect of 2022 to 4.5p. This is reflective of the Board's
confidence in the strength of the Group's uncomplicated balance sheet. Return
on tangible equity was 12.4%, the reduction from the prior-year a result of
the Group's lower profit.
REVENUE
2022 2021
Gross written premium £171.3m £169.3m
Gross earned premium £178.2m £165.9m
Net earned premium £153.2m £145.4m
Other technical income £1.8m £2.1m
Customer instalment income £3.3m £3.9m
Interest revenue calculated using the effective interest method £1.4m £1.2m
Fair value (losses)/gains on debt securities through OCI (£14.2m) (£5.6m)
The trend of reducing overall premium for the last few years has reversed,
with the Group increasing written premium year-on-year. Beyond the headline
figure, the motor line did not grow during 2022 as anticipated, due to
persistent market under-pricing in an extraordinary inflationary
environment. However, the motorcycle line generated significant additional
income of £23.1m (2021: £3.2m), while taxi contributed £13.3m (2021:
£1.5m) to the top line.
Other sources of income remained proportionate to the amount of business
written through the Direct channel, which had become proportionately smaller
during 2022 due to the introduction of the motorcycle and taxi lines, both of
which are sold exclusively through brokers.
Investment income, which reflects the effective interest across the Group's
'buy and hold' bond portfolio, increased a little as reinvestments were made
at higher returns. We expect the yield to continue to increase in the current
environment as bonds gradually mature and are reinvested at higher rates. We
have included a breakdown of investments by maturity on page 139.
While market value losses have been recorded across the bond portfolio, we do
not expect these losses to crystalise as the bonds are held to maturity and
will pull to their par value. The Group does not hold any non-cash financial
investments outside of this portfolio and so is not exposed to movements in
equity or property markets.
OPERATING EXPENDITURE
2022 2021
Gross claims incurred £125.9m £105.0m
Net claims incurred £112.8m £81.0m
Current-year loss ratio 67.9% 56.0%
Prior-year loss ratio 0.8% (4.9%)
Financial year loss ratio 68.7% 51.1%
Net operating expenses £41.8m £41.2m
Expense ratio 27.3% 28.3%
Combined operating ratio 96.0% 79.4%
The year's underwriting result is best explained in terms of the current-year
loss and prior-year loss ratios, and the expense ratio, which together make up
the combined ratio, and split between motor, bike and taxi. Given the infancy
of the bike and taxi lines, their impact on prior-year losses is negligible.
2022 2021
Motor Motorcycle Taxi All lines All lines
Net earned premium £132.9m £15.1m £5.2m £153.2m £145.4m
Net claims incurred, excluding claims handling expenses £81.7m £17.9m £5.6m £105.2m £74.2m
Current-year loss ratio 60.4% 118.0% 112.8% 67.9% 56.0%
Prior-year loss ratio 1.1% 0.4% (6.0%) 0.8% (4.9%)
Financial year loss ratio 61.5% 118.4% 106.8% 68.7% 51.1%
The underwriting result can be considered in the context of three key numbers:
the prior-year loss ratio, the current-year motor loss ratio and the
motorcycle and taxi loss ratios. Taking each in turn:
- The prior-year motor loss ratio, which is usually negative and reflects
the run-off of margins on previously incurred but not settled claims, was
positive in 2022, which means that reserve strengthening was in excess of any
margin run-off. This strengthening was required to reflect the increase in
expected costs due to the high-inflation environment. This should not be
required in future periods (notwithstanding further rapid unexpected
inflation) as claims recorded since this adjustment inherently reflect the new
cost environment.
- The current-year motor loss ratio has increased by c.4% against the same
in 2021. This increase is a result of inflation generating increased costs on
policies which were written prior to March 2022, along with normal volatility
in the current-year result.
- In-year performance for motorcycle and taxi business has been slightly
disappointing, with significant pricing action taken during the year, which we
anticipate to bring these loss ratios down materially in 2023.
The Group's expense base has remained well under control, despite inflationary
pressures - although we expect these to feed through as contracts are renewed
over the next few years. Such increases are factored into our current policy
pricing. The reduction in expense ratio is largely due to increasing net
earned premium year-on-year
TAXATION
In 2022 the Group recorded a corporation tax expense of £2.6m (2021: £7.1m),
an effective tax rate of 20.7%, as compared to an effective tax rate of 19.0%
in 2021. The effective tax rate approximates to the prevailing UK corporation
tax rate. The Group has not entered into any complex or unusual tax
arrangements during the year.
EARNINGS PER SHARE
2022 2021
Basic earnings per share 4.06p 12.09p
Diluted earnings per share 4.03p 11.98p
Basic earnings per share for 2022 of 4.06p per share is proportionate to
profit after tax. Diluted earnings per share is similarly proportionate to
profit after tax, taking into account the potentially dilutive effect of the
Group's share schemes.
CASH AND INVESTMENTS
2022 2021
Government bonds £87.2m £86.2m
Government-backed securities £80.8m £83.9m
Corporate bonds £61.3m £64.6m
Cash and cash equivalents £18.5m £30.6m
The Group continues to hold a low-risk investment portfolio and cash reserves
sufficient to meet its future claims liabilities. This has resulted in a
stable yield across the portfolio. As most assets are held to maturity, the
yield achieved by the portfolio lags changes in market yield, with funds
generally being reinvested on maturity.
INSURANCE LIABILITIES
2022 2021
Gross insurance liabilities £257.4m £232.5m
Reinsurance assets £106.3m £103.6m
Net insurance liabilities £151.1m £128.9m
The Group's net insurance liabilities continue to reflect the underlying
profitability and volume of business written. The slight relative increase in
gross insurance liabilities against 2021 was a result of additional large
claims being recorded against the continued relatively slow settlement of
personal injury claims. The level of net insurance liabilities held remains
broadly proportionate to the volume of business written, and reflects
inflationary increases in the cost of claims.
LEVERAGE
The Group continues to hold no external debt. All of the Group's capital is
considered 'Tier 1' under Solvency II. The Directors continue to hold the view
that this currently allows the greatest operational flexibility for the Group.
DIVIDENDS AND SOLVENCY
The Directors have proposed a total final dividend of 1.7p per share in
respect of 2022. The total amount proposed to be distributed to shareholders
by way of dividends for 2022 is therefore 4.5p per share, including the
ordinary interim dividend of 2.8p per share already paid. The total ordinary
dividend due to be paid according to the Group's policy is entirely covered by
the interim dividend, therefore the entire final dividend is considered
'special' according to the Group's policy. Excluding the capital required to
pay this dividend, the Group's SCR coverage ratio at 31 December 2022 would be
154% This is consistent with the Group's policy to pay an ordinary dividend of
70% of profit after tax, and to consider passing excess capital to
shareholders by way of a special dividend.
ADAM WESTWOOD
Chief Financial Officer
13 March 2023
CONSOLIDATED PROFIT OR LOSS ACCOUNT
for the year ended 31 December 2022
2022 2021
Notes £'k £'k
Gross written premium 19 171,257 169,322
Less: Reinsurance premium ceded (26,456) (21,233)
Net written premium 144,801 148,089
Less: Change in unearned premium reserve
Gross amount 3.1.1 6,918 (3,426)
Reinsurers' share 3.1.1 1,499 779
Net earned premium 153,218 145,442
Interest income on financial assets using effective interest rate method 4.8 1,374 1,210
Net fair value gains/(losses) on derecognition of financial assets measured at 22 (16)
fair value through OCI
Instalment income 3,300 3,924
Other operating income 7 1,784 2,098
Total income 159,698 152,658
Insurance claims 3.4 (125,893) (104,984)
Insurance claims recoverable from reinsurers 3.4 13,094 23,969
Net insurance claims (112,799) (81,015)
Finance costs 5.2 (5) (16)
Commission expenses (12,942) (12,942)
Operating expenses 8 (21,202) (21,486)
Total expenses (34,149) (34,444)
Profit before tax 12,750 37,199
Tax charge 10 (2,643) (7,059)
Profit for the year attributable to ordinary shareholders 10,107 30,140
Basic earnings per share (pence per share) 20 4.06 12.09
Diluted earnings per share (pence per share) 20 4.03 11.98
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
Notes £'k £'k
Profit for the year attributable to ordinary shareholders 10,107 30,140
Items that are or may be reclassified subsequently to profit or loss
Fair value losses on debt securities 4.9 (14,207) (5,658)
Realised (gains)/losses transferred to profit or loss account (22) 16
Tax credit 3,563 1,069
Total other comprehensive loss for the year (10,666) (4,573)
Total comprehensive (loss)/income for the year attributable to ordinary (559) 25,567
shareholders
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
2022 2021
Notes £'k £'k
Assets
Goodwill 14 156,279 156,279
Property, plant and equipment 9.1 3,996 4,066
Right-of-use asset 9.2 - 187
Reinsurance assets 3.1 116,526 112,312
Deferred tax assets 11 4,384 820
Deferred acquisition costs 3.1.2 13,354 13,791
Insurance receivables 3.2 31,427 38,003
Loans and other receivables 4.4 7 74
Current tax assets 1,255 -
Prepayments, accrued income and other assets 13 1,278 821
Financial investments 4.1 229,158 234,667
Cash and cash equivalents 4.5 18,502 30,611
Total assets 576,166 591,631
Equity
Issued share capital 15 250 250
Own shares (2,810) (2,257)
Merger reserve 48,525 48,525
FVOCI reserve (13,029) (2,363)
Revaluation reserve 831 831
Share-based payments reserve 2,407 1,841
Retained earnings 186,322 205,900
Total equity 222,496 252,727
Liabilities
Outstanding claims 3.1 257,443 232,516
Unearned premium reserve 3.1 83,858 90,776
Lease liability 5.1 - 193
Insurance payables 3.3 5,981 7,115
Trade and other payables 5.3 5,005 5,831
Current tax liabilities - 580
Accruals 1,383 1,893
Total liabilities 353,670 338,904
Total equity and liabilities 576,166 591,631
The financial statements were approved by the Board of Directors and
authorised for issue on 13 March 2023.
Signed on behalf of the Board of Directors by:
ADAM WESTWOOD
Chief Financial Officer
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
Notes £'k £'k
ORDINARY SHAREHOLDERS' EQUITY - at 1 January 15 250 250
At 31 December 250 250
OWN SHARES - at 1 January 16 (2,257) (1,494)
Net movement in own shares (553) (763)
At 31 December (2,810) (2,257)
MERGER RESERVE - at 1 January 17 48,525 48,525
At 31 December 48,525 48,525
FVOCI RESERVE - at 1 January 17 (2,363) 2,210
Fair value losses on debt securities (14,207) (5,658)
Realised (gains)/losses transferred to profit or loss account (22) 16
Tax credit 3,563 1,069
At 31 December (13,029) (2,363)
REVALUATION RESERVE - at 1 January 17 831 831
At 31 December 831 831
SHARE-BASED PAYMENT RESERVE - at 1 January 17 1,841 1,817
Settlement of share-based payments (1,037) (1,051)
Charge in respect of share-based payments 1,603 1,075
At 31 December 2,407 1,841
RETAINED EARNINGS - at 1 January 205,900 214,261
Share-based payments 447 (115)
Profit for the year attributable to ordinary shareholders 10,107 30,140
Ordinary dividends paid (30,132) (38,386)
At 31 December 186,322 205,900
Total equity at 31 December 222,496 252,727
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
Notes £'k £'k
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax for the year 12,750 37,199
Adjustments for:
Depreciation of property, plant and equipment 9.1 108 136
Depreciation of right-of-use assets 9.2 187 249
Share-based payment - equity-settled schemes 16 1,603 1,075
Investment return, including realised net fair value gains and losses on (1,590) (1,507)
financial assets
Interest on lease liability 9.2 5 16
Expected credit loss 4.6 (34) 16
Operating cash flows before movements in working capital 13,029 37,184
Movements in working capital:
Change in reinsurance assets (4,214) (12,391)
Change in deferred acquisition costs 437 1,000
Change in insurance receivables 6,576 (4,027)
Change in loans and other receivables 67 10
Change in prepayments, accrued income and other assets (457) 47
Change in insurance liabilities 24,927 5,970
Change in unearned premium reserve (6,918) 3,426
Change in insurance creditors (1,134) 869
Change in trade and other payables (826) 301
Change in accruals (510) (552)
Cash generated from operating activities before investment of insurance assets 30,977 31,837
Taxes paid (4,479) (5,988)
Net cash generated from operating activities before investment of insurance 26,498 25,849
assets
Interest and investment income received 3,383 4,273
Proceeds from the sale and maturity of invested assets 37,734 68,178
Purchases of invested assets (48,214) (64,987)
Net cash generated from operating activities 19,401 33,313
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment 9.1 (38) (28)
Net cash used by investing activities (38) (28)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of principal portion of lease liabilities 9.2 (198) (264)
Net cash used in acquiring and disposing of own shares (1,142) (1,928)
Dividends paid 12 (30,132) (38,386)
Net cash used by financing activities (31,472) (40,578)
Net decrease in cash and cash equivalents (12,109) (7,293)
Cash and cash equivalents at the beginning of the year 30,611 37,904
Cash and cash equivalents at the end of the year 4.5 18,502 30,611
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
Corporate information
Sabre Insurance Group plc is a company incorporated in the United Kingdom and
registered in England and Wales. The address of the registered office is Sabre
House, 150 South Street, Dorking, Surrey, RH4 2YY, England. The nature of the
Group's operations is the writing of general insurance for motor vehicles and
motorcycles. The Company's principal activity is that of a holding company.
1. Accounting policies
The principal accounting policies applied in the preparation of these
consolidated and company financial statements are included in the specific
notes to which they relate. These policies have been consistently applied to
all the years presented, unless otherwise indicated.
1.1. Basis of preparation
The financial statements of the Group have been prepared in accordance with
UK-adopted international accounting standards, comprising International
Accounting Standards ("IAS") and International Financial Reporting Standards
("IFRS"), and the requirements of the Companies Act 2006. Endorsement of
accounting standards is granted by the UK Endorsement Board ("UKEB").
The financial statements are prepared in accordance with the going concern
principle using the historical cost basis, except for those financial assets
that have been measured at fair value. The preparation of the financial
statements necessitates the use of estimates, assumptions and judgements that
affect the reported amounts in the statement of financial position and the
statement of profit or loss and other comprehensive income. Where appropriate,
details of estimates are presented in the accompanying notes to the
consolidated financial statements.
As the full impact of climate change is currently unknown, it is not possible
to consider all possible future outcomes when determining the value of assets,
liabilities and the timing of future cash flows. The Group's view is that any
reasonable impact of climate change would not have a material impact on the
valuation of assets and liabilities at the year-end date.
The financial statements values are presented in pounds sterling (£) rounded
to the nearest thousand (£'k), unless otherwise indicated.
The Group presents its statement of financial position broadly in order of
liquidity. An analysis regarding recovery or settlement within 12 months after
the reporting date (current) and more than 12 months after the reporting date
(non-current) is presented in the respective notes.
Financial assets and financial liabilities are offset and the net amount
reported in the statement of financial position only when there is a legally
enforceable right to offset the recognised amounts and there is an intention
to settle on a net basis, or to realise the assets and settle the liability
simultaneously.
As permitted by IFRS 4 "Insurance Contracts", the Group continues to apply the
existing accounting policies that were applied prior to the adoption of IFRS,
with certain modifications allowed by the standard effective subsequent to
adoption for its insurance contracts.
1.2. Going concern
The consolidated annual financial statements have been prepared on a going
concern basis. The Directors have a reasonable expectation that the Group has
adequate resources to continue in operation for at least the next 12 months to
31 March 2024 and that therefore it is appropriate to adopt a going concern
basis for the preparation of the financial statements.
In making their assessment, the Directors took into account the potential
impact of the principal risks that could prevent the Group from achieving its
strategic objectives. The assessment was based on the Group's ORSA, which
brings together management's view of current and emerging risks, with
scenario-based analysis and reverse stress testing to form a conclusion as to
the financial stability of the Group. Consideration was also given to what the
Group considers its principal risks which are set out in the Principal Risks
and Uncertainties section on pages 19 to 28 of the Strategic Report of the
Annual Report and Accounts. The assessment also included consideration of any
scenarios which might cause the Group to breach its solvency requirements
which are not otherwise covered in the risk-based scenario testing.
We have assessed the short, medium and long-term risks associated with climate
change. Given the geographical diversity of the Group's policyholders within
the UK and the Group's reinsurance programme, it is highly unlikely that a
climate event will materially impact Sabre's ability to continue trading. More
likely is that the costs associated with the transition to a low-carbon
economy will impact the Group's indemnity spend, as electronic vehicles are
currently relatively expensive to fix. We expect that this is somewhat, or
perhaps completely, offset by advances in technology reducing the frequency of
claims, in particular bodily injury claims which are generally far more
expensive than damage to vehicles. These changes in the costs of claims are
gradual and as such reflected in our claims experience and fed into the
pricing of our policies. However, if the propensity to travel by car decreases
overall this could impact the Group's income in the long term, but this is not
expected to be material within the viability period of three years. We do not
consider it plausible that such a decrease would be as severe as the scenarios
that we have modelled as part of our viability testing exercise.
1.3. New and amended standards and interpretations adopted by the Group
Amendments to IFRS
The following amended IFRS standards became effective for the year ended 31
December 2022:
- Annual Improvements to IFRS 2018-2020
- Amendment to IFRS 1 First-time Adoption of International Financial Reporting
Standards - Subsidiary as a First-time Adopter
- Amendment to IFRS 9 Financial Instruments - Fees in the '10 per cent' Test
for Derecognition of Financial Liabilities
- Amendment to IFRS 16 Leases - Lease Incentives
- Amendment to IAS 41 Agriculture - Taxation in Fair Value Measurements
- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
- Property, Plant and Equipment: Proceeds before Intended Use (Amendments to
IAS 16)
- Reference to the Conceptual Framework (Amendments to IFRS 3)
None of the amendments have had a material impact to the Group.
1.4. New and amended standards and interpretations not yet
effective in 2022
A number of new standards and interpretations adopted by the UK which are not
mandatorily effective, as well as standards interpretations issued by the IASB
but not yet adopted by the UK, have not been applied in preparing these
financial statements. The Group does not plan to adopt these standards early;
instead it expects to apply them from their effective dates as determined by
their dates of UK endorsement. The Group is still reviewing the upcoming
standards to determine their impact:
- IFRS 17: "Insurance Contracts" (IASB effective date: 1 January 2023)
- IFRS 10 and IAS 28: Amendment: "Sale or Contribution of Assets between
an Investor and its Associate or Joint Venture" (IASB effective date:
optional)
IFRS 17 - "Insurance Contracts"
The effective date for IFRS 17 is 1 January 2023. IFRS 17 will change the way
insurance contracts are accounted for and reported. Revenue will no longer be
equal to premiums written but instead reflect a change in the contract
liability on which consideration is expected. On initial assessment the major
change will be on the presentation of the statement of profit or loss, with
premium and claims figures being replaced with insurance contract revenue,
insurance service expense and insurance finance income and expense. IFRS 17
also has additional disclosure requirements.
IFRS 17 prescribes a comprehensive model, the general model, which requires
entities to measure an insurance contract at initial recognition as the total
of the fulfilment cash flows (comprising the estimated future cash flows, an
adjustment to reflect the time value of money and an explicit risk adjustment
for non-financial risk) and the contractual service margin. The fulfilment
cash flows are remeasured on a current basis each reporting period. The
unearned profit (contractual service margin) is recognised over the coverage
period.
IFRS 17 also provides a simplification to the general model, the premium
allocation approach ("PAA"). This simplified approach is applicable for
certain types of contracts, including those with a coverage period of one year
or less. The liability for remaining coverage is similar to the current
premium reserve profile recognised over time. The principles of the general
model remain applicable to the liability for incurred claims.
All contracts issued by the Group are for one year or less and the Group
expects to apply the PAA model to all insurance contracts written.
The Group is continuously assessing the impact of the design decision and
relevant accounting policy choices. The Group's assessment of the requirements
of the standard against current data, processes and valuation models does not
indicate a material impact on the Group's financial results.
The next steps for the Group are to incorporate changes required in the
internal management and financial statement reporting process to report its
results under IFRS 17 and finalise the accounting policies and methodologies
for the transitional approach that will be applied. Management does not expect
the transition to have a significant impact on the Group's future profit or
the net asset value.
Transitional Accounting
We intend to apply IFRS 17 fully retrospectively. As we intend to operate all
contracts under the premium allocation approach, we expect the impact at
transition to be limited.
DAC
Under IFRS 4, the Company deferred some of the cash flows from operational
expenses which were identified as acquisition costs. Under IFRS 17 the Company
will assess those cash flows arising from the cost of selling, underwriting
and starting a group of insurance contacts (issued or expected to be issued)
that are directly attributable to the portfolio of insurance contacts to which
the group belongs. We expect the total annual expenditure deferred under IFRS
17 to be lower than that under IFRS 4. As a result, we expect the deferred
acquisition cost asset to be lower under IFRS 17, which will reduce net assets
on transition date. We expect this to be partially off-set by discounting of
insurance liabilities. We do not expect a significant impact on the earnings
profile of the Company, given the decrease in total deferred costs will be
offset by a decrease in the run-off of opening deferrals.
Reserving for outstanding claims liabilities
While there are some technical differences in the approach to reserving
between IFRS 4 and IFRS 17, we do not expect that there will be a material
difference in practice between the reserves held under the two bases, with the
exception of discounting and the application of a risk adjustment, which are
discussed below.
Discounting
Under IFRS 4 the measurement of the liability for outstanding claims for
non-life business is not discounted. Under IFRS 17, the Company will recognise
income and expenses at recognition and as a result of changes in the carrying
amount of the liability for incurred claims due to:
- Insurance service expenses - for the increase in the liability because
of claims and expenses incurred in the period, excluding any investment
components
- Insurance service expenses - for any subsequent changes in fulfilment
cash flows relating to incurred claims and incurred expenses
- Insurance finance income or expenses - for the effect of the time value
of money and the effect of financial risk
Fulfilment cash flows are adjusted to reflect the time value of money and
financial risks related to those cash flows. The adjustment is made by
discounting estimated future cash flows. The discount rate applied to
fulfilment cash flows will be calculated at the reporting date. The Company
will use the IFRS 17 'top-down' approach to determine the appropriate discount
rates for insurance contracts based on a yield curve that reflects the current
market rates of return implicit in a fair value measurement of a reference
portfolio of assets.
Risk adjustment
Under IFRS 4 the Company applied a risk margin to its liabilities for
outstanding claims. Under IFRS 17 the Company will replace the risk margin
with a risk adjustment for non-financial risk. This risk adjustment represents
the compensation that the Company requires for bearing the uncertainty about
the amount and timing of cash flows that arise from non-financial risk.
Non-financial risk is risk arising from insurance contracts other than
financial risk, which is included in the estimates of future cash flows or the
discount rate used to adjust the cash flows. The risks covered by the risk
adjustment for non-financial risk are insurance risk and other non-financial
risks such as lapse risk and expense risk.
The risk adjustment for non-financial risk for insurance contracts measures
the compensation that the Company would require to make it indifferent
between:
- Fulfilling a liability that has a range of possible outcomes arising
from non-financial risk; and
- Fulfilling a liability that will generate fixed cash flows with the same
expected present value as the insurance contracts
The impact of replacing the IFRS 4 risk margin with the IFRS 17 risk
adjustment is expected to have an insignificant impact on the net assets of
the Company.
Reinsurance
The Company does not run a complex reinsurance programme and one holds a
single group of 'loss occurring' reinsurance contracts, having a coverage
period of less than one year. Under IFRS 17 the company will use the premium
allocation approach, adapted to reflect the features of reinsurance contracts
held that differ from insurance contracts issued.
Under IFRS 17 a group of reinsurance contracts held is recognised from the
earliest of the following:
- The beginning of the coverage period of the group of reinsurance
contracts held; and
- The date on which the Company recognises an onerous group of underlying
insurance contracts if the Company entered into the related reinsurance
contract held in the group of reinsurance contracts held at or before that
date.
The Company does not expect any of the underlying contracts to be onerous and
will recognise the group of excess-of-loss reinsurance contracts at the
beginning of the coverage period, in-line with current treatment under IFRS 4
and no impact on the net asset value of the Company on transition to IFRS 17.
Defined IFRS 17 terms:
Contractual service margin - A component of the carrying amount of the asset
or liability for a group of insurance contracts representing the unearned
profit the entity will recognise as it provides insurance contract service
under the insurance contracts in the group.
Coverage period - The period during which the entity provides insurance
contract services. The period includes the insurance contract services that
relate to all premiums within the boundary of the insurance contract.
Fulfilment cash flows - An explicit, unbiased and probability-weighted
estimate (ie expected value) of the present value of the future cash outflows
minus the present value of the future cash inflows that will arise as the
entity fulfils insurance contacts, including a risk adjustment for
non-financial risk.
Liability for incurred claims ("LIC") - An entity's obligation to:
a) Investigate and pay valid claims for insured events that have already
occurred, including events that have occurred but for which claims have not
been reported, and other incurred insurance expenses; and
b) Pay amounts that are not included in (a) and that relate to:
i. insurance contract services that have already been provided; or
ii. any investment components or other amounts that
are not related to the provision of insurance contract services and that are
not in the liability for remaining coverage
Liability for remaining coverage ("LRC") - An entity's obligation to:
a) investigate and pay valid claims under existing insurance contracts
for insured events that have not yet occurred (ie the obligation that relates
to the unexpired portion of the insurance coverage); and
b) pay amounts under existing insurance contracts that are not included in
(a) and that relate to:
i. insurance contract services not yet provided (ie the obligations that
relate to future provision of insurance contract services); or
ii. any investment components or other amounts that
are not related to the provision of insurance contract services and that have
not been transferred to the liability for incurred claims
2. Risk and capital management
2.1. Risk management framework
The Sabre Insurance Group plc Board is responsible for prudent oversight of
the Group's business and financial operations, ensuring that they are
conducted in accordance with sound business principles and with applicable
laws and regulations, and ensure fair customer outcomes. This includes
responsibility to articulate and monitor adherence to the Board's appetite for
exposure to all risk types. The Board also ensures that measures are in place
to provide independent and objective assurance on the effective identification
and management of risk and on the effectiveness of the internal controls in
place to mitigate those risks.
The Board has set a robust risk management strategy and framework as an
integral element in its pursuit of business objectives and in the fulfilment
of its obligations to shareholders, regulators, customers and employees.
The Group's risk management framework is proportionate to the risks that we
face. Our assessment of risk is not static; we continually reassess the risk
environment in which the Group operates and ensure that we maintain
appropriate mitigation in order to remain within our risk appetite. The
Group's Management Risk and Compliance Forum gives Management the regular
opportunity to review and discuss the risks which the Group faces, including
but not limited to any breaches, issues or emerging risks. The Forum also
works to ensure that adequate mitigation for the risks the Group is exposed to
are in place.
2.2. Underwriting risk
The principal risk the Group faces under insurance contracts is that the
actual claims and benefit payments, or the timing thereof, differ from
expectations. This is influenced by the frequency of claims, severity of
claims, actual benefits paid and subsequent development of long-term claims.
Therefore, the objective of the Group is to ensure that sufficient reserves
are available to cover these liabilities.
The Group issues only motor insurance contracts, which usually cover a
12-month duration. For these contracts, the most significant risks arise from
under-estimation of the expected costs attached to a policy or a claim, for
example through unexpected inflation of costs or single catastrophic events..
Refer to Note 3.5 for detail on these risks and the way the Group manages
them. Note 3.5 also includes the considerations of climate change. Further
discussion on climate change can be found in the Principal Risks and
Uncertainties section on pages 19 to 28 of the Strategic Report and the
Responsibility and Sustainability section on pages 38 to 49 of the Annual
Report and Accounts.
2.3. Credit risk
Credit risk reflects the financial impact of the default of one or more of the
Group's counterparties. The Group is exposed to financial risks caused by a
loss in the value of financial assets due to counterparties failing to meet
all or part of their obligations. Key areas where the Group is exposed to
credit default risk are:
- Failure of an asset counterparty to meet their financial obligations
(Note 4.6)
- Reinsurer default on presentation of a large claim or dispute of cover
(Note 3.6)
- Reinsurers default on their share of the Group's insurance liabilities
(Note 3.6)
- Default on amounts due from insurance contract intermediaries or
policyholders (Note 3.6)
The following policies and procedures are in place to mitigate the Group's
exposure to credit risk:
- A Group credit risk policy which sets out the assessment and
determination of what constitutes credit risk for the Group. Compliance with
the policy is monitored and exposures and breaches are reported to the Group's
Risk Committee
- Reinsurance is placed with counterparties that have a good credit rating
and concentration of risk is avoided by following policy guidelines in respect
of counterparties' limits that are set each year by the Board of Directors and
are subject to regular reviews. At each reporting date, management performs an
assessment of creditworthiness of reinsurers and updates the reinsurance
purchase strategy, ascertaining suitable allowance for impairment
- The Group sets the maximum amounts and limits that may be advanced to
corporate counterparties by reference to their long-term credit ratings
- The credit risk in respect of customer balances incurred on non-payment
of premiums or contributions will only persist during the grace period
specified in the policy document or trust deed until expiry, when the policy
is either paid up or terminated. Commission paid to intermediaries is netted
off against amounts receivable from them to reduce the risk of doubtful debts
Refer to Notes 3.6 and 4.6 as indicated above for further information on
credit risk.
2.4. Liquidity risk
Liquidity risk is the potential that obligations cannot be met as they fall
due as a consequence of having a timing mismatch or inability to raise
sufficient liquid assets without suffering a substantial loss on realisation.
The Group manages its liquidity risk through both ensuring that it holds
sufficient cash and cash equivalent assets to meet all short-term liabilities,
and matching the maturity profile of its financial investments to the expected
cash outflows.
Refer to Note 6 for further information on liquidity risk.
2.5. Investment concentration risk
Excessive exposure to particular industry sectors or groups can give rise to
concentration risk. The Group has no significant investment in any particular
industrial sector and therefore is unlikely to suffer significant losses
through its investment portfolio as a result of over-exposure to sectors
engaged in similar activities or which have similar economic features that
would cause their ability to meet contractual obligations to be similarly
affected by changes in economic, political or other conditions.
A significant part of the Group's investment portfolio consists primarily of
UK government bonds and government-backed bonds, therefore the risk of
government default does exist, however the likelihood is extremely remote. The
remainder of the portfolio consists of investment grade corporate bonds. The
Group continues to monitor the strength and security of all bonds.
The Group's portfolio has a significant concentration of UK debt securities
and therefore is exposed to movements in UK interest rates.
Refer to Note 4.2 for further information on investment concentration risk.
2.6. Operational risk
Operational risk is the risk of loss arising from system failure, human error,
fraud or external events. When controls fail to perform, operational risks can
cause damage to reputation, have legal or regulatory implications or can lead
to financial loss. The Group cannot expect to eliminate all operational risks,
but by operating a rigorous control framework and by monitoring and responding
to potential risks, the Group is able to manage the risks. Controls include
effective segregation of duties, access controls, authorisation and
reconciliation procedures, staff education and assessment processes, including
the use of internal audit. Business risks such as changes in environment,
technology and the industry are monitored through the Group's strategic
planning and budgeting process.
2.7. Capital management
The Board of Directors has ultimate responsibility for ensuring that the Group
has sufficient funds to meet its liabilities as they fall due. The Group
carries out detailed modelling of its assets and liabilities and the key risks
to which these are exposed. This modelling includes the Group's own assessment
of its capital requirements for solvency purposes.
The Group has continued to manage its solvency with reference to the Solvency
Capital Requirement ("SCR") calculated using the Standard Formula. The Group
has developed sufficient processes to ensure that the capital requirements
under Solvency II are not breached, including the maintenance of capital at a
level higher than that required through the Standard Formula. The Group
considers its capital position to be its net assets on a Solvency II basis and
monitors this in the context of the Solvency II SCR.
The Group aims to retain sufficient capital such that in all reasonably
foreseeable scenarios it will hold regulatory capital in excess of its SCR.
The Directors currently consider that this is achieved through maintaining a
regulatory capital surplus of 140% to 160%. As at 31 December 2022, the Group
holds significant excess Solvency II capital.
The Group's IFRS capital comprised:
As at 31 December
2022 2021
£'k £'k
Equity
Issued share capital 250 250
Own shares (2,810) (2,257)
Merger reserve 48,525 48,525
FVOCI reserve (13,029) (2,363)
Revaluation reserve 831 831
Share-based payments 2,407 1,841
Retained earnings 186,322 205,900
Total 222,496 252,727
The Solvency II position of the Group both before and after final dividend is
given below:
As at 31 December
2022 2021
Pre-dividend £'k £'k
Total tier 1 capital 91,191 110,114
SCR 56,516 52,955
Excess capital 34,675 57,159
Solvency coverage ratio (%) 161% 208%
As at 31 December
2022 2021
Post-dividend £'k £'k
Total tier 1 capital 86,941 86,864
SCR 56,516 52,955
Excess capital 30,425 33,909
Solvency coverage ratio (%) 154% 164%
The following table sets out a reconciliation between IFRS net assets and
Solvency II net assets before final dividend:
As at 31 December
2022 2021
£'k £'k
IFRS net assets 222,496 252,727
Less: Goodwill (156,279) (156,279)
Adjusted IFRS net assets 66,217 96,448
Unearned premium reserve 83,858 90,776
Deferred acquisition costs (13,354) (13,791)
Solvency II premium provision (53,581) (64,011)
IFRS risk margin((1)) 10,764 11,229
Discount claims provision 11,663 2,209
Change in life reserves 1,047 (1,903)
Solvency II risk margin (7,752) (7,638)
Change in deferred tax (7,671) (3,205)
Solvency II net assets 91,191 110,114
(1) In line with industry practice, the IFRS risk margin is an explicit
additional reserve in excess of the actuarial best estimate which is designed
to create a margin held in reserves to allow for adverse development in open
claims.
The adjustments set out in the above table have been made for the following
reasons:
- Adjusted IFRS net assets: Equals Group net assets on an IFRS basis, less
Goodwill.
- Removal of unearned premium reserve and deferred acquisition costs: The
unearned premium reserve and deferred acquisition costs must be removed as
they are not deferred under Solvency II.
- Solvency II premium provision: A premium reserve reflecting the future
cash flows in respect of insurance contracts is calculated and this must be
discounted under Solvency II.
- IFRS risk margin: Solvency II reserves must reflect a true "best
estimate" basis. Therefore, the IFRS risk margin is removed from the claims
reserve.
- Discount claims provision: The provision held against future claims
expenditure for claims incurred is discounted in the same way as the Solvency
II premium provision.
- Solvency II risk margin: The Solvency II risk margin represents the
premium that would be required were the Group to transfer its technical
provisions to a third party, and essentially reflects the SCR required to
cover run-off of claims on existing business. This amount is calculated by the
Group through modelling the discounted SCR on a projected future balance sheet
for each year of claims run-off.
- Change in deferred tax: As the move to a Solvency II basis balance sheet
increases the net asset position of the Group, a deferred tax liability is
generated to offset the increase.
Sabre Insurance Group plc's SCR, expressed on a risk module basis, is set out
in the following table:
as at 31 December 2022 as at 31 December 2021
£'k £'k £'k £'k £'k £'k
Interest rate risk 5,548 3,359
Equity risk - -
Property risk 956 956
Spread risk 3,264 4,965
Currency risk 1,112 1,082
Concentration risk - -
Correlation impact (3,660) (3,449)
Market risk 7,220 6,913
Counterparty risk 2,333 3,403
Underwriting risk 52,421 51,985
Correlation impact (6,129) (6,422)
Basic SCR 55,845 55,879
Operating risk 6,372 6,515
Loss absorbing effect of deferred taxes (5,701) (9,439)
Total SCR 56,516 52,955
The total SCR is primarily driven by the underwriting risk element, which is a
function of the Group's net earned premium (or projected net earned premium)
and the level of reserves held. Therefore, the SCR is broadly driven by the
size of the business.
The Group's capital management objectives are:
- to ensure that the Group will be able to continue as going a concern
- to maximise the income and capital return to its equity
The Board monitors and review the broad structure of the Group's capital on an
ongoing basis. This review includes consideration of the extent to which
revenue in excess of that which is required to be distributed should be
retained.
The Group's objectives, policies and processes for managing capital have not
changed during the year.
3. Insurance liabilities and reinsurance assets
ACCOUNTING POLICY
Claims incurred include all losses occurring through the year, whether
reported or not, related handling costs and any adjustments to claims
outstanding from previous years. Significant delays are experienced in the
notification and settlement of certain claims, particularly in respect of
liability claims, the ultimate cost of which cannot be known with certainty at
the balance sheet date. Reinsurance recoveries (or amounts due from
reinsurers) are accounted for in the same period as the related claim.
A. Provision for claims outstanding
The provision for claims outstanding is based on information available at the
balance sheet date. Significant delays are experienced in the notification and
settlement of certain claims and accordingly the ultimate cost of such claims
cannot be known with certainty at the balance sheet date. Subsequent
information and events may result in the ultimate liability being less than,
or greater than, the amount provided. Any differences between provisions and
subsequent settlements are dealt with in the profit or loss account. Claims
provisions are not discounted, with the exception of Periodic Payment Orders
("PPOs"), which are discussed more fully in the Critical accounting estimates
and judgements section in Note 3.
The provision for claims outstanding includes the following:
- Claims Incurred and Reported (individual case estimates)
- Claims Incurred but Not Reported ("IBNR")/Claims Incurred But Not Enough
Reported ("IBNER")
- Claims Handling Provision
(i) Claims Incurred and Reported (individual case estimates)
When claims are initially reported, case estimates are set at fixed levels
based on previous average claims settlements. As soon as sufficient
information becomes available, the case estimate is amended by a claim handler
within the Claims Department to reflect the expected ultimate settlement cost
of the claim, including external claims handling costs. The case estimate will
be amended throughout the life of a claim as further information emerges. Case
estimates generally do not allow for possible reductions in our liability due
to contributory negligence, favourable court judgments or settlements until
these are known to a high probability. Because of this, the outstanding case
reserve recorded is generally greater than the probability-weighted likely
settlement amount of the claim.
(ii) Claims Incurred But Not Reported ("IBNR")/Claims Incurred But Not
Enough Reported ("IBNER")
The Claims IBNR provision consists of two elements:
- IBNR - An amount in respect of claims incurred but not yet recorded on
the policy administration system ('pure' IBNR), which is typically a
'positive'
- IBNER - An adjustment to open case reserves, booked at a portfolio
level, which converts the open reserve recorded on our underwriting system to
a true 'best estimate' basis. If the case reserves held are in excess of a
'best estimate' basis, this will result in a 'negative' IBNER. If the case
reserves are below a 'best estimate' basis, this will result in a 'positive'
IBNER
The Group refers to these collectively as 'IBNR' and unless stated otherwise,
when referring to IBNR this always include both elements.
These reserves are calculated using standard actuarial modelling techniques
such as chain ladder and Bornhuetter-Ferguson methods. The IBNR adjustment is
set after considering the results of these statistical methods based on, inter
alia, historical claims development trends, average claims costs and expected
inflation rates.
(iii) Claims Handling Provision
A provision for claims handling costs is estimated based on the number of
outstanding claims at the balance sheet date and the estimated average
internal cost of settling claims.
B. Provision for unexpired risks
Provision is made for unexpired risks when, after taking account of an element
of attributable investment income, it is anticipated that the unearned
premiums will be insufficient to cover future claims and expenses on existing
contracts. The expected claims are calculated having regard to events which
have occurred prior to the balance sheet date. Unexpired risk surpluses and
deficits are offset when business classes are managed together and a provision
is made if an aggregate deficit arises.
At each reporting date, a liability assessment is performed to ensure the
adequacy of the claims liabilities net of deferred acquisition costs and
unearned premium reserves. In performing this assessment, current best
estimates of future contractual cash flows and claims handling expenses are
used. Any deficiency is immediately charged to the statement of profit or
loss, initially by writing off deferred acquisition costs and subsequently by
establishing a provision for losses arising from the liability assessment
("unexpired risk provision"). There is currently no unexpired risk provision.
C. Deferred acquisition costs
Deferred acquisition costs represent a proportion of commission and other
acquisition costs that relate to policies that are in force at the year end.
Deferred acquisition costs are amortised over the period in which the related
premiums are earned. Such costs are identified as being directly attributable
to the acquisition of business, or are indirectly attributed to acquisition
activity through an allocation exercise.
D. Gross written premiums
Gross written premiums comprise all amounts during the financial year in
respect of contracts entered into regardless of the fact that such amounts may
relate in whole or in part to a later financial year. All premiums are shown
gross of commission payable to intermediaries (where applicable) and are
exclusive of taxes, duties and levies thereon. Insurance premiums are adjusted
by an unearned premium reserve which represents the proportion of premiums
written that relate to periods of risk subsequent to the balance sheet date.
E. Unearned premium reserve ("UPR")
Unearned premiums are those proportions of the premiums written in a year that
relate to the periods of risk subsequent to the balance sheet date. They are
computed principally on a daily pro-rata basis.
Risk management
Refer to Notes 3.5 and 3.6 for detail on risks relating to insurance
liabilities and reinsurance assets, and the management thereof.
Critical accounting estimates and judgements
Valuation of insurance contracts
The three key elements impacting the valuation of insurance contracts are:
i. Claims reserve
For the valuation of insurance contracts, estimates are made both for the
expected ultimate cost of claims reported at the reporting date, consisting of
a reserve for claims incurred and reported, and an estimate of the sufficiency
of these reserves (through the calculation of an Incurred But Not Enough
Reported ("IBNER") estimate, and for the expected ultimate cost of claims
incurred, but not yet reported ("IBNR"), at the reporting date). It can take a
significant period of time before the ultimate claims cost can be established
with certainty. The claims reserve consists of an actuarial best estimate and
an appropriate, explicit risk margin. The Board has set the explicit risk
margin at 8% of the net best estimate claims reserve (2021: 10%). The risk
margin has been set having considered short-term volatility in claims
experience and having assessed estimation uncertainty within the reserving
process. Since the last reporting period, the Group has carried out additional
mathematical modelling on effective confidence intervals within the reserving
process, which, along with our assessment of the impact of inflation, has
contributed to the selection of risk margin.
ii. Outstanding claims
The ultimate cost of outstanding claims is estimated by using a range of
standard actuarial claims projection techniques, such as Chain Ladder and
Bornhuetter-Ferguson methods. The main assumption underlying these techniques
is that the Group's past claims development experience can be used to project
future claims development and hence ultimate claims costs. As such, these
methods extrapolate the development of paid and incurred losses, average costs
per claim and claim numbers based on the observed development of earlier years
and expected loss ratios. Historical claims development is analysed by
accident years and types of claim. In most cases, no explicit assumptions are
made regarding future rates of claims inflation or loss ratios. Instead, the
assumptions used are those implicit in the historical claims development data
on which the projections are based. Additional qualitative judgement is used
to assess the extent to which past trends may not apply in the future, (e.g.,
to reflect one-off occurrences, changes in external or market factors such as
public attitudes to claiming, economic conditions, levels of claims inflation,
climate change, judicial decisions and legislation, as well as internal
factors such as portfolio mix, policy features and claims handling procedures)
in order to arrive at the estimated ultimate cost of claims that present the
likely outcome from the range of possible outcomes, taking account of all the
uncertainties involved.
iii. Periodic Payment Orders ("PPO")
Liability claims may be settled through a PPO, established under the Courts
Act 2003, which allows a UK court to award damages for future loss or any
other damages in respect of personal injury. The court may order that the
damages either partly or fully take the form of a PPO. To date, the Group has
four PPOs within its reserve for claims incurred and reported. Reinsurance is
applied at the claim level, and therefore as PPOs generally result in a
liability in excess of the Group's reinsurance retention, the net liability on
acquisition of a PPO is not significantly different to that arising in a
non-PPO situation. Management will continue to monitor the level of PPO
activity. Where Management expect the total probability-weighted cash flows
for actual and potential PPOs to generate a net outflow following settlement
of reinsurance recoveries, this is reflected within gross outstanding claims
liabilities and the related reinsurance recoverable.
The Group's insurance liabilities and reinsurance assets are sumarised below:
2022 2021
Notes £'k £'k
Outstanding claims 3.1 257,443 232,516
Unearned premium reserve 3.1.1 83,858 90,776
Deferred acquisition costs 3.1.2 (13,354) (13,791)
Reinsurance assets 3.1 (116,526) (112,312)
Receivables arising from insurance and reinsurance contracts 3.2 (31,427) (38,003)
Payables arising from insurance and reinsurance contracts 3.3 5,981 7,115
Total 3.7 185,975 166,301
A reconciliation between the opening and closing balances is provided in Note
3.7.
3.1 Insurance liabilities and reinsurance assets
2022 2021
Notes £'k £'k
GROSS
Claims incurred and reported 327,334 309,892
Claims incurred but not reported (74,115) (81,272)
Claims handling provision 4,224 3,896
Outstanding claims liabilities 3.1.1 257,443 232,516
Unearned premium reserve 3.1.1 83,858 90,776
Total insurance liabilities - Gross 341,301 323,292
Expected to be settled within 12 months (excluding UPR) 106,486 112,975
Expected to be settled after 12 months (excluding UPR) 150,957 119,541
RECOVERABLE FROM REINSURERS
Claims incurred and reported (124,477) (127,812)
Claims incurred but not reported 18,134 24,184
Outstanding claims liabilities 3.1.1 (106,343) (103,628)
Unearned premium reserve 3.1.1 (10,183) (8,684)
Total reinsurers' share of insurance liabilities (116,526) (112,312)
Expected to be settled within 12 months (excluding UPR) (31,936) (43,546)
Expected to be settled after 12 months (excluding UPR) (74,407) (60,082)
NET
Claims incurred and reported 202,857 182,080
Claims incurred but not reported (55,981) (57,088)
Claims handling provision 4,224 3,896
Outstanding claims liabilities 3.1.1 151,100 128,888
Unearned premium reserve 3.1.1 73,675 82,092
Total insurance liabilities - Net 224,775 210,980
3.1.1 Movement in insurance liabilities and reinsurance assets
2022 2021
Gross RI share Net Gross RI share Net
£'k £'k £'k £'k £'k £'k
CLAIMS AND CLAIMS HANDLING EXPENSES
Claims incurred and reported 309,892 (127,812) 182,080 313,164 (123,440) 189,724
Claims incurred but not reported (81,272) 24,184 (57,088) (90,267) 31,424 (58,843)
Claims handling provision 3,896 - 3,896 3,649 - 3,649
Total at the beginning of the year 232,516 (103,628) 128,888 226,546 (92,016) 134,530
Cash paid for claims settled in the year (93,353) 10,379 (82,974) (92,247) 12,357 (79,890)
Increase in liabilities
- arising from current year claims 124,604 (20,640) 103,964 89,480 (8,072) 81,408
- arising from prior year claims (6,324) 7,546 1,222 8,737 (15,897) (7,160)
Total at the end of the year 257,443 (106,343) 151,100 232,516 (103,628) 128,888
Claims incurred and reported 327,334 (124,477) 202,857 309,892 (127,812) 182,080
Claims incurred but not reported (74,115) 18,134 (55,981) (81,272) 24,184 (57,088)
Claims handling provision 4,224 - 4,224 3,896 - 3,896
Total at the end of the year 257,443 (106,343) 151,100 232,516 (103,628) 128,888
Amounts due from reinsurers in respect of claims already paid by the Group on
the contracts that are reinsured are included in Note 3.2.
2022 2021
Gross RI share Net Gross RI share Net
£'k £'k £'k £'k £'k £'k
UNEARNED PREMIUM RESERVE
At the beginning of the year 90,776 (8,684) 82,092 87,350 (7,905) 79,445
Written in the year 171,257 26,456 197,713 169,322 21,233 190,555
Earned in the year (178,175) (27,955) (206,130) (165,896) (22,012) (187,908)
Total at the end of the year 83,858 (10,183) 73,675 90,776 (8,684) 82,092
3.1.2 Movement in deferred acquisition costs
2022 2021
£'k £'k
DEFERRED ACQUISITION COSTS
At the beginning of the year 13,791 14,791
Additions 27,699 28,643
Recognised in the profit or loss account (28,136) (29,642)
Total at the end of the year 13,354 13,791
3.2 Receivables arising from insurance and reinsurance contracts
ACCOUNTING POLICY
Insurance receivables are recognised when due and measured on initial
recognition at the fair value of the consideration received or receivable.
Subsequent to initial recognition, insurance receivables are measured at
amortised cost, using the effective interest rate method. The carrying value
of insurance receivables is reviewed for impairment whenever events or
circumstances indicate that the carrying amount may not be recoverable, with
the impairment loss recorded in the profit or loss account.
2022 2021
£'k £'k
Due from brokers and intermediaries 14,334 17,954
Due from policyholders 17,093 20,139
Less: provision for impairment of broker and intermediary receivables - (90)
Total at the end of the year 31,427 38,003
The carrying value of insurance and other receivables approximates to fair
value. There are no amounts expected to be recovered more than 12 months after
the reporting date.
3.3 Payables arising from insurance and reinsurance contracts
ACCOUNTING POLICY
Payables are recognised when due. Reinsurance payables represent premiums
payable to reinsurers in respect of contracts which have been entered into at
the date of the financial position.
2022 2021
£'k £'k
Insurance creditors 1,471 1,244
Amounts due to reinsurers 4,510 5,871
Total at the end of the year 5,981 7,115
Payables arising from insurance and reinsurance contracts are expected to be
settled within 12 months. The carrying value of payables approximates fair
value.
3.4 Insurance claims
2022 2021
Gross RI share Net Gross RI share Net
£'k £'k £'k £'k £'k £'k
Movement in claims provision 117,953 (13,094) 104,859 97,970 (23,969) 74,001
Movement in claims handling provision 327 - 327 247 - 247
Claims handling expenses allocated 7,613 - 7,613 6,767 - 6,767
Net insurance claims 125,893 (13,094) 112,799 104,984 (23,969) 81,015
3.4.1 Claims development tables
The presentation of the claims development tables for the Group is based on
the actual date of the event that caused the claim (accident year basis).
Gross outstanding claims liabilities
Accident year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total
£'k £'k £'k £'k £'k £'k £'k £'k £'k £'k £'k
Estimate of ultimate claims costs
At the end of the accident year 84,939 75,649 103,599 111,518 165,707 120,077 126,981 101,965 89,233 124,277
- One year later 70,567 65,639 90,133 100,935 131,803 108,089 122,663 97,953 87,555
- Two years later 63,197 62,039 82,537 94,294 123,651 107,988 127,225 88,755
- Three years later 65,313 60,301 79,845 91,336 122,674 113,257 125,608
- Four years later 68,763 59,149 77,095 90,789 124,128 115,403
- Five years later 64,290 58,367 77,038 92,629 124,264
- Six years later 63,153 58,718 77,469 96,596
- Seven years later 63,088 58,438 77,480
- Eight years later 63,213 58,361
- Nine years later 63,271
Current estimate of cumulative claims 63,271 58,361 77,480 96,596 124,264 115,403 125,608 88,755 87,555 124,277
Cumulative payments to date (59,880) (58,203) (75,753) (89,434) (87,759) (94,578) (101,313) (61,066) (53,419) (42,496)
Liability recognised in balance sheet 3,391 158 1,727 7,162 36,505 20,825 24,295 27,689 34,136 81,781 237,669
2012 and prior 15,550
Claims handling provision 4,224
Total 257,443
Net outstanding claims liabilities
Accident year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total
£'k £'k £'k £'k £'k £'k £'k £'k £'k £'k £'k
Estimate of ultimate claims costs
At the end of the accident year 77,316 74,609 97,288 104,808 106,478 111,433 115,011 85,723 81,161 103,637
- One year later 64,071 65,639 85,814 93,664 96,446 99,649 111,550 81,882 81,826
- Two years later 59,301 60,953 81,164 87,824 91,806 98,641 111,347 80,602
- Three years later 57,739 59,741 77,869 85,243 91,179 99,071 111,121
- Four years later 56,947 59,008 76,409 84,995 88,545 100,853
- Five years later 56,892 58,259 76,254 84,891 88,690
- Six years later 56,593 58,481 76,011 84,987
- Seven years later 56,572 58,198 76,578
- Eight years later 56,685 58,146
- Nine years later 56,813
Current estimate of cumulative claims 56,813 58,146 76,578 84,987 88,690 100,853 111,121 80,602 81,826 103,637
Cumulative payments to date (54,565) (57,986) (75,567) (83,091) (83,597) (91,210) (96,127) (60,751) (53,419) (42,496)
Liability recognised in balance sheet 2,248 160 1,011 1,896 5,093 9,643 14,994 19,851 28,407 61,141 144,444
2012 and prior 2,432
Claims handling provision 4,224
Total 151,100
3.5 Underwriting risk
The principal risk the Group faces under insurance contracts is that the
actual claims and benefit payments, or the timing thereof, differ from
expectations. This is influenced by the frequency of claims, severity of
claims, actual benefits paid and subsequent development of long-term claims.
Therefore, the objective of the Group is to ensure that sufficient reserves
are available to cover these liabilities.
The Group only issues motor insurance contracts, which usually cover a
12-month duration. For these contracts, the most significant risk which arises
is under-estimation of the expected costs attached to a policy or a claim, for
example through unexpected inflation of costs or single catastrophic events.
The above risk exposure is mitigated by diversification across a large
portfolio of policyholders and geographical areas within the UK. The
variability of risks is improved by careful selection and implementation of
underwriting strategies, which are designed to ensure that risks are
diversified in terms of type of risk and level of insured benefits. This is
largely achieved through diversification across policyholders. Furthermore,
strict claim review policies to assess all new and ongoing claims, regular
detailed review of claims handling procedures and frequent investigation of
possible fraudulent claims are all policies and procedures put in place to
reduce the risk exposure of the Group. The Group further enforces a policy of
actively managing and promptly pursuing claims, in order to reduce its
exposure to unpredictable future developments that can negatively impact the
business. Inflation risk is mitigated by taking expected inflation into
account when estimating insurance contract liabilities.
The Group purchases reinsurance as part of its risk mitigation programme.
Reinsurance ceded is placed on a non-proportional basis. This non-proportional
reinsurance is excess-of-loss, designed to mitigate the Group's net exposure
to single large claims or catastrophe losses. The current reinsurance
programme in place has a retention limit of £1m, with no upper limit. Amounts
recoverable from reinsurers are estimated in a manner consistent with the
outstanding claims provision and are in accordance with the reinsurance
contracts. Although the Group has reinsurance arrangements, it is not relieved
of its direct obligations to its policyholders and thus a credit exposure
exists with respect to ceded reinsurance, to the extent that any reinsurer is
unable to meet its obligations assumed under such reinsurance agreements.
Refer to Note 3.6 for insurance-related credit risk.
Key assumptions
The principal assumption underlying the liability estimates is that the
Group's future claims development will follow a similar pattern to past claims
development experience. This includes assumptions in respect of average claim
costs, claim handling costs, claim inflation factors and claim numbers for
each accident year. Additional qualitative judgements are used to assess the
extent to which past trends may not apply in the future, for example: one-off
occurrence; changes in market factors such as public attitude to claiming;
economic conditions; and internal factors such as portfolio mix, policy
conditions and claims handling procedures. Judgement is further used to assess
the extent to which external factors such as judicial decisions and government
legislation affect the estimates.
Other key circumstances affecting the reliability of assumptions include
variation in interest rates and delays in settlement.
Sensitivities
The motor claim liabilities are primarily sensitive to the reserving
assumptions noted above. It is not possible to quantify the sensitivity of
certain assumptions such as legislative changes or uncertainty in the
estimation process.
The following analysis is performed for reasonably possible movements in key
assumptions, including inflation, with all other assumptions held constant,
showing the impact on profit before tax and equity. The correlation of
assumptions will have a significant effect in determining the ultimate claims
liabilities, but to demonstrate the impact due to changes in assumptions,
assumptions had to be changed on an individual basis. It should be noted that
movements in these assumptions are non-linear.
The table shows the impact of a 10% increase in the gross loss ratio applied
to all underwriting years which have a material outstanding claims reserve,
and a 10% increase in gross outstanding claims across all underwriting years,
taking into account the impact of an increase in the operational costs
associated with handling those claims. We have considered the impact of excess
inflation in setting the threshold for this sensitivity analysis.
Decrease Decrease
in profit after tax In total equity
2022 2021 2022 2021
At 31 December £'k £'k £'k £'k
Insurance risk
Impact of a 10% increase in gross loss ratio (9,315) (7,921) (9,315) (7,921)
Impact of a 10% increase in gross outstanding claims and claims provision (10,078) (8,710) (10,078) (8,710)
A substantial increase in individually large claims which are over our
reinsurance retention limit, generally will have no impact on profit before
tax. The table shows the impact of a 10% increase on a net basis.
Decrease Decrease
in profit after tax In total equity
2022 2021 2022 2021
At 31 December £'k £'k £'k £'k
Insurance risk
Impact of a 10% increase in net loss ratio (11,597) (9,739) (11,597) (9,739)
Impact of a 10% increase in net outstanding claims and claims provision (12,239) (10,440) (12,239) (10,440)
Climate change
Management has assessed the short, medium and long-term risks which result
from climate change. The short-term risk is low. Given the geographical
diversity of the Group's policyholders within the UK and the Group's
reinsurance programme, it is highly unlikely that a climate event will
materially impact the Group's ability to continue trading. More likely is that
the costs associated with the transition to a low-carbon economy will impact
the Group's indemnity spend in the medium term, as electronic vehicles are
currently relatively expensive to fix. This is somewhat, or perhaps
completely, offset by advances in technology reducing the frequency of claims,
in particular bodily injury claims which are generally far more expensive than
damage to vehicles. These changes in the costs of claims are gradual and as
such reflected in the Group's claims experience and fed into the pricing of
policies. However, if the propensity to travel by car decreases overall this
could impact the Group's income in the long term.
Further discussion on climate change can be found in the Principal Risks and
Uncertainties section on pages 19 to 28 and the Responsibility and
Sustainability section on pages 38 to 49 of the Annual Report and Accounts.
3.6 Insurance-related credit risk
Key insurance-related areas where the Group is exposed to credit default risk
are:
- Reinsurers default on presentation of a large claim or dispute of cover
- Reinsurers default on their share of the Group's insurance liabilities
- Default on amounts due from insurance contract intermediaries or
policyholders
Sabre uses a large panel of secure reinsurance companies. The credit risk of
reinsurers included in the reinsurance programme is considered annually by
reviewing their credit worthiness. The Group's placement of reinsurance is
diversified such that it is not dependent on a single reinsurer. There is no
single counterparty exposure that exceeds 25% of total reinsurance assets at
the reporting date. Sabre's largest reinsurance counterparty is Munich Re. The
credit risk exposure is further monitored throughout the year to ensure that
changes in credit risk positions are adequately addressed.
The following tables demonstrate the Group's exposure to credit risk in
respect of overdue insurance debt and counterparty creditworthiness. Unearned
premium reserve ("UPR") is excluded as there are no credit risks inherent in
them.
Overdue insurance-related debt
Neither past due nor impaired Past due 1-90 days Past due more than 90 days Assets that have been impaired Carrying value in the balance sheet
At 31 December 2022 £'k £'k £'k £'k £'k
Reinsurance assets (excluding UPR) 106,343 - - - 106,343
Insurance receivables 31,364 63 - - 31,427
Total 137,707 63 - - 137,770
Neither past due nor impaired Past due 1-90 days Past due more than 90 days Assets that have been impaired Carrying value in the balance sheet
At 31 December 2021 £'k £'k £'k £'k £'k
Reinsurance assets (excluding UPR) 103,628 - - - 103,628
Insurance receivables 37,840 163 - - 38,003
Total 141,468 163 - - 141,631
Exposure by credit rating
AAA AA+ to AA- A+ to A- BBB+ to BBB- BB+ and below Not rated Total
At 31 December 2022 £'k £'k £'k £'k £'k £'k £'k
Reinsurance assets (excluding UPR) - 71,318 35,025 - - - 106,343
Insurance receivables - - - - - 31,427 31,427
Total - 71,318 35,025 - - 31,427 137,770
AAA AA+ to AA- A+ to A- BBB+ to BBB- BB+ and below Not rated Total
At 31 December 2021 £'k £'k £'k £'k £'k £'k £'k
Reinsurance assets (excluding UPR) - 72,498 31,130 - - - 103,628
Insurance receivables - - - - - 38,003 38,003
Total - 72,498 31,130 - - 38,003 141,631
3.7 Reconciliation of opening to closing balances
The below table reconciles the opening and closing balances of insurance
liabilities and reinsurance assets.
2022 2021
£'k £'k
Insurance liabilities and reinsurance assets - at the start of the year
Outstanding claims 232,516 226,546
Unearned premium reserve 90,776 87,350
Deferred acquisition costs (13,791) (14,791)
Reinsurance assets (112,312) (99,921)
Receivables arising from insurance and reinsurance contracts (38,003) (33,976)
Payables arising from insurance and reinsurance contracts 7,115 6,246
166,301 171,454
Profit or loss account movements
Net earned premium (153,218) (145,442)
Current year net incurred claims 103,964 81,408
Movement in prior year net incurred claims 1,222 (7,160)
Claims handling expenses 7,613 6,767
Change in deferred acquisition costs 437 1,000
(39,982) (63,427)
Cash flow movements
Premiums received 178,060 165,505
Reinsurance premiums paid (27,817) (20,574)
Claims and other claims expenses paid (90,587) (86,657)
59,656 58,274
Insurance liabilities and reinsurance assets - at the end of the year
Outstanding claims 257,443 232,516
Unearned premium reserve 83,858 90,776
Deferred acquisition costs (13,354) (13,791)
Reinsurance assets (116,526) (112,312)
Receivables arising from insurance and reinsurance contracts (31,427) (38,003)
Payables arising from insurance and reinsurance contracts 5,981 7,115
185,975 166,301
4. Financial assets
Risk management
Refer to the following notes for detail on risks relating to financial assets:
Investment concentration risk - Note 4.2
Credit risk - Note 4.6
Liquidity risk - Note 6
The Group's financial assets are summarised below:
2022 2021
Notes £'k £'k
Debt securities held at fair value through other comprehensive income 4.1.1 229,158 234,667
Loans and receivables 4.4 7 74
Cash and cash equivalents 4.5 18,502 30,611
Total 247,667 265,352
4.1 Debt securities at fair value
4.1.1 Debt securities held at fair value through other comprehensive income
ACCOUNTING POLICY - FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE
Classification
The Group classifies the following financial assets at fair value through
other comprehensive income ("FVOCI"):
- Debt securities
A debt instrument is measured at FVOCI only if it meets both of the following
conditions and is not designated at fair value through the profit or loss
account ("FVTPL"):
- The asset is held within a business model whose objective is achieved by
both collecting contractual cash flows and selling financial assets
- The contractual terms of the financial asset give rise to cash flows
that are solely payments of principal and interest ("SPPI") on the principal
amount outstanding on specified dates
Recognition and measurement
At initial recognition, the Group measures debt securities through other
comprehensive income at fair value, plus the transaction costs that are
directly attributable to the acquisition of the financial asset. Debt
securities at FVOCI are subsequently measured at fair value.
Impairment
At each reporting date, the Group assesses debt securities at FVOCI for
impairment. Under IFRS 9 a "three-stage" model for calculated Expected Credit
Losses ("ECL") is used, and is based on changes in credit quality since
initial recognition. Refer to Note 4.6.
The Group's debt securities held at fair value through other comprehensive
income are summarised below:
2022 2021
£'k % holdings £'k % holdings
Government bonds 87,151 38.1% 86,192 36.8%
Government-backed securities 80,753 35.2% 83,878 35.7%
Corporate bonds 61,254 26.7% 64,597 27.5%
Total 229,158 100.0% 234,667 100.0%
4.2. Investment concentration risk
Excessive exposure to particular industry sectors or groups can give rise to
concentration risk. The Group has no significant investment concentration in
any particular industrial sector and therefore is unlikely to suffer
significant losses through its investment portfolio as a result of
over-exposure to sectors engaged in similar activities or which have similar
economic features that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic, political or
other conditions.
A significant part of the Group's investment portfolio consists primarily of
UK government bonds and government-backed bonds, therefore the risk of
government default does exist, however the likelihood is extremely remote. The
remainder of the portfolio consists of investment grade corporate bonds. The
Group continues to monitor the strength and security of all bonds. The Group
does not have direct exposure to Ukrainian and Russian assets.
The Group's exposure by geographical area is outlined below:
Government bonds Government-backed securities Corporate bonds Total
At 31 December 2022 £'k £'k £'k £'k % holdings
United Kingdom 87,151 101 25,942 113,194 49.4%
Europe (excluding UK) - 48,295 25,972 74,267 32.4%
North America - 32,357 9,340 41,697 18.2%
Total 87,151 80,753 61,254 229,158 100.0%
Government bonds Government-backed securities Corporate bonds Total
At 31 December 2021 £'k £'k £'k £'k % holdings
United Kingdom 86,192 105 28,460 114,757 48.9%
Europe (excluding UK) - 55,786 26,446 82,232 35.0%
North America - 27,987 9,691 37,678 16.1%
Total 86,192 83,878 64,597 234,667 100.0%
The Group's exposure by investment type for government-backed securities and
corporate bonds is outlined below:
Agency Supranational Total
At 31 December 2022 £'k £'k £'k
Government-backed securities 37,989 42,764 80,753
% of holdings 47.0% 53.0% 100.0%
Financial Industrial Utilities Total
At 31 December 2022 £'k £'k £'k £'k
Corporate bonds 31,229 28,121 1,904 61,254
% of holdings 51.0% 45.9% 3.1% 100.0%
Agency Supranational Total
At 31 December 2021 £'k £'k £'k
Government-backed securities 48,987 34,891 83,878
% of holdings 58.4% 41.6% 100.0%
Financial Industrial Utilities Total
At 31 December 2021 £'k £'k £'k £'k
Corporate bonds 30,642 31,863 2,092 64,597
% of holdings 47.5% 49.3% 3.2% 100.0%
4.3. Fair value
ACCOUNTING POLICY
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date, or in its absence, the most advantageous market to which
the Group has access at that date.
The Group measures the fair value of an instrument using the quoted bid price
in an active market for that instrument. A market is regarded as active if
transactions for the asset take place with sufficient frequency and volume to
provide pricing information on an ongoing basis.
The fair value of financial instruments traded in active markets is based on
quoted market prices at the statement of financial position date. A market is
regarded as active if quoted prices are readily and regularly available from
the stock exchange or pricing service, and those prices represent actual and
regularly occurring market transactions on an arm's length basis. The quoted
market price used for financial assets held by the Group is the closing bid
price.
Fair value measurements are based on observable and unobservable inputs.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect the Group's view of market assumptions in the
absence of observable market information.
IFRS 13 requires certain disclosures which require the classification of
financial assets and financial liabilities measured at fair value using a fair
value hierarchy that reflects the significance of the inputs used in making
the fair value measurement.
Disclosure of fair value measurements by level is according to the following
fair value measurement hierarchy:
- Level 1: fair value is based on quoted market prices (unadjusted) in
active markets for identical instruments as measured on reporting date
- Level 2: fair value is determined through inputs, other than quoted
prices included in Level 1 that are observable for the assets and liabilities,
either directly (prices) or indirectly (derived from prices)
- Level 3: fair value is determined through valuation techniques which use
significant unobservable inputs
Level 1
The fair value of financial instruments traded in active markets is based on
quoted market prices at the statement of financial position date. A market is
regarded as active if quoted prices are readily and regularly available from
the stock exchange or pricing service, and those prices represent actual and
regularly occurring market transactions on an arm's length basis. The quoted
market price used for financial assets held by the Group is the closing bid
price. These instruments are included in Level 1 and comprise only debt
securities classified as fair value through other comprehensive income.
Level 2
The fair value of financial instruments that are not traded in an active
market is determined by using valuation techniques. These valuation techniques
maximise the use of observable market data where it is available and rely as
little as possible on entity specific estimates. If all significant input
required to fair value an instrument is observable, the instrument is included
in Level 2. The Group has no Level 2 financial instruments.
Level 3
If one or more of the significant inputs are not based on observable market
data, the instrument is included in Level 3. The Group has no Level 3
financial instruments.
The following table summarises the classification of financial instruments:
Level 1 Level 2 Level 3 Total
As at 31 December 2022 £'k £'k £'k £'k
Assets held at fair value
Financial investments 229,158 - - 229,158
Total 229,158 - - 229,158
Level 1 Level 2 Level 3 Total
As at 31 December 2021 £'k £'k £'k £'k
Assets held at fair value
Financial investments 234,667 - - 234,667
Total 234,667 - - 234,667
Transfers between levels
There have been no transfers between levels during the year (2021: no
transfers).
4.4. Loans and receivables
ACCOUNTING POLICY
Classification
The Group classifies its loans and receivables as at amortised cost only if
both of the following criteria are met:
- The asset is held within a business model whose objective is to collect
the contractual cash flows
- The contractual terms give rise to cash flows that are solely payments
of principle and interest
Recognition and measurement
Loans and receivables are initially recognised at fair value and subsequently
measured at amortised cost using the effective interest method, less provision
for expected credit losses.
Impairment
The Group measures loss allowances at an amount equal to lifetime ECL. To
measure the expected credit losses, loans and receivables have been grouped
based on shared credit risk characteristics and the days past due to create
the categories namely performing, underperforming and not performing. The
expected loss rates are based on the payment profiles of receivables over a
period of 36 months before year end. The loss rates are adjusted to reflect
current and forward-looking information on macro-economic factors, such as the
socio-economic environment affecting the ability of the debtors to settle the
receivables. Receivables that are 30 days or more past due are considered to
be 'not performing' and the default rebuttable presumption of 90 days
prescribed by IFRS 9 is not applied.
Performing
Customers have a low risk of default and a strong capacity to meet contractual
cash flows.
Underperforming
Loans for which there is a significant increase in credit risk. A significant
increase in credit risk is presumed if interest and/or principal repayments
are past due.
Not performing
Interest and/or principal repayments are 30 days past due.
The Group's loans and receivables comprises of:
2022 2021
£'k £'k
Other debtors 7 76
Provision for expected credit losses - (2)
Total 7 74
The estimated fair values of loans and receivables are the discounted amounts
of the estimated future cash flows expected to be received.
The carrying value of loans and receivables approximates fair value. Provision
for expected credit losses are based on the recoverability of the individual
loans and receivables.
ECL ECL method Gross Provision opening balance (Released)/ Provision closing balance Net
rate raised in the period
At 31 December 2022 % £'k £'k £'k £'k £'k £'k
Performing 2.5% Lifetime 7 (2) 2 - 7
Underperforming 25.0% Lifetime - - - - -
Not performing 50.0% Lifetime - - - - -
Total 7 (2) 2 - 7
ECL ECL method Gross Provision opening balance (Released)/ Provision closing balance Net
rate raised in the period
At 31 December 2021 % £'k £'k £'k £'k £'k £'k
Performing 2.5% Lifetime 76 (2) - (2) 74
Underperforming 25.0% Lifetime - - - - -
Not performing 50.0% Lifetime - - - - -
Total 76 (2) - (2) 74
The forward-looking information considered was deemed to have an immaterial
impact on expected credit losses.
4.5. Cash and cash equivalents
ACCOUNTING POLICY - CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits held on call with
banks and money market funds. Cash and cash equivalents are carried at
amortised cost.
2022 2021
£'k £'k
Cash and cash equivalents 18,502 30,611
Total 18,502 30,611
Cash and cash equivalents include money market funds with no notice period for
withdrawal.
The carrying value of cash and cash equivalents approximates fair value. The
full value is expected to be realised within 12 months.
4.6. Credit risk
ACCOUNTING POLICY
Impairment of financial assets
At each reporting date, the Group assesses financial assets measured at
amortised cost and debt securities at FVOCI for impairment. Under IFRS 9 a
'three-stage' model for calculated Expected Credit Losses ("ECL") is used, and
is based on changes in credit quality since initial recognition as summarised
below:
Performing financial assets
- Stage 1: From initial recognition of a financial asset to the date on
which an asset has experienced a significant increase in credit risk relative
to its initial recognition, a stage 1 loss allowance is recognised equal to
the credit losses expected to result from its default occurring over the
earlier of the next 12 months or its maturity date ("12-month ECL").
- Stage 2: Following a significant increase in credit risk relative to the
initial recognition of the financial asset, a stage 2 loss allowance is
recognised equal to the credit losses expected from all possible default
events over the remaining lifetime of the asset ("Lifetime ECL"). The
assessment of whether there has been a significant increase in credit risk,
such as an actual or significant change in instruments external credit rating;
significant widening of credit spread; changes in rates or terms of
instrument; existing or forecast adverse change in business, financial or
economic conditions that are expected to cause a significant change in the
counterparty's ability to meet its debt obligations; requires considerable
judgement, based on the lifetime probability of default ("PD"). Stage 1 and 2
allowances are held against performing loans; the main difference between
stage 1 and stage 2 allowances is the time horizon. Stage 1 allowances are
estimated using the PD with a maximum period of 12 months, while stage 2
allowances are estimated using the PD over the remaining lifetime of the
asset.
Impaired financial assets
Stage 3: When a financial asset is considered to be credit-impaired, the
allowance for credit losses ("ACL") continues to represent lifetime expected
credit losses, however, interest income is calculated based on the amortised
cost of the asset, net of the loss allowance, rather than its gross carrying
amount.
Application of the impairment model
The Group applies IFRS 9's ECL model to two main types of financial assets
that are measured at amortised cost or FVOCI:
Other receivables, to which the simplified approach prescribed by IFRS 9 is
applied. This approach requires the recognition of a Lifetime ECL allowance on
day one.
Debt securities, to which the general three-stage model (described above) is
applied, whereby a 12-month ECL is recognised initially and the balance is
monitored for significant increases in credit risk which triggers the
recognition of a Lifetime ECL allowance.
ECLs are a probability-weighted estimate of credit losses. The probability is
determined by the estimated risk of default which is applied to the cash flow
estimates. On a significant increase in credit risk, from investment grade to
non-investment grade, allowances are recognised without a change in the
expected cash flows (although typically expected cash flows do also change)
and expected credit losses are rebased from 12-month to lifetime expectations.
The measurement of ECLs considers information about past events and current
conditions, as well as supportable information about future events and
economic conditions.
Presentation of impairment
Loss allowances for financial assets measured at amortised cost are deducted
from the gross carrying amount of the assets. For debt securities at FVOCI,
the loss allowance is recognised in the profit or loss account and accounted
for as a transfer from OCI to profit or loss, instead of reducing the carrying
amount of the asset.
Write-offs
Loans and debt securities are written off (either partially or in full) when
there is no realistic prospect of the amount being recovered. This is
generally the case when the Group concludes that the borrower does not have
assets or sources of income that could generate sufficient cash flows to repay
the amounts subject to the write-off.
Exposure by credit rating
AAA AA+ to AA- A+ to A- BBB+ to BBB- BB+ and below Not rated Total
At 31 December 2022 £'k £'k £'k £'k £'k £'k £'k
UK Government bonds - 87,151 - - - - 87,151
Government-backed securities 80,031 722 - - - - 80,753
Corporate bonds - 2,839 41,235 17,180 - - 61,254
Loans and other receivables - - - - - 7 7
Cash and cash equivalents 5,340 52 13,110 - - - 18,502
Total 85,371 90,764 54,345 17,180 - 7 247,667
AAA AA+ to AA- A+ to A- BBB+ to BBB- BB+ and below Not rated Total
At 31 December 2021 £'k £'k £'k £'k £'k £'k £'k
UK Government bonds - 86,192 - - - - 86,192
Government-backed securities 75,294 8,584 - - - - 83,878
Corporate bonds - 3,128 39,417 22,052 - - 64,597
Loans and other receivables - - - - - 74 74
Cash and cash equivalents 368 51 30,192 - - - 30,611
Total 75,662 97,955 69,609 22,052 - 74 265,352
With exception of loans and other receivables, all the Company's financial
assets are investment grade (AAA to BBB).
Analysis of credit risk and allowance for expected credit loss
The following table provides an overview of the allowance for ECL provided for
on the types of financial assets held by the Group where credit risk is
prevalent.
Gross carrying amount Allowance for ECL Net amount
At 31 December 2022 £'k £'k £'k
Government bonds 87,151 (3) 87,148
Government-backed securities 80,753 (2) 80,751
Corporate bonds 61,254 (27) 61,227
Loans and other receivables 7 - 7
Cash and cash equivalents 18,502 - 18,502
Total 247,667 (32) 247,635
Gross carrying amount Allowance for ECL Net amount
At 31 December 2021 £'k £'k £'k
Government bonds 86,192 (8) 86,184
Government-backed securities 83,878 (4) 83,874
Corporate bonds 64,597 (52) 64,545
Loans and other receivables 74 (2) 72
Cash and cash equivalents 30,611 - 30,611
Total 265,352 (66) 265,286
4.7. Interest rate risk - financial assets
Interest rate risk is the risk that the value or future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates. Floating rate instruments expose the Group to cash flow interest risk,
whereas fixed interest rate instruments expose the Group to fair value
interest risk. Currently the Group holds only fixed rate securities.
The Group's interest risk policy requires it to manage the maturities of
interest-bearing financial assets and interest-bearing financial liabilities.
Interest on fixed interest rate instruments is priced at inception of the
financial instrument and is fixed until maturity.
The Group has a concentration of interest rate risk in UK government bonds and
other fixed-income securities.
The analysis that follows is performed for reasonably possible movements in
key variables with all other variables held constant, showing the impact on
profit before tax and equity. The correlation of variables will have a
significant effect in determining the ultimate impact on interest rate risk,
but to demonstrate the impact due to changes in variables, variables had to be
changed on an individual basis. It should be noted that movements in these
variables are non-linear.
Note that the Group's investment portfolio has been designed such that the
cash flows yielded from investments match, as far as possible, the projected
outflows inherent primarily within the claims reserve.
The impact of any movement in market values, such as those caused by changes
in interest rates, is taken through other comprehensive income and has no
impact on profit after tax.
Decrease Decrease
in profit after tax in total equity
2022 2021 2022 2021
At 31 December £'k £'k £'k £'k
Interest rate
Impact of a 100-basis point increase in interest rates on financial - - (1,940) (3,861)
investments
Impact of a 200-basis point increase in interest rates on financial - - (3,881) (5,781)
investments
4.8. Investment income
ACCOUNTING POLICY
Investment income from debt instruments classified as FVOCI are measured using
the effective interest rate which allocates the interest income or interest
expense over the expected life of the asset or liability at the rate that
exactly discounts all estimated future cash flows to equal the instrument's
initial carrying amount. Calculation of the effective interest rate takes into
account fees payable or receivable that are an integral part of the
instrument's yield, premiums or discounts on acquisition or issue, early
redemption fees and transaction costs. All contractual terms of a financial
instrument are considered when estimating future cash flows.
2022 2021
£'k £'k
Interest income on financial assets using effective interest rate method
Interest income from debt securities 1,567 1,507
Investment fees (293) (308)
Interest income from cash and cash equivalents 100 11
Total 1,374 1,210
4.9. Net gains/(losses) from fair value adjustments on financial assets
ACCOUNTING POLICY
Movements in the fair value of debt instruments classified as FVOCI are taken
through OCI. When the instruments are derecognised, the cumulative gain or
losses previously recognised in OCI is reclassified to profit or loss.
2022 2021
£'k £'k
Profit or loss
Realised fair value gains/(losses) on debt securities 22 (16)
Realised fair value gains/(losses) on debt securities reclassified to profit 22 (16)
or loss
Other comprehensive income
Unrealised fair value losses on debt securities (14,175) (5,674)
Expected credit loss (32) 16
Unrealised fair value losses on debt securities through other comprehensive (14,207) (5,658)
income
Net losses from fair value adjustments on financial assets (14,185) (5,674)
5. OTHER liabilities
The Group's other liabilities are summarised below:
2022 2021
Notes £'k £'k
Other liabilities at amortised cost
Lease liabilities 5.1 - 193
Trade and other payables, excluding insurance payables 5.3 5,005 5,831
Total 5,005 6,024
5.1. Lease liability
2022 2021
£'k £'k
As at the beginning of the year 193 194
Cash movements
Lease payments (198) (264)
Non-cash movements
Lease extension during the year - 247
Interest 5 16
As at 31 December - 193
Current - 193
Non-current - -
5.2. Finance costs
ACCOUNTING POLICY
Finance costs are recognised using the effective interest method.
2022 2021
£'k £'k
Interest on lease liabilities 5 16
Total 5 16
5.3. Trade and other payables, excluding insurance payables
ACCOUNTING POLICY
Trade and other payables are recognised when the Group has a contractual
obligation to deliver cash or another financial asset to another entity, or a
contractual obligation to exchange financial assets or financial liabilities
with another entity under conditions that are potentially unfavourable to the
entity. Trade and other payables are carried at amortised cost.
2022 2021
£'k £'k
Trade and other creditors 657 321
Other taxes 4,348 5,510
Total 5,005 5,831
6. Liquidity risk
Liquidity risk is the potential that obligations cannot be met as they fall
due as a consequence of having a timing mismatch or inability to raise
sufficient liquid assets without suffering a substantial loss on realisation.
The Group manages its liquidity risk through both ensuring that it holds
sufficient cash and cash equivalent assets to meet all short-term liabilities
and matching, as far as possible, the maturity profile of its financial
investments to the expected cash outflows.
The liquidity of the Group's insurance and financial liabilities and
supporting assets is given in the tables below:
Total Within 1 year 1-2 years 3-4 years 5-10 years Over 10 years
At 31 December 2022 £'k £'k £'k £'k £'k £'k
Reinsurance assets, excluding UPR((1)) 106,343 31,936 26,290 25,330 22,787 -
Government bonds 87,151 14,463 26,470 38,992 7,226 -
Government-backed securities 80,753 5,119 69,693 5,941 - -
Corporate bonds 61,254 4,426 44,514 12,314 - -
Insurance receivables 31,427 31,427 - - - -
Loans and other receivables 7 7 - - - -
Cash and cash equivalents((2)) 18,502 18,502 - - - -
Total 385,437 105,880 166,967 82,577 30,013 -
Total Within 1 year 1-2 years 3-4 years 5-10 years Over 10 years
At 31 December 2022 £'k £'k £'k £'k £'k £'k
Insurance liabilities, excluding UPR((1)) 257,443 106,486 77,890 44,025 29,042 -
Insurance payable 5,981 5,981 - - - -
Trade and other payables 5,005 5,005 - - - -
Total 268,429 117,472 77,890 44,025 29,042 -
Management have considered the liquidity and cash generation of the Group and
are satisfied that the Group will be able to meet all liabilities as they fall
due.
(1) Unearned premiums are excluded as there are no liquidity risks inherent in
them.
(2) Includes money market funds with no notice period for withdrawal.
Total Within 1 year 1-2 years 3-4 years 5-10 years Over 10 years
At 31 December 2021 £'k £'k £'k £'k £'k £'k
Reinsurance assets, excluding UPR((1)) 103,628 43,546 34,496 18,393 7,193 -
UK Government bonds 86,192 27,313 22,845 35,001 1,033 -
Government-backed securities 83,878 8,479 64,752 10,647 - -
Corporate bonds 64,597 2,203 14,034 48,360 - -
Insurance receivables 38,003 38,003 - - - -
Loans and other receivables 74 74 - - - -
Cash and cash equivalents((2)) 30,611 30,611 - - - -
Total 406,983 150,229 136,127 112,401 8,226 -
Total Within 1 year 1-2 years 3-4 years 5-10 years Over 10 years
At 31 December 2021 £'k £'k £'k £'k £'k £'k
Insurance liabilities, excluding UPR((1)) 232,516 112,975 75,661 32,848 11,032 -
Insurance payables 7,115 7,115 - - - -
Lease liabilities 193 193 - - - -
Trade and other payables 5,831 5,831 - - - -
Total 245,655 126,114 75,661 32,848 11,032 -
(1) Unearned premiums are excluded as there are no liquidity risks inherent in
them.
(2) Includes money market funds with no notice period for withdrawal.
7. Other operating income
ACCOUNTING POLICY
Other operating income consists of marketing fees, commissions resulting from
the sale of ancillary products connected to the Group's direct business, and
other non-insurance income such as administrative fees charged on direct
business. Such income is recognised once the related service has been
performed. Typically, this will be at the point of sale of the product.
2022 2021
£'k £'k
Marketing fees 384 463
Fee income from the sale of auxiliary products and services 261 196
Administration fees 1,139 1,439
Total 1,784 2,098
8. Operating expenses
2022 2021
Notes £'k £'k
Employee expenses 8.1 12,536 12,338
Property expenses 428 331
IT expense including IT depreciation 5,043 5,125
Other depreciation 17 33
Industry levies 5,913 5,000
Policy servicing costs 2,164 2,282
Other operating expenses 2,665 2,189
Expected credit loss on financial assets (34) 16
Before adjustments for deferred acquisition costs and claims handling expenses 28,732 27,314
Adjusted for:
Claims handling expense reclassification (7,613) (6,767)
Movement in deferred acquisition costs 83 939
Total operating expenses 21,202 21,486
8.1. Employee expenses
ACCOUNTING POLICY
A. Pensions
For staff who were employees on 8 February 2002, the Group operates a
non-contributory defined contribution Group personal pension scheme. The
contribution by the Group depends on the age of the employee.
For employees joining since 8 February 2002, the Group operates a matched
contribution Group personal pension scheme where the Group contributes an
amount matching the contribution made by the staff member.
Contributions to defined contribution schemes are recognised in the profit or
loss account in the period in which they become payable.
B. Share-based payments
The fair value of equity instruments granted under share‑based payment plans
are recognised as an expense and spread over the vesting period of the
instrument. The total amount to be expensed is determined by reference to the
fair value of the awards made at the grant date, excluding the impact of any
non‑market vesting conditions. Depending on the plan, the fair value of
equity instruments granted is measured on grant date using an appropriate
valuation model or the market price on grant date. At the date of each
statement of financial position, the Group revises its estimate of the number
of equity instruments that are expected to become exercisable. It recognises
the impact of the revision of original estimates, if any, in the profit or
loss account, and a corresponding adjustment is made to equity over the
remaining vesting period. The fair value of the awards and ultimate expense
are not adjusted on a change in market vesting conditions during the vesting
period.
C. Leave pay
Employee entitlement to annual leave is recognised when it accrues to
employees. An accrual is made for the estimated liability for annual leave as
a result of services rendered by employees up to the statement of financial
position date.
The aggregate remuneration of those employed by the Group's operations
comprised:
2022 2021
£'k £'k
Wages and salaries 8,988 9,417
Issue of share-based payments 1,603 1,075
Social security expenses 1,213 1,193
Pension expenses 508 475
Other staff expenses 224 178
Before adjustments for deferred acquisition costs and claims handling expenses 12,536 12,338
Adjusted for:
Claims handling expense reclassification (5,860) (5,239)
Movement in deferred acquisition costs 92 535
Employee expenses 6,768 7,634
8.2. Number of employees
The table below analyses the average monthly number of persons employed by the
Group's operations.
2022 2021
Operations 123 124
Support 28 30
Total 151 154
8.3. Directors' remuneration
Amounts paid to Directors are disclosed within the "Annual Report on
Director's Remuneration" on pages 78 to 87 of the Annual Report and Accounts.
8.4. Auditors' remuneration
The table below analyses the Auditor's remuneration in respect of the Group's
operations.
2022 2021
£'k £'k
Audit of these financial statements 180 124
Audit of financial statements of subsidiaries of the Group 175 255
Audit fees in relation to IFRS 17 transition 85 -
Total audit fees 440 379
Fees for non-audit services - Audit-related assurance services 79 80
Fees for non-audit services - Other non-audit services - -
Total non-audit fees 79 80
Total auditor remuneration 519 459
The above fees exclude irrecoverable VAT of 20%.
9. Property, plant and equipment
Property, plant and equipment consists of owned and leased assets that do not
meet the definition of investment property.
2022 2021
£'k £'k
Property, plant and equipment - owned 3,996 4,066
Property, plant and equipment - leased (Right-of-use assets) - 187
Total 3,996 4,253
9.1. Owned assets
ACCOUNTING POLICY
A. Owner-occupied property
Owner-occupied properties are held by the Group for use in the supply of
services or, for its own administration purposes.
Owner-occupied property is held at fair value. Increases in the carrying
amount of owner-occupied properties as a result of revaluations are credited
to other comprehensive income and accumulated in a revaluation reserve in
equity. To the extent that a revaluation increase reverses a revaluation
decrease that was previously recognised as an expense in profit or loss, such
increase is credited to income in profit or loss. Decreases in valuation are
charged to profit or loss, except to the extent that a decrease reverses the
existing accumulated revaluation reserve and therefore such a decrease is
recognised in other comprehensive income.
A fair value assessment of the owner-occupied property is undertaken at each
reporting date with any material changes in fair value recognised. Valuation
is at highest and best use. Owner-occupied property is also revalued by an
external qualified surveyor, at least every three years. UK properties do not
have frequent and volatile fair value changes and as such, more frequent
revaluations are considered unnecessary, as only insignificant changes in fair
value is expected.
Owner-occupied land is not depreciated. As the depreciation of owner-occupied
buildings is immaterial and properties are revalued every three years by an
external qualified surveyor, no depreciation is charged on owner-occupied
buildings
B. Fixtures, fittings and computer equipment
Fixtures, fittings and computer equipment are stated at historical cost less
accumulated depreciation and impairment charges. Historical cost includes
expenditure that is directly attributable to the acquisition of property and
equipment.
Depreciation is calculated on the difference between the cost and residual
value of the asset and is charged to the profit or loss account over the
estimated useful life of each significant part of an item of fixtures,
fittings and computer equipment, using the straight-line basis.
Estimate useful lives are as follows:
Fixtures and
fittings 5 years
Computer equipment 5 years
The assets' residual values and useful lives are reviewed at each statement of
financial position date and adjusted if appropriate. An asset's carrying
amount is written down to its recoverable amount if the asset's carrying
amount is greater than its estimated recoverable amount. Gains and losses on
disposals are determined by comparing the proceeds with the carrying amount of
the assets and are included in profit or loss before tax.
Repairs and maintenance costs are charged to the profit or loss account during
the financial period in which they are incurred. The cost of major renovations
is included in the carrying amount of the asset when it is probable that
future economic benefits from the renovations will flow to the Group.
Owner- occupied Fixtures and fittings Computer equipment Total
£'k £'k £'k £'k
Cost/Valuation
At 1 January 2022 4,250 240 848 5,338
Additions - 27 11 38
Disposals - (226) (450) (676)
Revaluation - - - -
At 31 December 2022 4,250 41 409 4,700
Accumulated depreciation and impairment
At 1 January 2022 425 218 629 1,272
Depreciation charge for the year - 17 91 108
Disposals - (226) (450) (676)
Impairment losses on revaluation - - - -
At 31 December 2022 425 9 270 704
Carrying amount
As at 31 December 2022 3,825 32 139 3,996
All items disposed where either donated to charity or recycled at £NIL.
Owner-occupied Fixtures and fittings Computer equipment Total
£'k £'k £'k £'k
Cost/Valuation
At 1 January 2021 4,250 235 825 5,310
Additions - 5 23 28
Disposals - - - -
Revaluation - - - -
At 31 December 2021 4,250 240 848 5,338
Accumulated depreciation and impairment
At 1 January 2021 425 185 526 1,136
Depreciation charge for the year - 33 103 136
Disposals - - - -
Impairment losses on revaluation - - - -
At 31 December 2021 425 218 629 1,272
Carrying amount
As at 31 December 2021 3,825 22 219 4,066
The Group holds two owner-occupied properties, Sabre House and The Old House,
which are both managed by the Group. In accordance with the Group's accounting
policies, owner-occupied buildings are not depreciated. The properties are
measured at fair value which is arrived at on the basis of a valuation carried
out on 1 December 2020 by Hurst Warne and Partners LLP. The valuation was
carried out on an open-market basis in accordance with the Royal Institution
of Chartered Surveyors' requirements, which is deemed to equate to fair value.
While transaction evidence underpins the valuation process, the definition of
market value, including the commentary, in practice requires the valuer to
reflect the realities of the current market. In this context valuers must use
their market knowledge and professional judgement and not rely only upon
historical market sentiment based on historical transactional comparables.
The fair value of the owner-occupied properties was derived using the
investment method supported by comparable evidence. The significant
non-observable inputs used in the valuations are the expected rental values
per square foot and the capitalisation rates. The fair value of the
owner-occupied properties valuation would increase (decrease) if the expected
rental values per square foot were to be higher (lower) and the capitalisation
rates were to be lower (higher).
Management has performed a fair value assessment of the owner-occupied
property which includes a review of current market rental costs. Expected
rental costs per square foot are above the rates as at the date of the last
external valuation and do not indicate a decrease in the fair value of the
owner-occupied property.
The fair value measurement of owner-occupied properties of £3,825k (2021:
£3,825k) has been categorised as a Level 3 fair value based on the
non-observable inputs to the valuation technique used.
The following table shows reconciliation to the closing fair value for the
Level 3 owner-occupied property at valuation:
2022 2021
Owner-occupied £'k £'k
At 1 January 3,825 3,825
Revaluation losses - -
Impairment losses - -
At 31 December 3,825 3,825
The fair value of owner-occupied includes a revaluation reserve of £800k
(2021: £800k) (excluding tax impact) and is not distributable.
Revaluation losses are charged against the related revaluation reserve to the
extent that the decrease does not exceed the amount held in the revaluation
surplus in respect of the same asset. Any additional losses are charged as an
impairment loss in the profit or loss account. Reversal of such impairment
losses in future periods will be credited to the profit or loss account to the
extent losses were previously charged to the profit or loss account.
The table below shows the impact a 15% decrease in property markets will have
on the Company's profit after tax and equity:
At 31 December Decrease Decrease
in profit after tax In total equity
2022 2021 2022 2021
£'k £'k £'k £'k
Owner-occupied property
Impact of a 15% decrease in property markets (131) (131) (465) (465)
Historical cost model values
If owner-occupied properties were carried under the cost model (historical
costs, less accumulated depreciation and impairment losses), the value of
owner-occupied properties in the balance sheet would have been £2,816k (2021:
£2,845k).
9.2. Leased assets
ACCOUNTING POLICY
Right-of-use assets
The Group recognises a right-of-use asset and a lease liability at the lease
commencement date. The right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle and remove the underlying
assets or to restore the underlying asset or the site on which it is located,
less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line
method from the commencement date to the earlier of the end of the useful life
of the right-of-use asset or the end of the lease term. The estimated useful
lives of right-of-use assets are determined on the same basis as property and
equipment. In addition, the right-of-use asset is periodically reduced by
impairment losses, if any, and adjusted for certain remeasurements of the
lease liability.
Lease liabilities
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily
determined, the Group's incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise the
following:
- Fixed payments, including in-substance fixed payments
- Variable lease payments that depend on an index or a rate, initially
measured using the index or rate as at the commencement date
- Amounts expected to be payable under a residual value guarantee
- The exercise price under a purchase option that the Group is reasonably
certain to exercise, lease payments in an optional renewal period if the Group
is reasonably certain to exercise an extension option, and penalties for early
termination of a lease unless the Group is reasonably certain not to terminate
early
The lease liability is measured at amortised cost using the effective interest
method. It is remeasured when there is a change in future lease payments
arising from a change in an index or rate, if there is a change in the Group's
estimate of the amount expected to be payable under a residual value
guarantee, or if the Group changes its assessment of whether it will exercise
a purchase, extension or termination option.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease
liabilities for short-term leases of machinery that have a lease term of 12
months or less and leases of low-value assets, including IT equipment. The
Group recognises the lease payments associated with these leases as an expense
on a straight-line basis over the lease term.
Right-of-use assets
Additional information on the right-of-use assets by class of assets is as
follows:
Computer equipment Total
£'k £'k
As at 1 January 2022 187 187
Additions - -
Depreciation (187) (187)
As at 31 December 2022 - -
The Group's right-of-use asset has expired during 2022 and no new lease for IT
equipment has been entered into. The right-of-use asset has therefore been
derecognised.
Computer equipment Total
£'k £'k
As at 1 January 2021 189 189
Additions 247 247
Depreciation (249) (249)
As at 31 December 2021 187 187
Lease liabilities
Lease liabilities are presented in the statement of financial position as
follows:
2022 2021
£'k £'k
As at 1 January 193 194
Additions - 247
Accretion of interest 5 16
Payments (198) (264)
As at 31 December - 193
Current - 193
Non-current - -
The following are the amounts recognised in the profit or loss account:
2022 2021
£'k £'k
Depreciation expense of right-of-use assets 187 249
Interest expense on lease liabilities 5 16
Expenses relating to short-term leases (included in IT expenses) - -
Expenses relating to low-value assets (included in other operating expenses) 14 14
Variable lease payments - -
Total 206 279
The Group had total cash outflows for leases of £212k in 2022 (2021: £278k).
The Group had no non-cash additions to right-of-use assets or lease
liabilities. The lease contract expired during 2022.
10. Tax charge
ACCOUNTING POLICY
The taxation charge in the profit or loss account is based on the taxable
profits for the year. It is Group policy to relieve profits where possible by
the surrender of losses from Group companies with payment for value.
2022 2021
£'k £'k
Current taxation
Charge for the year 2,644 6,935
2,644 6,935
Deferred taxation (Note 11)
Origination and reversal of temporary differences (1) 124
(1) 124
Current taxation 2,644 6,935
Deferred taxation (Note 11) (1) 124
Tax charge for the year 2,643 7,059
Tax recorded in other comprehensive income is as follows:
2022 2021
£'k £'k
Current taxation - -
Deferred taxation (3,563) (1,069)
(3,563) (1,069)
The actual income tax charge differs from the expected income tax charge
computed by applying the standard rate of UK corporation tax of 19.00% (2021:
19.00%) as follows:
2022 2021
£'k £'k
Profit before tax 12,750 37,199
Expected tax charge 2,423 7,068
Effect of:
Expenses not deductible for tax purposes 9 6
Adjustment of deferred tax to average rate of 23.5% (2) -
Other permanent difference - -
Adjustment in respect of prior periods 9 (99)
Income/loss not subject to UK taxation 6 8
Other Income Tax Adjustments 198 76
Tax charge for the year 2,643 7,059
Effective income tax rate 20.73% 18.98%
11. Deferred tax charge
ACCOUNTING POLICY
Deferred tax is recognised in respect of all temporary differences that have
originated but not reversed at the balance sheet date where transactions or
events have occurred at that date that will result in an obligation to pay
more, or a right to pay less or to receive more, tax, with the following
exception.
Deferred tax assets are recognised only to the extent that the Directors
consider that it is more likely than not that there will be suitable taxable
profits from which the future reversal of the underlying timing differences
can be deducted.
Provisions and other temporary differences Depreciation in excess of capital allowances Share-based Payments Fair value movements in debt securities at FVOCI Total
£'k £'k £'k £'k £'k
At 1 January 2021 21 (24) 347 (469) (125)
(Debit)/Credit to the profit or loss (2) (2) (114) (6) (124)
(Debit)/Credit to other comprehensive income - - - 1,069 1,069
At 31 December 2021 19 (26) 233 594 820
(Debit)/Credit to the profit or loss (19) 6 20 (6) 1
(Debit)/Credit to other comprehensive income - - - 3,563 3,563
At 31 December 2022 - (20) 253 4,151 4,384
2022 2021
£'k £'k
Per statement of financial position:
Deferred tax assets 4,404 846
Deferred tax liabilities (20) (26)
4,384 820
From 1 April 2023, The Finance Act 2021 increases the UK corporation tax from
19% to 25%. This means that for any temporary differences expected to reverse
on or after 1 April 2023, the new tax rate of 25% will be relevant. The Group
has adjusted deferred tax balances accordingly. The impact of this adjustment
on the deferred tax balances is not material.
12. Dividends
ACCOUNTING POLICY
Dividend distribution to the Group's shareholders is recognised as a liability
in the Group's financial statements in the period in which the dividend is
approved.
2022 2021
pence per share £'k pence per share £'k
Amounts recognised as distributions to equity holders in the period
Interim dividend for the current year 2.8 6,960 3.7 9,218
Final dividend for the prior year 9.3 23,172 11.7 29,168
12.1 30,132 15.4 38,386
Proposed dividends
Final dividend ((1)) 1.7 4,250 9.3 23,250
(1) Subsequent to 31 December 2022, the Directors declared a final
dividend for 2022 of 1.7p per ordinary share. This dividend will be accounted
for as an appropriation of retained earnings in the year ended 31 December
2022 and is not included as a liability in the Statement of Financial Position
as at 31 December 2022.
The trustees of the employee share trusts waived their entitlement to
dividends on shares held in the trusts to meet obligations arising on share
incentive schemes, which reduced the dividends paid for the year ended 31
December 2022 by £118k (2021: £114k).
13. Prepayments, accrued income and other assets
2022 2021
£'k £'k
Prepayments and accrued income 1,278 821
Total 1,278 821
The carrying value of prepayments, accrued income and other assets
approximates to fair value. There are no amounts expected to be recovered more
than 12 months after the reporting date.
14. Goodwill
ACCOUNTING POLICY
Goodwill has been recognised in acquisitions of subsidiaries and represents
the difference between the cost of the acquisition and the fair value of the
net identifiable assets acquired. Goodwill is stated at cost less any
accumulated impairment losses.
Impairment of goodwill
The Group perform an annual impairment review which involves comparing the
carrying amount to the estimated recoverable amount and recognising an
impairment loss if the recoverable amount is lower than the carrying amount.
Impairment losses are recognised through the profit or loss account and are
not subsequently reversed.
The recoverable amount is the greater of the fair value of the asset less
costs to sell and the value in use.
The value in use calculations use cash flow projections based on financial
budgets approved by management.
On 3 January 2014 the Group acquired Binomial Group Limited, the parent of
Sabre Insurance Company Limited, for a consideration of £245,485k satisfied
by cash. As from 1 January 2014, the date of transition to IFRS, goodwill was
no longer amortised but is subject to annual impairment testing. Impairment
testing involves comparing the carrying value of the net assets and goodwill
against the recoverable amount.
The goodwill recorded in respect of this transaction at the date of
acquisition was £156,279k. There has been no impairment to goodwill since
this date, and no additional goodwill has been recognised by the Group.
The Group performed its annual impairment test as at 31 December 2022 and 31
December 2021. The Company considers the relationship between the Group's
market capitalisation and the book value of its subsidiary undertakings, among
other factors, when reviewing for indicators of impairment.
Key assumptions
The market capitalisation of the Company as at 31 December 2022 had reduced to
£266,000k from £459,500k at 31 December 2021. This provided an indication
that the underlying value had been impaired, and therefore the Directors
carried out an impairment assessment based on the Cash Generating Units
("CGUs") within the Group.
The group has identified one CGU, for which goodwill has been fully allocated.
The Group has assessed the recoverable amount of the CGU as its
"value-in-use". Value-in-use is defined as the present value of the future
cash flows expected to derive from the CGU and represents the recoverable
amount for the CGU.
We have used a dividend discount model to estimate the value-in-use, wherein
dividend payments are discounted to the present value. Dividends have been
estimated, based on forecasted financial information, over a four-year
forecast period with and terminal growth rate applied. The key assumptions
used in the preparation of future cash flows are: plan-period financial
performance, dividend payout ratio, long-term growth rates and discount rate.
The key assumptions used in the calculation for the value in use is set out
below
- Plan period financial performance set in-line with the Group's
expectations
- Dividend payout ratio in line with the Group's strategy
- Long-term growth rate beyond the plan period of 2%
- Discount rate of 9.5%, being a calculated cost of capital using market
rate returns of Sabre and comparable insurers
These calculations use post-tax cash flow projections based on the Group's
capital models. As the value-in-use exceeds the carrying amount, the
recoverable amount remains supportable.
The Group has conducted sensitivity testing to the recoverable amount, in
order to understand the relevance of these various factors in arriving at the
value in use.
- Dividend within the plan period - To assess the impact of reasonable
changes in performance on our base case impairment analysis and headroom, we
flexed the dividend within the plan period by +10% and -10%. In doing so, the
value in use varied by approximately 10.0% around the central scenario.
- Long term growth rate - To assess the impact of reasonable changes in
the long-term growth rate on our base case impairment analysis and headroom,
we flexed the long-term growth rate by +1% and -1%. In doing so, the value in
use varied by approximately 7.1% around the central scenario.
- Discount rate - To assess the impact of reasonable changes in the
dividend payout ratio on our base case impairment analysis and headroom, we
flexed the average discount rate by +2% and -2%. In doing so, the value in use
varied by approximately 13.0% around the central scenario.
When applying these stressed factors, no scenario suggested an impairment of
goodwill would be required.
15. Share capital
2022 2021
£'k £'k
Authorised share capital
250,000,000 ordinary shares of £0.001 each 250 250
Issued ordinary share capital (fully paid up):
250,000,000 ordinary shares of £0.001 each 250 250
All shares are unrestricted and carry equal voting rights.
As at 31 December 2022, The Sabre Insurance Group Employee Benefit Trust held
1,431,576 (2021: 866,855) of the 250,000,000 issued ordinary shares with a
nominal value of £1,431.58 (2021: £866.86) in connection with the operation
of the Group's share plans. Refer to Notes 16 and 17 for additional
information on own shares held.
16. Share-based payments
The Group operates equity-settled share-based schemes for all employees in the
form of a Long-Term Incentive Plan ("LTIP"), Deferred Bonus Plan ("DBP") and
Share Incentive Plans ("SIP"), including Free Shares and Save As You Earn
("SAYE"). The shares are in the ultimate parent company, Sabre Insurance Group
plc.
Free shares donated at listing Shares bought/(sold) on open market Total
Number of shares Average £ Number of shares Average £ £
price price
(pence) (pence)
As at 31 December 2020 63,031 0.001 63 541,208 275.975 1,493,601 1,493,664
Shares purchased - - - 928,186 256.295 2,378,897 2,378,897
Shares disposed - - - (176,672) 255.443 (451,296) (451,296)
Shares vested (39,901) 0.001 (40) (448,997) 259.367 (1,164,550) (1,164,590)
As at 31 December 2021 23,130 0.001 23 843,725 267.463 2,256,652 2,256,675
Shares purchased - - - 807,981 141.293 1,141,621 1,141,621
Shares disposed - - - - - - -
Shares vested (23,130) - (23) (220,130) 267.463 (588,766) (588,789)
As at 31 December 2022 - - - 1,431,576 196.253 2,809,507 2,809,507
In thousands £'k £'k £'k
As at 31 December 2021 - 2,257 2,257
As at 31 December 2022 - 2,810 2,810
As at 31 December 2022 there were NIL (2021: NIL) exercisable shares
outstanding.
The Group recognised a total expense in the profit or loss for the year ended
31 December 2022 of £1,603k (2021: £1,075k), relating to equity-settled
share-based plans.
Long-Term Incentive Plan ("LTIP")
The LTIP is a discretionary share plan, under which the Board may grant
share-based awards ("LTIP Awards") to incentivise and retain eligible
employees.
LTIP Awards - Awards with performance conditions
The LTIP with performance conditions is a discretionary share plan, under
which the Board may grant share-based awards ("LTIP Awards") to incentivise
and retain eligible employees. The vesting of LTIP Awards may (and, in the
case of an LTIP Award to an Executive Director other than a Recruitment Award,
will) be subject to the satisfaction of performance conditions. Any
performance condition may be amended or substituted if one or more events
occur which cause the Board to consider that an amended or substituted
performance condition would be more appropriate and would not be materially
less difficult to satisfy.
LTIP Awards which are subject to performance conditions will normally have
those conditions assessed as soon as reasonably practicable after the end of
the relevant performance period and, to the extent that the performance
conditions have been met, the LTIP Awards will vest either on that date or
such later date as the Board determines. LTIP Awards (other than Recruitment
Awards) granted to the Executive Directors will normally be subject to a
performance period of at least three years. LTIP Awards (other than
Recruitment Awards) which are not subject to performance conditions will
normally vest on the third anniversary of the date of grant or such other date
as the Board determines.
The LTIP Awards issued by the Group for 2020 has two performance metrics with
a 50%/50% weighting, being Total Shareholder Return ("TSR") and Earnings Per
Share ("EPS").
The Group's TSR is compared to the TSR of the constituents of the FTSE 250
Index (excluding investment trusts and extractive industries). The TSR tranche
will vest in accordance with the following schedule:
2020 LTIP grant
TSR performance
Below median 0%
Median (Threshold) 25%
Between median and upper quartile Straight-line
Upper quartile (Stretch) 100%
The Group's EPS performance is the Groups cumulative EPS over the performance
period.
2020 LTIP grant
EPS performance
Below 48.6p 0%
48.6p (Threshold) 25%
Between threshold and target Straight-line
54.0 (Target) 60%
Between target and stretch Straight-line
66.7p or higher (Stretch) 100%
Shares granted under the 2019 LTIP did not meet the required performance
measures and shares granted under the plan were forfeited in 2022.
The following table lists the inputs to the model used to value the remaining
LTIP plan for the year ended 31 December 2022. The TSR fair value of the award
granted is measured using the Monte Carlo method and the Black-Scholes model
is used for the EPS fair value. The amount recognised as an expense under IFRS
2 is adjusted to reflect the actual number of share awards that vest.
2020 LTIP grant
Weighted average fair value per award at grant date 226 pence
Share price at grant date 282 pence
Expected term 4.43 years
Expected volatility((1)) 30.09%
Expected exercise price on outstanding awards NIL
Grant-date TSR performance of the Group (2.73%)
Average risk - free interest rate 0.10%
(1) Volatility has been estimated using the historical daily average
volatility of the share price of similar companies to Sabre over a period of
time. This assumption has no impact on the fair value of the EPS tranche, as
the Awards were granted with a nil-cost exercise price.
Shares granted under the LTIP with performance conditions have a three-year
vesting period. The Leadership Team Awards are subject to a two-year
post-vesting holding period. To reflect the lack of liquidity of the two-year
holding period, a discount rate of 15.40% for the 2020 LTIP grant has been
applied in determining the fair value of the grant to the Leadership Team.
The tables below detail the movement in the LTIP:
LTIP with performance conditions
Number and WAEP
Number £
Outstanding at 1 January 2022 1,149,359 NIL
Granted - NIL
Forfeited (541,079) NIL
Vested - NIL
Outstanding at 31 December 2022 608,280 NIL
(1) Weighted average exercise price - as a proxy for fair value.
LTIP with performance conditions
Number and WAEP
Number £
Outstanding at 1 January 2021 1,935,124 NIL
Granted - NIL
Forfeited (499,442) NIL
Vested (286,323) NIL
Outstanding at 31 December 2021 1,149,359 NIL
LTIP Awards - Restricted Share Awards ("RSA")
From 2021 the Group no longer issues awards under the LTIP Awards with
performance conditions, but instead issues RSAs.
The RSAs are structured as nil-cost rewards, to receive free shares on
vesting. Shares will normally vest three years after grant date, subject to
continued employment and the satisfaction of pre-determined underpins. Awards
are also subject to an additional two-year holding period, so that the total
time prior to any potential share sale (except to meet any tax liabilities
arising from the award) will generally be five years.
The total number of shares awarded under the scheme was 540,574 (2021:
441,684) with an estimated fair value at grant date of £1,238k (2021:
£1,170k). The fair value is based on the average closing share price of the
five trading days before the grant date.
The awards granted during the year ended 31 December 2022 are subject to the
following underpins:
- Maintaining a solvency ratio in excess of 140%
- Achieving a Return of Tangible Equity in excess of 10%
- No material regulatory censure
- Overall Committee discretion
Future dividends are accrued separately and are not reflected in the fair
value of the grant.
Deferred Bonus Plan ("DBP")
To encourage behaviour which does not benefit short-term profitability over
longer-term value. Directors and some key staff were awarded shares in lieu of
a bonus, to be deferred for two years, using the market value at the grant
date. The total numbers of shares awarded under the scheme was 171,234 (2021:
278,084) with an estimate fair value of £404k (2021: £672k). Of this award,
the number of shares awarded to Directors and Persons Discharging Managerial
Responsibilities ("PDMRs") was 144,659 (2021: 247,007) with an estimated fair
value of £341k (2021: £597k). Fair values are based on the share price at
grant date. All shares are subject to a two-year service period and are not
subject to performance conditions.
Future dividends are accrued separately and are not reflected in the fair
value of the grant.
The DBP is recognised in the profit or loss account on a straight-line basis
over a period of two years from grant date.
Share Incentive Plans ("SIPs")
The Sabre Share Incentive Plans provide for the award of free Sabre Insurance
Group plc shares, Partnership Shares (shares bought by employees under the
matching scheme), Matching Shares (free shares given by the employer to match
partnership shares) and Dividend Shares (shares bought for employees with
proceeds of dividends from partnership shares). The shares are owned by the
Employee Benefit Trust to satisfy awards under the plans. These shares are
either purchased on the market and carried at fair value or issued by the
parent company to the trust.
Matching Shares
The Group has a Matching Shares scheme under which employees are entitled to
invest between £10 and £150 each month through the share trust from their
pre-tax pay. The Group supplements the number of shares purchased by giving
employees 1 free matching share for every 3 shares purchased up to £1,800.
Matching shares are subject to a three-year service period before the matching
shares are awarded. Dividends are paid on shares, including matching shares,
held in the trust by means of dividends shares. The fair value of such awards
is estimated to be the market value of the awards on grant date.
In the year ended 31 December 2022, 12,317 (2021: 6,987) matching shares were
granted to employees with an estimated fair value of £13k (2021: £13k).
As at 31 December 2022, 28,826 (2021: 16,838) matching shares were held on
behalf of employees with an estimated fair value of £31k (2021: £31k). The
average unexpired life of Matching Share awards is 1.5 years (2021: 1.1
years).
Save as You Earn ("SAYE")
The SAYE scheme allows employees to enter into a regular savings contract of
between £5 and £500 per month over a three-year period, coupled with a
corresponding option over shares. The grant price is equal to 80% of the
quoted market price of the shares on the invitation date. The participants of
the SAYE scheme are not entitled to dividends and therefore dividends are
excluded from the valuation of the SAYE scheme.
Estimated fair value of options at grant date:
SAYE 2020: 71p
SAYE 2021: 55p
SAYE 2022: 40p
The following table lists the inputs to the Black-Scholes model used to value
the awards granted in respect of the 2022 SAYE scheme.
2022 SAYE
Share price at grant date 216 pence
Expected term 3 years
Expected volatility((1)) 31.0%
Continuously compounded risk-free rate 1.5%
Continuously compounded dividend yield 6%
Strike price at grant date 181.3 pence
(1) Volatility has been estimated using the historical daily average
volatility of the share price of the Group for the year immediately preceding
the grant date.
17. RESERVES
Own shares
Sabre Insurance Group plc established an Employee Benefit Trust ("EBT") in
2017 in connection with the operation of its share plans. The investment in
own shares as at 31 December 2022 was £2,810k (2021: £2,257k). The market
value of the shares in the EBT as at 31 December 2022 was £1,523k (2021:
£1,593k).
Merger reserve
Sabre Insurance Group plc was incorporated as a limited company on 21
September 2017. On 11 December 2017, immediately prior to the Company's
listing on the London Stock Exchange, Sabre Insurance Group plc acquired the
entire share capital of the former ultimate parent company of the Group,
Barbados TopCo Limited ("TopCo"). As a result, Sabre Insurance Group plc
became the ultimate parent of the Sabre Insurance Group. The merger reserve
resulted from this corporate reorganisation.
FVOCI reserve
The FVOCI reserve records the unrealised gains and losses arising from changes
in the fair value of debt securities at FVOCI. The movements in this reserve
are detailed in the consolidated Statement of Comprehensive Income.
Revaluation reserve
The revaluation reserve records the fair value movements of the Group's
owner-occupied properties. Refer to Note 9 for more information on the
revaluation of owner-occupied properties.
Share-based payments reserve
The Group's share-based payments reserve records the value of equity settled
share-based payment benefits provided to the Group's employees as part of
their remuneration that has been charged through the income statement. Refer
to Note 16 for more information on share-based payments.
18. Related party transactions
Sabre Insurance Group plc is the ultimate parent and ultimate controlling
party of the Group. The following entities included below form the Group.
Name Principle Business Registered Address
Binomial Group Limited Intermediate holding company Sabre House, 150 South Street, Dorking, Surrey, United Kingdom, RH4 2YY
Sabre Insurance Company Limited Motor insurance underwriter Sabre House, 150 South Street, Dorking, Surrey, United Kingdom, RH4 2YY
Barbados TopCo Limited((1)) Non-Trading Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY
Barb IntermediateCo Limited((2)) Non-Trading 26 New Street, St Helier, Jersey, JE2 3RA
Barb MidCo Limited((2)) Non-Trading 26 New Street, St Helier, Jersey, JE2 3RA
Barb BidCo Limited((2)) Non-Trading 26 New Street, St Helier, Jersey, JE2 3RA
Barb HoldCo Limited((2)) Non-Trading 26 New Street, St Helier, Jersey, JE2 3RA
Other controlled entities
EBT - UK SIP Trust Ocorian, 26 New Street, St Helier, Jersey, JE2 3RA
The Sabre Insurance Group EBT Trust Ocorian, 26 New Street, St Helier, Jersey, JE2 3RA
(1) In process of liquidation
(2) Dissolved in February 2023
No single party holds a significant influence (>20%) over Sabre Insurance
Group plc.
Both Employee Benefit Trusts ("EBTs") were established to assist in the
administration of the Group's employee equity-based compensation schemes. UK
registered EBT holds the all-employee SIP. The Jersey-registered EBT holds the
Long-Term incentive Plan ("LTIP") and Deferred Bonus Plan ("DBP").
While the Group does not have legal ownership of the EBTs and the ability of
the Group to influence the actions of the EBTs is limited to a trust deed, the
EBT was set up by the Group with the sole purpose of assisting in the
administration of these schemes, and is in essence controlled by the Group and
therefore consolidated.
During the period ended 31 December 2022, the Group donated no shares to the
EBTs (2021: NIL).
Key Management compensation
Key Management includes Executive Directors, Non-executive Directors and
Directors of subsidiaries which the Group considers to be senior management
personnel. Further details of Directors' shareholdings and remuneration can be
found in the "Annual Report on Director's Remuneration" on pages 78 to 87 of
the Annual Report and Accounts.
The aggregate amount paid to Directors during the year was as follows.
2022 2021
Remuneration 1,894 2,317
Contributions to defined contribution pension scheme 7 3
Shares granted under LTIP 864 692
Total 2,765 3,012
19. SEGMENT INFORMATION
The Group provides short-term motor insurance to clients, which comprises
three lines of business, motor vehicle insurance, motorcycle insurance and
taxi insurance, which are written solely in the UK. The Group has no other
lines of business, nor does it operate outside of the UK. Other income relates
to auxiliary products and services, including marketing and administration
fees, all relating to the motor insurance business. The Group does not have a
single client which accounts for more than 10% of revenue.
2022
Motor vehicle Motorcycle Taxi Total
Note £'k £'k £'k £'k
Profit or Loss Account information
Gross written premium 134,903 23,062 13,292 171,257
Less: Reinsurance premium ceded (21,440) (3,694) (1,322) (26,456)
Net written premium 113,463 19,368 11,970 144,801
Gross written premium 134,903 23,062 13,292 171,257
Less: Change in unearned premium reserve 19,260 (5,236) (7,106) 6,918
Gross earned premium 154,163 17,826 6,186 178,175
Reinsurance premium ceded (21,440) (3,694) (1,322) (26,456)
Less: Change in unearned premium reserve 184 960 355 1,499
Reinsurance premium payable (21,256) (2,734) (967) (24,957)
Net earned premium 132,907 15,092 5,219 153,218
Insurance claims, excluding claims handling expenses (88,266) (24,253) (5,761) (118,280)
Insurance claims recoverable from reinsurers 6,522 6,385 187 13,094
Net insurance claims (81,744) (17,868) (5,574) (105,186)
Net loss ratio 61.5% 118.4% 106.8% 68.7%
Segment reinsurance assets 106,519 6,385 3,622 116,526
Segment insurance liabilities (297,873) (26,299) (17,129) (341,301)
Segment net insurance liabilities (191,354) (19,914) (13,507) (224,775)
Other than reinsurance assets and insurance liabilities, the Group does not
allocate, monitor or report assets and liabilities per business line and does
not consider the information useful in the day-to-day running of the Group's
operations. The Group also does not allocate, monitor, or report other income
and expenses per business line.
Restated 2021
Motor vehicle Motorcycle Taxi Total
Note £'k £'k £'k £'k
Profit or Loss Account information
Gross written premium 164,582 3,231 1,509 169,322
Less: Reinsurance premium ceded (21,019) (30) (184) (21,233)
Net written premium 143,563 3,201 1,325 148,089
Gross written premium 164,582 3,231 1,509 169,322
Less: Change in unearned premium reserve (622) (2,941) 137 (3,426)
Gross earned premium 163,960 290 1,646 165,896
Reinsurance premium ceded (20,814) (238) (181) (21,233)
Less: Change in unearned premium reserve 574 208 (3) 779
Reinsurance premium payable (20,240) (30) (184) (20,454)
Net earned premium 143,720 260 1,462 145,442
'Taxi' was not shown as a separate line of business in the 2021 Annual Report
and Accounts, as it was not considered to be a separate, material element of
premium income. Following the partnership with Freeway, premium from the
provision of taxi insurance has increased significantly and as such it is now
considered both useful and relevant to disclose this separately. The 31
December 2021 business lines have been restated to split Taxi from Motor
vehicle.
The Group did not report claims information per business line in prior years
as the contribution of motorcycle and taxi business lines were considered
immaterial and a breakdown of claims numbers was not considered meaningful.
20. Earnings per share
Basic earnings per share
2022 2021
After tax Per share After tax Per share
£'k pence £'k pence
Profit for the year attributable to equity holders 10,107 4.06 30,140 12.09
Diluted earnings per share
2022
After tax Weighted average number of shares Per share
£'k £'k pence
Profit for the year attributable to equity holders 10,107 248,865 4.06
Net share awards allocable for no further consideration 1,880 (0.03)
Total diluted earnings 250,745 4.03
2021
After tax Weighted average number of shares Per share
£'k £'k pence
Profit for the year attributable to equity holders 30,140 249,221 12.09
Net share awards allocable for no further consideration 2,320 (0.11)
Total diluted earnings 251,541 11.98
21. Contingent liability
In the 2021 Annual Report and Accounts, the Group disclosed a contingent
liability regarding a contested determination in relation to the 2015, 2016
and 2017 corporation tax filings of a subsidiary of the Group, which is
currently dormant. During 2022 HMRC accepted the Group's appeal against their
determination and as such, the matter is now fully closed with no change in
the tax position of the Group.
22. EVENTS AFTER THE BALANCE SHEET DATE
Other than the declaration of a final dividend as disclosed in Note 12, there
have been no material changes in the affairs or financial position of the
Company and its subsidiaries since the Statement of Financial Position date.
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
2022 2021
Notes £'k £'k
Assets
Investments 2 450,000 580,963
Debtors 4 3 128
Prepayments 211 204
Cash and cash equivalents 861 915
Total assets 451,075 582,210
Equity
Issued share capital 5 250 250
Own shares (2,810) (2,257)
Merger reserve 236,949 369,515
Share-based payments reserve 2,407 1,841
Retained earnings 212,581 212,794
Total equity 449,377 582,143
Liabilities
Creditors: Amounts falling due within one year 3 1,607 -
Accruals 91 67
Total liabilities 1,698 67
Total equity and liabilities 451,075 582,210
No income statement is presented for Sabre Insurance Group plc as permitted by
section 408 of the Companies Act 2006. The loss after tax of the parent
company for the period was £103,094k (2021: £40,846k profit after tax).
The financial statements were approved by the Board of Directors and
authorised for issue on 13 March 2023.
Signed on behalf of the Board of Directors by:
ADAM WESTWOOD
Chief Financial Officer
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
Notes £'k £'k
ORDINARY SHAREHOLDERS' EQUITY - at 1 January 250 250
At 31 December 250 250
OWN SHARES - at 1 January (2,257) (1,494)
Net movement in own shares (553) (763)
At 31 December (2,810) (2,257)
MERGER RESERVE - at 1 January 369,515 369,515
Transfer from retained earnings (132,566) -
At 31 December 236,949 369,515
SHARE-BASED PAYMENT RESERVE - at 1 January 1,841 1,817
Settlement of share-based payments (1,037) (1,051)
Charge in respect of share-based payments 1,603 1,075
At 31 December 2,407 1,841
RETAINED EARNINGS - at 1 January 212,794 210,449
Share-based payments 447 (115)
Profit for the year (103,094) 40,846
Transfer to merger reserve 132,566 -
Ordinary dividends paid (30,132) (38,386)
At 31 December 212,581 212,794
Total equity at 31 December 449,377 582,143
PARENT COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
£'k £'k
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/profit after tax for the year (103,094) 40,846
Adjustment for:
Impairment of subsidiary 2.1 132,566 -
Operating cash flows before movements in working capital 29,472 40,846
Movements in working capital:
Change in debtors 124 (47)
Change in prepayments (7) (36)
Change in trade and other payables 1,607 (183)
Change in accruals 24 (96)
Net cash generated from operating activities 31,220 40,484
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used in acquiring and disposing of own shares (1,142) (1,928)
Dividends paid (30,132) (38,386)
Net cash used by financing activities (31,274) (40,314)
Net (decrease)/ increase in cash and cash equivalents (54) 170
Cash and cash equivalents at the beginning of the year 915 745
Cash and cash equivalents at the end of the year 861 915
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
1. Accounting policies
The principal accounting policies applied in the preparation of these
consolidated and company financial statements are included in the specific
notes to which they relate. These policies have been consistently applied to
all the years presented, unless otherwise indicated.
1.1 Basis of preparation
These financial statements present the Sabre Insurance Group plc company
financial statements for the period ended 31 December 2022, comprising the
parent company statement of financial position, parent company statement of
changes in equity, parent company statement of cash flows, and related notes.
The financial statements of the Company have been prepared in accordance with
UK-adopted international accounting standards, comprising International
Accounting Standards ("IAS") and International Financial Reporting Standards
("IFRS"), and the requirements of the Companies Act 2006. Endorsement of
accounting standards is granted by the UK Endorsement Board ("UKEB").
In accordance with the exemption permitted under section 408 of the Companies
Act 2006, the Company's income statement and related notes have not been
presented in these separate financial statements.
The financial statements are prepared in accordance with the going concern
principle using the historical cost basis, except for those financial assets
that have been measured at fair value.
The financial statements values are presented in pounds sterling (£) rounded
to the nearest thousand (£'k), unless otherwise indicated.
The accounting policies that are used in the preparation of these separate
financial statements are consistent with the accounting policies used in the
preparation of the consolidated financial statements of Sabre Insurance Group
plc as set out in those financial statements.
As permitted by section 408 of the Companies Act 2006, the statement of
comprehensive income of the parent company is not presented. The additional
accounting policies that are specific to the separate financial statements of
the Company are set out below.
2. Investments
The Company's financial assets are summarised below:
2022 2021
£'k £'k
Investment in subsidiary undertakings 450,000 580,963
Total 450,000 580,963
2.1 Investment in subsidiary undertakings
ACCOUNTING POLICY - INVESTMENT IN SUBSIDIARY UNDERTAKINGS
Investment in subsidiaries is stated at cost less any impairment.
2022 2021
£'k £'k
As at 1 January 580,963 579,889
Additions 1,603 1,074
Impairment (132,566) -
As at 31 December 450,000 580,963
The only operating insurance subsidiary of the Company is Sabre Insurance
Company Limited, from which the value of the Group is wholly derived, as there
are no other trading entities within the Group. The Company performed its
annual impairment test as at 31 December 2022 and 31 December 2021. The
Company considers the relationship between the Group's market capitalisation
and the book value of its subsidiary undertakings, among other factors, when
reviewing for indicators of impairment. As at 31 December 2022 and 31 December
2021, the Company's securities were traded on a liquid market, therefore
market capitalisation could be used as an indicator of value.
The Group performed its annual impairment test as at 31 December 2022 and 31
December 2021. The Company considers the relationship between the Group's
market capitalisation and the book value of its subsidiary undertakings, among
other factors, when reviewing for indicators of impairment.
Having carried out this assessment the Board concluded, on the basis of the
cautious assumptions outlined below, that the value of the investment in
subsidiary should be set at £450,000k (2021: £580,963k). This impairment has
been taken to the parent company profit or loss account, and transferred to
the merger reserve. There is no impact on the distributable capital available
to the Group or Sabre Insurance Group plc as a result of this adjustment.
Key assumptions
The market capitalisation of the Company as at 31 December 2022 had reduced to
£266,000k from £459,500k at 31 December 2021. This provided an indication
that the underlying value had been impaired, and therefore the Directors
carried out an impairment assessment.
We have used a dividend discount model to estimate the value-in-use, wherein
dividend payments are discounted to the present value. Dividends have been
estimated, based on forecasted financial information, over a four-year
forecast period, with a terminal growth rate applied. The key assumptions used
in the preparation of future cash flows are: plan-period financial
performance, dividend payout ratio, long-term growth rates and discount rate.
The key assumptions used in the calculation for the value in use is set out
below:
- Plan period financial performance set in-line with the Group's
expectations
- Dividend payout ratio in line with the Group's strategy
- Long-term growth rate beyond the plan period of 2%
- Discount rate of 9.5%, being a calculated cost of capital using market
rate returns of Sabre and comparable insurers
These calculations use post-tax cash flow projections based on the Group's
capital models. As the value-in-use exceeds the carrying amount, the
recoverable amount remains supportable.
The Group has conducted sensitivity testing to the recoverable amount, in
order to understand the relevance of these various factors in arriving at the
value in use.
- Dividend within the plan period - To assess the impact of reasonable
changes in performance on our base case impairment analysis and headroom, we
flexed the dividend within the plan period by +10% and -10%. In doing so, the
value in use varied by approximately 10.0% around the central scenario.
- Long term growth rate - To assess the impact of reasonable changes in
the long-term growth rate on our base case impairment analysis and headroom,
we flexed the long-term growth rate by +1% and -1%. In doing so, the value in
use varied by approximately 7.1% around the central scenario.
- Discount rate - To assess the impact of reasonable changes in the
dividend payout ratio on our base case impairment analysis and headroom, we
flexed the average discount rate by +2% and -2%. In doing so, the value in use
varied by approximately 13.0% around the central scenario.
Name of subsidiary Place of incorporation Principal activity
Directly held by the Company
Binomial Group Limited United Kingdom Intermediate holding company
Barbados TopCo Limited((1)) Guernsey Non-trading company
Barb IntermediateCo Limited((2)) Jersey Non-trading company
Barb MidCo Limited((2)) Jersey Non-trading company
Barb BidCo Limited((2)) Jersey Non-trading company
Barb HoldCo Limited((2)) Jersey Non-trading company
Indirectly held by the Company
Sabre Insurance Company Limited United Kingdom Motor insurance underwriter
(1) In process of liquidation
(2) Dissolved in February 2023
The registered office of each subsidiary is disclosed within Note 18 of the
consolidated Group accounts.
3. Creditors
2022 2021
£'k £'k
Due within one year
Creditors - -
Amounts due to Group undertakings 1,607 -
As at 31 December 1,607 -
4. Debtors
2022 2021
£'k £'k
Due within one year
Amounts due from Group undertakings - 126
Other debtors 3 2
As at 31 December 3 128
5. Share capital and reserves
Full details of the share capital and the reserves of the Company are set out
in Note 15 and Note 17 to the consolidated financial statements.
6. Dividend income
ACCOUNTING POLICY - DIVIDEND INCOME
Dividend income from investment in subsidiaries is recognised when the right
to receive payment is established.
7. Related party transactions
Sabre Insurance Group plc, which is incorporated in the United Kingdom and
registered in England and Wales, is the ultimate parent undertaking of the
Sabre Insurance Group of companies.
The following balances were outstanding with related parties at year end:
2022 2021
£'k £'k
Due (to)/from
Sabre Insurance Company Limited (1,607) 126
Total (1,607) 126
The outstanding balance represents cash transactions effected by Sabre
Insurance Company Limited on behalf of its parent company, and will be settled
within one year.
8. Share-based payments
Full details of share-based compensation plans are provided in Note 16 to the
consolidated financial statements.
9. Risk management
The risks faced by the Company, arising from its investment in subsidiaries,
are considered to be the same as those presented by the operations of the
Group. Details of the key risks and the steps taken to manage them are
disclosed in Note 3 to the consolidated financial statements.
10. Directors and key management remuneration
The Directors and key management of the Group and the Company are the same.
The aggregate emoluments of the Directors and the remuneration and pension
benefits payable in respect of the highest paid Director are included in the
Directors' Remuneration Report in the Governance section of the Annual Report
and Accounts.
FINANCIAL RECONCILIATIONS
AS AT 31 DECEMBER 2022
Adjusted Profit Before Tax
2022 2021 2020
£'k £'k £'k
Profit before tax 12,750 37,199 49,122
Add:
Amortisation of intangible assets - - -
Exceptional items - - -
Adjusted profit before tax 12,750 37,199 49,122
Adjusted Profit After Tax
2022 2021 2020
£'k £'k £'k
Profit after tax 10,107 30,140 39,798
Add:
Amortisation of intangible assets - - -
Exceptional items - - -
Tax on exceptional items - - -
Adjusted profit after tax 10,107 30,140 39,798
Net Loss Ratio
2022 2021 2020
£'k £'k £'k
Net insurance claims 112,799 81,015 88,110
Less: Claims handling expenses (7,613) (6,767) (7,637)
Net claims incurred 105,186 74,248 80,473
Net earned premium 153,218 145,442 165,707
Net loss ratio 68.7% 51.1% 48.6%
Expense Ratio
2022 2021 2020
£'k £'k £'k
Total expenses 34,149 34,444 36,670
Plus: Claims handling expenses 7,613 6,767 7,637
Net operating expenses 41,762 41,211 44,307
Net earned premium 153,218 145,442 165,707
Expense ratio 27.3% 28.3% 26.7%
Combined Operating Ratio
2022 2021 2020
£'k £'k £'k
Total expenses 34,149 34,444 36,670
Net insurance claims 112,799 81,015 88,110
146,948 115,459 124,780
Net earned premium 153,218 145,442 165,707
Combined operating ratio 96.0% 79.4% 75.3%
Solvency Coverage Ratio - Pre-Dividend
2022 2021 2020
£'k £'k £'k
Solvency II net assets 91,191 110,114 122,500
Solvency capital requirement 56,516 52,955 60,327
Solvency coverage ratio - pre-dividend 161.4% 207.9% 203.1%
Solvency Coverage Ratio - Post-Dividend
2022 2021 2020
£'k £'k £'k
Solvency II net assets 91,191 110,114 122,500
Less: Final dividend (4,250) (23,250) (29,250)
Solvency II net assets (post-dividend) 86,941 86,864 93,250
Solvency capital requirement 56,516 52,955 60,327
Solvency coverage ratio - post-dividend 153.8% 164.0% 154.6%
Return on Tangible Equity
2022 2021 2020
£'k £'k £'k
IFRS net assets at year end 222,496 252,727 266,400
Less:
Goodwill at year end (156,279) (156,279) (156,279)
Closing tangible equity 66,217 96,448 110,121
Opening tangible equity 96,448 110,121 111,138
Average tangible equity 81,333 103,285 110,630
Adjusted profit after tax 10,107 30,140 39,798
Return on tangible equity 12.4% 29.2% 36.0%
Dividend Payout Ratio
2022 2021 2020
£'k £'k £'k
Adjusted profit after tax 10,107 30,140 39,798
Dividend declared in respect of the financial year 11,250 32,500 53,000
2019 deferred special dividend - - (13,000)
Effective dividend declared in respect of the financial year 11,250 32,500 40,000
Dividend payout ratio 111.3% 107.8% 100.5%
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR NKQBBABKKCNDRecent news on Sabre Insurance
See all newsREG - Sabre Insurance Grp - Director/PDMR Shareholding
AnnouncementREG - Sabre Insurance Grp - Director/PDMR Shareholding
AnnouncementREG - Sabre Insurance Grp - Director/PDMR Shareholding
AnnouncementREG - Sabre Insurance Grp - Director/PDMR Shareholding
AnnouncementREG - Sabre Insurance Grp - Director/PDMR Shareholding
Announcement