REG - Sabre Insurance Grp - Full-year results 2023
19/03/2024 07:00
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RNS Number : 3204H Sabre Insurance Group PLC 19 March 2024
Full-year results 2023
Strong growth delivering record gross written premiums and significant
increase in profit
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 2023.
SUMMARY OF RESULTS
Year to Year to
31 December 2023
31 December 2022 ((1))
Gross written premium £225.1m £171.3m
Net loss ratio 56.3% 66.0%
Expense ratio 30.0% 27.4%
Combined operating ratio 86.3% 93.4%
Profit before tax £23.6m £14.0m
Profit after tax £18.1m £11.1m
Total dividend per share 9.0p 4.5p
Return on tangible equity (annualised) 22.7% 13.3%
Solvency coverage ratio (pre-final dividend) 205.3% 161.4%
Solvency coverage ratio (post-final and special dividend) 170.9% 153.8%
(1) All relevant 2022 numbers are restated under IFRS 17
Geoff Carter, Chief Executive Officer of Sabre, said:
"The 2023 results demonstrate the strength of Sabre's model with our
disciplined approach, of focusing on profitability as a target and treating
volume as an output through the cycle, paying off. We have successfully
demonstrated the power of this approach over the past twelve months.
Following a challenging 2022, where we reacted early and decisively to the
rapid increase in inflation, this year has seen us benefit as some competitors
increased prices rapidly and others withdrew from the motor insurance market.
This has resulted in record premium income of £225.1m. Underlying this is
extremely strong growth in our core Motor Vehicle product of +47.5%, far
exceeding our initial expectations for the year, and outweighing the
anticipated reduction in motorcycle business. Further, we have achieved this
whilst also returning our forward-looking expected loss ratios to our
historical target levels, in the low-to-mid 50% range.
We have delivered good profit for the year, ahead of expectations and we
anticipate a further significant increase in profitability for 2024 as the
profitable business written in 2023 earns through. We believe that ongoing
market uncertainties are such that price discipline should be maintained
across the sector, which, together with our ongoing focus on profitable
growth, will enable Sabre to deliver strong returns to shareholders in 2024.
I look forward to the coming year and would like to thank both the Board and
Executive team, and all our dedicated colleagues at Sabre for their support
and excellent work in the period under review. I would also like to take this
opportunity to thank Ian Clark, who leaves the Board with effect from 22(nd)
of May this year, for his dedicated service to the Group over many years."
STRATEGIC HIGHLIGHTS
- Longstanding disciplined strategy delivered record premium and strong
profitability
- Motorcycle delivered close to long-term target profitability
- Taxi still in a developmental phase. Premiums being constrained until
market conditions improve
- New direct platform delivered on time and on budget, and we expect this to
benefit future periods through reduction in servicing costs
- Insurer Hosted Pricing roll-out is on track to deliver increased pricing
sophistication in future periods across the portfolio
- Customer service levels maintained, despite the rapid growth in policy
numbers
FINANCIAL HIGHLIGHTS
- Overall premium +31.4%. Core Motor Vehicle +47.5%
- Profit ahead of expectations at £23.6m
- Very strong pre-dividend capital position of 205.3%. Well in excess of
target operating range of 140%-160%
- Year-end dividend of 8.1p. Consisting of 4.2p ordinary and 3.9p special.
0.9p interim dividend already paid
- Post dividend capital of 170.9%, will support earn-through of current and
possible future growth
- Overall loss ratio in-line with our expectations
- Expense ratio above 2023 due to growth in top-line not reflected in earned
premium during the year, whilst the expense base has been subject to inflation
and a small number of one-off expenses. The expense ratio has improved notably
in the second half of the year
MARKET
- Very strong market-wide price correction observed in H2'23, allowing Sabre
to grow premiums whilst returning profitability to historic levels
- Continued elevated claims inflation, uncertain smaller personal injury
claims costs pending the Supreme Court's decision, and anticipated poor market
profitability for 2023, means that industry pricing discipline should sustain
- Large price increases in 2023, the potential change to Ogden discount
rates in 2025, and reinsurance rate reductions, means that market price
increases in 2024 are unlikely to be at the same level as 2023
OUTLOOK
- Loss ratios should improve further as profitable business written in 2023
earns through, leading to an increase in profit in 2024
- Further improvements in Motorcycle and Taxi to earn through. Motorcycle
premium to return to growth in future periods as new distributors are added
- If market pricing discipline sustains, then further growth is expected in
the core Motor account
ENQUIRIES
Sabre Insurance
Group
0330 024 4696
Geoff Carter, Chief Executive Officer
Adam Westwood, Chief Financial Officer
Teneo
020 7353 4200
James Macey White
ANALYST PRESENTATION
Event Title: Sabre Insurance - Full Year Results 2023
Time Zone: Dublin, Edinburgh, Lisbon, London
Start Time/Date: 09:30 Tuesday, March 19, 2024
Duration: 60 minutes
Webcast: https://brrmedia.news/SBRE_FY23 (https://brrmedia.news/SBRE_FY23)
Location Phone Type Phone Number
United Kingdom, Local Local 033 0551 0200
Password, if prompted Quote Sabre Insurance when prompted by the operator
Please join the event 5-10 minutes prior to scheduled start time. When
prompted, provide the confirmation code or event title.
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.
Webcast: https://brrmedia.news/SBRE_FY23 (https://brrmedia.news/SBRE_FY23)
Location Phone Type Phone Number
United Kingdom, Local Local 033 0551 0200
Password, if prompted Quote Sabre Insurance when prompted by the operator
Please join the event 5-10 minutes prior to scheduled start time. When
prompted, provide the confirmation code or event title.
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: 25 April 2024
Record date: 26 April 2024
Payment date: 5 June 2024
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
Record premium levels, enhanced margins and strong profit
In our 2022 Report and Accounts we outlined several expectations for 2023:
- Early, decisive decision to react to emerging claims inflation would
protect the financial position of Sabre for the longer term;
- We would rebound quickly to historical levels of performance;
- We would take advantage of growth opportunities as many competitors
reacted belatedly with high rate increases.
I am pleased that not only did these predictions come through, but that the
positive impact on our business exceeded our expectations at the start of
2023.
We saw sustained, strong premium growth through the second half of 2023 with
year-on-year premium levels over 100% by the end of the year. This was
delivered while continuing to execute our disciplined growth strategy,
applying significant rate increases which resulted in a return to
forward-looking expected loss ratios in line with our historical norms faster
than anticipated. We have benefitted from good new customer growth as well
as maintaining our normal levels of customer retention.
At the same time, we made excellent progress on getting our emerging
Motorcycle account to a sustainable position and further developed our taxi
portfolio. Looking forward, we will now build out our Motorcycle portfolio
through partnerships with additional expert brokers. Whilst the Taxi
portfolio remains at an earlier stage of development, and the Taxi market
continues to be highly competitive, we will maintain a low footprint until we
are confident that this product can grow profitably.
Reflections on 2023
Despite the significantly improved financial results, 2023 was not a
straightforward year, with several unexpected challenges. This performance
was delivered through both dedication to our disciplined growth strategy and
the exceptional commitment from my colleagues, for which I and my fellow Board
members are greatly appreciative.
The decisive early action we took in response to the well-publicised
inflationary pressures at the start of the year, increasing our pricing
accordingly, wasn't reflected at the time in the pricing actions from many of
our competitors. Whilst this did negatively impact our premium levels in the
first quarter of the year, we continued to focus on margin over volume -
believing that the broader market correction would be more dramatic the more
time passed. This proved to be the case with very high levels of rate
increases in the second half of the year. This led to exceptionally high
year-on-year premium levels and a return to our long-term target margins.
In mid-2023 our original motorcycle distributor, MCE Insurance, was placed
into administration. We worked extensively with the FCA to ensure the best
possible customer outcomes from this - including working with potential
acquirers, providing limited cash flow funding to the business and ultimately
taking the servicing of the policies in-house until renewal.
At the end of the year, we experienced a cyber-attack linked to the worldwide
Citrix bleed vulnerability. We had established contingency processes in place
and I was pleased with the effectiveness of our response. Critically, I could
not be more impressed by the way our people reacted to minimise customer
impact. Our distribution and outsourced strategy meant we were able to
continue to sell policies throughout the disruption as well as dealing
effectively and efficiently with customer claims. Whilst our IT security
protocols worked well and prevented the loss of sensitive customer data, there
are always lessons that can be learnt and we will continue to invest further
in this area.
There were many other positive developments during the year. Our new
direct-to-customer policy administration system was launched by our E-Commerce
Team on time and to budget. We are now looking forward to enhancing customer
service at the same time as reducing costs through the additional
functionality the new system possesses. We have also rolled out the initial
stages of Insurer Hosted Pricing on schedule. This will allow us to deploy
more sophisticated pricing at speed as we move forward.
Board changes
Towards the end of 2023 we were distressed by the sudden death of our Chair,
Andy Pomfret. Andy was an excellent Chair of the Group and a great support to
me and other members of the Executive Team as we worked through some difficult
years. Despite the sad loss I am pleased that our Board succession plan worked
effectively and would like to congratulate Rebecca Shelley who has stepped
into the role of Company Chair.
Other changes to the Board during the year were the joining of Bryan Joseph as
Non-executive Director and Chair of the Risk Committee, the enrolling of Karen
Geary as Chair of the Remuneration Committee and the departure of Michael
Koller from the Board in December 2023. I welcome Bryan to the Board and would
like to thank Michael for his contribution and support. In addition to these
changes, we inform the market that Ian Clark is leaving the Board with effect
from 22 May 2024, and therefore will not be standing for re-election at the
Company's 2024 Annual General Meeting. Ian has served on the Board of Sabre
Insurance Company Limited since 2014 and the Board of Sabre Insurance Group
plc since its listing in 2017. Ian's market knowledge has been invaluable to
the Group, and he leaves with my huge thanks for his contribution to the
success of the Group.
Market
The UK motor insurance market remains a sophisticated, efficient, and
well-served marketplace. In the latter half of 2023, we saw systemic
under-pricing in the market reduce considerably, with insurers switching focus
towards improving underwriting profits. There are, as ever, many uncertainties
in the market. The key ones are:
- Uncertainty on small personal injury costs pending the outcome of the
related Supreme Court decision
- Potential change in the critical Ogden discount rate
- Impact of changes in reinsurance costs
- Continuing elevated levels of claims inflation
- Potential change of government and an increased focus from regulators on
the affordability of car insurance and instalment rates charged for monthly
policies
We will continue to maintain a prudent position balancing the possible
positive and negative impacts.
In 2023 we also witnessed withdrawals from the motor insurance market, few new
entrants and expect very poor industry-level profitability. This gives some
degree of greater certainty that pricing discipline will be maintained for
some time to come.
Capital and dividend
Our strong capital generation has allowed us to declare an ordinary dividend
in line with our policy and distribute excess capital by way of a meaningful
special dividend. We anticipate being able to benefit from potential further
profitable growth whilst also being able to pay an attractive dividend.
People
I am delighted by the ongoing commitment of our people across the
organisation, evidenced in 2023 and in the performance of the Company and the
low levels of employee turnover. We reflected this commitment during the year
by paying inflation linked pay rises, paying annual performance and Christmas
bonuses, providing a cost-of-living bonus, running two employee share plans,
while rolling out further employee benefits such as free breakfasts. We
continue to support our employees with training and development, and it was
great to see many promotions and career moves in the year.
In line with good governance, during 2023 the Company consulted its major
shareholders regarding the changes to the Company's Remuneration Policy for
Executive Directors (the 'Policy'). The updated Policy will be put to vote at
the Company's Annual General Meeting on 23 May 2024.
Customers
We kept customers at the forefront of our decision making this year,
especially as we dealt with some of the implications of the MCE administration
and the cyber incident. Going forward we are fully aligned to the emerging
consumer duty requirements, as well as enhancing service to our direct
customers through new system capability.
Environmental, Social and Governance ("ESG")
We continue to view consideration of ESG issues as an important aspect of our
corporate decision making and remain committed to our key environmental
targets and values, which encompass fairness to our employees, customers,
partners and the planet. We have made steady progress against our net-zero
ambitions, which have included a full office refurbishment and re-launch of
our employee Sustainability Forum.
Outlook for 2024
We anticipate that the business we wrote in 2023 will earn through at
attractive margins delivering an increase in profitability in 2024. I also
expect that market pricing discipline will hold allowing us to grow further.
Our Insurer-Hosted Pricing will continue to be rolled out, allowing more
sophisticated pricing to be delivered to the market and we expect to add new
Motorcycle distribution partners. Beyond this, much of our focus in 2024 will
be on 'below the radar' developments as we continue to invest in our pricing
and claims capabilities to maintain our position as a leading motor insurer.
Geoff Carter
Chief Executive Officer
18 March 2024
Chief Financial Officer's review
Strong gross written premium growth and capital generation
HIGHLIGHTS
2023 2022 ((1))
Gross written premium* £225.1m £171.3m
Net loss ratio* 56.3% 66.0%
Combined operating ratio* 86.3% 93.4%
Net profit margin* 15.8% 8.6%
Profit before tax £23.6m £14.0m
Profit after tax £18.1m £11.1m
Solvency coverage ratio (pre-dividend)* 205.3% 161.4%
Solvency coverage ratio (post-dividend)* 170.9% 153.8%
Return on tangible equity* 22.7% 13.3%
(1) All relevant 2022 numbers are restated under IFRS 17
*Alternative Performance Metrics are reconciled to IFRS in the Financial
Reconciliation section
2023 has been an exciting year in the motor insurance market, in which a
long-awaited correction to pricing across the market was delivered rapidly as
insurers dealt with the twin impacts of high inflation and sustained
under-pricing. Sabre was well-placed to benefit from these market conditions,
having taken timely and necessary pricing action throughout 2022 and 2023.
In some respects, the numbers speak for themselves in 2023, with the
performance of the Group improving significantly since 2022. In the first half
of the year, Sabre continued to increase prices in order to meet elevated
levels of inflation and return margins towards historical norms. Market
pricing, however, remained low until mid-March, at which point it appears
other insurers started to increase their own prices having suffered
underwriting losses in 2022. As had been anticipated since the start of the
downturn in market pricing, once this happened Sabre's competitiveness on its
core Motor Vehicle policies increased significantly, allowing the Group to
grow its gross written premium. This rapid growth had a minimal impact on the
first half of 2023, as all premium written by the Group is recognised in
profit through insurance revenue evenly over a period of one year. This growth
started to impact on profits in H2, as did the improved loss ratio resulting
from decisive pricing action in 2022 and 2023.
This rapid growth and the on-target profitability of business written during
the year allowed the Group to generate significant organic capital. The
Directors have chosen to distribute this capital by way of a special and
ordinary dividend, bringing the total dividend in respect of 2023, including
the interim already paid, to 9.0 pence per share.
REVENUE
2023 2022 ((1))
Profit or loss
Gross written premium £225.1m £171.3m
Insurance revenue £188.2m £181.5m
Net earned premium £156.0m £153.2m
Other technical income £1.2m £1.8m
Customer instalment income £3.7m £3.3m
Interest revenue calculated using the effective interest method £3.8m £1.7m
Fair value gains on debt securities through OCI NIL £22k
Other comprehensive income
Fair value gains/(losses) on debt securities through OCI £9.3m (£14.2m)
Gross written premium by product
Motor vehicle £199.0m £134.9m
Motorcycle £11.8m £23.1m
Taxi £14.3m £13.3m
Policy counts by product
Motor vehicle ('000) 234 217
Motorcycle ('000) 44 74
Taxi ('000) 12 12
(1) Al relevant 2022 numbers are restated under IFRS 17
The move to reporting under IFRS 17 has brought some changes to the
presentation of the Profit or Loss Account and Statement of Financial
Position, although I continue to stress that the economic reality of the
business and capital position of the Group remain unaffected by the change. We
will continue to report numbers in sufficient detail such that we believe
readers of this Report and Accounts will be able to understand the Group's
performance in historic terms. For example, whilst 'Insurance Revenue' is the
top-line in the Profit or Loss Account (it represents 'earned premium' plus
'customer instalment income'), we continue to report gross written premium on
the same basis as under the previous accounting regime.
The below table shows how the familiar measures used to calculate our KPIs
build up into the income entries in the IFRS 17 Profit or Loss Account.
2023 2022 ((1))
Gross written premium £225.1m £171.3m
Less: Unearned element of liability for remaining coverage (£40.6m) £6.9m
Gross earned premium £184.5m £178.2m
Reinsurance expense (£28.5m) (£25.0m)
Net earned premium £156.0m £153.2m
Customer instalment income £3.7m £3.3m
Insurance service expense (£139.5m) (£126.6m)
Amounts recoverable from reinsurers £31.5m £6.3m
Insurance service result £51.8m £36.2m
Represented by:
Insurance service result before reinsurance contracts held £48.7m £54.9m
Net expense from reinsurance contracts held £3.0m (£18.7m)
£51.8m £36.2m
(1) All relevant 2022 numbers are restated under IFRS 17
Our gross written premium has increased by 31.4% vs 2022, with the increase
being almost entirely driven by the Group's core (and most profitable) line of
business - Motor Vehicle. The increase in gross written premium is even more
sizeable when compared to the second half of 2022, being 58.1% up for H2 2023
vs H2 2022. This has been slightly offset by a reduction in Motorcycle
business, which was expected as the relationship with one of the Group's
distributors was terminated during the year. Premium from the Taxi business
has grown marginally, although that market remains challenging and therefore
the Group remains cautious as pricing in the Taxi market remains relatively
low.
Customer instalment income, which is 'earned' in the same way as premium, has
increased in line with premium earned on the direct business. As has always
been the case, the Group only earns instalment income on its Direct book from
the provision of premium financing to those customers who choose to pay
monthly, and as such this remains a very small element of the Group's
insurance revenue.
Investment return has started to reflect the reinvestment of maturing assets,
as well as increase in total assets invested in the Group's portfolio. The
Group's investment strategy remains unchanged, being invested in a low-risk
mix of UK government bonds, other government-backed securities and diversified
investment-grade corporate bonds. Fair value gains and losses on the
investment portfolio are taken through other comprehensive income and largely
reflect market movements in yields of risk-free and low-risk assets. We do not
expect to realise any of these market value movements within profit as we
continue to hold invested assets to maturity.
OPERATING EXPENDITURE
2023 2022 ((1))
Profit or loss
Insurance service expense £139.5m £126.6m
Reinsurance expense £28.5m £25.0m
Current-year net loss ratio 58.8% 61.9%
Prior-year net loss ratio (2.5%) 4.1%
Financial-year net loss ratio 56.3% 66.0%
Other operating expenses £26.6m £22.8m
Expense ratio 30.0% 27.4%
Combined operating ratio 86.3% 93.4%
Net loss ratio by product
Motor vehicle 50.4% 59.0%
Motorcycle 65.2% 113.4%
Taxi 108.8% 107.0%
(1) All relevant 2022 numbers are restated under IFRS 17
The year-on-year improvement in profitability is evident from the loss and
combined ratios reported above. The inflation shock in 2022 clearly had a very
significant impact on 2022's result, and this had a knock-on impact into 2023,
particularly in the first half of the year, as the rating action taken during
2022 took some time to earn through. The numbers reported above are on an
IFRS 17 basis, therefore are 'discounted' loss ratios. Undiscounted figures
are shown below, along with other elements which make up the 'insurance
service expense', which effectively equals discounted claims expense, plus an
allocation of operating expenses directly attributable to handling claims and
the amortisation of insurance acquisition costs, which in Sabre's case is
analogous to commission expense under the previous standard.
2023 2022 ((1))
Undiscounted gross claims incurred £139.6m £126.7m
Discounting ((2)) (£20.3m) (£19.3m)
Directly attributable expenses £6.1m £6.2m
Amortisation of insurance acquisition costs £14.1m £12.9m
Insurance service expense £139.5m £126.6m
Undiscounted reinsurance recoveries (£41.4m) (£17.3m)
Discounting ((2)) £9.8m £11.0m
Amounts recoverable from reinsurers for incurred claims (£31.5m) (£6.3m)
Undiscounted net claims incurred ((3)) £96.0m £108.7m
Net earned premium £156.0m £153.2m
Current-year undiscounted net loss ratio 64.3% 67.7%
Prior-year undiscounted net loss ratio (2.7%) 3.3%
Financial-year undiscounted net loss ratio 61.6% 71.0%
Undiscounted combined operating ratio 91.6% 98.4%
Undiscounted net loss ratio by product
Motor vehicle 55.0% 63.4%
Motorcycle 73.3% 121.9%
Taxi 117.1% 116.6%
(1) All 2022 numbers are restated under IFRS 17 where applicable
(2) Includes discounting on Period Payment Orders ("PPOs")
(3) Calculation of undiscounted net loss ratio allows for the impact
of discounting on long-term non-life annuities, Periodic Payment Orders
("PPOs"), consistent with presentation under IFRS 4
Whether on a discounted or undiscounted basis, the improvement in loss ratio
across the business as a whole is clear, with a significant improvement in
Motor Vehicle and Motorcycle, whilst the small Taxi business remains
challenging. Whilst the full-year net loss ratio is not sufficiently low
across the whole business to return the Group to historical levels of
profitability in 2023, the loss ratio for H2 is far closer, being 51.5% on an
IFRS 17 basis and 57.5% on an undiscounted basis. It is also very pleasing to
note that profitability on the core Motor Vehicle product has returned towards
our historical norms and has improved throughout 2023. Given the significant
growth in this product relative to Motorcycle and Taxi, this should have a
much greater impact in 2024.
The Group's expense ratio has increased slightly from 2022, a result primarily
of earned premium remaining at similar levels, with the rapid growth later in
the year not reflected fully in the earned position, set against normal
inflation in the cost base and some one-off expenditure, including the
building refurbishment (£0.4m) and a write-down in the valuation of the
Group's headquarters office estate (£0.3m) which was impacted by the higher
inflation environment and a general slow down in demand for office buildings.
We have seen this increase reverse in H2 however, with the expense ratio
falling from 31.8% in H1 to 28.3% in H2.
NET INSURANCE FINANCIAL RESULT
The net insurance financial result is a new concept under IFRS 17 and
represents the 'run-off' of discounting applied to claims reserves. When a
claim is recorded, the claim cost is discounted to reflect the time value of
money at the prevailing rate. This reduces the overall claims cost and is why
the claims expense is lower on a discounted basis. The 'other side' of this is
the run-off of discounting, which reflects the increase in the real-world
value of the claim as payment becomes closer. The reduction in claims
liabilities and reinsurance assets resulting from applying discounting to
those balances is recorded within insurance contract liabilities and
reinsurance assets respectively in the Statement of Financial Position.
2023 2022 ((1))
Insurance finance income expense for insurance contracts issued (£10.2m) (£6.0m)
Reinsurance finance income for reinsurance contracts held £3.6m £3.2m
Net insurance financial result (£6.6m) (£2.8m)
(1) All relevant 2022 numbers are restated under IFRS 17
The cost associated with the discounting run-off has increased in 2023 due to
claims which were recorded at high discount rates having run-off during the
year. During 2022, much of the claims reserve would have been discounted at
lower rates, and hence a lower discounting run-off.
OTHER COMPREHENSIVE INCOME
The introduction of IFRS 17 has added a 'net insurance financial result' to
other comprehensive income. This reflects the impact of changes in discount
rate on the value of claims liabilities. This is therefore recorded alongside
the change in market value of debt securities at fair value. Where there is a
true movement in risk-free rates, these amounts should be similar but
opposite. The inclusion of the impact of discount rate movements within other
comprehensive income, as opposed to the Profit or Loss Account, is a policy
decision designed to match the impact of movements in discount rate to
fair-value movements in investments already recorded within other
comprehensive income under IFRS 9.
2023 2022 ((1))
Key elements of other comprehensive income
Net insurance financial result (discounting 'run-off') (£7.0m) £10.7m
Fair value gains/(losses) on debt securities through OCI £9.3m (£14.2m)
(1) All relevant 2022 numbers are restated under IFRS 17
Given that asset-liability matching is imperfect with regard to levels of risk
and duration, these two figures do not perfectly offset, however these have
been particularly large in 2022 and 2023 due to the volatile economic
environment.
TAXATION
In 2023 the Group recorded a corporation tax expense of £5.5m (2022: £2.9m),
an effective tax rate of 23.5%, as compared to an effective tax rate of 21.0%
in 2022. The effective tax rate is similar 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
2023 2022 ((1))
Basic earnings per share 7.27p 4.45p
Diluted earnings per share 7.20p 4.42p
(1) All relevant 2022 numbers are restated under IFRS 17
Basic earnings per share for 2022 of 7.27p 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
2023 2022
Government bonds £107.0m £87.2m
Government-backed securities £81.9m £80.8m
Corporate bonds £75.7m £61.3m
Cash and cash equivalents £35.1m £18.5m
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
2023 2022 ((1))
Gross insurance liabilities £374.8m £314.3m
Reinsurance assets (£166.7m) (£137.0m)
Net insurance liabilities £208.1m £177.4m
(1) All 2022 numbers are restated under IFRS 17 where applicable
The Group's net insurance liabilities continue to reflect the underlying
profitability and volume of business written. Generally, the gross insurance
liabilities are more volatile and impacted by the recording and settlement of
individually large 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
2023 2022 ((1))
Interim ordinary dividend (paid) 0.9p 2.8p
Final ordinary dividend (proposed) 4.2p 0.0p
Total ordinary dividend (paid and proposed) 5.1p 2.8p
Special dividend (proposed) 3.9p 1.7p
Total dividend for the year (paid and proposed) 9.0p 4.5p
The dividend proposed is in line 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.
Excluding the capital required to pay this dividend, the Group's SCR coverage
ratio at 31 December 2023 would be 170.9%.
ADAM WESTWOOD
Chief Financial Officer
18 March 2024
(1) All relevant 2022 numbers are restated under IFRS 17
*Alternative Performance Metrics are reconciled to IFRS in the Financial
Reconciliation section
2023 has been an exciting year in the motor insurance market, in which a
long-awaited correction to pricing across the market was delivered rapidly as
insurers dealt with the twin impacts of high inflation and sustained
under-pricing. Sabre was well-placed to benefit from these market conditions,
having taken timely and necessary pricing action throughout 2022 and 2023.
In some respects, the numbers speak for themselves in 2023, with the
performance of the Group improving significantly since 2022. In the first half
of the year, Sabre continued to increase prices in order to meet elevated
levels of inflation and return margins towards historical norms. Market
pricing, however, remained low until mid-March, at which point it appears
other insurers started to increase their own prices having suffered
underwriting losses in 2022. As had been anticipated since the start of the
downturn in market pricing, once this happened Sabre's competitiveness on its
core Motor Vehicle policies increased significantly, allowing the Group to
grow its gross written premium. This rapid growth had a minimal impact on the
first half of 2023, as all premium written by the Group is recognised in
profit through insurance revenue evenly over a period of one year. This growth
started to impact on profits in H2, as did the improved loss ratio resulting
from decisive pricing action in 2022 and 2023.
This rapid growth and the on-target profitability of business written during
the year allowed the Group to generate significant organic capital. The
Directors have chosen to distribute this capital by way of a special and
ordinary dividend, bringing the total dividend in respect of 2023, including
the interim already paid, to 9.0 pence per share.
REVENUE
2023 2022 ((1))
Profit or loss
Gross written premium £225.1m £171.3m
Insurance revenue £188.2m £181.5m
Net earned premium £156.0m £153.2m
Other technical income £1.2m £1.8m
Customer instalment income £3.7m £3.3m
Interest revenue calculated using the effective interest method £3.8m £1.7m
Fair value gains on debt securities through OCI NIL £22k
Other comprehensive income
Fair value gains/(losses) on debt securities through OCI £9.3m (£14.2m)
Gross written premium by product
Motor vehicle £199.0m £134.9m
Motorcycle £11.8m £23.1m
Taxi £14.3m £13.3m
Policy counts by product
Motor vehicle ('000) 234 217
Motorcycle ('000) 44 74
Taxi ('000) 12 12
(1) Al relevant 2022 numbers are restated under IFRS 17
The move to reporting under IFRS 17 has brought some changes to the
presentation of the Profit or Loss Account and Statement of Financial
Position, although I continue to stress that the economic reality of the
business and capital position of the Group remain unaffected by the change. We
will continue to report numbers in sufficient detail such that we believe
readers of this Report and Accounts will be able to understand the Group's
performance in historic terms. For example, whilst 'Insurance Revenue' is the
top-line in the Profit or Loss Account (it represents 'earned premium' plus
'customer instalment income'), we continue to report gross written premium on
the same basis as under the previous accounting regime.
The below table shows how the familiar measures used to calculate our KPIs
build up into the income entries in the IFRS 17 Profit or Loss Account.
2023 2022 ((1))
Gross written premium £225.1m £171.3m
Less: Unearned element of liability for remaining coverage (£40.6m) £6.9m
Gross earned premium £184.5m £178.2m
Reinsurance expense (£28.5m) (£25.0m)
Net earned premium £156.0m £153.2m
Customer instalment income £3.7m £3.3m
Insurance service expense (£139.5m) (£126.6m)
Amounts recoverable from reinsurers £31.5m £6.3m
Insurance service result £51.8m £36.2m
Represented by:
Insurance service result before reinsurance contracts held £48.7m £54.9m
Net expense from reinsurance contracts held £3.0m (£18.7m)
£51.8m £36.2m
(1) All relevant 2022 numbers are restated under IFRS 17
Our gross written premium has increased by 31.4% vs 2022, with the increase
being almost entirely driven by the Group's core (and most profitable) line of
business - Motor Vehicle. The increase in gross written premium is even more
sizeable when compared to the second half of 2022, being 58.1% up for H2 2023
vs H2 2022. This has been slightly offset by a reduction in Motorcycle
business, which was expected as the relationship with one of the Group's
distributors was terminated during the year. Premium from the Taxi business
has grown marginally, although that market remains challenging and therefore
the Group remains cautious as pricing in the Taxi market remains relatively
low.
Customer instalment income, which is 'earned' in the same way as premium, has
increased in line with premium earned on the direct business. As has always
been the case, the Group only earns instalment income on its Direct book from
the provision of premium financing to those customers who choose to pay
monthly, and as such this remains a very small element of the Group's
insurance revenue.
Investment return has started to reflect the reinvestment of maturing assets,
as well as increase in total assets invested in the Group's portfolio. The
Group's investment strategy remains unchanged, being invested in a low-risk
mix of UK government bonds, other government-backed securities and diversified
investment-grade corporate bonds. Fair value gains and losses on the
investment portfolio are taken through other comprehensive income and largely
reflect market movements in yields of risk-free and low-risk assets. We do not
expect to realise any of these market value movements within profit as we
continue to hold invested assets to maturity.
OPERATING EXPENDITURE
2023 2022 ((1))
Profit or loss
Insurance service expense £139.5m £126.6m
Reinsurance expense £28.5m £25.0m
Current-year net loss ratio 58.8% 61.9%
Prior-year net loss ratio (2.5%) 4.1%
Financial-year net loss ratio 56.3% 66.0%
Other operating expenses £26.6m £22.8m
Expense ratio 30.0% 27.4%
Combined operating ratio 86.3% 93.4%
Net loss ratio by product
Motor vehicle 50.4% 59.0%
Motorcycle 65.2% 113.4%
Taxi 108.8% 107.0%
(1) All relevant 2022 numbers are restated under IFRS 17
The year-on-year improvement in profitability is evident from the loss and
combined ratios reported above. The inflation shock in 2022 clearly had a very
significant impact on 2022's result, and this had a knock-on impact into 2023,
particularly in the first half of the year, as the rating action taken during
2022 took some time to earn through. The numbers reported above are on an
IFRS 17 basis, therefore are 'discounted' loss ratios. Undiscounted figures
are shown below, along with other elements which make up the 'insurance
service expense', which effectively equals discounted claims expense, plus an
allocation of operating expenses directly attributable to handling claims and
the amortisation of insurance acquisition costs, which in Sabre's case is
analogous to commission expense under the previous standard.
2023 2022 ((1))
Undiscounted gross claims incurred £139.6m £126.7m
Discounting ((2)) (£20.3m) (£19.3m)
Directly attributable expenses £6.1m £6.2m
Amortisation of insurance acquisition costs £14.1m £12.9m
Insurance service expense £139.5m £126.6m
Undiscounted reinsurance recoveries (£41.4m) (£17.3m)
Discounting ((2)) £9.8m £11.0m
Amounts recoverable from reinsurers for incurred claims (£31.5m) (£6.3m)
Undiscounted net claims incurred ((3)) £96.0m £108.7m
Net earned premium £156.0m £153.2m
Current-year undiscounted net loss ratio 64.3% 67.7%
Prior-year undiscounted net loss ratio (2.7%) 3.3%
Financial-year undiscounted net loss ratio 61.6% 71.0%
Undiscounted combined operating ratio 91.6% 98.4%
Undiscounted net loss ratio by product
Motor vehicle 55.0% 63.4%
Motorcycle 73.3% 121.9%
Taxi 117.1% 116.6%
(1) All 2022 numbers are restated under IFRS 17 where applicable
(2) Includes discounting on Period Payment Orders ("PPOs")
(3) Calculation of undiscounted net loss ratio allows for the impact
of discounting on long-term non-life annuities, Periodic Payment Orders
("PPOs"), consistent with presentation under IFRS 4
Whether on a discounted or undiscounted basis, the improvement in loss ratio
across the business as a whole is clear, with a significant improvement in
Motor Vehicle and Motorcycle, whilst the small Taxi business remains
challenging. Whilst the full-year net loss ratio is not sufficiently low
across the whole business to return the Group to historical levels of
profitability in 2023, the loss ratio for H2 is far closer, being 51.5% on an
IFRS 17 basis and 57.5% on an undiscounted basis. It is also very pleasing to
note that profitability on the core Motor Vehicle product has returned towards
our historical norms and has improved throughout 2023. Given the significant
growth in this product relative to Motorcycle and Taxi, this should have a
much greater impact in 2024.
The Group's expense ratio has increased slightly from 2022, a result primarily
of earned premium remaining at similar levels, with the rapid growth later in
the year not reflected fully in the earned position, set against normal
inflation in the cost base and some one-off expenditure, including the
building refurbishment (£0.4m) and a write-down in the valuation of the
Group's headquarters office estate (£0.3m) which was impacted by the higher
inflation environment and a general slow down in demand for office buildings.
We have seen this increase reverse in H2 however, with the expense ratio
falling from 31.8% in H1 to 28.3% in H2.
NET INSURANCE FINANCIAL RESULT
The net insurance financial result is a new concept under IFRS 17 and
represents the 'run-off' of discounting applied to claims reserves. When a
claim is recorded, the claim cost is discounted to reflect the time value of
money at the prevailing rate. This reduces the overall claims cost and is why
the claims expense is lower on a discounted basis. The 'other side' of this is
the run-off of discounting, which reflects the increase in the real-world
value of the claim as payment becomes closer. The reduction in claims
liabilities and reinsurance assets resulting from applying discounting to
those balances is recorded within insurance contract liabilities and
reinsurance assets respectively in the Statement of Financial Position.
2023 2022 ((1))
Insurance finance income expense for insurance contracts issued (£10.2m) (£6.0m)
Reinsurance finance income for reinsurance contracts held £3.6m £3.2m
Net insurance financial result (£6.6m) (£2.8m)
(1) All relevant 2022 numbers are restated under IFRS 17
The cost associated with the discounting run-off has increased in 2023 due to
claims which were recorded at high discount rates having run-off during the
year. During 2022, much of the claims reserve would have been discounted at
lower rates, and hence a lower discounting run-off.
OTHER COMPREHENSIVE INCOME
The introduction of IFRS 17 has added a 'net insurance financial result' to
other comprehensive income. This reflects the impact of changes in discount
rate on the value of claims liabilities. This is therefore recorded alongside
the change in market value of debt securities at fair value. Where there is a
true movement in risk-free rates, these amounts should be similar but
opposite. The inclusion of the impact of discount rate movements within other
comprehensive income, as opposed to the Profit or Loss Account, is a policy
decision designed to match the impact of movements in discount rate to
fair-value movements in investments already recorded within other
comprehensive income under IFRS 9.
2023 2022 ((1))
Key elements of other comprehensive income
Net insurance financial result (discounting 'run-off') (£7.0m) £10.7m
Fair value gains/(losses) on debt securities through OCI £9.3m (£14.2m)
(1) All relevant 2022 numbers are restated under IFRS 17
Given that asset-liability matching is imperfect with regard to levels of risk
and duration, these two figures do not perfectly offset, however these have
been particularly large in 2022 and 2023 due to the volatile economic
environment.
TAXATION
In 2023 the Group recorded a corporation tax expense of £5.5m (2022: £2.9m),
an effective tax rate of 23.5%, as compared to an effective tax rate of 21.0%
in 2022. The effective tax rate is similar 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
2023 2022 ((1))
Basic earnings per share 7.27p 4.45p
Diluted earnings per share 7.20p 4.42p
(1) All relevant 2022 numbers are restated under IFRS 17
Basic earnings per share for 2022 of 7.27p 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
2023 2022
Government bonds £107.0m £87.2m
Government-backed securities £81.9m £80.8m
Corporate bonds £75.7m £61.3m
Cash and cash equivalents £35.1m £18.5m
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
2023 2022 ((1))
Gross insurance liabilities £374.8m £314.3m
Reinsurance assets (£166.7m) (£137.0m)
Net insurance liabilities £208.1m £177.4m
(1) All 2022 numbers are restated under IFRS 17 where applicable
The Group's net insurance liabilities continue to reflect the underlying
profitability and volume of business written. Generally, the gross insurance
liabilities are more volatile and impacted by the recording and settlement of
individually large 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
2023 2022 ((1))
Interim ordinary dividend (paid) 0.9p 2.8p
Final ordinary dividend (proposed) 4.2p 0.0p
Total ordinary dividend (paid and proposed) 5.1p 2.8p
Special dividend (proposed) 3.9p 1.7p
Total dividend for the year (paid and proposed) 9.0p 4.5p
The dividend proposed is in line 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.
Excluding the capital required to pay this dividend, the Group's SCR coverage
ratio at 31 December 2023 would be 170.9%.
ADAM WESTWOOD
Chief Financial Officer
18 March 2024
Consolidated Profit or Loss Account
For the year ended 31 December 2023
2023 2022
£'k £'k
Notes Restated ((1))
Insurance revenue 3.2 188,246 181,476
Insurance service expense 3.2 (139,497) (126,607)
Insurance service result before reinsurance contracts held 48,749 54,869
Reinsurance expense 3.2 (28,506) (24,958)
Change in amounts recoverable from reinsurers for incurred claims 3.2 31,532 6,304
Net income/(expense) from reinsurance contracts held 3,026 (18,654)
Insurance service result 51,775 36,215
Interest income on financial assets using effective interest rate method 4.5 3,775 1,667
Net gains on derecognition of debt securities measured at FVOCI 4.5 - 22
Total investment income 3,775 1,689
Insurance finance expenses from insurance contracts issued 3.8 (10,170) (6,043)
Reinsurance finance income from reinsurance contracts held 3.8 3,588 3,195
Net insurance financial result (6,582) (2,848)
Net insurance and investment result 48,968 35,056
Other income 7 1,232 1,784
Other finance costs - (5)
Other operating expenses 8 (26,587) (22,815)
Profit before tax 23,613 14,020
Income tax expense 10 (5,548) (2,942)
Profit for the year attributable to ordinary shareholders 18,065 11,078
Basic earnings per share (pence per share) 19 7.27 4.45
Diluted earnings per share (pence per share) 19 7.20 4.42
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023
2023 2022
£'k £'k
Notes Restated ((1))
Profit for the year attributable to ordinary shareholders 18,065 11,078
Items that are or may be reclassified subsequently to Profit or Loss
Unrealised fair value gains/(losses) on debt securities 4.5 9,284 (14,207)
Realised gains on derecognition of debt securities reclassified to Profit of - (22)
Loss
Tax (charge)/credit (2,149) 3,563
Debt securities at fair value through other comprehensive income 7,135 (10,666)
Insurance finance (expense)/income from insurance contracts issued 3.8 (12,436) 23,602
Reinsurance finance income/(expense) from reinsurance contracts held 3.8 5,432 (12,924)
Tax credit/(charge) 1,550 (2,509)
Net insurance financial (expense)/income (5,454) 8,169
Items which will not be reclassified to Profit or Loss
Revaluation losses on owner-occupied properties 9 (800) -
Income tax relating to items that will not be reclassified (31) -
(831) -
Total other comprehensive income/(loss) for the year, net of tax 850 (2,497)
Total comprehensive income for the year attributable to the owners of the 18,915 8,581
Company
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
Consolidated Statement of Financial Position
As at 31 December 2023
31 December 31 December 1 January
2023 2022 2022
£'k £'k £'k
Notes Restated ((1)) Restated ((1))
Assets
Cash and cash equivalents 4.1 35,079 18,502 30,611
Financial investments 4.2 264,679 229,158 234,667
Receivables ((2)) 4.3 87 7 74
Current tax assets 1,438 1,255 -
Reinsurance contract assets ((1)) 3.1 166,726 136,954 147,896
Property, plant and equipment 9 4,388 3,996 4,066
Right-of-use asset - - 187
Deferred tax assets 11 688 2,391 1,634
Other assets ((2)) 13 774 1,278 821
Goodwill 14 156,279 156,279 156,279
Total assets 630,138 549,820 576,235
Liabilities
Payables ((2)) 5 9,700 5,108 5,872
Current tax liabilities - - 580
Insurance contract liabilities ((1)) 3.1 374,839 314,341 317,621
Lease liability - - 193
Other liabilities ((2)) 3,187 1,383 1,893
Total liabilities 387,726 320,832 326,159
Equity
Issued share capital 15 250 250 250
Own shares 16 (3,121) (2,810) (2,257)
Merger reserve 48,525 48,525 48,525
FVOCI reserve (5,894) (13,029) (2,363)
Revaluation reserve - 831 831
Insurance/Reinsurance finance reserve ((1)) 4,790 10,244 2,075
Share-based payments reserve 2,686 2,407 1,841
Retained earnings ((1)) 195,176 182,570 201,174
Total equity 242,412 228,988 250,076
Total liabilities and equity 630,138 549,820 576,235
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
(2) The description of the line item has been updated. The change in
description has had no impact on the components of the balances.
‒ Receivables (31 December 2022: Loans and other receivables)
‒ Other assets (31 December 2022: Prepayments, accrued income and other
assets)
‒ Payables (31 December 2022: Trade and other payables)
‒ Other liabilities (31 December 2022: Accruals)
Consolidated Statement of Changes in Equity
For the year ended 31 December 2023
Share capital Own shares Merger reserve FVOCI reserve Revaluation reserve Insurance/ Other reserves Retained earnings Total equity
Reinsurance finance reserve
£'k £'k £'k £'k £'k £'k £'k £'k £'k
Balance as at 31 December 2021, as previously reported 250 (2,257) 48,525 (2,363) 831 - 1,841 205,900 252,727
Impact of initial application of IFRS 17 - - - - - 2,075 - (4,726) (2,651)
Restated balance as at 1 January 2022 250 (2,257) 48,525 (2,363) 831 2,075 1,841 201,174 250,076
Profit for the year attributable to the owners of the Company - - - - - - - 11,078 11,078
Total other comprehensive (loss)/income for the year, net of tax: Items that - - - (10,666) - 8,169 - - (2,497)
are or may be reclassified subsequently to Profit or Loss
Share-based payment expense - - - - - - 566 450 1,016
Net movement in own shares - (553) - - - - - - (553)
Dividends paid - - - - - - - (30,132) (30,132)
Restated balance as at 31 December 2022 250 (2,810) 48,525 (13,029) 831 10,244 2,407 182,570 228,988
Profit for the year attributable to the owners of the Company - - - - - - - 18,065 18,065
Total other comprehensive income/(loss) for the year, net of tax: Items that - - - 7,135 - (5,454) - - 1,681
are or may be reclassified subsequently to Profit or Loss
Total other comprehensive loss for the year, net of tax: Items which will not - - - - (831) - - - (831)
be reclassified to Profit or Loss
Share-based payment expense - - - - - - 279 1,007 1,286
Net movement in own shares - (311) - - - - - - (311)
Dividends paid - - - - - - - (6,466) (6,466)
Balance as at 31 December 2023 250 (3,121) 48,525 (5,894) - 4,790 2,686 195,176 242,412
Consolidated Statement of Cash Flows
For the year ended 31 December 2023
2023 2022
Notes £'k £'k
Restated ((1))
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax for the year 23,613 14,020
Adjustments for:
Depreciation of property, plant and equipment 9 140 108
Depreciation of right-of-use assets - 187
Share-based payment - equity-settled schemes 16 1,606 1,603
Investment return (3,131) (1,590)
Interest on lease liability - 5
Expected credit loss 4.4 6 (34)
Impairment loss on owner-occupied buildings 333 -
Operating cash flows before movements in working capital 22,567 14,299
Movements in working capital:
Change in receivables (80) 69
Change in reinsurance contract assets (24,340) (1,982)
Change in other assets 504 (457)
Change in payables 4,592 (764)
Change in insurance contract liabilities 48,062 20,322
Change in other liabilities 1,804 (510)
Cash generated from operating activities before investment of insurance assets 53,109 30,977
Taxes paid (4,658) (4,479)
Net cash generated from operating activities before investment of insurance 48,451 26,498
assets
Interest and investment income received 3,818 3,383
Proceeds from the sale and maturity of invested assets 24,089 37,734
Purchases of invested assets (51,018) (48,214)
Net cash generated from operating activities 25,340 19,401
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment 9 (1,665) (38)
Net cash used by investing activities (1,665) (38)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of principal portion of lease liabilities - (198)
Net cash used in acquiring and disposing of own shares (632) (1,142)
Dividends paid 12 (6,466) (30,132)
Net cash used by financing activities (7,098) (31,472)
Net increase/(decrease) in cash and cash equivalents 16,577 (12,109)
Cash and cash equivalents at the beginning of the year 18,502 30,611
Cash and cash equivalents at the end of the year 35,079 18,502
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
Notes to the Consolidated Financial Statements
For the year ended 31 December 2023
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,
including taxis 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
Profit or Loss Account and Statement of 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.
1.2. Going concern
The Consolidated 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 12 months from the date the
Directors approved these Financial Statements 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 Own Risk and
Solvency Assessment ("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 16
to 24 of the Strategic Report. 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 electric 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.
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 2023:
- Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12)
- Definition of Accounting Estimates (Amendments to IAS 8)
- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2)
- IFRS 17 "Insurance Contracts"
- Amendments to IFRS 17
- Initial Application of IFRS 17 and IFRS 9 - Comparative Information
In these financial statements, the Group has applied IFRS 17 "Insurance
Contracts" for the first time from 1 January 2023. The Group had not elected
to defer the implementation of IFRS 9 and has implemented IFRS 9 from 1
January 2020.
Other than IFRS 17 "Insurance Contracts" which is discussed below, none of the
amendments have had a material impact to the Group.
1.3.1. IFRS 17 "Insurance Contracts"
IFRS 17 "Insurance Contracts" replaced IFRS 4 "Insurance Contracts" for annual
periods starting on 1 January 2023.
The Group has restated comparative information for 2022 applying the
transitional provision in Appendix C to IFRS 17. The nature of the changes in
accounting policies can be summarised, as follows:
1.3.1.1. Changes to classification and measurement
The adoption of IFRS 17 did not change the classification of the Group's
insurance contracts as insurance contracts.
Under IFRS 4, the Group was permitted to account for insurance contracts using
its previous accounting policies under 'old' UK GAAP. However, IFRS 17
establishes specific principles for the recognition and measurement of
insurance contracts issued and reinsurance contracts held by the Group.
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 IFRS 4 premium
reserve profile recognised over time. The principles of the general model
remain applicable to the liability for incurred claims.
Under IFRS 17, the Group's insurance contracts issued and reinsurance
contracts held are all eligible to be measured applying the Premium Allocation
Approach. The PAA simplifies the measurement of insurance contracts in
comparison with the general model in IFRS 17.
The measurement principles of the PAA differ from the 'earned premium
approach' used by the Group under IFRS 4 in the following key areas:
- The liability for remaining coverage reflects premiums received less
deferred insurance acquisition cash flows less amounts recognised in revenue
for insurance services provided
- Measurement of the liability for remaining coverage involves an explicit
evaluation of risk adjustment for non-financial risk when a group of contracts
is onerous in order to calculate a loss component (previously these may have
formed part of the unexpired risk reserve provision)
- Measurement of the liability for incurred claims (previously claims
outstanding and incurred-but-not-reported ("IBNR") claims) is determined on a
discounted probability-weighted expected value basis, and includes an explicit
risk adjustment for non-financial risk. The liability includes the Group's
obligation to pay other incurred insurance expenses
- Measurement of the asset for remaining coverage (reflecting reinsurance
premiums paid for reinsurance held) is adjusted to include a loss-recovery
component to reflect the expected recovery of onerous contract losses where
such contracts reinsure onerous direct contracts
The Group allocates the acquisition cash flows to groups of insurance
contracts issued or expected to be issued using a systematic and rational
basis. Insurance acquisition cash flows include those that are directly
attributable to a group and to future groups that are expected to arise from
renewals of contracts in that group. Where such insurance acquisition cash
flows are paid (or where a liability has been recognised applying another IFRS
standard) before the related group of insurance contracts is recognised, an
asset for insurance acquisition cash flows is recognised. When insurance
contracts are recognised, the related portion of the asset for insurance
acquisition cash flows is derecognised and subsumed into the measurement at
initial recognition of the insurance liability for remaining coverage of the
related group.
For an explanation of how the Group accounts for insurance and reinsurance
contracts under IFRS 17, see Note 3.
There has been no change in the Group's segments or how the Group reports on
these segments internally.
1.3.1.2. Changes to presentation and disclosure
For presentation in the Statement of Financial Position, the Group aggregates
insurance and reinsurance contracts issued and reinsurance contracts held,
respectively and presents separately:
- Portfolios of insurance contracts issued that are assets
- Portfolios of insurance contracts issued that are liabilities
- Portfolios of reinsurance contracts held that are assets
- Portfolios of reinsurance contracts held that are liabilities
The portfolios referred to above are those established at initial recognition
in accordance with the IFRS 17 requirements.
The line item descriptions in the Profit or Loss Account and Statement of
Comprehensive Income have been changed significantly compared with the
previous accounting basis. Previously, the Group reported the following line
items:
- Gross written premium
- Net written premium
- Changes in unearned premium reserves
- Gross insurance claims
- Net insurance claims
Instead, IFRS 17 requires separate presentation of:
- Insurance revenue
- Insurance service expense
- Reinsurance expense
- Amounts recoverable from reinsurers for incurred claims
- Insurance finance income/(expense) from insurance contracts issued
- Reinsurance finance income/(expense) from reinsurance contracts held
The Group provides disaggregated qualitative and quantitative information
about:
- Amounts recognised in its financial statements from insurance contracts
- Critical judgements, and changes in those judgements, when applying the
standard
1.3.1.3. Transition
Changes in accounting policies resulting from the adoption of IFRS 17 have
been applied using a full retrospective approach. Under the full retrospective
approach, at 1 January 2022, the Group:
- Has identified, recognised and measured each group of insurance and
reinsurance contracts as if IFRS 17 had always applied
- Has identified, recognised and measured assets for insurance acquisition
cash flows as if IFRS 17 has always applied. However no recoverability
assessment was performed before the transition date. At transition date, a
recoverability assessment was performed and no impairment loss was identified
- Derecognised any existing balances that would not exist had IFRS 17
always applied
- Recognised any resulting net difference in equity (see Statement of
Changes in Equity)
1.4. New and amended standards and interpretations not yet
effective in 2023
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 10 and IAS 28: Amendment: "Sale or Contribution of Assets between
an Investor and its Associate or Joint Venture" (IASB effective date:
optional)
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 3.6 for detail on these risks and the way the Group manages
them. Note 3.6 also includes the considerations of climate change. Further
discussion on climate change can be found in the Principal Risks and
Uncertainties section on pages 16 to 24 of the Strategic Report and the
Responsibility and Sustainability section on pages 35 to 48.
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 4.4)
- Reinsurers default on their share of the Group's insurance liabilities
(Note 3.7)
- Default on amounts due from insurance contract intermediaries or
policyholders (Note 3.7)
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 a 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 3.7 and 4.4 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 4.2.1 for further information on investment concentration risk.
2.6. Operational risk
Operational risk is the risk of loss arising from system failure, cyber
attack, 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 2023, the Group
holds significant excess Solvency II capital.
The Group's IFRS capital comprised:
As at 31 December
2023 2022
£'k £'k
Restated ((1))
Equity
Share capital 250 250
Own shares (3,121) (2,810)
Merger reserve 48,525 48,525
FVOCI reserve (5,894) (13,029)
Revaluation reserve - 831
Insurance/Reinsurance finance reserve 4,790 10,244
Share-based payments reserve 2,686 2,407
Retained earnings 195,176 182,570
Total 242,412 228,988
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
The Solvency II position of the Group both before and after proposed final
dividend is given below:
As at 31 December
2023 2022
£'k
Pre-dividend £'k Not restated ((1))
Total tier 1 capital 121,099 91,191
SCR 58,998 56,516
Excess capital 62,101 34,675
Solvency coverage ratio (%) 205% 161%
(1) The 2022 IFRS net assets figure is as reported at 31 December 2022 and
have not been restated here
As at 31 December
2023 2022
£'k
Post-dividend £'k Not restated ((1))
Total tier 1 capital 100,849 86,941
SCR 58,998 56,516
Excess capital 41,851 30,425
Solvency coverage ratio (%) 171% 154%
(1) The 2022 IFRS net assets figure is as reported at 31 December 2022 and
have not been restated here
The following table sets out a reconciliation between IFRS net assets and
Solvency II net assets before proposed final dividend:
As at 31 December
2023 2022
£'k £'k
Not restated ((1))
IFRS net assets 242,412 222,496
Less: Goodwill (156,279) (156,279)
Adjusted IFRS net assets 86,133 66,217
Add: Liability for remaining coverage (Unearned Premium element) 124,448 83,858
Remove: Insurance acquisition cash flow asset (8,733) (13,354)
Remove: IFRS risk adjustment 12,255 10,764
Add: Solvency II risk margin (5,904) (7,752)
Add: Solvency II premium provision (76,441) (53,581)
Changes in valuation differences of technical reserves 996 12,710
Change in deferred tax (11,655) (7,671)
Solvency II net assets 121,099 91,191
(1) The 2022 IFRS net assets figure is as reported at 31 December 2022 and
have not been restated here
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 liability for remaining coverage and insurance acquisition
cash flow asset: Liability for remaining coverage is not treated as a
liability under Solvency II.
- Removal of insurance acquisition cash flow asset: Insurance acquisition
cash flow asset is not deferred under Solvency II.
- Removal of IFRS risk adjustment: Solvency II risk margin replaces IFRS
risk adjustment.
- Addition of 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.
- Addition of 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.
- Changes in valuation differences: Valuation differences of technical
differences between IFRS 17 and Solvency II, including discounting.
- 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 2023 as at 31 December 2022
£'k £'k £'k £'k £'k £'k
Interest rate risk 4,655 5,548
Equity risk - -
Property risk 900 956
Spread risk 2,739 3,264
Currency risk 1,058 1,112
Concentration risk - -
Correlation impact (3,192) (3,660)
Market risk 6,160 7,220
Counterparty risk 3,098 2,333
Underwriting risk 63,720 52,421
Correlation impact (6,219) (6,129)
Basic SCR 66,759 55,845
Operating risk 7,650 6,372
Loss absorbing effect of deferred taxes (15,411) (5,701)
Total SCR 58,998 56,516
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 a going concern
- To maximise the income and capital return to its equity
The Board monitors and reviews 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.
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
The Solvency II position of the Group both before and after proposed final
dividend is given below:
As at 31 December
2023 2022
£'k
Pre-dividend £'k Not restated ((1))
Total tier 1 capital 121,099 91,191
SCR 58,998 56,516
Excess capital 62,101 34,675
Solvency coverage ratio (%) 205% 161%
(1) The 2022 IFRS net assets figure is as reported at 31 December 2022 and
have not been restated here
As at 31 December
2023 2022
£'k
Post-dividend £'k Not restated ((1))
Total tier 1 capital 100,849 86,941
SCR 58,998 56,516
Excess capital 41,851 30,425
Solvency coverage ratio (%) 171% 154%
(1) The 2022 IFRS net assets figure is as reported at 31 December 2022 and
have not been restated here
The following table sets out a reconciliation between IFRS net assets and
Solvency II net assets before proposed final dividend:
As at 31 December
2023 2022
£'k £'k
Not restated ((1))
IFRS net assets 242,412 222,496
Less: Goodwill (156,279) (156,279)
Adjusted IFRS net assets 86,133 66,217
Add: Liability for remaining coverage (Unearned Premium element) 124,448 83,858
Remove: Insurance acquisition cash flow asset (8,733) (13,354)
Remove: IFRS risk adjustment 12,255 10,764
Add: Solvency II risk margin (5,904) (7,752)
Add: Solvency II premium provision (76,441) (53,581)
Changes in valuation differences of technical reserves 996 12,710
Change in deferred tax (11,655) (7,671)
Solvency II net assets 121,099 91,191
(1) The 2022 IFRS net assets figure is as reported at 31 December 2022 and
have not been restated here
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 liability for remaining coverage and insurance acquisition
cash flow asset: Liability for remaining coverage is not treated as a
liability under Solvency II.
- Removal of insurance acquisition cash flow asset: Insurance acquisition
cash flow asset is not deferred under Solvency II.
- Removal of IFRS risk adjustment: Solvency II risk margin replaces IFRS
risk adjustment.
- Addition of 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.
- Addition of 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.
- Changes in valuation differences: Valuation differences of technical
differences between IFRS 17 and Solvency II, including discounting.
- 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 2023 as at 31 December 2022
£'k £'k £'k £'k £'k £'k
Interest rate risk 4,655 5,548
Equity risk - -
Property risk 900 956
Spread risk 2,739 3,264
Currency risk 1,058 1,112
Concentration risk - -
Correlation impact (3,192) (3,660)
Market risk 6,160 7,220
Counterparty risk 3,098 2,333
Underwriting risk 63,720 52,421
Correlation impact (6,219) (6,129)
Basic SCR 66,759 55,845
Operating risk 7,650 6,372
Loss absorbing effect of deferred taxes (15,411) (5,701)
Total SCR 58,998 56,516
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 a going concern
- To maximise the income and capital return to its equity
The Board monitors and reviews 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
For the purpose of this accounting policy, the term 'motor insurance' covers
all the Group's products, which includes Motor Vehicle, Motorcycle and Taxi
insurance.
A. Insurance and reinsurance contracts classification
The Group issues insurance contracts in the normal course of business, under
which it accepts significant insurance risk from a policyholder by agreeing to
compensate the policyholder if a specified uncertain future insured event
adversely affects the policyholder.
As a general guideline, the Group determines whether it has significant
insurance risk, by comparing benefits payable after an insured event with
benefits payable if the insured event did not occur.
The Group issues only non-life insurance to individuals and businesses.
Non-life insurance products offered by the Group are Motor Vehicle, Motorcycle
and Taxi insurance. These products offer protection of a policyholder's assets
and indemnification of other parties that have suffered damage as a result of
a policyholder's accident.
In the normal course of business, the Group uses reinsurance to mitigate its
risk exposures. A reinsurance contract transfers significant risks if it
transfers substantially all of the insurance risk resulting from the insured
portion of the underlying insurance contacts, even if it does not expose the
reinsurer to the possibility of a significant loss.
B. Insurance and reinsurance contracts accounting treatment
(i) Separating components from insurance and reinsurance contracts
The Group assesses its non-life insurance and reinsurance products to
determine whether they contain distinct components which must be accounted for
under another IFRS instead of under IFRS 17. After separating any distinct
components, the Group applies IFRS 17 to all remaining components of the
(host) insurance contract. Currently, the Group's products do not include any
distinct components that require separation.
(ii) Aggregation and recognition of insurance and reinsurance contracts
Insurance contracts
Insurance contracts are aggregated into groups for measurement purposes.
Groups of insurance contracts are determined by identifying portfolios of
insurance contracts, each comprising contracts subject to similar risks and
managed together, and dividing each portfolio into annual cohorts (i.e. by
year of issue) and each annual cohort into three groups based on the expected
profitability of contracts:
- Any contracts that are onerous on initial recognition
- Any contracts that, on initial recognition, have no significant
possibility of becoming onerous subsequently
- Any remaining contracts in the annual cohort
The Group recognises groups of insurance contracts it issues from the earliest
of:
- The beginning of the coverage period of the group of contracts
- When the first payment from a policyholder in the group becomes due or
when the first payment is received if there is no due date
- When facts and circumstances indicate that the contract is onerous
The Group adds new contracts to the group in the reporting period in which
that contract meets one of the criteria set out above.
The profitability of groups of contracts is assessed by actuarial valuation
models that take into consideration existing and new business. The Company
assumes that no contracts in the portfolio are onerous at initial recognition
unless facts and circumstances indicate otherwise. For contracts that are not
onerous, the Company assesses, at initial recognition, that there is no
significant possibility of becoming onerous subsequently by assessing the
likelihood of changes in applicable facts and circumstances. The Company
considers facts and circumstances to identify whether a group of contracts are
onerous based on:
- Pricing information
- Results of similar contracts it has recognised
- Environmental factors, e.g. a change in market experience or regulations
Reinsurance contracts
Some reinsurance contracts provide cover for underlying contracts that are
included in different groups. However, the Group concludes that the
reinsurance contract's legal form of a single contract reflects the substance
of the Group's contractual rights and obligations, considering that the
different covers lapse together and are not sold separately. As a result, the
reinsurance contract is not separated into multiple insurance components that
relate to different underlying groups.
The Group recognises a group of reinsurance contracts held at the earlier of
the following:
- The beginning of the coverage period of the group of reinsurance
contracts held
- The date the Group recognises an onerous group of underlying insurance
contracts if the Group entered into the related reinsurance contract held in
the group of reinsurance contracts held at or before that date
The Group adds new contracts to the group in the reporting period in which
that contract meets one of the criteria set out above.
(iii) Measurement
Summary of measurement approaches
The Group uses the following measurement approaches to its insurance and
reinsurance contacts.
Product classification Measurement model
Insurance contracts issued
Motor insurance Insurance contracts issued Premium Allocation Approach ("PAA")
Reinsurance contracts held
Motor insurance - excess of loss reinsurance Reinsurance contracts held Premium Allocation Approach ("PAA")
The Group applies the premium allocation approach to all the insurance
contracts that it issues and reinsurance contracts that it holds, as the
coverage period of each contract in the group is one year or less, including
insurance contract services arising from all premiums within the contract
boundary. The Group does not expect significant variability in the fulfilment
cash flows that would affect the measurement of the liability for remaining
coverage during the period before a claim is incurred.
All the Group's insurance contracts have a coverage period of one year or
less. The Group's reinsurance contracts held are excess of loss contracts and
are loss occurring. The Group does not issue any reinsurance contracts.
Insurance contracts issued
On initial recognition of each group of contracts, the carrying amount of the
liability for remaining coverage ("LRC") is measured at:
- The premiums received on initial recognition
- Minus any insurance acquisition cash flows allocated to the group at
that date
- Adjusted for any amount arising from the derecognition of any assets or
liabilities previously recognised for cash flows related to the group
(including assets for insurance acquisition cash flows)
The Group has chosen not to expense insurance acquisition cash flows when they
are incurred.
Subsequently, the Group measures the carrying amount of the LRC at the end of
each reporting period as the LRC at the beginning of the period:
- Plus premiums received in the period
- Minus insurance acquisition cash flows
- Plus any amounts relating to the amortisation of insurance acquisition
cash flows recognised as an expense in the reporting period
- Minus the amount recognised as insurance revenue for the services
provided in the period
On initial recognition of each group of contracts, the Group expects that the
time between providing each part of the services and the related premium due
date is no more than a year. Accordingly, the Group has chosen not to adjust
the liability for remaining coverage to reflect the time value of money and
the effect of financial risk.
If at any time during the coverage period, facts and circumstances indicate
that a group of contracts is onerous, then the Group recognises a loss in
Profit or Loss and increases the liability for remaining coverage to the
extent that the current estimates of the fulfilment cash flows that relate to
remaining coverage exceed the carrying amount of the liability for remaining
coverage. The fulfilment cash flows are discounted (at current rates) if the
liability for incurred claims is also discounted.
The Group recognises the liability for incurred claims ("LIC") of a group of
insurance contracts at the amount of the fulfilment cash flows ("FCF")
relating to incurred claims. The fulfilment cash flows are discounted (at
current rates) unless they are expected to be paid in one year or less from
the date the claims are incurred.
The carrying amount of a group of insurance contracts issued at the end of
each reporting period is the sum of:
- The LRC
- The LIC
Risk adjustment for non-financial risk
An explicit risk adjustment for non-financial risk is estimated separate from
the other estimates. Unless contracts are onerous, the explicit risk
adjustment for non-financial risk is only estimated for the measurement of the
LIC.
This risk adjustment represents the compensation that the Group 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 Group would require to make it indifferent between:
- Fulfilling a liability that has a range of possible outcomes arising
from non-financial risk
- Fulfilling a liability that will generate fixed cash flows with the same
expected present value as the insurance contracts
Reinsurance contracts held
The excess of loss reinsurance contracts held provide coverage on the motor
insurance contracts originated for claims incurred during an accident year and
are accounted for under the PAA. The Group measures its reinsurance assets for
a group of reinsurance contracts that it holds on the same basis as insurance
contracts that it issues. For reinsurance contracts held, on initial
recognition, the Group measures the remaining coverage at the amount of ceding
premiums paid. For reinsurance contracts held, at each of the subsequent
reporting dates, the remaining coverage is:
- Increased for ceding premiums paid in the period
- Decreased for the amounts of ceding premiums recognised as reinsurance
expenses for the services received in the period
Assets for reinsurance contracts consist of the asset for remaining coverage
("ARC") and the asset for incurred claims ("AIC") being the reinsurers' share
of claims that have already been incurred.
For reinsurance contracts held, the risk adjustment for non-financial risk
presents the amount of risk being transferred by the Group to the reinsurer.
Asset for insurance acquisition cash flows
The Group includes the following acquisition cash flows within the insurance
contract boundary that arise from selling, underwriting and starting a group
of insurance contracts and that are:
a. Costs directly attributable to individual contracts and groups of
contracts
b. Costs directly attributable to the portfolio of insurance contracts to
which the group belongs, which are allocated on a reasonable and consistent
basis to measure the group of insurance contracts
Insurance acquisition cash flows arising before the recognition of the related
group of contracts are recognised as an asset. Insurance acquisition cash
flows arise when they are paid or when a liability is required to be
recognised under a standard other than IFRS 17. Such an asset is recognised
for each group of contracts to which the insurance acquisition cash flows are
allocated. The asset is derecognised, fully or partially, when the insurance
acquisition cash flows are included in the measurement of the group of
contracts.
Recoverability assessment
At each reporting date, if facts and circumstances indicate that an asset for
insurance acquisition cash flows may be impaired, then the Group:
a. Recognises an impairment loss in Profit or Loss so that the carrying
amount of the asset does not exceed the expected net cash inflow for the
related group
b. If the asset relates to future renewals, recognises an impairment loss
in Profit or Loss to the extent that it expects those insurance acquisition
cash flows to exceed the net cash inflow for the expected renewals and this
excess has not already been recognised as an impairment loss under (a)
The Group reverses any impairment losses in Profit or Loss and increases the
carrying amount of the asset to the extent that the impairment conditions have
improved.
Modification and derecognition
The Group derecognises insurance contracts when:
- The contract is extinguished (i.e. when the obligation specified in the
insurance contract expires or is discharged or cancelled)
- The contract is modified and certain additional criteria are met
When an insurance contract is modified by the Group as a result of an
agreement with the counterparties or due to a change in regulations, the Group
treats changes in cash flows caused by the modification as changes in
estimates of the FCF, unless the conditions for the derecognition of the
original contract are met. The Group derecognises the original contract and
recognises the modified contract as a new contract if any of the following
conditions are present:
a. If the modified terms had been included at contract inception and the
Group would have concluded that the modified contract:
i. Is not in scope of IFRS 17
ii. Results in different separable components
iii. Results in a different contract boundary
iv. Belongs to a different group of contracts
b. The original contract was accounted for under the PAA, but the
modification means that the contract no longer meets the eligibility criteria
for that approach
When an insurance contract accounted for under the PAA is derecognised,
adjustments to the FCF to remove relating rights and obligations and account
for the effect of the derecognition result in the following amounts being
charged immediately to Profit or Loss:
a. If the contract is extinguished, any net difference between the
derecognised part of the LRC of the original contract and any other cash flows
arising from extinguishment
b. If the contract is transferred to the third party, any net difference
between the derecognised part of the LRC of the original contract and the
premium charged by the third party
c. If the original contract is modified resulting in its derecognition,
any net difference between the derecognised part of the LRC and the
hypothetical premium the entity would have charged had it entered into a
contract with equivalent terms as the new contract at the date of the contract
modification, less any additional premium charged for the modification
(iv) Presentation
The Group has presented separately, in the Statement of Financial Position,
the carrying amount of portfolios of insurance contracts issued and portfolios
of reinsurance contracts held.
The Group has elected to disaggregate part of the movement in LIC resulting
from the changes in discount rates and present this in the Statement of
Comprehensive Income. The Group disaggregates the total amount recognised in
the Profit or Loss Account and the Statement of Comprehensive Income into an
insurance service result, comprising insurance revenue and insurance service
expense, and insurance finance income or expenses.
The Group does not disaggregate the change in risk adjustment for
non-financial risk between a financial and non-financial portion and includes
the entire change as part of the insurance service result.
The Group separately presents income or expenses from reinsurance contracts
held from the expenses or income from insurance contracts issued.
AMOUNTS RECOGNISED IN THE STATEMENT OF PROFIT OR LOSS
Insurance service result from insurance contracts issued
Insurance revenue
As the Group provides insurance contract services under the group of insurance
contracts, it reduces the LRC and recognises insurance revenue. The amount of
insurance revenue recognised in the reporting period depicts the transfer of
promised services at an amount that reflects the portion of consideration that
the Group expects to be entitled to in exchange for those services.
The Group measures all insurance contracts under the PAA and recognises
insurance revenue based on the passage of time over the coverage period of a
group of contracts.
Insurance service expenses
Insurance service expenses include the following:
- Incurred claims and benefits
- Other incurred directly attributable expenses
- Amortisation of insurance acquisition cash flows
- Changes that relate to past service - changes in the FCF relating to the
LIC
- Changes that relate to future service - changes in the FCF that result
in onerous contract losses or reversals of those losses
Amortisation of insurance acquisition cash flows is based on the passage of
time.
Other expenses not meeting the above categories are included in other
operating expenses in the Profit or Loss Account.
Insurance service result from reinsurance contracts held
Net income/(expense) from reinsurance contracts held
The Group presents separately on the face of the Profit or Loss Account and
the Statement of Comprehensive Income, the amounts expected to be recovered
from reinsurers, and an allocation of the reinsurance premiums paid. The net
income/(expense) from reinsurance contract held comprise:
- Reinsurance expenses
- For groups of reinsurance contracts measured under the PAA, broker fees
are included within reinsurance expenses
- Incurred claims recovery
- Other incurred directly attributable expenses
- Changes that relate to past service - changes in the FCF relating to
incurred claims recovery
- Effect of changes in the risk of reinsurers' non-performance
- Amounts relating to accounting for onerous groups of underlying
insurance contracts issued
Reinsurance expenses are recognised similarly to insurance revenue. The amount
of reinsurance expenses recognised in the reporting period depicts the
transfer of received insurance contract services at an amount that reflects
the portion of ceding premiums that the Group expects to pay in exchange for
those services. Broker fees are included in reinsurance expenses.
All groups of reinsurance contracts held are measured under the PAA and
reinsurance expenses are recognised based on the passage of time over the
coverage period of a group of contracts.
AMOUNTS RECOGNISED IN THE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
Insurance finance income or expenses
Insurance finance income or expenses comprise the change in the carrying
amount of the group of insurance contracts arising from:
- The effect of the time value of money and changes in the time value of
money
- The effect of financial risk and changes in financial risk
For contracts measured under the PAA, the main amounts within insurance
finance income or expenses are:
a. Interest accreted on the LIC
b. The effect of changes in interest rates and other financial assumptions
The Group disaggregates insurance finance income or expenses on motor
insurance contracts issued between Profit or Loss and OCI. The impact of
changes in market interest rates on the value of the insurance assets and
liabilities are reflected in OCI in order to minimise accounting mismatches
between the accounting for financial assets and insurance assets and
liabilities. The Group's financial assets backing the motor insurance
portfolios are predominantly measured at FVOCI.
Risk management
Refer to Notes 3.6 and 3.7 for detail on risks relating to insurance
liabilities and reinsurance assets, and the management thereof.
critical accounting estimates and judgements
Management considers that their use of estimates, assumptions and judgements
in application of the Group's accounting policies are inter-related and
therefore discuss them together with the major sources of estimation
uncertainty and critical judgements separately identified.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below. The Group based its assumptions
and estimates on parameters available when the financial statements were
prepared. Existing circumstances and assumptions about future developments,
however, may change due to market changes or circumstances arising that are
beyond the control of the Group. Such changes are reflected in the assumptions
when they occur. The Group disaggregates information to disclose major product
lines namely, Motor Vehicle, Motorcycle and Taxi.
The Group applies the PAA to simplify the measurement of insurance contracts.
When measuring liabilities for remaining coverage, the PAA is broadly similar
to the Group's previous accounting treatment under IFRS 4. However, when
measuring liabilities for incurred claims, the Group now discounts cash flows
that are expected to occur more than one year after the date on which the
claims are incurred and includes an explicit risk adjustment for non-financial
risk.
A. Liability for remaining coverage ("LRC")
Insurance acquisition cash flows
The Group applies judgement in determining the inputs used in the methodology
to systematically and rationally allocate insurance acquisition cash flows to
groups of insurance contracts. This includes judgements about the amounts
allocated to insurance contracts expected to arise from renewals of existing
insurance contracts in a group and the volume of expected renewals from new
contracts issued in the period.
At the end of each reporting period, the Group revisits the assumptions made
to allocate insurance acquisition cash flows to groups and where necessary
revises the amounts of assets for insurance acquisition cash flows
accordingly.
Critical estimates
In determining the liability for remaining coverage, the Group considers the
term over which insurance policies apply, the distribution of expected claims
occurrence during the life of those policies and, in determining whether or
not a group of contracts is onerous, the expected profitability of each group
of contracts written. The profitability of each group of contracts is
estimated with reference to:
- Underwriting performance to date for each group of contracts
- The strategic goals assigned to each group of contracts, including target
underwriting performance
- Projections of changes to underwriting performance resulting from pricing
decisions taken during the life of each group of contracts
B. Liability for incurred claims ("LIC")
The ultimate cost of outstanding claims is estimated by using a range of
standard actuarial claims projection techniques, such as Chain Ladder and
Bornheutter-Ferguson methods.
The main assumption underlying these techniques is that a Group's past claims
development experience can be used to project future claims development and
hence ultimate claims costs. These methods extrapolate the development of paid
and incurred losses, average costs per claim (including claims handling
costs), and claim numbers based on the observed development of earlier years
and expected loss ratios. Historical claims development is mainly analysed by
accident years, but can also be further analysed by geographical area, as well
as by significant business lines and claim types. Large claims are usually
separately addressed, either by being reserved at the face value of loss
adjuster estimates or separately projected in order to reflect their future
development. 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 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, 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 probability weighted expected value
outcome from the range of possible outcomes, taking account of all the
uncertainties involved.
The Group has the right to pursue third parties for payment of some or all
costs. Estimates of salvage recoveries and subrogation reimbursements are
considered as an allowance in the measurement of ultimate claims costs. Other
key circumstances affecting the reliability of assumptions include variation
in interest rates and delays in settlement.
Critical estimates
The critical estimates in calculating the LIC are the amount and timing of
future claims payments in relation to claims already incurred. This is
primarily assessed with reference to past performance, including past
settlement patterns, as per the actuarial methodology outlined above. This
includes estimating the likely changes in inflation as relates to claims
already incurred, as well as the expected frequency of claims which have
occurred but which have not yet been reported. The ongoing cost of handling
claims already incurred is estimated with reference to the historical
cost-per-claim calculated over the past 12 months.
C. Discount rates
Insurance contract liabilities are calculated by discounting expected future
cash flows at a risk-free rate, plus an illiquidity premium where applicable.
Risk-free rates are determined by reference to the yields of highly liquid
AAA-rated sovereign securities in the currency of the insurance contract
liabilities. The illiquidity premium is determined by reference to observable
market rates.
Discount rates applied for discounting of future cash flows are listed below:
31 December 2023 31 December 2022
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
Motor insurance 5.05% 3.98% 3.67% 3.59% 4.75% 4.62% 4.35% 4.00%
Critical estimates
The discount rate is determined as the risk-free rate adjusted for an
illiquidity premium. The risk-free rate is determined using the Solvency II
risk-free rate sourced from the Bank of England. The illiquidity premium
represents the differences in liquidity characteristics between the financial
assets used to derive the risk-free rate and the relevant liability cash
flows.
D. Risk adjustment for non-financial risk
The risk adjustment for non-financial risk is the compensation that the Group
requires for bearing the uncertainty about the amount and timing of the cash
flows of groups of insurance contracts. The risk adjustment reflects an amount
that an insurer would rationally pay to remove the uncertainty that future
cash flows could vary from the expected value amount.
Critical estimates
The Company has estimated the risk adjustment using a methodology which
targets a confidence level (probability of sufficiency) approach between the
80th and 85th percentile. At 31 December 2023, the risk margin applied equates
to an approximate confidence interval of 81.3% (31 December 2022: 82.0%) That
is, the Company has assessed its indifference to uncertainty for all product
lines (as an indication of the compensation that it requires for bearing
non-financial risk) as being equivalent to the 80th to 85th percentile
confidence level less the mean of an estimated probability distribution of the
future cash flows. The Company has estimated the probability distribution of
the future cash flows, and the additional amount above the expected present
value of future cash flows required to meet the target percentiles.
3.1. Composition of the Statement of Financial Position
An analysis of the amounts presented on the Statement of Financial Position
for insurance contacts is included in the table below.
2023 2022
Restated ((1))
Notes £'k £'k
Insurance contract liabilities
Insurance contract liabilities
Motor Vehicle insurance 321,720 276,171
Motorcycle insurance 32,370 26,928
Taxi insurance 29,482 17,204
Asset for insurance acquisition cash flows
Motor Vehicle insurance 3.3 (6,933) (4,324)
Motorcycle insurance 3.3 (867) (629)
Taxi insurance 3.3 (933) (1,009)
Total insurance contract liabilities 374,839 314,341
Reinsurance contracts assets
Motor Vehicle insurance 143,364 123,991
Motorcycle insurance 13,502 8,526
Taxi insurance 9,860 4,437
Total reinsurance contract assets 166,726 136,954
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
The Group applies the premium allocation approach to all the insurance
contracts that it issues and reinsurance contracts that it holds, as the
coverage period of each contract in the group is one year or less, including
insurance contract services arising from all premiums within the contract
boundary. The Group does not expect significant variability in the fulfilment
cash flows that would affect the measurement of the liability for remaining
coverage during the period before a claim is incurred.
All the Group's insurance contracts have a coverage period of one year or
less. The Group's reinsurance contracts held are excess of loss contracts and
are loss occurring. The Group does not issue any reinsurance contracts.
Insurance contracts issued
On initial recognition of each group of contracts, the carrying amount of the
liability for remaining coverage ("LRC") is measured at:
- The premiums received on initial recognition
- Minus any insurance acquisition cash flows allocated to the group at
that date
- Adjusted for any amount arising from the derecognition of any assets or
liabilities previously recognised for cash flows related to the group
(including assets for insurance acquisition cash flows)
The Group has chosen not to expense insurance acquisition cash flows when they
are incurred.
Subsequently, the Group measures the carrying amount of the LRC at the end of
each reporting period as the LRC at the beginning of the period:
- Plus premiums received in the period
- Minus insurance acquisition cash flows
- Plus any amounts relating to the amortisation of insurance acquisition
cash flows recognised as an expense in the reporting period
- Minus the amount recognised as insurance revenue for the services
provided in the period
On initial recognition of each group of contracts, the Group expects that the
time between providing each part of the services and the related premium due
date is no more than a year. Accordingly, the Group has chosen not to adjust
the liability for remaining coverage to reflect the time value of money and
the effect of financial risk.
If at any time during the coverage period, facts and circumstances indicate
that a group of contracts is onerous, then the Group recognises a loss in
Profit or Loss and increases the liability for remaining coverage to the
extent that the current estimates of the fulfilment cash flows that relate to
remaining coverage exceed the carrying amount of the liability for remaining
coverage. The fulfilment cash flows are discounted (at current rates) if the
liability for incurred claims is also discounted.
The Group recognises the liability for incurred claims ("LIC") of a group of
insurance contracts at the amount of the fulfilment cash flows ("FCF")
relating to incurred claims. The fulfilment cash flows are discounted (at
current rates) unless they are expected to be paid in one year or less from
the date the claims are incurred.
The carrying amount of a group of insurance contracts issued at the end of
each reporting period is the sum of:
- The LRC
- The LIC
Risk adjustment for non-financial risk
An explicit risk adjustment for non-financial risk is estimated separate from
the other estimates. Unless contracts are onerous, the explicit risk
adjustment for non-financial risk is only estimated for the measurement of the
LIC.
This risk adjustment represents the compensation that the Group 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 Group would require to make it indifferent between:
- Fulfilling a liability that has a range of possible outcomes arising
from non-financial risk
- Fulfilling a liability that will generate fixed cash flows with the same
expected present value as the insurance contracts
Reinsurance contracts held
The excess of loss reinsurance contracts held provide coverage on the motor
insurance contracts originated for claims incurred during an accident year and
are accounted for under the PAA. The Group measures its reinsurance assets for
a group of reinsurance contracts that it holds on the same basis as insurance
contracts that it issues. For reinsurance contracts held, on initial
recognition, the Group measures the remaining coverage at the amount of ceding
premiums paid. For reinsurance contracts held, at each of the subsequent
reporting dates, the remaining coverage is:
- Increased for ceding premiums paid in the period
- Decreased for the amounts of ceding premiums recognised as reinsurance
expenses for the services received in the period
Assets for reinsurance contracts consist of the asset for remaining coverage
("ARC") and the asset for incurred claims ("AIC") being the reinsurers' share
of claims that have already been incurred.
For reinsurance contracts held, the risk adjustment for non-financial risk
presents the amount of risk being transferred by the Group to the reinsurer.
Asset for insurance acquisition cash flows
The Group includes the following acquisition cash flows within the insurance
contract boundary that arise from selling, underwriting and starting a group
of insurance contracts and that are:
a. Costs directly attributable to individual contracts and groups of
contracts
b. Costs directly attributable to the portfolio of insurance contracts to
which the group belongs, which are allocated on a reasonable and consistent
basis to measure the group of insurance contracts
Insurance acquisition cash flows arising before the recognition of the related
group of contracts are recognised as an asset. Insurance acquisition cash
flows arise when they are paid or when a liability is required to be
recognised under a standard other than IFRS 17. Such an asset is recognised
for each group of contracts to which the insurance acquisition cash flows are
allocated. The asset is derecognised, fully or partially, when the insurance
acquisition cash flows are included in the measurement of the group of
contracts.
Recoverability assessment
At each reporting date, if facts and circumstances indicate that an asset for
insurance acquisition cash flows may be impaired, then the Group:
a. Recognises an impairment loss in Profit or Loss so that the carrying
amount of the asset does not exceed the expected net cash inflow for the
related group
b. If the asset relates to future renewals, recognises an impairment loss
in Profit or Loss to the extent that it expects those insurance acquisition
cash flows to exceed the net cash inflow for the expected renewals and this
excess has not already been recognised as an impairment loss under (a)
The Group reverses any impairment losses in Profit or Loss and increases the
carrying amount of the asset to the extent that the impairment conditions have
improved.
Modification and derecognition
The Group derecognises insurance contracts when:
- The contract is extinguished (i.e. when the obligation specified in the
insurance contract expires or is discharged or cancelled)
- The contract is modified and certain additional criteria are met
When an insurance contract is modified by the Group as a result of an
agreement with the counterparties or due to a change in regulations, the Group
treats changes in cash flows caused by the modification as changes in
estimates of the FCF, unless the conditions for the derecognition of the
original contract are met. The Group derecognises the original contract and
recognises the modified contract as a new contract if any of the following
conditions are present:
a. If the modified terms had been included at contract inception and the
Group would have concluded that the modified contract:
i. Is not in scope of IFRS 17
ii. Results in different separable components
iii. Results in a different contract boundary
iv. Belongs to a different group of contracts
b. The original contract was accounted for under the PAA, but the
modification means that the contract no longer meets the eligibility criteria
for that approach
When an insurance contract accounted for under the PAA is derecognised,
adjustments to the FCF to remove relating rights and obligations and account
for the effect of the derecognition result in the following amounts being
charged immediately to Profit or Loss:
a. If the contract is extinguished, any net difference between the
derecognised part of the LRC of the original contract and any other cash flows
arising from extinguishment
b. If the contract is transferred to the third party, any net difference
between the derecognised part of the LRC of the original contract and the
premium charged by the third party
c. If the original contract is modified resulting in its derecognition,
any net difference between the derecognised part of the LRC and the
hypothetical premium the entity would have charged had it entered into a
contract with equivalent terms as the new contract at the date of the contract
modification, less any additional premium charged for the modification
(iv) Presentation
The Group has presented separately, in the Statement of Financial Position,
the carrying amount of portfolios of insurance contracts issued and portfolios
of reinsurance contracts held.
The Group has elected to disaggregate part of the movement in LIC resulting
from the changes in discount rates and present this in the Statement of
Comprehensive Income. The Group disaggregates the total amount recognised in
the Profit or Loss Account and the Statement of Comprehensive Income into an
insurance service result, comprising insurance revenue and insurance service
expense, and insurance finance income or expenses.
The Group does not disaggregate the change in risk adjustment for
non-financial risk between a financial and non-financial portion and includes
the entire change as part of the insurance service result.
The Group separately presents income or expenses from reinsurance contracts
held from the expenses or income from insurance contracts issued.
AMOUNTS RECOGNISED IN THE STATEMENT OF PROFIT OR LOSS
Insurance service result from insurance contracts issued
Insurance revenue
As the Group provides insurance contract services under the group of insurance
contracts, it reduces the LRC and recognises insurance revenue. The amount of
insurance revenue recognised in the reporting period depicts the transfer of
promised services at an amount that reflects the portion of consideration that
the Group expects to be entitled to in exchange for those services.
The Group measures all insurance contracts under the PAA and recognises
insurance revenue based on the passage of time over the coverage period of a
group of contracts.
Insurance service expenses
Insurance service expenses include the following:
- Incurred claims and benefits
- Other incurred directly attributable expenses
- Amortisation of insurance acquisition cash flows
- Changes that relate to past service - changes in the FCF relating to the
LIC
- Changes that relate to future service - changes in the FCF that result
in onerous contract losses or reversals of those losses
Amortisation of insurance acquisition cash flows is based on the passage of
time.
Other expenses not meeting the above categories are included in other
operating expenses in the Profit or Loss Account.
Insurance service result from reinsurance contracts held
Net income/(expense) from reinsurance contracts held
The Group presents separately on the face of the Profit or Loss Account and
the Statement of Comprehensive Income, the amounts expected to be recovered
from reinsurers, and an allocation of the reinsurance premiums paid. The net
income/(expense) from reinsurance contract held comprise:
- Reinsurance expenses
- For groups of reinsurance contracts measured under the PAA, broker fees
are included within reinsurance expenses
- Incurred claims recovery
- Other incurred directly attributable expenses
- Changes that relate to past service - changes in the FCF relating to
incurred claims recovery
- Effect of changes in the risk of reinsurers' non-performance
- Amounts relating to accounting for onerous groups of underlying
insurance contracts issued
Reinsurance expenses are recognised similarly to insurance revenue. The amount
of reinsurance expenses recognised in the reporting period depicts the
transfer of received insurance contract services at an amount that reflects
the portion of ceding premiums that the Group expects to pay in exchange for
those services. Broker fees are included in reinsurance expenses.
All groups of reinsurance contracts held are measured under the PAA and
reinsurance expenses are recognised based on the passage of time over the
coverage period of a group of contracts.
AMOUNTS RECOGNISED IN THE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
Insurance finance income or expenses
Insurance finance income or expenses comprise the change in the carrying
amount of the group of insurance contracts arising from:
- The effect of the time value of money and changes in the time value of
money
- The effect of financial risk and changes in financial risk
For contracts measured under the PAA, the main amounts within insurance
finance income or expenses are:
a. Interest accreted on the LIC
b. The effect of changes in interest rates and other financial assumptions
The Group disaggregates insurance finance income or expenses on motor
insurance contracts issued between Profit or Loss and OCI. The impact of
changes in market interest rates on the value of the insurance assets and
liabilities are reflected in OCI in order to minimise accounting mismatches
between the accounting for financial assets and insurance assets and
liabilities. The Group's financial assets backing the motor insurance
portfolios are predominantly measured at FVOCI.
Risk management
Refer to Notes 3.6 and 3.7 for detail on risks relating to insurance
liabilities and reinsurance assets, and the management thereof.
critical accounting estimates and judgements
Management considers that their use of estimates, assumptions and judgements
in application of the Group's accounting policies are inter-related and
therefore discuss them together with the major sources of estimation
uncertainty and critical judgements separately identified.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below. The Group based its assumptions
and estimates on parameters available when the financial statements were
prepared. Existing circumstances and assumptions about future developments,
however, may change due to market changes or circumstances arising that are
beyond the control of the Group. Such changes are reflected in the assumptions
when they occur. The Group disaggregates information to disclose major product
lines namely, Motor Vehicle, Motorcycle and Taxi.
The Group applies the PAA to simplify the measurement of insurance contracts.
When measuring liabilities for remaining coverage, the PAA is broadly similar
to the Group's previous accounting treatment under IFRS 4. However, when
measuring liabilities for incurred claims, the Group now discounts cash flows
that are expected to occur more than one year after the date on which the
claims are incurred and includes an explicit risk adjustment for non-financial
risk.
A. Liability for remaining coverage ("LRC")
Insurance acquisition cash flows
The Group applies judgement in determining the inputs used in the methodology
to systematically and rationally allocate insurance acquisition cash flows to
groups of insurance contracts. This includes judgements about the amounts
allocated to insurance contracts expected to arise from renewals of existing
insurance contracts in a group and the volume of expected renewals from new
contracts issued in the period.
At the end of each reporting period, the Group revisits the assumptions made
to allocate insurance acquisition cash flows to groups and where necessary
revises the amounts of assets for insurance acquisition cash flows
accordingly.
Critical estimates
In determining the liability for remaining coverage, the Group considers the
term over which insurance policies apply, the distribution of expected claims
occurrence during the life of those policies and, in determining whether or
not a group of contracts is onerous, the expected profitability of each group
of contracts written. The profitability of each group of contracts is
estimated with reference to:
- Underwriting performance to date for each group of contracts
- The strategic goals assigned to each group of contracts, including target
underwriting performance
- Projections of changes to underwriting performance resulting from pricing
decisions taken during the life of each group of contracts
B. Liability for incurred claims ("LIC")
The ultimate cost of outstanding claims is estimated by using a range of
standard actuarial claims projection techniques, such as Chain Ladder and
Bornheutter-Ferguson methods.
The main assumption underlying these techniques is that a Group's past claims
development experience can be used to project future claims development and
hence ultimate claims costs. These methods extrapolate the development of paid
and incurred losses, average costs per claim (including claims handling
costs), and claim numbers based on the observed development of earlier years
and expected loss ratios. Historical claims development is mainly analysed by
accident years, but can also be further analysed by geographical area, as well
as by significant business lines and claim types. Large claims are usually
separately addressed, either by being reserved at the face value of loss
adjuster estimates or separately projected in order to reflect their future
development. 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 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, 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 probability weighted expected value
outcome from the range of possible outcomes, taking account of all the
uncertainties involved.
The Group has the right to pursue third parties for payment of some or all
costs. Estimates of salvage recoveries and subrogation reimbursements are
considered as an allowance in the measurement of ultimate claims costs. Other
key circumstances affecting the reliability of assumptions include variation
in interest rates and delays in settlement.
Critical estimates
The critical estimates in calculating the LIC are the amount and timing of
future claims payments in relation to claims already incurred. This is
primarily assessed with reference to past performance, including past
settlement patterns, as per the actuarial methodology outlined above. This
includes estimating the likely changes in inflation as relates to claims
already incurred, as well as the expected frequency of claims which have
occurred but which have not yet been reported. The ongoing cost of handling
claims already incurred is estimated with reference to the historical
cost-per-claim calculated over the past 12 months.
C. Discount rates
Insurance contract liabilities are calculated by discounting expected future
cash flows at a risk-free rate, plus an illiquidity premium where applicable.
Risk-free rates are determined by reference to the yields of highly liquid
AAA-rated sovereign securities in the currency of the insurance contract
liabilities. The illiquidity premium is determined by reference to observable
market rates.
Discount rates applied for discounting of future cash flows are listed below:
31 December 2023 31 December 2022
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
Motor insurance 5.05% 3.98% 3.67% 3.59% 4.75% 4.62% 4.35% 4.00%
Critical estimates
The discount rate is determined as the risk-free rate adjusted for an
illiquidity premium. The risk-free rate is determined using the Solvency II
risk-free rate sourced from the Bank of England. The illiquidity premium
represents the differences in liquidity characteristics between the financial
assets used to derive the risk-free rate and the relevant liability cash
flows.
D. Risk adjustment for non-financial risk
The risk adjustment for non-financial risk is the compensation that the Group
requires for bearing the uncertainty about the amount and timing of the cash
flows of groups of insurance contracts. The risk adjustment reflects an amount
that an insurer would rationally pay to remove the uncertainty that future
cash flows could vary from the expected value amount.
Critical estimates
The Company has estimated the risk adjustment using a methodology which
targets a confidence level (probability of sufficiency) approach between the
80th and 85th percentile. At 31 December 2023, the risk margin applied equates
to an approximate confidence interval of 81.3% (31 December 2022: 82.0%) That
is, the Company has assessed its indifference to uncertainty for all product
lines (as an indication of the compensation that it requires for bearing
non-financial risk) as being equivalent to the 80th to 85th percentile
confidence level less the mean of an estimated probability distribution of the
future cash flows. The Company has estimated the probability distribution of
the future cash flows, and the additional amount above the expected present
value of future cash flows required to meet the target percentiles.
3.1. Composition of the Statement of Financial Position
An analysis of the amounts presented on the Statement of Financial Position
for insurance contacts is included in the table below.
2023 2022
Restated ((1))
Notes £'k £'k
Insurance contract liabilities
Insurance contract liabilities
Motor Vehicle insurance 321,720 276,171
Motorcycle insurance 32,370 26,928
Taxi insurance 29,482 17,204
Asset for insurance acquisition cash flows
Motor Vehicle insurance 3.3 (6,933) (4,324)
Motorcycle insurance 3.3 (867) (629)
Taxi insurance 3.3 (933) (1,009)
Total insurance contract liabilities 374,839 314,341
Reinsurance contracts assets
Motor Vehicle insurance 143,364 123,991
Motorcycle insurance 13,502 8,526
Taxi insurance 9,860 4,437
Total reinsurance contract assets 166,726 136,954
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
3.2. Movements in insurance and reinsurance contract balances
3.2.1. Insurance contracts issued
Reconciliation of liability for remaining coverage and the liability for
incurred claims
2023 2022 Restated ((1))
Liabilities for Remaining Coverage Liabilities for Incurred Claims TOTAL Liabilities for Remaining Coverage Liabilities for Incurred Claims TOTAL
("LRC")
("LIC")
("LRC")
("LIC")
In £'k Estimates Risk adjustment for non-financial risk Estimates Risk adjustment for non-financial risk
of present value of future cash flows
of present value of future cash flows
Opening insurance contract liabilities 47,836 221,651 44,854 314,341 47,656 229,734 40,231 317,621
Changes in the Profit or Loss Account
Insurance revenue (188,246) - - (188,246) (181,476) - - (181,476)
Insurance service expenses
Incurred claims and other directly attributable expenses - 110,057 13,605 123,662 - 112,659 14,292 126,951
Changes that relate to past service - changes in the FCF relating to the LIC - 6,764 (4,986) 1,778 - (3,618) (9,669) (13,287)
Amortisation of insurance acquisition cash flows 14,057 - - 14,057 12,943 - - 12,943
14,057 116,821 8,619 139,497 12,943 109,041 4,623 126,607
Insurance service result (174,189) 116,821 8,619 (48,749) (168,533) 109,041 4,623 (54,869)
Net finance income from insurance contracts issued - 10,170 - 10,170 - 6,043 - 6,043
Total changes in the Profit or Loss Account (174,189) 126,991 8,619 (38,579) (168,533) 115,084 4,623 (48,826)
Changes in the Statement of Comprehensive Income
Net finance income/(expense) from insurance contracts issued - 12,436 - 12,436 - (23,602) - (23,602)
Total changes in Statement of Comprehensive Income - 12,436 - 12,436 - (23,602) - (23,602)
Cash flows
Premiums received 206,189 - - 206,189 181,301 - - 181,301
Claims and other insurance services expenses paid - (102,720) - (102,720) - (99,565) - (99,565)
Insurance acquisition cash flows (16,828) - - (16,828) (12,588) - - (12,588)
Total cash flows 189,361 (102,720) - 86,641 168,713 (99,565) - 69,148
Closing insurance contract liabilities 63,008 258,358 53,473 374,839 47,836 221,651 44,854 314,341
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
3.2. Movements in insurance and reinsurance contract balances
3.2.2. Reinsurance contracts held
Reconciliation of assets for remaining coverage and the assets for incurred
claims
2023 2022 Restated ((1))
Assets for remaining coverage Assets for incurred claims TOTAL Assets for remaining coverage Assets for incurred claims TOTAL
In £'k Estimates Risk adjustment for non-financial risk Estimates Risk adjustment for non-financial risk
of present value of future cash flows
of present value of future cash flows
Opening reinsurance contract assets 5,675 97,996 33,283 136,954 2,812 114,510 30,574 147,896
Changes in the Profit or Loss Account
Net income/(expense) from reinsurance contracts held
Reinsurance expense (28,506) - - (28,506) (24,958) - - (24,958)
Incurred claims recovery - 16,738 9,103 25,841 - 16,409 9,423 25,832
Changes that relate to past service - changes in the FCF relating to incurred - 6,859 (1,168) 5,691 - (12,814) (6,714) (19,528)
claims recovery
(28,506) 23,597 7,935 3,026 (24,958) 3,595 2,709 (18,654)
Net finance income for reinsurance contracts held - 3,588 - 3,588 - 3,195 - 3,195
Total changes in the Profit or Loss Account (28,506) 27,185 7,935 6,614 (24,958) 6,790 2,709 (15,459)
Changes in the Statement of Comprehensive Income
Net finance income/(expense) for reinsurance contracts held - 5,432 - 5,432 - (12,924) - (12,924)
Total changes in Statement of Comprehensive Income - 5,432 - 5,432 - (12,924) - (12,924)
Cash flows
Premiums paid 24,906 - - 24,906 27,821 - - 27,821
Recoveries received - (7,180) - (7,180) - (10,380) - (10,380)
Total cash flows 24,906 (7,180) - 17,726 27,821 (10,380) - 17,441
Closing reinsurance contract assets 2,075 123,433 41,218 166,726 5,675 97,996 33,283 136,954
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
3.3. Assets for insurance acquisition cash flows
£'k
Restated balance as at 1 January 2022 6,317
Amounts incurred during the year 12,588
Amounts derecognised and included in measurement of insurance contracts (12,943)
Restated balance as at 31 December 2022 5,962
Amounts incurred during the year 16,828
Amounts derecognised and included in measurement of insurance contracts (14,057)
Balance as at 31 December 2023 8,733
The following table sets out when the Group expects to derecognise assets for
insurance acquisition cash flows after the reporting date:
£'k
31 December 2023
Less than one year 8,032
More than one year 701
8,733
31 December 2022
Less than one year 5,437
More than one year 525
5,962
3.4. Claims development
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).
These triangles present estimated costs including any risk adjustment and
associated liability related to the future cost of handling claims.
Gross of reinsurance
Accident year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Total
£'k £'k £'k £'k £'k £'k £'k £'k £'k £'k £'k
Estimates of undiscounted gross cumulative claims
At the end of the accident year 75,649 103,599 111,518 165,707 120,077 126,981 101,965 89,233 136,811 133,334
- One year later 65,639 90,133 100,935 131,803 108,089 122,663 97,953 93,309 131,433
- Two years later 62,039 82,537 94,294 123,651 107,988 127,225 93,390 90,941
- Three years later 60,301 79,845 91,336 122,674 113,257 131,254 88,192
- Four years later 59,149 77,095 90,789 124,128 118,600 135,173
- Five years later 58,367 77,038 92,629 137,472 125,038
- Six years later 58,718 77,469 101,655 137,660
- Seven years later 58,438 77,729 101,124
- Eight years later 58,380 77,040
- Nine years later 58,341
Current estimate of cumulative claims 58,341 77,040 101,124 137,660 125,038 135,173 88,192 90,941 131,433 133,334
Cumulative gross claims paid (58,238) (76,024) (93,623) (89,583) (99,233) (106,817) (67,881) (59,366) (65,812) (43,102)
Undiscounted gross liabilities - accident years from 2014 to 2023 103 1,016 7,501 48,077 25,805 28,356 20,311 31,575 65,621 90,232 318,597
Undiscounted gross liabilities - accident years from 2013 and before 43,435
Effect of discounting (50,201)
Total gross liabilities for incurred claims ("LIC") 311,831
Liabilities for remaining coverage ("LRC") 63,008
Total gross liabilities included in the Statement of Financial Position 374,839
The 'boxed' numbers are undiscounted, but otherwise presented on an IFRS 17
basis. The shaded numbers have not been restated under IFRS 17 and reflect the
numbers as previously reported under IFRS 4.
The primary difference between the IFRS 17 and IFRS 4 numbers presented here
relates to the risk adjustment.
The gross liabilities for incurred claims and gross liabilities for remaining
coverage per product is given below:
LIC LRC Total
Motor vehicle 261,946 52,841 314,787
Motorcycle 27,765 3,738 31,503
Taxi 22,120 6,429 28,549
Total 311,831 63,008 374,839
Net of reinsurance
Accident year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Total
£'k £'k £'k £'k £'k £'k £'k £'k £'k £'k £'k
Estimates of undiscounted net cumulative claims
At the end of the accident year 74,609 97,288 104,808 106,478 111,433 115,011 85,723 81,161 106,049 102,185
- One year later 65,639 85,814 93,664 96,446 99,649 111,550 81,882 82,487 102,066
- Two years later 60,953 81,164 87,824 91,806 98,641 111,347 80,990 80,146
- Three years later 59,741 77,869 85,243 91,179 99,071 111,342 78,353
- Four years later 59,008 76,409 84,995 88,545 100,893 112,156
- Five years later 58,259 76,254 84,891 92,002 103,254
- Six years later 58,481 76,011 86,784 92,375
- Seven years later 58,198 76,581 86,536
- Eight years later 58,147 76,425
- Nine years later 58,115
Current estimate of cumulative claims 58,115 76,425 86,536 92,375 103,254 112,156 78,353 80,146 102,066 102,185
Cumulative net claims paid (58,020) (75,741) (83,819) (85,158) (95,501) (101,061) (65,577) (59,366) (65,812) (43,102)
Undiscounted net liabilities - accident years from 2014 to 2023 95 684 2,717 7,217 7,753 11,095 12,776 20,780 36,254 59,083 158,454
Undiscounted net liabilities - accident years from 2013 and before 8,061
Effect of discounting (19,335)
Total net liabilities for incurred claims ("LIC") 147,180
Net liabilities for remaining coverage ("LRC") 60,933
Total net liabilities included in the Statement of Financial Position 208,113
The 'boxed' numbers are undiscounted, but otherwise presented on an IFRS 17
basis. The shaded numbers have not been restated under IFRS 17 and reflect the
numbers as previously reported under IFRS 4.
The primary difference between the IFRS 17 and IFRS 4 numbers presented here
relates to the risk adjustment.
The net liabilities for incurred claims and net liabilities for remaining
coverage per product is given below:
LIC LRC Total
Motor vehicle 120,136 51,287 171,423
Motorcycle 14,391 3,610 18,001
Taxi 12,653 6,036 18,689
Total 147,180 60,933 208,113
3.5. Insurance revenue and expenses - Segmental disclosure
An analysis of insurance revenue, insurance service expenses and net expenses
from reinsurance contracts held is included in the tables below. Additional
information on amounts recognised in Profit or Loss and OCI is included in the
movements in insurance and reinsurance contract balances in Note 3.2.
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 brokerage 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.
2023 2022 Restated ((1))
Motor vehicles Motorcycle Taxi Total Motor vehicles Motorcycle Taxi Total
£'k £'k £'k £'k £'k £'k £'k £'k
Insurance revenue
Insurance revenue from contracts measured under the PAA 158,054 15,363 14,829 188,246 157,464 17,826 6,186 181,476
Total insurance revenue 158,054 15,363 14,829 188,246 157,464 17,826 6,186 181,476
Insurance service expense
Incurred claims and other directly attributable expenses (91,688) (16,087) (15,887) (123,662) (94,492) (26,185) (6,274) (126,951)
Changes that relate to past service - changes in the FCF relating to the LIC (861) 1,796 (2,713) (1,778) 13,257 (358) 388 13,287
Amortisation of insurance acquisition cash flows (10,206) (1,953) (1,898) (14,057) (11,371) (879) (693) (12,943)
Total insurance service expense (102,755) (16,244) (20,498) (139,497) (92,606) (27,422) (6,579) (126,607)
Net income/(expenses) from reinsurance contracts held
Reinsurance expenses - contracts measured under the PAA (23,800) (2,444) (2,262) (28,506) (21,257) (2,734) (967) (24,958)
Incurred claims recovery 17,367 5,947 2,527 25,841 17,862 7,611 359 25,832
Changes that relate to past service - changes in the FCF relating to incurred 4,758 (1,184) 2,117 5,691 (19,337) 30 (221) (19,528)
claims recovery
Total net income/(expenses) from reinsurance contracts held (1,675) 2,319 2,382 3,026 (22,732) 4,907 (829) (18,654)
Total insurance service result 53,624 1,438 (3,287) 51,775 42,126 (4,689) (1,222) 36,215
Other than reinsurance assets and insurance liabilities (see Note 3.1), 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.
3.6. 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 within the UK, which usually
cover a 12-month duration. For these contracts, the most significant risks
arise from severe weather conditions or single catastrophic events. For
longer-tail claims that take some years to settle, there is also inflation
risk.
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. 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.
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 has not been possible to quantify the sensitivity
of individual, specific assumptions such as legislative changes.
The following analysis is performed for reasonably possible movements in key
assumptions 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. The impact of a 10% decrease will have
a similar but opposite impact.
Decrease Decrease
in profit after tax in total equity
2023 2022 2023 2022
Restated ((1)) Restated ((1))
At 31 December £'k £'k £'k £'k
Insurance risk
Impact of a 10% increase in gross loss ratio (8,573) (8,864) (8,573) (8,864)
Impact of a 10% increase in gross outstanding claims (9,430) (9,737) (9,430) (9,737)
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
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. The impact
of a 10% decrease will have a similar but opposite impact.
Decrease Decrease
in profit after tax in total equity
2023 2022 2023 2022
Restated ((1)) Restated ((1))
At 31 December £'k £'k £'k £'k
Insurance risk
Impact of a 10% increase in net loss ratio (11,353) (11,579) (11,353) (11,579)
Impact of a 10% increase in net outstanding claims (12,738) (11,920) (12,738) (11,920)
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
The impact of a 1% increase in the discount rates will increase the 2023 total
equity by £2,259k. The impact of a 1% decrease in the discount rate will
decrease the 2023 total equity by £2,763k.
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 financial position, including its assessment of
the liability for incurred claims. 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.
3.7. Insurance related credit risk
Key insurance related areas where the Group is exposed to credit default risk
are:
- 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. 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.
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 2023 £'k £'k £'k £'k £'k
Reinsurance contracts assets ((1)) 197,591 - - - 197,591
Insurance receivables ((2)) 54,650 62 - - 54,712
Total 252,241 62 - - 252,303
Neither past due nor impaired Past due 1-90 days Past due Assets that have been impaired Carrying
more than 90 days value in the balance sheet
At 31 December 2022 Restated ((3)) £'k £'k £'k £'k £'k
Reinsurance contracts assets ((1)) 166,996 - - - 166,996
Insurance receivables ((2)) 31,364 63 - - 31,427
Total 198,360 63 - - 198,423
(1) Undiscounted
(2) Included within 'Insurance contract liabilities'
(3) See Note 1.3.1 IFRS 17 "Insurance Contracts"
Exposure by credit rating
AAA AA+ to AA- A+ to A- BBB+ to BBB- BB+ and below Not rated Total
At 31 December 2023 £'k £'k £'k £'k £'k £'k £'k
Reinsurance contracts assets ((1)) - 128,942 68,649 - - - 197,591
Insurance receivables ((2)) - - - - - 54,712 54,712
Total - 128,942 68,649 - - 54,712 252,303
AAA AA+ to AA- A+ to A- BBB+ to BBB- BB+ and Not rated Total
below
At 31 December 2022 Restated ((3)) £'k £'k £'k £'k £'k £'k £'k
Reinsurance contracts assets ((1)) - 111,995 55,001 - - - 166,996
Insurance receivables ((2)) - - - - - 31,427 31,427
Total - 111,995 55,001 - - 31,427 198,423
(1) Undiscounted
(2) Included within 'Insurance contract liabilities'
(3) See Note 1.3.1 IFRS 17 "Insurance Contracts"
3.8. Net financial result
2023
Insurance related Non-insurance related Total
Notes £'k £'k £'k
Investment income
Interest income on financial assets using effective interest rate method 4.5 3,506 269 3,775
Amounts recognised in OCI 4.6 9,284 - 9,284
Total investment income 12,790 269 13,059
Insurance finance expenses from insurance contracts issued
Interest accreted (10,170) - (10,170)
Effect of changes in interest rates and other financial assumptions (12,436) - (12,436)
(22,606) - (22,606)
Reinsurance finance income from reinsurance contracts held
Interest accreted 3,588 - 3,588
Effect of changes in interest rates and other financial assumptions 5,432 - 5,432
9,020 - 9,020
Net insurance finance expense (13,586) - (13,586)
Net financial results (796) 269 (527)
Represented by:
Amounts recognised in Profit or Loss (3,076) 269 (2,807)
Amounts recognised in OCI 2,280 - 2,280
Total (796) 269 (527)
2022
Insurance related Non-insurance related Total
Notes £'k £'k £'k
Investment income
Interest income on financial assets using effective interest rate method 4.5 1,627 40 1,667
Realised fair value gains on debt securities 4.5 22 - 22
Amounts recognised in OCI 4.6 (14,207) - (14,207)
Total investment income (12,558) 40 (12,518)
Insurance finance expenses from insurance contracts issued
Interest accreted (6,043) - (6,043)
Effect of changes in interest rates and other financial assumptions 23,602 - 23,602
17,559 - 17,559
Reinsurance finance income from reinsurance contracts held
Interest accreted 3,195 - 3,195
Effect of changes in interest rates and other financial assumptions (12,924) - (12,924)
(9,729) - (9,729)
Net insurance finance expense 7,830 - 7,830
Net financial results (4,728) 40 (4,688)
Represented by:
Amounts recognised in Profit or Loss (1,199) 40 (1,159)
Amounts recognised in OCI (3,529) - (3,529)
Total (4,728) 40 (4,688)
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
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. The impact
of a 10% decrease will have a similar but opposite impact.
Decrease Decrease
in profit after tax in total equity
2023 2022 2023 2022
Restated ((1)) Restated ((1))
At 31 December £'k £'k £'k £'k
Insurance risk
Impact of a 10% increase in net loss ratio (11,353) (11,579) (11,353) (11,579)
Impact of a 10% increase in net outstanding claims (12,738) (11,920) (12,738) (11,920)
(1) See Note 1.3.1 IFRS 17 "Insurance Contracts"
The impact of a 1% increase in the discount rates will increase the 2023 total
equity by £2,259k. The impact of a 1% decrease in the discount rate will
decrease the 2023 total equity by £2,763k.
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 financial position, including its assessment of
the liability for incurred claims. 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.
3.7. Insurance related credit risk
Key insurance related areas where the Group is exposed to credit default risk
are:
- 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. 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.
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 2023 £'k £'k £'k £'k £'k
Reinsurance contracts assets ((1)) 197,591 - - - 197,591
Insurance receivables ((2)) 54,650 62 - - 54,712
Total 252,241 62 - - 252,303
Neither past due nor impaired Past due 1-90 days Past due Assets that have been impaired Carrying
more than 90 days value in the balance sheet
At 31 December 2022 Restated ((3)) £'k £'k £'k £'k £'k
Reinsurance contracts assets ((1)) 166,996 - - - 166,996
Insurance receivables ((2)) 31,364 63 - - 31,427
Total 198,360 63 - - 198,423
(1) Undiscounted
(2) Included within 'Insurance contract liabilities'
(3) See Note 1.3.1 IFRS 17 "Insurance Contracts"
Exposure by credit rating
AAA AA+ to AA- A+ to A- BBB+ to BBB- BB+ and below Not rated Total
At 31 December 2023 £'k £'k £'k £'k £'k £'k £'k
Reinsurance contracts assets ((1)) - 128,942 68,649 - - - 197,591
Insurance receivables ((2)) - - - - - 54,712 54,712
Total - 128,942 68,649 - - 54,712 252,303
AAA AA+ to AA- A+ to A- BBB+ to BBB- BB+ and Not rated Total
below
At 31 December 2022 Restated ((3)) £'k £'k £'k £'k £'k £'k £'k
Reinsurance contracts assets ((1)) - 111,995 55,001 - - - 166,996
Insurance receivables ((2)) - - - - - 31,427 31,427
Total - 111,995 55,001 - - 31,427 198,423
(1) Undiscounted
(2) Included within 'Insurance contract liabilities'
(3) See Note 1.3.1 IFRS 17 "Insurance Contracts"
3.8. Net financial result
2023
Insurance related Non-insurance related Total
Notes £'k £'k £'k
Investment income
Interest income on financial assets using effective interest rate method 4.5 3,506 269 3,775
Amounts recognised in OCI 4.6 9,284 - 9,284
Total investment income 12,790 269 13,059
Insurance finance expenses from insurance contracts issued
Interest accreted (10,170) - (10,170)
Effect of changes in interest rates and other financial assumptions (12,436) - (12,436)
(22,606) - (22,606)
Reinsurance finance income from reinsurance contracts held
Interest accreted 3,588 - 3,588
Effect of changes in interest rates and other financial assumptions 5,432 - 5,432
9,020 - 9,020
Net insurance finance expense (13,586) - (13,586)
Net financial results (796) 269 (527)
Represented by:
Amounts recognised in Profit or Loss (3,076) 269 (2,807)
Amounts recognised in OCI 2,280 - 2,280
Total (796) 269 (527)
2022
Insurance related Non-insurance related Total
Notes £'k £'k £'k
Investment income
Interest income on financial assets using effective interest rate method 4.5 1,627 40 1,667
Realised fair value gains on debt securities 4.5 22 - 22
Amounts recognised in OCI 4.6 (14,207) - (14,207)
Total investment income (12,558) 40 (12,518)
Insurance finance expenses from insurance contracts issued
Interest accreted (6,043) - (6,043)
Effect of changes in interest rates and other financial assumptions 23,602 - 23,602
17,559 - 17,559
Reinsurance finance income from reinsurance contracts held
Interest accreted 3,195 - 3,195
Effect of changes in interest rates and other financial assumptions (12,924) - (12,924)
(9,729) - (9,729)
Net insurance finance expense 7,830 - 7,830
Net financial results (4,728) 40 (4,688)
Represented by:
Amounts recognised in Profit or Loss (1,199) 40 (1,159)
Amounts recognised in OCI (3,529) - (3,529)
Total (4,728) 40 (4,688)
4. Financial assets
Risk management
Refer to the following notes for detail on risks relating to financial assets:
Investment concentration risk - Note 4.2.1
Interest rate risk - Note 4.2.2
Credit risk - Note 4.4
Liquidity risk - Note 6
The Group's financial assets are summarised below:
2023 2022
Notes £'k £'k
Cash and cash equivalents 4.1 35,079 18,502
Debt securities held at fair value through other comprehensive income 4.2 264,679 229,158
Receivables 4.3 87 7
Total 299,845 247,667
4.1. 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.
2023 2022
£'k £'k
Cash at bank and on hand 12,890 13,162
Money market funds 22,189 5,340
Total 35,079 18,502
Cash held in money market funds has 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.
4.2. 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 4.4.
The Group's debt securities held at fair value through other comprehensive
income are summarised below:
2023 2022
£'k % holdings £'k % holdings
Government bonds 107,040 40.4% 87,151 38.1%
Government-backed securities 81,942 31.0% 80,753 35.2%
Corporate bonds 75,697 28.6% 61,254 26.7%
Total 264,679 100.0% 229,158 100.0%
4.2.1. 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 2023 £'k £'k £'k £'k % holdings
United Kingdom 107,040 - 32,364 139,404 52.7%
Europe - 50,982 28,736 79,718 30.1%
North America - 28,284 12,643 40,927 15.5%
Australasia - - 1,954 1,954 0.7%
Asia - 2,676 - 2,676 1.0%
Total 107,040 81,942 75,697 264,679 100.0%
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 - 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%
The Group's exposure by investment type for government-backed securities and
corporate bonds is outlined below:
Agency Supranational Total
At 31 December 2023 £'k £'k £'k
Government-backed securities 40,310 41,632 81,942
%of holdings 49.2% 50.8% 100.0%
Financial Industrial Utilities Total
At 31 December 2023 £'k £'k £'k £'k
Corporate bonds 40,973 31,117 3,607 75,697
%of holdings 54.1% 41.1% 4.8% 100.0%
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%
4.2.2. Interest rate risk
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.
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
2023 2022 2023 2022
At 31 December £'k £'k £'k £'k
Interest rate
Impact of a 100-basis point increase in interest rates on debt securities at - - (2,758) (1,940)
FVOCI
Impact of a 200-basis point increase in interest rates on debt securities at - - (5,516) (3,881)
FVOCI
4.2.3. 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 2023 £'k £'k £'k £'k
Assets held at fair value
Debt securities held at FVOCI 264,679 - - 264,679
Total 264,679 - - 264,679
Level 1 Level 2 Level 3 Total
As at 31 December 2022 £'k £'k £'k £'k
Assets held at fair value
Debt securities held at FVOCI 229,158 - - 229,158
Total 229,158 - - 229,158
Transfers between levels
There have been no transfers between levels during the year (2022: no
transfers).
4.3. Receivables
ACCOUNTING POLICY
Classification
The Group classifies its 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
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, 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
Receivables 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 receivables comprise of:
2023 2022
£'k £'k
Other debtors 87 7
Total 87 7
The estimated fair values of receivables are the discounted amounts of the
estimated future cash flows expected to be received.
The carrying value of receivables approximates fair value. The provision for
expected credit losses is based on the recoverability of the individual
receivables.
The Group calculated ECL on receivables and has concluded that it is wholly
immaterial and such further disclosure has not been included.
4.4. 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 calculating 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 2023 £'k £'k £'k £'k £'k £'k £'k
UK government bonds - 107,040 - - - - 107,040
Government-backed securities 81,942 - - - - - 81,942
Corporate bonds - 4,153 51,020 20,524 - - 75,697
Receivables - - - - - 87 87
Cash and cash equivalents 22,189 51 12,839 - - - 35,079
Total 104,131 111,244 63,859 20,524 - 87 299,845
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
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
With exception of receivables, all the Group's financial assets are investment
grade (AAA to BBB).
Analysis of credit risk and allowance for ECL
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 2023 £'k £'k £'k
Government bonds 107,040 (3) 107,037
Government-backed securities 81,942 (4) 81,938
Corporate bonds 75,697 (30) 75,667
Receivables 87 - 87
Cash and cash equivalents 35,079 - 35,079
Total 299,845 (37) 299,808
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
Receivables 7 - 7
Cash and cash equivalents 18,502 - 18,502
Total 247,667 (32) 247,635
4.5. 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.
2023 2022
£'k £'k
Interest income on financial assets using effective interest rate method
Interest income from debt securities 3,131 1,567
Interest income from cash and cash equivalents 644 100
Total 3,775 1,667
4.6. 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.
2023 2022
£'k £'k
Profit or loss
Realised fair value gains on debt securities - 22
Realised fair value gains on debt securities reclassified to Profit or Loss - 22
Other comprehensive income
Unrealised fair value gains/(losses) on debt securities 9,278 (14,175)
Expected credit loss 6 (32)
Unrealised fair value gains/(losses) on debt securities through Other 9,284 (14,207)
Comprehensive Income
Net gains/(losses) from fair value adjustments on financial assets 9,284 (14,185)
4.1. 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.
2023 2022
£'k £'k
Cash at bank and on hand 12,890 13,162
Money market funds 22,189 5,340
Total 35,079 18,502
Cash held in money market funds has 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.
4.2. 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 4.4.
The Group's debt securities held at fair value through other comprehensive
income are summarised below:
2023 2022
£'k % holdings £'k % holdings
Government bonds 107,040 40.4% 87,151 38.1%
Government-backed securities 81,942 31.0% 80,753 35.2%
Corporate bonds 75,697 28.6% 61,254 26.7%
Total 264,679 100.0% 229,158 100.0%
4.2.1. 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 2023 £'k £'k £'k £'k % holdings
United Kingdom 107,040 - 32,364 139,404 52.7%
Europe - 50,982 28,736 79,718 30.1%
North America - 28,284 12,643 40,927 15.5%
Australasia - - 1,954 1,954 0.7%
Asia - 2,676 - 2,676 1.0%
Total 107,040 81,942 75,697 264,679 100.0%
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 - 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%
The Group's exposure by investment type for government-backed securities and
corporate bonds is outlined below:
Agency Supranational Total
At 31 December 2023 £'k £'k £'k
Government-backed securities 40,310 41,632 81,942
% of holdings 49.2% 50.8% 100.0%
Financial Industrial Utilities Total
At 31 December 2023 £'k £'k £'k £'k
Corporate bonds 40,973 31,117 3,607 75,697
% of holdings 54.1% 41.1% 4.8% 100.0%
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%
4.2.2. Interest rate risk
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.
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
2023 2022 2023 2022
At 31 December £'k £'k £'k £'k
Interest rate
Impact of a 100-basis point increase in interest rates on debt securities at - - (2,758) (1,940)
FVOCI
Impact of a 200-basis point increase in interest rates on debt securities at - - (5,516) (3,881)
FVOCI
4.2.3. 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 2023 £'k £'k £'k £'k
Assets held at fair value
Debt securities held at FVOCI 264,679 - - 264,679
Total 264,679 - - 264,679
Level 1 Level 2 Level 3 Total
As at 31 December 2022 £'k £'k £'k £'k
Assets held at fair value
Debt securities held at FVOCI 229,158 - - 229,158
Total 229,158 - - 229,158
Transfers between levels
There have been no transfers between levels during the year (2022: no
transfers).
4.3. Receivables
ACCOUNTING POLICY
Classification
The Group classifies its 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
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, 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
Receivables 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 receivables comprise of:
2023 2022
£'k £'k
Other debtors 87 7
Total 87 7
The estimated fair values of receivables are the discounted amounts of the
estimated future cash flows expected to be received.
The carrying value of receivables approximates fair value. The provision for
expected credit losses is based on the recoverability of the individual
receivables.
The Group calculated ECL on receivables and has concluded that it is wholly
immaterial and such further disclosure has not been included.
4.4. 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 calculating 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 2023 £'k £'k £'k £'k £'k £'k £'k
UK government bonds - 107,040 - - - - 107,040
Government-backed securities 81,942 - - - - - 81,942
Corporate bonds - 4,153 51,020 20,524 - - 75,697
Receivables - - - - - 87 87
Cash and cash equivalents 22,189 51 12,839 - - - 35,079
Total 104,131 111,244 63,859 20,524 - 87 299,845
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
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
With exception of receivables, all the Group's financial assets are investment
grade (AAA to BBB).
Analysis of credit risk and allowance for ECL
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 2023 £'k £'k £'k
Government bonds 107,040 (3) 107,037
Government-backed securities 81,942 (4) 81,938
Corporate bonds 75,697 (30) 75,667
Receivables 87 - 87
Cash and cash equivalents 35,079 - 35,079
Total 299,845 (37) 299,808
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
Receivables 7 - 7
Cash and cash equivalents 18,502 - 18,502
Total 247,667 (32) 247,635
4.5. 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.
2023 2022
£'k £'k
Interest income on financial assets using effective interest rate method
Interest income from debt securities 3,131 1,567
Interest income from cash and cash equivalents 644 100
Total 3,775 1,667
4.6. 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.
2023 2022
£'k £'k
Profit or loss
Realised fair value gains on debt securities - 22
Realised fair value gains on debt securities reclassified to Profit or Loss - 22
Other comprehensive income
Unrealised fair value gains/(losses) on debt securities 9,278 (14,175)
Expected credit loss 6 (32)
Unrealised fair value gains/(losses) on debt securities through Other 9,284 (14,207)
Comprehensive Income
Net gains/(losses) from fair value adjustments on financial assets 9,284 (14,185)
5. PAYABLES
ACCOUNTING POLICY
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. Payables are
carried at amortised cost.
2023 2022
£'k £'k
Trade and other creditors 2,149 760
Other taxes 7,551 4,348
Total 9,700 5,108
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 Up to 1 year 1-2 years 3-4 years 5-10 years Over 10 years
At 31 December 2023 £'k £'k £'k £'k £'k £'k
Cash and cash equivalents ((1)) 35,079 35,079 - - - -
UK government bonds 107,040 22,008 40,649 44,383 - -
Government-backed securities 81,942 57,722 17,241 6,979 - -
Corporate bonds 75,697 8,987 49,953 16,757 - -
Receivables 87 87 - - - -
Reinsurance contract assets 197,592 68,215 53,543 26,409 18,452 30,973
Total 497,437 192,098 161,386 94,528 18,452 30,973
Total Up to 1 year 1-2 years 3-4 years 5-10 years Over 10 years
At 31 December 2023 £'k £'k £'k £'k £'k £'k
Payables 9,700 9,700 - - - -
Insurance contract liabilities ((2)) 300,593 83,152 110,871 46,344 24,978 35,248
Total 310,293 92,852 110,871 46,344 24,978 35,248
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) Includes money market funds with no notice period for withdrawal
(2) Excludes the liability for remaining coverage and effect of
discounting
Total Up to 1 year 1-2 years 3-4 years 5-10 years Over 10 years
At 31 December 2022 Restated ((3)) £'k £'k £'k £'k £'k £'k
Cash and cash equivalents ((1)) 18,502 18,502 - - - -
UK 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 - -
Receivables 7 7 - - - -
Reinsurance contract assets 166,997 40,816 36,280 32,672 30,986 26,243
Total 414,664 83,333 176,957 89,919 38,212 26,243
Total Up to 1 year 1-2 years 3-4 years 5-10 years Over 10 years
At 31 December 2022 Restated ((3)) £'k £'k £'k £'k £'k £'k
Payables 5,108 5,108 - - - -
Insurance contract liabilities 283,118 75,141 88,842 51,935 37,759 29,441
Total 288,226 80,249 88,842 51,935 37,759 29,441
(1) Includes money market funds with no notice period for withdrawal
(2) Excludes the liability for remaining coverage and effect of
discounting
(3) See Note 1.3.1 IFRS 17 'Insurance Contracts'
7. Other income
ACCOUNTING POLICY
Other income consists of brokerage fees 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.
2023 2022
£'k £'k
Administration fees 495 1,042
Brokerage and other fee income ((1)) 737 742
Total 1,232 1,784
Other income relates to auxiliary products and services, including brokerage
and administration fees, all relating to the Motor Vehicle product.
(1) Restated from previous reporting periods. This line now combines both
'Marketing' and 'Fee income from the sale of auxiliary products and services'
disclosed separately in previous reporting period.
8. OTHER Operating expenses
2023 2022
Notes £'k £'k
Employee expenses 13,869 12,536
Property expenses 689 428
IT expense including IT depreciation 5,961 5,043
Other depreciation 59 17
Industry levies 5,936 5,913
Policy servicing costs 2,491 2,164
Other operating expenses 3,328 2,958
Movement in expected credit loss on debt securities 6 (34)
Impairment loss on owner occupied properties 333 -
Before adjustment for directly attributable claims expenses 32,672 29,025
Adjusted for:
Reclassification of directly attributable claims expenses (6,085) (6,210)
Total operating expenses 26,587 22,815
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:
2023 2022
£'k £'k
Wages and salaries 10,079 8,988
Social security expenses 1,276 1,213
Contributions to defined contribution plans 557 508
Equity-settled share-based payment 1,606 1,603
Other employee expenses 351 224
Before adjustment for directly attributable claims expenses 13,869 12,536
Adjusted for:
Reclassification of directly attributable claims expenses (4,146) (4,783)
Employee expenses 9,723 7,753
8.2. Number of employees
The table below analyses the average monthly number of persons employed by the
Group's operations.
2023 2022
Operations 129 123
Support 28 28
Total 157 151
8.3. Directors' remuneration
Amounts paid to Directors are disclosed within the Annual Report on Directors'
Remuneration on pages 81 to 91.
8.4. Auditor's remuneration
The table below analyses the Auditor's remuneration in respect of the Group's
operations.
2023 2022
£'k £'k
Audit of these financial statements 195 180
Audit of financial statements of subsidiaries of the Group 251 175
Audit fees in relation to IFRS 17 transition 190 85
Total audit fees 636 440
Fees for non-audit services - Audit-related assurance services 105 79
Fees for non-audit services - Other non-audit services - -
Total non-audit fees 105 79
Total auditor remuneration 741 519
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.
2023 2022
£'k £'k
Owner-occupied property 3,600 3,825
Office equipment 652 32
IT equipment 136 139
Total 4,388 3,996
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. Office and IT equipment
Office and IT 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.
Change in accounting estimate - useful lives
The Group previously estimated the useful lives of Office and IT equipment to
be five years. From 1 January 2023 the Group changed the estimate for assets
purchased from 2023 onwards. The new estimate useful lives are disclosed
below. All assets purchased in prior years will continue to be depreciated
over five years and the change will have no impact on the depreciation charge
in future years of these assets.
Estimate useful lives are as follows:
Office equipment 3 to 10 years (Assets
purchased prior to 2023: 5 years)
Computer equipment 3 to 5 years (Assets purchased prior
to 2023: 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 Office equipment IT Total
equipment
£'k £'k £'k £'k
Cost/Valuation
At 1 January 2023 4,250 41 409 4,700
Additions/Improvements 908 679 78 1,665
Disposals - - - -
Revaluation (800) - - (800)
At 31 December 2023 4,358 720 487 5,565
Accumulated depreciation and impairment
At 1 January 2023 425 9 270 704
Depreciation charge for the year - 59 81 140
Disposals - - - -
Impairment losses on revaluation 333 - - 333
At 31 December 2023 758 68 351 1,177
Carrying amount
As at 31 December 2023 3,600 652 136 4,388
Owner- occupied Office equipment IT Total
equipment
£'k £'k £'k £'k
Cost/Valuation
At 1 January 2022 4,250 240 848 5,338
Additions/Improvements - 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.
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 16 October 2023 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).
The fair value measurement of owner-occupied properties of £3,600k (2022:
£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:
2023 2022
Owner-occupied £'k £'k
At 1 January 3,825 3,825
Additions/Improvements 908 -
Revaluation losses (800) -
Impairment losses (333) -
At 31 December 3,600 3,825
The fair value of owner-occupied includes a revaluation reserve of £NIL
(2022: £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 Group's profit after tax and equity:
Decrease Decrease
in profit after tax In total equity
2023 2022 2023 2022
£'k £'k £'k £'k
Owner-occupied property
Impact of a 15% decrease in property markets (309) (131) (309) (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 £3,349k (2022:
£2,816k).
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 Up to 1 year 1-2 years 3-4 years 5-10 years Over 10 years
At 31 December 2023 £'k £'k £'k £'k £'k £'k
Cash and cash equivalents ((1)) 35,079 35,079 - - - -
UK government bonds 107,040 22,008 40,649 44,383 - -
Government-backed securities 81,942 57,722 17,241 6,979 - -
Corporate bonds 75,697 8,987 49,953 16,757 - -
Receivables 87 87 - - - -
Reinsurance contract assets 197,592 68,215 53,543 26,409 18,452 30,973
Total 497,437 192,098 161,386 94,528 18,452 30,973
Total Up to 1 year 1-2 years 3-4 years 5-10 years Over 10 years
At 31 December 2023 £'k £'k £'k £'k £'k £'k
Payables 9,700 9,700 - - - -
Insurance contract liabilities ((2)) 300,593 83,152 110,871 46,344 24,978 35,248
Total 310,293 92,852 110,871 46,344 24,978 35,248
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) Includes money market funds with no notice period for withdrawal
(2) Excludes the liability for remaining coverage and effect of
discounting
Total Up to 1 year 1-2 years 3-4 years 5-10 years Over 10 years
At 31 December 2022 Restated ((3)) £'k £'k £'k £'k £'k £'k
Cash and cash equivalents ((1)) 18,502 18,502 - - - -
UK 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 - -
Receivables 7 7 - - - -
Reinsurance contract assets 166,997 40,816 36,280 32,672 30,986 26,243
Total 414,664 83,333 176,957 89,919 38,212 26,243
Total Up to 1 year 1-2 years 3-4 years 5-10 years Over 10 years
At 31 December 2022 Restated ((3)) £'k £'k £'k £'k £'k £'k
Payables 5,108 5,108 - - - -
Insurance contract liabilities 283,118 75,141 88,842 51,935 37,759 29,441
Total 288,226 80,249 88,842 51,935 37,759 29,441
(1) Includes money market funds with no notice period for withdrawal
(2) Excludes the liability for remaining coverage and effect of
discounting
(3) See Note 1.3.1 IFRS 17 'Insurance Contracts'
7. Other income
ACCOUNTING POLICY
Other income consists of brokerage fees 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.
2023 2022
£'k £'k
Administration fees 495 1,042
Brokerage and other fee income ((1)) 737 742
Total 1,232 1,784
Other income relates to auxiliary products and services, including brokerage
and administration fees, all relating to the Motor Vehicle product.
(1) Restated from previous reporting periods. This line now combines both
'Marketing' and 'Fee income from the sale of auxiliary products and services'
disclosed separately in previous reporting period.
8. OTHER Operating expenses
2023 2022
Notes £'k £'k
Employee expenses 13,869 12,536
Property expenses 689 428
IT expense including IT depreciation 5,961 5,043
Other depreciation 59 17
Industry levies 5,936 5,913
Policy servicing costs 2,491 2,164
Other operating expenses 3,328 2,958
Movement in expected credit loss on debt securities 6 (34)
Impairment loss on owner occupied properties 333 -
Before adjustment for directly attributable claims expenses 32,672 29,025
Adjusted for:
Reclassification of directly attributable claims expenses (6,085) (6,210)
Total operating expenses 26,587 22,815
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:
2023 2022
£'k £'k
Wages and salaries 10,079 8,988
Social security expenses 1,276 1,213
Contributions to defined contribution plans 557 508
Equity-settled share-based payment 1,606 1,603
Other employee expenses 351 224
Before adjustment for directly attributable claims expenses 13,869 12,536
Adjusted for:
Reclassification of directly attributable claims expenses (4,146) (4,783)
Employee expenses 9,723 7,753
8.2. Number of employees
The table below analyses the average monthly number of persons employed by the
Group's operations.
2023 2022
Operations 129 123
Support 28 28
Total 157 151
8.3. Directors' remuneration
Amounts paid to Directors are disclosed within the Annual Report on Directors'
Remuneration on pages 81 to 91.
8.4. Auditor's remuneration
The table below analyses the Auditor's remuneration in respect of the Group's
operations.
2023 2022
£'k £'k
Audit of these financial statements 195 180
Audit of financial statements of subsidiaries of the Group 251 175
Audit fees in relation to IFRS 17 transition 190 85
Total audit fees 636 440
Fees for non-audit services - Audit-related assurance services 105 79
Fees for non-audit services - Other non-audit services - -
Total non-audit fees 105 79
Total auditor remuneration 741 519
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.
2023 2022
£'k £'k
Owner-occupied property 3,600 3,825
Office equipment 652 32
IT equipment 136 139
Total 4,388 3,996
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. Office and IT equipment
Office and IT 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.
Change in accounting estimate - useful lives
The Group previously estimated the useful lives of Office and IT equipment to
be five years. From 1 January 2023 the Group changed the estimate for assets
purchased from 2023 onwards. The new estimate useful lives are disclosed
below. All assets purchased in prior years will continue to be depreciated
over five years and the change will have no impact on the depreciation charge
in future years of these assets.
Estimate useful lives are as follows:
Office equipment 3 to 10 years (Assets
purchased prior to 2023: 5 years)
Computer equipment 3 to 5 years (Assets purchased prior
to 2023: 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 Office equipment IT Total
equipment
£'k £'k £'k £'k
Cost/Valuation
At 1 January 2023 4,250 41 409 4,700
Additions/Improvements 908 679 78 1,665
Disposals - - - -
Revaluation (800) - - (800)
At 31 December 2023 4,358 720 487 5,565
Accumulated depreciation and impairment
At 1 January 2023 425 9 270 704
Depreciation charge for the year - 59 81 140
Disposals - - - -
Impairment losses on revaluation 333 - - 333
At 31 December 2023 758 68 351 1,177
Carrying amount
As at 31 December 2023 3,600 652 136 4,388
Owner- occupied Office equipment IT Total
equipment
£'k £'k £'k £'k
Cost/Valuation
At 1 January 2022 4,250 240 848 5,338
Additions/Improvements - 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.
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 16 October 2023 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).
The fair value measurement of owner-occupied properties of £3,600k (2022:
£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:
2023 2022
Owner-occupied £'k £'k
At 1 January 3,825 3,825
Additions/Improvements 908 -
Revaluation losses (800) -
Impairment losses (333) -
At 31 December 3,600 3,825
The fair value of owner-occupied includes a revaluation reserve of £NIL
(2022: £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 Group's profit after tax and equity:
Decrease Decrease
in profit after tax In total equity
2023 2022 2023 2022
£'k £'k £'k £'k
Owner-occupied property
Impact of a 15% decrease in property markets (309) (131) (309) (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 £3,349k (2022:
£2,816k).
10. INCOME TAX EXPENSE
ACCOUNTING POLICY
The income tax expense 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.
2023 2022
£'k £'k
Current taxation
Charge for the year 4,444 2,645
4,444 2,645
Deferred taxation (Note 11)
Origination and reversal of temporary differences 1,104 297
1,104 297
Current taxation 4,444 2,645
Deferred taxation (Note 11) 1,104 297
Income tax expense for the year 5,548 2,942
Tax recorded in Other Comprehensive Income is as follows:
2023 2022
£'k £'k
Current taxation 31 -
Deferred taxation 599 (1,054)
630 (1,054)
The actual income tax expense differs from the expected income tax expense
computed by applying the standard rate of UK corporation tax of 23.50% (2022:
19.00%) as follows:
2023 2022
£'k £'k
Profit before tax 23,613 14,020
Expected income tax expense 5,548 2,664
Effect of:
Expenses not deductible for tax purposes 12 9
Adjustment of deferred tax to average rate of 25% (1) 56
Adjustment in respect of prior periods - 9
Income/loss not subject to UK taxation - 6
Other Income Tax Adjustments (11) 198
Income tax expense for the year 5,548 2,942
Effective income tax rate 23.50% 20.98%
11. Deferred tax
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 Movement in insurance finance reserve Total
£'k £'k £'k £'k £'k
At 1 January 2022 19 (26) 233 594 814 1,634
(Debit)/Credit to the Profit or Loss (19) 6 20 (6) (298) (297)
(Debit)/Credit to Other Comprehensive Income - - - 3,563 (2,509) 1,054
At 31 December 2022 - (20) 253 4,151 (1,993) 2,391
(Debit)/Credit to the Profit or Loss - (160) 215 (6) (1,153) (1,104)
(Debit)/Credit to Other Comprehensive Income - - - (2,149) 1,550 (599)
At 31 December 2023 - (180) 468 1,996 (1,596) 688
2023 2022
£'k £'k
Per Statement of Financial Position:
Deferred tax assets 2,464 4,404
Deferred tax liabilities (1,776) (2,013)
688 2,391
From 1 April 2023, The Finance Act 2021 increased the UK corporation tax rate
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 net 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.
2023 2022
pence per share £'k pence per share £'k
Amounts recognised as distributions to equity holders in the period
Interim dividend for the current year 0.9 2,238 2.8 6,960
Final dividend for the prior year 1.7 4,228 9.3 23,172
2.6 6,466 12.1 30,132
Proposed dividends
Final dividend ((1)) 8.1 20,250 1.7 4,250
(1) Subsequent to 31 December 2023, the Directors declared a final dividend
for 2023 of 8.1p per ordinary share subject to approval at Annual General
Meeting. This dividend will be accounted for as an appropriation of retained
earnings in the year ended 31 December 2023 and is not included as a liability
in the Statement of Financial Position as at 31 December 2023.
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 2023 by £34k (2022: £118k).
13. other assets
2023 2022
£'k £'k
Prepayments and accrued income 774 1,278
Total 774 1,278
The carrying value of 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 2023 and 31
December 2022. The Group 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 valuation uses fair value less cost to sell. The key assumption on which
the Group has based this value is:
The market capitalisation of the Group as at 31 December 2023 of £378,500k
(31 December 2022: £266,000k).
The Directors concluded that the recoverable amount of the business unit would
remain in excess of its carrying value even after reasonably possible changes
in the key inputs and assumptions affecting its market value, such as a
significant fall in demand for its products or a significant adverse change in
the volume of claims and increase in other expenses, before the recoverable
amount of the business unit would reduce to less than its carrying value.
Therefore, the Directors are of the opinion that there are no indicators of
impairment as at 31 December 2023.
15. Share capital
2023 2022
£'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 2023, The Sabre Insurance Group Employee Benefit Trust held
1,589,250 (2022: 1,431,576) of the 250,000,000 issued Ordinary Shares with a
nominal value of £1,589.25 (2022: £1,431.58) 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.
Shares bought/(sold) on open market
Number of shares Average £
price
(pence)
As at 31 December 2021 843,725 267.463 2,256,652
Shares purchased 807,981 141.293 1,141,621
Shares disposed - - -
Shares vested (220,130) 267.463 (588,766)
As at 31 December 2022 1,431,576 196.253 2,809,507
Shares purchased 435,758 145.021 631,940
Shares disposed - - -
Shares vested (278,084) 115.401 (320,912)
As at 31 December 2023 1,589,250 196.353 3,120,534
In thousands £'k
31 December 2022 2,810
31 December 2023 3,121
The Group recognised a total expense in the Profit or Loss for the year ended
31 December 2023 of £1,606k (2022: £1,603k), 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
From 2021 the Group no longer issues awards under the LTIP Awards with
performance conditions, but instead issues RSAs. Shares granted under the 2020
LTIP did not meet the required performance measures and shares granted under
the plan were forfeited in 2023.
LTIP Awards - Restricted Share Awards ("RSAs")
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 1,244,964 (2022:
540,574) with an estimated fair value at grant date of £1,484k (2022:
£1,238k) The fair value is based on the closing share price on the grant
date.
Future dividends are accrued separately and are not reflected in the fair
value of the grant.
The table below details the movement in the RSA:
Number of shares Weighted Average Exercise Price
Outstanding at 1 January 2022 441,684 NIL
Granted 540,574 NIL
Forfeited - NIL
Vested - NIL
Outstanding at 31 December 2022 982,258 NIL
Granted 1,244,964 NIL
Forfeited - NIL
Vested - NIL
Outstanding at 31 December 2023 2,227,222 NIL
The average unexpired life of RSAs is 1.4 years (2022: 1.4).
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 number of shares awarded under the scheme was NIL (2022:
171,234) with an estimate fair value of £NIL (2022: £404k). Of this award,
the number of shares awarded to Directors and Persons Discharging Managerial
Responsibilities ("PDMRs") was NIL (2022: 144,659) with an estimated fair
value of £NIL (2022: £341k). 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 SIPs 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 2023, 16,017 (2022: 12,317) matching shares were
granted to employees with an estimated fair value of £24k (2022: £13k).
As at 31 December 2023, 40,940 (2022: 28,826) matching shares were held on
behalf of employees with an estimated fair value of £62k (2022: £31k). The
average unexpired life of Matching Share awards is 1.8 years (2022: 1.5
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 2021: 55 pence
SAYE 2022: 40 pence
SAYE 2023: 49 pence
The following table lists the inputs to the Black-Scholes model used to value
the awards granted in respect of the 2023 SAYE scheme.
2023 SAYE
Share price at grant date 124.2 pence
Expected term 3 years
Expected volatility((1)) 59.4%
Continuously compounded risk-free rate 1.5%
Continuously compounded dividend yield 6%
Strike price at grant date 85.1 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.
The table below details the movement in the SAYE scheme:
Number of shares Weighted Average Exercise Price
Outstanding at 1 January 2022 347,177 2.08
Granted 166,146 1.81
Forfeited (163,092) NIL
Vested - NIL
Outstanding at 31 December 2022 350,231 2.00
Granted 768,616 0.85
Forfeited (260,442) NIL
Vested - NIL
Outstanding at 31 December 2023 858,405 1.33
The average unexpired life of SAYE scheme is 1.5 years (2022: 1.5)
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 2023 was £3,121k (2022: £2,810k). The market
value of the shares in the EBT as at 31 December 2023 was £2,422k (2022:
£1,523k).
Merger reserve
Sabre Insurance Group plc was incorporated as a limited company on 21
September 2017. On 11 December 2017, immediately prior to the Group'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.
Insurance/Reinsurance finance reserve
The insurance finance reserve comprises the cumulative insurance finance
income and expenses recognised in Other Comprehensive Income.
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 Principal 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
Other controlled entities
EBT - UK SIP Trust Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA
The Sabre Insurance Group EBT Trust Ocorian, 26 New Street, St Helier, Jersey, JE2 3RA
During the year ended 31 December 2023, the following related party companies
have been dissolved/liquidated:
‒ Barbados TopCo Limited
‒ Barb IntermediateCo Limited
‒ Bard MidCo Limited
‒ Bard BidCo Limited
‒ Barb HoldCo Limited
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 2023, the Group donated no shares to the
EBTs (2022: 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 Directors' Remuneration on pages 81 to 91.
The aggregate amount paid to Directors during the year was as follows.
2023 2022
Remuneration 2,660 1,894
Contributions to defined contribution pension scheme 9 7
Shares granted under LTIP 912 864
Total 3,581 2,765
19. Earnings per share
Basic earnings per share
2023 2022
After tax Per share After tax Per share
£'k pence £'k pence
Profit for the year attributable to equity holders 18,065 7.27 11,078 4.45
Diluted earnings per share
2023
After tax Weighted average number of shares (000s) Per share
£'k pence
Profit for the year attributable to equity holders 18,065 248,636 7.27
Net share awards allocable for no further consideration 2,201 (0.07)
Total diluted earnings 250,837 7.20
2022
After tax Weighted average number of shares (000s) Per share
£'k pence
Profit for the year attributable to equity holders 11,078 248,865 4.45
Net share awards allocable for no further consideration 1,880 (0.03)
Total diluted earnings 250,745 4.42
20. 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
Group and its subsidiaries since the Statement of Financial Position date.
Tax recorded in Other Comprehensive Income is as follows:
2023 2022
£'k £'k
Current taxation 31 -
Deferred taxation 599 (1,054)
630 (1,054)
The actual income tax expense differs from the expected income tax expense
computed by applying the standard rate of UK corporation tax of 23.50% (2022:
19.00%) as follows:
2023 2022
£'k £'k
Profit before tax 23,613 14,020
Expected income tax expense 5,548 2,664
Effect of:
Expenses not deductible for tax purposes 12 9
Adjustment of deferred tax to average rate of 25% (1) 56
Adjustment in respect of prior periods - 9
Income/loss not subject to UK taxation - 6
Other Income Tax Adjustments (11) 198
Income tax expense for the year 5,548 2,942
Effective income tax rate 23.50% 20.98%
11. Deferred tax
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 Movement in insurance finance reserve Total
£'k £'k £'k £'k £'k
At 1 January 2022 19 (26) 233 594 814 1,634
(Debit)/Credit to the Profit or Loss (19) 6 20 (6) (298) (297)
(Debit)/Credit to Other Comprehensive Income - - - 3,563 (2,509) 1,054
At 31 December 2022 - (20) 253 4,151 (1,993) 2,391
(Debit)/Credit to the Profit or Loss - (160) 215 (6) (1,153) (1,104)
(Debit)/Credit to Other Comprehensive Income - - - (2,149) 1,550 (599)
At 31 December 2023 - (180) 468 1,996 (1,596) 688
2023 2022
£'k £'k
Per Statement of Financial Position:
Deferred tax assets 2,464 4,404
Deferred tax liabilities (1,776) (2,013)
688 2,391
From 1 April 2023, The Finance Act 2021 increased the UK corporation tax rate
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 net 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.
2023 2022
pence per share £'k pence per share £'k
Amounts recognised as distributions to equity holders in the period
Interim dividend for the current year 0.9 2,238 2.8 6,960
Final dividend for the prior year 1.7 4,228 9.3 23,172
2.6 6,466 12.1 30,132
Proposed dividends
Final dividend ((1)) 8.1 20,250 1.7 4,250
(1) Subsequent to 31 December 2023, the Directors declared a final dividend
for 2023 of 8.1p per ordinary share subject to approval at Annual General
Meeting. This dividend will be accounted for as an appropriation of retained
earnings in the year ended 31 December 2023 and is not included as a liability
in the Statement of Financial Position as at 31 December 2023.
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 2023 by £34k (2022: £118k).
13. other assets
2023 2022
£'k £'k
Prepayments and accrued income 774 1,278
Total 774 1,278
The carrying value of 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 2023 and 31
December 2022. The Group 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 valuation uses fair value less cost to sell. The key assumption on which
the Group has based this value is:
The market capitalisation of the Group as at 31 December 2023 of £378,500k
(31 December 2022: £266,000k).
The Directors concluded that the recoverable amount of the business unit would
remain in excess of its carrying value even after reasonably possible changes
in the key inputs and assumptions affecting its market value, such as a
significant fall in demand for its products or a significant adverse change in
the volume of claims and increase in other expenses, before the recoverable
amount of the business unit would reduce to less than its carrying value.
Therefore, the Directors are of the opinion that there are no indicators of
impairment as at 31 December 2023.
15. Share capital
2023 2022
£'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 2023, The Sabre Insurance Group Employee Benefit Trust held
1,589,250 (2022: 1,431,576) of the 250,000,000 issued Ordinary Shares with a
nominal value of £1,589.25 (2022: £1,431.58) 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.
Shares bought/(sold) on open market
Number of shares Average £
price
(pence)
As at 31 December 2021 843,725 267.463 2,256,652
Shares purchased 807,981 141.293 1,141,621
Shares disposed - - -
Shares vested (220,130) 267.463 (588,766)
As at 31 December 2022 1,431,576 196.253 2,809,507
Shares purchased 435,758 145.021 631,940
Shares disposed - - -
Shares vested (278,084) 115.401 (320,912)
As at 31 December 2023 1,589,250 196.353 3,120,534
In thousands £'k
31 December 2022 2,810
31 December 2023 3,121
The Group recognised a total expense in the Profit or Loss for the year ended
31 December 2023 of £1,606k (2022: £1,603k), 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
From 2021 the Group no longer issues awards under the LTIP Awards with
performance conditions, but instead issues RSAs. Shares granted under the 2020
LTIP did not meet the required performance measures and shares granted under
the plan were forfeited in 2023.
LTIP Awards - Restricted Share Awards ("RSAs")
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 1,244,964 (2022:
540,574) with an estimated fair value at grant date of £1,484k (2022:
£1,238k) The fair value is based on the closing share price on the grant
date.
Future dividends are accrued separately and are not reflected in the fair
value of the grant.
The table below details the movement in the RSA:
Number of shares Weighted Average Exercise Price
Outstanding at 1 January 2022 441,684 NIL
Granted 540,574 NIL
Forfeited - NIL
Vested - NIL
Outstanding at 31 December 2022 982,258 NIL
Granted 1,244,964 NIL
Forfeited - NIL
Vested - NIL
Outstanding at 31 December 2023 2,227,222 NIL
The average unexpired life of RSAs is 1.4 years (2022: 1.4).
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 number of shares awarded under the scheme was NIL (2022:
171,234) with an estimate fair value of £NIL (2022: £404k). Of this award,
the number of shares awarded to Directors and Persons Discharging Managerial
Responsibilities ("PDMRs") was NIL (2022: 144,659) with an estimated fair
value of £NIL (2022: £341k). 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 SIPs 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 2023, 16,017 (2022: 12,317) matching shares were
granted to employees with an estimated fair value of £24k (2022: £13k).
As at 31 December 2023, 40,940 (2022: 28,826) matching shares were held on
behalf of employees with an estimated fair value of £62k (2022: £31k). The
average unexpired life of Matching Share awards is 1.8 years (2022: 1.5
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 2021: 55 pence
SAYE 2022: 40 pence
SAYE 2023: 49 pence
The following table lists the inputs to the Black-Scholes model used to value
the awards granted in respect of the 2023 SAYE scheme.
2023 SAYE
Share price at grant date 124.2 pence
Expected term 3 years
Expected volatility((1)) 59.4%
Continuously compounded risk-free rate 1.5%
Continuously compounded dividend yield 6%
Strike price at grant date 85.1 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.
The table below details the movement in the SAYE scheme:
Number of shares Weighted Average Exercise Price
Outstanding at 1 January 2022 347,177 2.08
Granted 166,146 1.81
Forfeited (163,092) NIL
Vested - NIL
Outstanding at 31 December 2022 350,231 2.00
Granted 768,616 0.85
Forfeited (260,442) NIL
Vested - NIL
Outstanding at 31 December 2023 858,405 1.33
The average unexpired life of SAYE scheme is 1.5 years (2022: 1.5)
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 2023 was £3,121k (2022: £2,810k). The market
value of the shares in the EBT as at 31 December 2023 was £2,422k (2022:
£1,523k).
Merger reserve
Sabre Insurance Group plc was incorporated as a limited company on 21
September 2017. On 11 December 2017, immediately prior to the Group'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.
Insurance/Reinsurance finance reserve
The insurance finance reserve comprises the cumulative insurance finance
income and expenses recognised in Other Comprehensive Income.
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 Principal 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
Other controlled entities
EBT - UK SIP Trust Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA
The Sabre Insurance Group EBT Trust Ocorian, 26 New Street, St Helier, Jersey, JE2 3RA
During the year ended 31 December 2023, the following related party companies
have been dissolved/liquidated:
‒ Barbados TopCo Limited
‒ Barb IntermediateCo Limited
‒ Bard MidCo Limited
‒ Bard BidCo Limited
‒ Barb HoldCo Limited
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 2023, the Group donated no shares to the
EBTs (2022: 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 Directors' Remuneration on pages 81 to 91.
The aggregate amount paid to Directors during the year was as follows.
2023 2022
Remuneration 2,660 1,894
Contributions to defined contribution pension scheme 9 7
Shares granted under LTIP 912 864
Total 3,581 2,765
19. Earnings per share
Basic earnings per share
2023 2022
After tax Per share After tax Per share
£'k pence £'k pence
Profit for the year attributable to equity holders 18,065 7.27 11,078 4.45
Diluted earnings per share
2023
After tax Weighted average number of shares (000s) Per share
£'k pence
Profit for the year attributable to equity holders 18,065 248,636 7.27
Net share awards allocable for no further consideration 2,201 (0.07)
Total diluted earnings 250,837 7.20
2022
After tax Weighted average number of shares (000s) Per share
£'k pence
Profit for the year attributable to equity holders 11,078 248,865 4.45
Net share awards allocable for no further consideration 1,880 (0.03)
Total diluted earnings 250,745 4.42
20. 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
Group and its subsidiaries since the Statement of Financial Position date.
Parent Company Statement of Financial Position
As at 31 December 2023
2023 2022
Notes £'k £'k
Assets
Cash and cash equivalents 23 861
Receivables ((1)) 2 41 3
Other assets ((1)) 32 211
Investments 3 451,606 450,000
Total assets 451,702 451,075
Liabilities
Payables ((1)) 4 - 1,607
Other liabilities ((1)) 380 91
Total liabilities 380 1,698
Equity
Share capital 250 250
Own shares (3,121) (2,810)
Merger reserve 236,949 236,949
Share-based payments reserve 2,686 2,407
Retained earnings 214,558 212,581
Total equity 451,322 449,377
Total equity and liabilities 451,702 451,075
(1) The description of the line item has been updated. The change in
description has had no impact on the components of the balances.
‒ Receivables (31 December 2022: Debtors)
‒ Other assets (31 December 2022: Prepayments)
‒ Payables (31 December 2022: Creditors: Amounts falling due within one
year)
‒ Other liabilities (31 December 2022: Accruals)
No income statement is presented for Sabre Insurance Group plc as permitted by
section 408 of the Companies Act 2006. The profit after tax of the Parent
Company for the period was £7,437k (2022: £103,094k loss after tax).
Parent Company Statement of Changes in Equity
For the year ended 31 December 2023
Ordinary shareholders' equity Own shares Merger reserve Share-based payments reserve Retained earnings Total equity
£'k £'k £'k £'k £'k £'k
Balance as at 31 December 2021 250 (2,257) 369,515 1,841 212,794 582,143
Profit for the period attributable to the owners of the Company - - - - (103,094) (103,094)
Merger reserve transfer - - (132,566) - 132,566 -
Share-based payment expense - - - 566 447 1,013
Net movement in own shares - (553) - - - (553)
Dividends paid - - - - (30,132) (30,132)
Balance as at 31 December 2022 250 (2,810) 236,949 2,407 212,581 449,377
Profit for the period attributable to the owners of the Company - - - - 7,437 7,437
Share-based payment expense - - - 279 1,006 1,285
Net movement in own shares - (311) - - - (311)
Dividends paid - - - - (6,466) (6,466)
Balance as at 31 December 2023 250 (3,121) 236,949 2,686 214,558 451,322
Parent Company Statement of Cash Flows
For the year ended 31 December 2023
2023 2022
Notes £'k £'k
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax for the year 7,437 (103,094)
Adjustments for:
Impairment of subsidiary - 132,566
Operating cash flows before movements in working capital 7,437 29,472
Movements in working capital:
Change in receivables (38) 124
Change in other assets 179 (7)
Change in payables (1,607) 1,607
Change in other liabilities 289 24
Net cash generated from operating activities 6,260 31,220
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used in acquiring and disposing of own shares (632) (1,142)
Dividends paid (6,466) (30,132)
Net cash used by financing activities (7,098) (31,274)
Net decrease in cash and cash equivalents (838) (54)
Cash and cash equivalents at the beginning of the year 861 915
Cash and cash equivalents at the end of the year 23 861
Notes To The Parent Company Financial Statements
For the year ended 31 December 2023
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 2023, 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 Profit or Loss Account 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. RECEIVABLES
2023 2022
£'k £'k
Due within one year
Amounts due from Group undertakings 14 -
Other debtors 27 3
As at 31 December 41 3
3. Investments
The Company's financial assets are summarised below:
2023 2022
£'k £'k
Investment in subsidiary undertakings 451,606 450,000
Total 451,606 450,000
3.1. Investment in subsidiary undertakings
ACCOUNTING POLICY - INVESTMENT IN SUBSIDIARY UNDERTAKINGS
Investment in subsidiaries is stated at cost less any impairment.
2023 2022
£'k £'k
As at 1 January 450,000 580,963
Additions 1,606 1,603
Impairment - (132,566)
As at 31 December 451,606 450,000
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 2023 and 31 December 2022. 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 2023 and 31 December
2022, the Company's securities were traded on a liquid market, therefore
market capitalisation could be used as an indicator of value.
Having carried out this assessment the Board concluded, on the basis of the
cautious assumptions outlined below, that the value in use is higher than the
current carrying value of the investment in subsidiary and no impairment is
necessary.
Key assumptions
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 8.4%, 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 16% 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 8% 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 23% around the central scenario.
In all these scenarios there is material headroom over the carrying value of
the investment in subsidiary.
Name of subsidiary Place of incorporation Principal activity
Directly held by the Company
Binomial Group Limited United Kingdom Intermediate holding company
Indirectly held by the Company
Sabre Insurance Company Limited United Kingdom Motor insurance underwriter
The registered office of each subsidiary is disclosed within Note 18 of the
consolidated Group accounts.
4. PAYABLES
2023 2022
£'k £'k
Due within one year
Amounts due to Group undertakings - 1,607
As at 31 December - 1,607
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:
2023 2022
£'k £'k
Due from/(to)
Sabre Insurance Company Limited 14 (1,607)
Total 14 (1,607)
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 2 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.
3. Investments
The Company's financial assets are summarised below:
2023 2022
£'k £'k
Investment in subsidiary undertakings 451,606 450,000
Total 451,606 450,000
3.1. Investment in subsidiary undertakings
ACCOUNTING POLICY - INVESTMENT IN SUBSIDIARY UNDERTAKINGS
Investment in subsidiaries is stated at cost less any impairment.
2023 2022
£'k £'k
As at 1 January 450,000 580,963
Additions 1,606 1,603
Impairment - (132,566)
As at 31 December 451,606 450,000
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 2023 and 31 December 2022. 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 2023 and 31 December
2022, the Company's securities were traded on a liquid market, therefore
market capitalisation could be used as an indicator of value.
Having carried out this assessment the Board concluded, on the basis of the
cautious assumptions outlined below, that the value in use is higher than the
current carrying value of the investment in subsidiary and no impairment is
necessary.
Key assumptions
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 8.4%, 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 16% 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 8% 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 23% around the central scenario.
In all these scenarios there is material headroom over the carrying value of
the investment in subsidiary.
Name of subsidiary Place of incorporation Principal activity
Directly held by the Company
Binomial Group Limited United Kingdom Intermediate holding company
Indirectly held by the Company
Sabre Insurance Company Limited United Kingdom Motor insurance underwriter
The registered office of each subsidiary is disclosed within Note 18 of the
consolidated Group accounts.
4. PAYABLES
2023 2022
£'k £'k
Due within one year
Amounts due to Group undertakings - 1,607
As at 31 December - 1,607
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:
2023 2022
£'k £'k
Due from/(to)
Sabre Insurance Company Limited 14 (1,607)
Total 14 (1,607)
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 2 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 2023
GROSS WRITTEN PREMIUM
2023 2022
£'k £'k
Insurance revenue 188,246 181,476
Less: Instalment income (3,738) (3,300)
Less: Movement in unearned premium 40,590 (6,919)
Gross written premium 225,098 171,257
NET LOSS RATIO
2023 2022
£'k £'k
Insurance service expense 139,497 126,607
Less: Amortisation of insurance acquisition cash flows (14,057) (12,942)
Less: Amounts recoverable from reinsurers for incurred claims (31,532) (6,304)
Less: Directly attributable claims expenses (6,085) (6,210)
Net claims incurred 87,823 101,151
Insurance revenue 188,246 181,476
Less: Instalment income (3,738) (3,300)
Less: Reinsurance expense (28,506) (24,958)
Net earned premium 156,002 153,218
Net claims incurred 87,823 101,151
Net earned premium 156,002 153,218
Net loss ratio 56.3% 66.0%
EXPENSE RATIO
2023 2022
£'k £'k
Other operating expenses 26,587 22,815
Add: Amortisation of insurance acquisition cash flows 14,057 12,942
Add: Directly attributable claims expenses 6,085 6,210
Total operating expenses 46,729 41,967
Insurance revenue 188,246 181,476
Less: Instalment income (3,738) (3,300)
Less: Reinsurance expense (28,506) (24,958)
Net earned premium 156,002 153,218
Total operating expenses 46,729 41,967
Net earned premium 156,002 153,218
Expense ratio 30.0% 27.4%
COMBINED OPERATING RATIO
2023 2022
£'k £'k
Net loss ratio 56.3% 66.0%
Expense ratio 30.0% 27.4%
Combined operating ratio 86.3% 93.4%
UNDISCOUNTED NET LOSS RATIO
2023 2022
£'k £'k
Net claims incurred 87,823 101,151
Add: Net impact of discounting 8,201 7,593
Undiscounted net claims incurred 96,024 108,744
Net earned premium 156,002 153,218
Undiscounted net loss ratio 61.6% 71.0%
UNDISCOUNTED COMBINED OPERATING RATIO
2023 2022
£'k £'k
Undiscounted net loss ratio 61.6% 71.0%
Expense ratio 30.0% 27.4%
Undiscounted combined operating ratio 91.6% 98.4%
NET PROFIT MARGIN
2023 2022
£'k £'k
Net claims incurred 87,823 101,151
Total operating expenses 46,729 41,967
Total insurance expense 134,552 143,118
Insurance revenue 188,246 181,476
Less: Reinsurance expense (28,506) (24,958)
Net insurance revenue 159,740 156,518
Net profit margin 15.8% 8.6%
RETURN ON TANGIBLE EQUITY
2023 2022
£'k £'k
IFRS net assets at year end 242,412 228,988
Less:
Goodwill at year end (156,279) (156,279)
Closing tangible equity 86,133 72,709
Opening tangible equity 72,709 93,797
Average tangible equity 79,421 83,253
Profit after tax 18,065 11,078
Return on tangible equity 22.7% 13.3%
SOLVENCY COVERAGE RATIO - PRE-DIVIDEND
2023 2022 2021
£'k £'k £'k
Solvency II net assets 121,099 91,191 110,114
Solvency capital requirement 58,998 56,516 52,955
Solvency coverage ratio - pre-dividend 205.3% 161.4% 207.9%
SOLVENCY COVERAGE RATIO - POST-DIVIDEND
2023 2022 2021
£'k £'k £'k
Solvency II net assets 121,099 91,191 110,114
Less: Interim/Final dividend (20,250) (4,250) (23,250)
Solvency II net assets - post-dividend 100,849 86,941 86,864
Solvency capital requirement 58,998 56,516 52,955
Solvency coverage ratio - post-dividend 170.9% 153.8% 164.0%
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