Final Results

RNS Number : 5165F
Sabre Insurance Group PLC
22 March 2022
 

 

Full year results 2021

  STRONG FOUNDATIONS SUPPORTING GROWTH

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 2021


SUMMARY OF RESULTS

 

Year to
31 December 2021

Year to

31 December 2020

Gross written premium

£169.3m

£173.2m

Net loss ratio

51.1%

48.6%

Expense ratio

28.3%

26.7%

Combined operating ratio

79.4%

75.3%

Adjusted profit before tax

£37.2m

£49.1m

Profit before tax

£37.2m

£49.1m

Adjusted profit after tax

£30.1m

£39.8m

Profit after tax

£30.1m

£39.8m

Total dividend per share*

13.0p

16.0p

Return on tangible equity (annualised)

29.2%

36.0%

Solvency coverage ratio (pre-interim/final dividend)

208%

203%

Solvency coverage ratio (post-interim/final dividend)

164%

155%

* 2020 excludes payment of deferred special dividend in respect of 2019

 

Geoff Carter, Chief Executive Officer of Sabre, said:

"After several years of gritting our teeth and sticking rigorously to our 'profitability over volume' strategy, our discipline is paying off, we have turned the page as we enter 2022, and are now entering a far more exciting chapter.

We have maintained the strong foundations of our business having applied rigorous pricing discipline throughout the recent challenging period. As we move through early 2022 improved market conditions for our core car portfolio are allowing us to continue to increase prices in-line with or ahead of elevated levels of claims inflation, whilst delivering controlled growth.

We are excited by the long-term prospects for our new taxi and motorcycle partnerships. These should lead to a material increase in Gross Written Premium ("GWP") whilst maintaining a Combined Operating Ratio ("COR") at the upper end of our target COR range, as motorcycle and taxi premiums earn through and claims settle towards their ultimate position. Having launched these products, our focus is to ensure we maximise their potential while being wary of over-extending our capacity to engage in further new projects in the short-term.

I am hugely grateful for the focus and application of our people who have maintained excellent levels of customer service whilst being largely home based during the early months of the year, as well as supporting us in launching into new product areas confidently but within extraordinarily quick timescales."

 

STRATEGIC HIGHLIGHTS

Disciplined approach to pricing throughout the year, with rate increases in-line with, or ahead of, expected claims costs

Strong top-line momentum coming into 2022 allowing significant price increases whilst maintaining year-on-year growth in the core book

Entry into the motorcycle insurance market via a partnership with MCE Insurance in Q4 2021, a new relationship with Bennetts launched in Q1 2022, and our new taxi relationship with Freeway Insurance anticipated to drive material GWP growth in 2022

We have increased prices by over 28% since January 2020, 11% since January 2021, and approximately 15% since August 2021

We have continued to pursue our strategic principles of underwriting discipline, controlled growth when market conditions allow and maintaining a wide underwriting footprint. This underpins our confidence in the outlook for our business

Net zero roadmap published this year, with a target to be operationally carbon neutral by the end of 2030 and fully net zero by the end of 2050

FINANCIAL HIGHLIGHTS

Profit before tax in line with expectations, against a background of soft market conditions and COVID-related pressure on the top-line, with a COR at the top of our target range

GWP slightly ahead of expectation, primarily due to introduction of motorbike insurance in Q4 and improved core car volumes

COR for the year of 79.4% within target range

Dividend of 13.0p, consisting of the full-year payment of 9.3p and interim dividend of 3.7p

Strong organic capital generation with a year-end solvency coverage ratio of 208% (pre-dividend)

MARKET PRICING

While there is some evidence of market pricing increases in core motor, which potentially reflects new business price increases in response to the FCA pricing practices review, we anticipate that further meaningful rate increases will be required across the market to compensate for several years of uncovered claims inflation

Market-wide inflation across claims and operational costs remains high. We have continued to increase prices in-line with, or ahead of, our view of inflation

We are able to adapt our pricing according to our view of inflation at any given point in time

OUTLOOK

Introduction of motorbike business in Q4 2021 and taxi partnership in Q1 2022 expected to drive material growth in 2022. We anticipate these relationships to generate c.£40m of additional GWP on an annualised basis

We anticipate a 2022 COR towards the top of our target range, as benefits of new and expanded lines of business, and growth in our core book, will take time to earn through

Volume of business remains an output, not a target - our focus remains on achieving profitable underwriting

Strong capital position provides support to the dividend through the anticipated growth phase

ENQUIRIES

Sabre Insurance Group  0330 024 4696

Geoff Carter, Chief Executive Officer  

Adam Westwood, Chief Financial Officer  

 

Tulchan Communications   020 7353 4200

James Macey White

Guy Bates

ANALYST PRESENTATION

Sabre Insurance - 2021 Full Year Results - webcast & conference call

Date: 22 March 2022

Time: 9:30 am

Please join the event 5-10 minutes prior to scheduled start time. When prompted, provide the confirmation code or event title.

Event Title:

Sabre Insurance - 2021 Full Year Results

Time Zone:

Dublin, Edinburgh, Lisbon, London

Start Time/Date:

09:00 Tuesday, March 22, 2022

Duration:

60 minutes

Confirmation Code:

3916276

 

Webcast: https://webcasting.brrmedia.co.uk/broadcast/6227392461bd9a4d10283eef

 

Location

Phone Type

Phone Number

United Kingdom

Tollfree/Freephone

0800 279 6877

United Kingdom, Local

Local

+44 (0)330 165 4012

Live questions will only be available via dial-in. Questions via webcast will be text only.

A replay will be made available on the Sabre website following the conclusion of the presentation.

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'S REVIEW

Where next for sabre?

 

As we moved through the end of 2021 and into January 2022 it was hard to avoid a feeling of deja vu, with positive premium momentum being enjoyed by the business as well as the ability to put through additional rate increases to start to move back towards the centre of our long-term target combined operating ratio ("COR") range.

This felt very much like January 2020, just before COVID-19 restrictions began their unwelcome two-year impact on many parts of the industry, economy and society.

Whilst we are very aware of the on-going impacts on individuals, and the wider economy, it is with some relief that we feel we can now start to close the chapter on a challenging two years.

As we look into 2022 we are confident that our disciplined adherence to our strategy, specifically giving up volume in favour of maintaining profitability, leaves us well positioned to benefit from several tailwinds.

LOOKING BACK ON 2021

We have discussed in results sessions over the last year that it was likely Sabre had been disproportionately impacted by lockdown restrictions, relative to larger mass-market insurers, and that this was largely due to a number of market-wide factors impacting our bias towards new business, over-indexing in younger drivers and resolute determination to maintain pricing discipline.

Casting a long shadow was the forthcoming implementation of the FCA pricing rules, which ban differential pricing between new business and renewals. These rules may make it more difficult to attract new customers in the mass market and it is for this reason we think some competitors used the second half of 2021 as a last chance to gain market share through pricing measures before the rules were implemented, exacerbating the soft market conditions.

Sabre has never engaged in this practice and seeks to price all cohorts of customers to a consistent margin, and overall we expect the FCA rule changes to enhance Sabre's competitiveness through the reduction of substantial discounting on new business across the motor insurance market. Furthermore, Sabre expects to be insulated from the new business acquisition challenge as customers tend to come to us as a result of a life 'event', for example buying a new car, moving house, or picking up a conviction - all of which are reasons to shop around for the most competitive new insurance policy.

Other significant impacts on volumes in 2021 were the restrictions on driving tests for long periods during the first half of the year, resulting in a much-reduced number of new drivers entering the market. Whilst tests are now running at full capacity, it will take some time to clear the backlog but it is encouraging that demand from young drivers to continue to want to learn to drive remains strong.

A continuing feature is the well-documented low level of car sales driven by supply chain issues, and we hope that this will start to recover during 2022.

The continuing pricing conundrum in 2021 was the impact of lockdowns on traffic volumes and resultant claims. In line with our strategy, we remained very focused on maintaining a scientific and prudent approach to pricing. This meant having to keep a careful eye on the significant underlying claims inflation, and maintaining pricing at the upper end of our 75% to 80% COR corridor, whilst accepting that this disciplined approach may have an adverse impact on volumes.

The net impact of these multiple and intertwined "once in a life-time" events was a 2.3% reduction in premium to £169m (2020: £173m) and a 24.2% reduction in profit before tax to £37.2m (2020: £49.1m). Profit was also very modestly impacted by some natural variation in claim development patterns in December.

It was notable however that premium in the last few weeks of 2021 was very strong, and this momentum has continued into 2022.

During the year we continued to review partnership and M&A opportunities and Identified attractive opportunities to enter the motorcycle market, and to substantially increase our presence in the taxi market.

OUR OUTLOOK FOR 2022 AND BEYOND

2022 is shaping up to be a very different year. On our core car portfolio we can see evidence of market price increases, possibly reflecting the FCA pricing changes, and suspect there will need to be further meaningful rate increases throughout the year by some competitors to close the jaws between several years of claims inflation and the lack of premium inflation. We anticipate inflation pressures to intensify in the year, driven by supply chain issues and wage increases across care and repair networks.

We have seen positive premium momentum coming into the year and have been able to apply significant price increases in anticipation of the expected level of inflation or, if inflation is more benign than expected, to start to move lower in our target COR range whilst continuing to grow premium.

We are excited by the prospects provided by the diversification of our product offering across two complimentary lines of business - motorcycle and taxi. We anticipate these together to deliver around £40m of gross written premium on an annualised basis, materially reducing our overall expense ratio and allowing us to benefit from top line growth whilst enhancing our margin on the core car portfolio. It will of course take a while for the profits from these segments to "earn through" and for the ultimate claims position to become apparent.

We would therefore anticipate significant year-on-year gross written premium growth whilst continuing to deliver a COR towards the upper end of our target COR range.

ENTERING NEW MARKETS

We regularly review a range of new business opportunities, but maintain a high hurdle before we are prepared to commit time or resource into these. Having 'passed' on many of these, we identified three opportunities that met our requirements towards the end of 2021.

Two of these opportunities are in motorcycle insurance. We have previously announced our exclusive partnership with MCE Insurance Limited ("MCE") and are, today, announcing a further distribution agreement with Bennetts Motorcycling Services Limited ("Bennetts"), a motorcycle insurance broker, where we joined as a panel member in February on a soft launch basis.

We consider both MCE and Bennetts to be expert distributors of motorcycle insurance, with specialised skills and approaches. Crucially they have allowed us to partner with businesses with high-quality data and expert insights into the market - this has allowed us to enter at scale with confidence. The existing customer bases for MCE and Bennetts are different and reflect their own experience, data and historic customer profiles.

The other new product is taxi insurance, where we are partnering with Freeway UK Insurance Services Limited ("Freeway"), a long-established and expert distributor/underwriter (as a Managing General Agent) of taxi insurance.

Taxi insurance is a market in which we have been looking to expand our presence, but have been aware we lacked the required underwriting knowledge. We believe the relative skill sets between us and Freeway will allow us to form a powerful partnership in this market.

These partnerships fit our strategy for new business lines, having the following key attributes:

-  Large enough to justify us committing time and resource

-  Sabre have ultimate control of pricing

-  Sabre handle technical claims, specifically personal injury

-  A partner with deep expertise in specific market sectors

Future relationships will be judged against these key criteria.

In addition, these particular opportunities have allowed us to diversify into less cyclical adjacent market areas. Importantly our ability to agree terms with these partners was underpinned by our reputation for pricing and an claims expertise, and ability to execute extremely rapidly.

A key priority for 2022 will be to bed in these new product lines and ensure they meet our profitability requirements. We will be cautious about committing to new opportunities until this has happened.

OTHER DEVELOPMENTS

We chose to delay the deployment of our new flexible insurance product due to focusing on the launch of motorcycle and taxi insurance. We now anticipate this going live in Q2 2022 - whilst we will offer this on a direct basis we also believe there are opportunities to work with distribution partners- several have already expressed a keen interest.

In the initial periods we will be operating on a "test and learn" basis rather than seeking to generate extensive volumes.

DEVELOPMENTS IN THE INSURANCE MARKET

Sabre was fully prepared for the FCA pricing review, and this was implemented within Sabre with the minimum of distraction. Primarily for us the focus was on meeting the enhanced regulatory reporting requirements.

The other key industry development was the Ministry of Justice's Whiplash Reform Programme. The transition to this new environment has been managed smoothly within Sabre, but has been somewhat disruptive within the industry - indications are that there has been a reduction in the volume of whiplash claims, but it is too soon to understand and assess the impact on the cost of individual small personal injury claims. As expected we are seeing changes in the way in which claims are presented, which possibly seek to circumvent the new rules, for example where a non-whiplash injury is presented as the primary claim. A personal favourite is the sudden prevalence of "Wristlash" injuries.

OUR PEOPLE

I am extremely grateful for the commitment of our people throughout the various working from home periods. In return we have sought to reward this loyalty through continuing to pay bonuses and award pay-rises despite pressure on our income during the year.

We have been consistent in our view that we need to remain an office-based business in order to maintain our competitive edge. We are currently recruiting for new colleagues for the first time in over two years - our trainees need to be in the office to fully absorb our culture and ways of working, and they need experienced people alongside them to help with this.

We are however mindful of the advantages of providing our employees with some flexibility and are therefore intending to transition to an allowance for one day per week working from home for most people. We currently offer two days per week working from home, to aid in the adjustment back to primarily office-based work.

Other developments include the appointment and training of mental health first-aiders and the implementation of a new self-service HR system.  Our annual employee survey, encouragingly, highlighted many positive areas, as well as some things that could be enhanced that we are actively tackling.

Whilst we are committed to creating and maintaining an inclusive culture and diverse workforce we still have more work to do in this area. We do have some challenges here due to our (fortunately) very low staff turnover and the demographics of Dorking, where our only office is based. In our current recruitment process we are actively seeking to increase our diversity by advertising roles in nearby areas with more diverse populations.

OUR ENVIRONMENT

During the year we have significantly advanced our thinking around climate change, in both assessing the associated risks and mapping-out our steps towards net-zero. We have also enhanced our disclosure in order to meet the recommendations set out by the Taskforce on Climate-related Financial Disclosures. This has been led by our CFO, aided by the support of a specialist consultancy. Extensive details on work to date and our plans are included in the Responsibility and Sustainability section of this report.

SUMMARY

Overall, having had to grit our teeth for over two years and allowed our top line to shrink in order to maintain the strong foundations of our business, we are now looking into 2022 and onwards with real excitement. Market conditions have improved markedly for our core motor product and we are enthused by the prospects for the new taxi and motor products.

I look forward to updating shareholders on our progress throughout 2022 and beyond.

 

 

GEOFF CARTER

Chief Executive Officer

 

 

CHIEF FINANCIAL OFFICER REVIEW

Building a strong foundation for growth

 

HIGHLIGHTS

 

2021

2020

Gross written premium

£169.3m

£173.2m

Net loss ratio

51.1%

48.6%

Expense ratio

28.3%

26.7%

Combined operating ratio

79.4%

75.3%

Adjusted profit after tax

£30.1m

£39.8m

Profit after tax

£30.1m

£39.8m

Solvency coverage ratio (pre-dividend)

208%

203%

Solvency coverage ratio (post-dividend)

164%

155%

Return on tangible equity

29.2%

36.0%

 

Having faced four years of soft pricing in motor insurance and operated through unprecedented conditions during the pandemic, we have laid the foundations for the next stage of our journey.

In many ways, the start of 2021 felt very similar to the pandemic-era months of 2020. We experienced continued pressure on premium income through low numbers of potential new customers coming to market - again driven by a lack of new drivers and slow car sales. We also saw continued heavy price discounting in the market, maintaining the soft market conditions which had already extended many months longer than history would suggest should be the case. We held our pricing discipline, reducing prices only to reflect expected savings due to anticipated reductions in traffic volume, but also reflecting continued high levels of claims inflation. Together, these factors contributed to a dip in premium income during the first half of 2021 and into Q3. Alongside this, we saw evidence of further price decreases in the market ahead of the FCA pricing review, implemented from 1st January 2022, which prohibits discounting at new business where this would create a differential between prices for new and renewing customers.

Despite these pressures, the gross written premium for the year was just 2.26% below that written in 2020. This was not only due to growth in the core motor vehicle book towards the end of the year, but also because of the introduction of the motorcycle line of business at the end of November, which generated £3.2m of premium in 2021. The introduction of motorcycle business should provide not only a useful boost to growth in 2022 and beyond, but enhanced resilience against future market downturns.

The net loss ratio, at 51.1%, remains well within our target range. Whereas 2020 benefitted from unexpected reductions in claims frequency during lockdowns, much of this benefit was already 'priced in' to policies earning through 2021, so we would not have expected a similarly low loss ratio this year.

The expense ratio has increased year-on-year, to 28.3%, which is largely a function of decreased net earned premium - in absolute terms expenses excluding commission fell by £2.4m year-on-year. We have also seen a positive trend in expense ratio during 2021, with the full-year ratio falling below that reported at half-year. Should the momentum in policy growth continue into 2022 and beyond, we expect the pressure on expense ratio to decrease significantly.

The Group's profit before and after tax reflects the combined operating ratio for the year of 79.4%. Given the increase in combined operating ratio and decrease in net earned premium, naturally profit for the year fell below that recorded in 2020, albeit reflecting margins within the Group's ambitions.

The Solvency position remains strong, reflecting the year's earnings and benefitting from the lean and uncomplicated balance sheet. We have seen some reduction in the Group's Solvency Capital Requirement year-on-year which is primarily due to a greater allowance for the loss absorbing capacity of deferred taxes, having revised our methodology to bring it closer in-line with usual industry practice. The Board have announced a final ordinary dividend of 4.7p and a special dividend of 4.6p, bringing the total distribution in respect of 2021 to 13.0p. Return on tangible equity was 29.2%, reflective of decreased profit after tax generated through a robust balance sheet.

 

REVENUE

 

2021

2020

Gross written premium

£169.3m

£173.2m

Gross earned premium

£165.9m

£185.8m

Net earned premium

£145.4m

£165.7m

Other technical income

£2.1m

£2.2m

Customer instalment income

£3.9m

£4.6m

Interest revenue calculated using the effective interest method

£1.2m

£1.4m

Fair value (losses)/gains on debt securities through OCI

(£5.7m)

£2.4m

 

Having maintained pricing discipline through continued very soft market conditions, it is natural that gross written premium (and the resultant gross earned premium) has reduced in 2021. While this may lead to a short-term reduction in earnings, it provides a strong foundation for growth when market prices harden and significantly reduces the risk of future problems caused by under-pricing. Net earned premium, which allows for the cost of reinsurance ceded, has decreased relative to gross earned premium due to a slight increase in reinsurance rates at the July 2021 reinsurance renewal.

The level of other technical income and instalment income remains broadly proportionate to the amount of direct business written, notwithstanding that instalment income is earned over the life of a financed policy while other income is generally recognised upfront.

Investment return represents the yield on our low-risk portfolio of assets, which continue to be held in a mix of government and government-backed assets and investment grade corporate bonds.

 

OPERATING EXPENDITURE

 

2021

2020

Gross claims incurred

£105.0m

£104.0m

Net claims incurred

£81.0m

£88.1m

Current-year loss ratio

56.0%

51.2%

Prior-year loss ratio

(4.9%)

(2.6%)

Financial year loss ratio

51.1%

48.6%

Net operating expenses

£41.2m

£44.3m

Expense ratio

28.3%

26.7%

Combined operating ratio

79.4%

75.3%

 

The year's underwriting result is best explained in terms of the current-year loss and prior-year loss ratios, and the expense ratio, which together make up the combined ratio.

The current-year loss ratio, at 56.0%, is 4.8% higher than the 51.2% achieved in 2020. While the 2020 result benefitted from a sudden, unexpected reduction in traffic volumes (and hence claims Cfrequency), much of the benefit of slightly reduced traffic in 2021 was priced in to policies, which ensured customers were not over-charged and Sabre remained competitive. Despite this increase, the current-year loss ratio falls well within our expected range and below that achieved in 2019.

The prior-year loss ratio recorded in 2021 was minus 4.9%, as compared to minus 2.6% in 2020. This represents a return to our normal, expected run-off from prior-year claims following a one-off adjustment made in 2020.

While the Group's expense ratio has increased, this is primarily due to the reduction in net earned premium, over which the ratio is calculated. In absolute terms, expenses excluding commission have decreased by £2.4m in the year, which is partially a result of decreasing variable cost and real-term reduction in fixed costs, the most significant being staff expense.

The decrease in employee costs is driven primarily by a reduction in the management bonus resulting from the revised bonus 'pool' arrangement implemented in 2021, which significantly reduced management bonus payouts in respect of 2021 and a reduction in share-based payment expenses resulting from the expense related to free shares issued at IPO being fully incurred during 2020. Salary costs benefitted from a smaller inflationary increase than in previous years, along with the continued freeze on most recruitment and a small reduction in staff numbers due to individual resignations. The staff bonus pool was also reduced by c.10% in 2021 as compared to 2020, although this reduction is slightly offset by the increased base salaries on which the bonus is calculated.

Other costs remained stable or reduced year-on-year, with variable elements such as certain IT costs and commission decreasing in-line with policy volumes. Notwithstanding the impact of variable costs, the reduction in net earned premium increased the expense ratio by 3.5%.

The expense ratio calculated by Sabre is 'all-in', in that it includes all operational expenditure, including commission and head office costs incurred by the Group. This is not necessarily consistent with other insurers but gives the most complete picture of the Group's expense base.

 

TAXATION

In 2021 the Group recorded a corporation tax expense of £7.1m (2020: £9.3m), an effective tax rate of 19.0%, as compared to an effective tax rate of 19.0% in 2020. The effective tax rate approximates to the prevailing UK corporation tax rate. The Group has not entered into any complex or unusual tax arrangements during the year.

 

EARNINGS PER SHARE

 

 

2021

2020

Basic earnings per share

12.09p

15.98p

Diluted earnings per share

11.98p

15.82p

 

Basic earnings per share for 2021 of 12.09p 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

 

 

2021

2020

Government bonds

£86.2m

£121.9m

Government-backed securities

£83.9m

£84.2m

Corporate bonds

£64.6m

£40.2m

Cash and cash equivalents

£30.6m

£37.9m

 

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

 

 

2021

2020

Gross outstanding claims

£232.5m

£226.5m

Reinsurance assets

£103.6m

£92.0m

Net outstanding claims

£128.9m

£134.5m

 

The Group's net insurance liabilities continue to reflect the underlying profitability and volume of business written. The slight relative increase in gross insurance liabilities against 2020 was a result of additional large claims being recorded against the continued relatively slow settlement of personal injury claims. The level of net insurance liabilities held remains broadly proportionate to the volume of business written, with a reduction in new claims incurred in 2021 being somewhat offset by increases in the time taken to settle larger claims and expected increases in the costs of settling 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

The Directors have proposed a total final dividend of 9.3p per share in respect of 2021, consisting of an ordinary final dividend of 4.7p per share and a special dividend of 4.6p per share. The total amount proposed to be distributed to shareholders by way of dividends for 2021 is therefore 13.0p per share, including the ordinary interim dividend of 3.7p per share. Excluding the capital required to pay this dividend, the Group's SCR coverage ratio at 31 December 2021 would be 164%. This is consistent with the Group's policy to pay an ordinary dividend of 70% of profit after tax, and to consider passing excess capital to shareholders by way of a special dividend.

 

 

ADAM WESTWOOD

Chief Financial Officer

 

 

 

As per section 435 of the Companies Act 2006, these are not the company's statutory accounts.

 

 

 

CONSOLIDATED PROFIT OR LOSS ACCOUNT

for the year ended 31 December 2021

 

 

2021

2020

Notes

£'k

£'k

Gross written premium

 

 169,322

 173,235

Less: Reinsurance premium ceded

 

 (21,233)

 (20,390)

Net written premium

 

 148,089

 152,845

Less: Change in unearned premium reserve

 

 

 

Gross amount

3.1.1

 (3,426)

 12,527

Reinsurers' share

3.1.1

 779

 335

Net earned premium

 

 145,442

 165,707

 

 

 

 

Interest income on financial assets using effective interest rate method

4.8

 1,210

 1,417

Net fair value losses on derecognition of financial assets measured at fair value through OCI

 

 (16)

 - 

Instalment income

 

 3,924

 4,607

Other operating income

7

 2,098

 2,171

Total income

 

 152,658

 173,902

 

 

 

 

Insurance claims

3.4

 (104,984)

 (104,043)

Insurance claims recoverable from reinsurers

3.4

 23,969

 15,933

Net insurance claims

 

 (81,015)

 (88,110)

 

 

 

 

Finance costs

5.2

 (16)

 (13)

Commission expenses

 

 (12,942)

 (14,287)

Operating expenses

8

 (21,486)

 (22,370)

Total expenses

 

 (34,444)

 (36,670)

 

 

 

 

Profit before tax

 

 37,199

 49,122

 

 

 

 

Tax charge

10

 (7,059)

 (9,324)

Profit for the year attributable to ordinary shareholders

 

 30,140

 39,798

 

 

 

 

Basic Earnings Per Share (pence per share)

19

 12.09

 15.98

Diluted Earnings Per Share (pence per share)

19

 11.98

 15.82

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

2021

2020

 

Notes

£'k

£'k

Profit for the year attributable to ordinary shareholders

 

 30,140

 39,798

 

 

 

 

Items that are or may be reclassified subsequently to profit or loss

 

 

 

Fair value (losses)/gains on debt securities

4.9

 (5,658)

 2,436

Realised losses transferred to profit or loss account

 

 16

 - 

Tax credit/(charge)

 

 1,069

 (463)

 

 

 (4,573)

 1,973

 

 

 

 

Items which will not be reclassified to profit or loss

 

 

 

Revaluation losses on owner-occupied properties

9.1

 - 

 (165)

Tax credit

 

 - 

 31

 

 

 - 

 (134)

 

 

 

 

Total other comprehensive (loss)/income for the year

 

 (4,573)

 1,839

 

 

 

 

Total comprehensive income for the year attributable to ordinary shareholders

 

 25,567

 41,637

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2021

 

 

2021

2020

 

Notes

£'k

£'k

Assets

 

 

 

Goodwill

14

 156,279

 156,279

Property, plant and equipment

9.1

 4,066

 4,174

Right-of-use asset

9.2

 187

 189

Reinsurance assets

3.1

 112,312

 99,921

Deferred tax assets

11

 820

 - 

Deferred acquisition costs

3.1.2

 13,791

 14,791

Insurance receivables

3.2

 38,003

 33,976

Loans and other receivables

4.4

 74

 84

Current tax assets

 

 - 

 369

Prepayments, accrued income and other assets

13

 821

 868

Financial investments

4.1

 234,667

 246,281

Cash and cash equivalents

4.5

 30,611

 37,904

Total assets

 

 591,631

 594,836

 

 

 

 

Equity

 

 

 

Issued share capital

15

 250

 250

Own shares

 

 (2,257)

 (1,494)

Merger reserve

 

 48,525

 48,525

FVOCI reserve

 

 (2,363)

 2,210

Revaluation reserve

 

 831

 831

Share-based payments reserve

 

 1,841

 1,817

Retained earnings

 

 205,900

 214,261

Total equity

 

 252,727

 266,400

 

 

 

 

Liabilities

 

 

 

Insurance liabilities

3.1

 232,516

 226,546

Unearned premium reserve

3.1

 90,776

 87,350

Lease liability

5.1

 193

 194

Deferred tax liability

11

 - 

 125

Insurance payables

3.3

 7,115

 6,246

Trade and other payables

5.3

 5,831

 5,530

Current tax liabilities

 

 580

 - 

Accruals

 

 1,893

 2,445

Total liabilities

 

 338,904

 328,436

Total equity and liabilities

 

 591,631

 594,836

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

2021

2020

 

Notes

£'k

£'k

ORDINARY SHAREHOLDERS' EQUITY - at 1 January

15

 250

 250

At 31 December

 

 250

 250

 

 

 

 

OWN SHARES - at 1 January

16

 (1,494)

 (1,061)

Net movement in own shares

 

 (763)

 (433)

At 31 December

 

 (2,257)

 (1,494)

 

 

 

 

MERGER RESERVE - at 1 January

17

 48,525

 48,525

At 31 December

 

 48,525

 48,525

 

 

 

 

FVOCI RESERVE - at 1 January

17

 2,210

 - 

Implementation of IFRS 9 "Financial Instruments"

 

 - 

 237

FVOCI RESERVE - adjusted at 1 January 2020

 

 2,210

 237

Fair value (losses)/gains on debt securities

 

 (5,658)

 2,436

Realised losses transferred to profit or loss account

 

 16

 - 

Tax credit/(charge)

 

 1,069

 (463)

At 31 December

 

 (2,363)

 2,210

 

 

 

 

REVALUATION RESERVE - at 1 January

17

 831

 965

Revaluation losses on owner-occupied properties

 

 - 

 (165)

Tax credit

 

 - 

 31

At 31 December

 

 831

 831

 

 

 

 

SHARE-BASED PAYMENT RESERVE - at 1 January

17

 1,817

 1,362

Settlement of share-based payments

 

 (1,051)

 (1,193)

Charge in respect of share-based payments

 

 1,075

 1,648

At 31 December

 

 1,841

 1,817

 

 

 

 

RETAINED EARNINGS - at 1 January

 

 214,261

 217,376

Implementation of IFRS 9 "Financial Instruments"

 

 - 

 (237)

RETAINED EARNINGS - adjusted at 1 January 2020

 

 214,261

 217,139

Share-based payments

 

 (115)

 1,193

Profit for the year attributable to ordinary shareholders

 

 30,140

 39,798

Ordinary dividends paid

 

 (38,386)

 (43,869)

At 31 December

 

 205,900

 214,261

 

 

 

 

Total equity at 31 December

 

 252,727

 266,400

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

2021

2020

 

Notes

£'k

£'k

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

Profit before tax for the year

 

 37,199

 49,122

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

9.1

 136

 176

Depreciation of right-of-use assets

9.2

 249

 252

Share-based payment - equity-settled schemes

16

 1,075

 1,648

Investment return

4.8

 (1,507)

 (1,680)

Interest on lease liability

9.2

 16

 13

Expected credit loss

4.6

 16

 23

Impairment loss on owner-occupied buildings

9.1

 - 

 65

Operating cash flows before movements in working capital

 

 37,184

 49,619

Movements in working capital:

 

 

 

Change in reinsurance assets

 

 (12,391)

 (15,990)

Change in deferred acquisition costs

 

 1,000

 1,420

Change in insurance receivables

 

 (4,027)

 3,778

Change in loans and other receivables

 

 10

 (53)

Change in prepayments, accrued income and other assets

 

 47

 2,759

Change in insurance liabilities

 

 5,970

 14,379

Change in unearned premium reserve

 

 3,426

 (12,527)

Change in insurance creditors

 

 869

 237

Change in trade and other payables

 

 301

 (936)

Change in accruals

 

 (552)

 1,239

Cash generated from operating activities before investment of insurance assets

 

 31,837

 43,925

Taxes paid

 

 (5,988)

 (14,673)

Net cash generated from operating activities before investment of insurance assets

 

 25,849

 29,252

Interest and investment income received

 

 4,273

 7,115

Net proceeds from the sale, maturity and purchases of invested assets

 

 3,191

 14,325

Net cash generated from operating activities

 

 33,313

 50,692

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

Purchases of property, plant and equipment

9.1

 (28)

 (12)

Net cash used by investing activities

 

 (28)

 (12)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

Payment of principal portion of lease liabilities

9.2

 (264)

 (264)

Net cash used in acquiring and disposing of own shares

 

 (1,928)

 (433)

Dividends paid

12

 (38,386)

 (43,870)

Net cash used by financing activities

 

 (40,578)

 (44,567)

Net (decrease)/increase in cash and cash equivalents

 

 (7,293)

 6,113

Cash and cash equivalents at the beginning of the year

 

 37,904

 31,791

Cash and cash equivalents at the end of the year

4.5

 30,611

 37,904

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2021

 

Corporate information

Sabre Insurance Group plc is a company incorporated in the United Kingdom and registered in England and Wales. The address of the registered office is Sabre House, 150 South Street, Dorking, Surrey, RH4 2YY, England. The nature of the Group's operations is the writing of general insurance for motor vehicles and motorcycles. The Company's principal activity is that of a holding company.

 

 

1. Accounting policies

The principal accounting policies applied in the preparation of these consolidated and company financial statements are included in the specific notes to which they relate. These policies have been consistently applied to all the years presented, unless otherwise indicated.

 

1.1 Basis of preparation

The financial statements of the 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").  

The financial statements are prepared in accordance with the going concern principle using the historical cost basis, except for those financial assets that have been measured at fair value. The preparation of the financial statements necessitates the use of estimates, assumptions and judgements that affect the reported amounts in the statement of financial position and the statement of profit or loss and other comprehensive income. Where appropriate, details of estimates are presented in the accompanying notes to the consolidated financial statements.

As the full impact of climate change is currently unknown, it is not possible to consider all possible future outcomes when determining the value of assets, liabilities and the timing of future cash flows. The Group's view is that any reasonable impact of climate change would not have a material impact on the valuation of assets and liabilities at the year-end date.

The financial statements values are presented in pounds sterling (£) rounded to the nearest thousand (£'k), unless otherwise indicated.

The Group presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in the respective notes.

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously.

As permitted by IFRS 4 "Insurance Contracts", the Group continues to apply the existing accounting policies that were applied prior to the adoption of IFRS, with certain modifications allowed by the standard effective subsequent to adoption for its insurance contracts.

 

1.2. Going concern

The consolidated annual financial statements have been prepared on a going concern basis. The Directors have a reasonable expectation that the Group has adequate resources to continue in operation for at least the next 12 months to 31 March 2023 and that therefore it is appropriate to adopt a going concern basis for the preparation of the financial statements.

In making their assessment, the Directors took into account the potential impact of the principal risks that could prevent the Group from achieving its strategic objectives. The assessment was based on the Group's ORSA, which brings together management's view of current and emerging risks, with scenario-based analysis and reverse stress testing to form a conclusion as to the financial stability of the Group. Consideration was also given to what the Group's considers its principal risks which are set out in the "Principal Risks and Uncertainties" section on pages 19 to 26. The assessment also included consideration of any scenarios which might cause the Group to breach its solvency requirements which are not otherwise covered in the risk-based scenario testing.

We have assessed the short, medium and long-term risks associated with climate change. Given the geographical diversity of the Group's policyholders within the UK and the Group's reinsurance programme, it is highly unlikely that a climate event will materially impact Sabre's ability to continue trading. More likely is that the costs associated with the transition to a low-carbon economy will impact the Group's indemnity spend, as electronic vehicles are currently relatively expensive to fix. We expect that this is somewhat, or perhaps completely, offset by advances in technology reducing the frequency of claims, in particular bodily injury claims which are generally far more expensive than damage to vehicles. These changes in the costs of claims are gradual and as such reflected in our claims experience and fed into the pricing of our policies. However, if the propensity to travel by car decreases overall this could impact the Group's income in the long term, but this is not expected to be material within the viability period of three years. We do not consider it plausible that such a decrease would be as severe as the scenarios that we have modelled as part of our viability testing exercise.

 

1.3. New and amended standards and interpretations adopted by the Group

Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)

Following completion of the second part of the IASB's two-phased project, amendments were issued in August 2020 (adopted for use in both the UK and EU in January 2021) and effective for financial years beginning on or after 1 January 2021.

The amendments address issues that might affect financial reporting as a result of the reform of an interest rate benchmark, including the effects of changes to contractual cash flows or hedging relationships arising from the replacement of an interest rate benchmark with an alternative benchmark rate. The amendments provide practical relief from certain requirements in IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 relating to:

changes in the basis for determining contractual cash flows of financial assets, financial liabilities and lease liabilities; and

hedge accounting.

There was no impact on amounts reported for prior years as a result of adoption.

 

1.4. New and amended standards and interpretations not yet effective in 2021

A number of new standards and interpretations adopted by the UK which are not mandatorily effective, as well as standards interpretations issued by the IASB but not yet adopted by the UK, have not been applied in preparing these financial statements. The Group does not plan to adopt these standards early; instead it expects to apply them from their effective dates as determined by their dates of UK endorsement. The Group is still reviewing the upcoming standards to determine their impact:

IFRS 17: "Insurance Contracts" (IASB effective date: 1 January 2023)

IFRS 10 and IAS 28: Amendment: "Sale or Contribution of Assets between an Investor and its Associate or Joint Venture" (IASB effective date: optional)

IFRS 17 - "Insurance Contracts"

The effective date for IFRS 17 is 1 January 2023. IFRS 17 will change the way insurance contracts are accounted for and reported. Revenue will no longer be equal to premiums written but instead reflect a change in the contract liability on which consideration is expected. On initial assessment the major change will be on the presentation of the statement of profit or loss, with premium and claims figures being replaced with insurance contract revenue, insurance service expense and insurance finance income and expense. IFRS 17 also has additional disclosure requirements.

IFRS 17 prescribes a comprehensive model, the general model, which requires entities to measure an insurance contract at initial recognition as the total of the fulfilment cash flows (comprising the estimated future cash flows, an adjustment to reflect the time value of money and an explicit risk adjustment for non-financial risk) and the contractual service margin. The fulfilment cash flows are remeasured on a current basis each reporting period. The unearned profit (contractual service margin) is recognised over the coverage period.

IFRS 17 also provides a simplification to the general model, the premium allocation approach ("PAA"). This simplified approach is applicable for certain types of contracts, including those with a coverage period of one year or less. The liability for remaining coverage is similar to the current premium reserve profile recognised over time. The principles of the general model remain applicable to the liability for incurred claims.

All contracts issued by the Group are for one year or less and the Group expects to apply the PAA model to all insurance contracts written.

The Group is continuously assessing the impact of the design decision and relevant accounting policy choices. The Group's assessment of the requirements of the standard against current data, processes and valuation models does not indicate a material impact on the Group's financial results.

 

 

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 severe weather conditions or single catastrophic events. For longer-tail claims that take some years to settle, there is also inflation risk.

Refer to Note 3.5 for detail on these risks and the way the Group manages them. Note 3.5 also includes the considerations of COVID-19 and climate change. Further discussion on climate change can be found in the "Principal Risks and Uncertainties" section on pages 19 to 26 and the "Responsibility and Sustainability" section on pages 37 to 45.

 

2.3. Credit risk

Credit risk reflects the financial impact of the default of one or more of the Group's counterparties. The Group is exposed to financial risks caused by a loss in the value of financial assets due to counterparties failing to meet all or part of their obligations. Key areas where the Group is exposed to credit default risk are:

Failure of an asset counterparty to meet their financial obligations (Note 4.6)

Reinsurer default on presentation of a large claim or dispute of cover (Note 3.6)

Reinsurers default on their share of the Group's insurance liabilities (Note 3.6)

Default on amounts due from insurance contract intermediaries or policyholders (Note 3.6)

The following policies and procedures are in place to mitigate the Group's exposure to credit risk:

A Group credit risk policy which sets out the assessment and determination of what constitutes credit risk for the Group. Compliance with the policy is monitored and exposures and breaches are reported to the Group's Risk Committee

Reinsurance is placed with counterparties that have a good credit rating and concentration of risk is avoided by following policy guidelines in respect of counterparties' limits that are set each year by the Board of Directors and are subject to regular reviews. At each reporting date, management performs an assessment of creditworthiness of reinsurers and updates the reinsurance purchase strategy, ascertaining suitable allowance for impairment

The Group sets the maximum amounts and limits that may be advanced to corporate counterparties by reference to their long-term credit ratings

The credit risk in respect of customer balances incurred on non-payment of premiums or contributions will only persist during the grace period specified in the policy document or trust deed until expiry, when the policy is either paid up or terminated. Commission paid to intermediaries is netted off against amounts receivable from them to reduce the risk of doubtful debts

Refer to Notes 3.6 and 4.6 as indicated above for further information on credit risk.

 

2.4. Liquidity risk

Liquidity risk is the potential that obligations cannot be met as they fall due as a consequence of having a timing mismatch or inability to raise sufficient liquid assets without suffering a substantial loss on realisation. The Group manages its liquidity risk through both ensuring that it holds sufficient cash and cash equivalent assets to meet all short-term liabilities, and matching the maturity profile of its financial investments to the expected cash outflows.

Refer to Note 6 for further information on liquidity risk.

 

2.5. Investment concentration risk

Excessive exposure to particular industry sectors or groups can give rise to concentration risk. The Group has no significant investment in any particular industrial sector and therefore is unlikely to suffer significant losses through its investment portfolio as a result of over-exposure to sectors engaged in similar activities or which have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions.

A significant part of the Group's investment portfolio consists primarily of UK Government bonds and government-backed bonds, therefore the risk of government default does exist, however the likelihood is extremely remote. The remainder of the portfolio consists of investment grade corporate bonds. The Group continues to monitor the strength and security of all bonds.

Refer to Note 4.2 for further information on investment concentration risk.

 

2.6. Operational risk

Operational risk is the risk of loss arising from system failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or can lead to financial loss. The Group cannot expect to eliminate all operational risks, but by operating a rigorous control framework and by monitoring and responding to potential risks, the Group is able to manage the risks. Controls include effective segregation of duties, access controls, authorisation and reconciliation procedures, staff education and assessment processes, including the use of internal audit. Business risks such as changes in environment, technology and the industry are monitored through the Group's strategic planning and budgeting process.

 

2.7. Capital management

The Board of Directors has ultimate responsibility for ensuring that the Group has sufficient funds to meet its liabilities as they fall due. The Group carries out detailed modelling of its assets and liabilities and the key risks to which these are exposed. This modelling includes the Group's own assessment of its capital requirements for solvency purposes.

The Group has continued to manage its solvency with reference to the Solvency Capital Requirement ("SCR") calculated using the Standard Formula. The Group has developed sufficient processes to ensure that the capital requirements under Solvency II are not breached, including the maintenance of capital at a level higher than that required through the Standard Formula. The Group considers its capital position to be its net assets on a Solvency II basis and monitors this in the context of the Solvency II SCR.

The Group aims to retain sufficient capital such that in all reasonably foreseeable scenarios it will hold regulatory capital in excess of its SCR. The Directors currently consider that this is achieved through maintaining a regulatory capital surplus of 140% to 160%. As at 31 December 2021, the Group holds significant excess Solvency II capital.

 

The Group's IFRS capital comprised:

 

As at 31 December

 

2021

2020

 

 

£'k

Equity

 

 

Issued share capital

 250

 250

Own shares

 (2,257)

 (1,494)

Merger reserve

 48,525

 48,525

FVOCI reserve

 (2,363)

 2,210

Revaluation reserve

 831

 831

Share-based payments

 1,841

 1,817

Retained earnings

 205,900

 214,261

Total

 252,727

 266,400

 

The Solvency II position of the Group both before and after final dividend is given below:

 

As at 31 December

 

2021

2020

Pre-dividend

£'k

£'k

Total tier 1 capital

 110,114

 122,500

SCR

 52,955

 60,327

Excess capital

 57,159

 62,173

Solvency coverage ratio (%)

208%

203%

 

 

As at 31 December

 

2021

2020

Post-dividend

£'k

£'k

Total tier 1 capital

 86,864

 93,250

SCR

 52,955

 60,327

Excess capital

 33,909

 32,923

Solvency coverage ratio (%)

164%

155%

 

 

The following table sets out a reconciliation between IFRS net assets and Solvency II net assets before final dividend:

 

As at 31 December

 

2021

2020

 

£'k

£'k

Adjusted IFRS net assets

 96,448

 110,121

Unearned premium reserve

 90,776

 87,350

Deferred acquisition costs

 (13,791)

 (14,791)

Solvency II premium provision

 (64,011)

 (60,674)

IFRS risk margin(1)

 11,229

 11,643

Discount claims provision

 2,209

 (57)

Change in life reserves

 (1,903)

 (227)

Solvency II risk margin

 (7,638)

 (7,961)

Change in deferred tax

 (3,205)

 (2,904)

Solvency II net assets

 110,114

 122,500

 

(1) In line with industry practice, the IFRS risk margin is an explicit additional reserve in excess of the actuarial best estimate which is designed to create a margin held in reserves to allow for adverse development in open claims.

 

The adjustments set out in the above table have been made for the following reasons:

Adjusted IFRS net assets: Equals Group net assets on an IFRS basis, less Goodwill.

Removal of unearned premium reserve and deferred acquisition costs: The unearned premium reserve must be added back as premium and deferred acquisition costs must be removed as they are not deferred under Solvency II.

Solvency II premium provision: A premium reserve reflecting the future cash in and out flows in respect of insurance contracts is calculated and this must be discounted under Solvency II.

IFRS risk margin : Solvency II reserves must reflect a true "best estimate" basis. Therefore, the IFRS risk margin is removed from the claims reserve.

Discount claims provision: The provision held against future claims expenditure for claims incurred is discounted in the same way as the Solvency II premium provision.

Solvency II risk margin: The Solvency II risk margin represents the premium that would be required were the Group to transfer its technical provisions to a third party, and essentially reflects the SCR required to cover run-off of claims on existing business. This amount is calculated by the Group through modelling the discounted SCR on a projected future balance sheet for each year of claims run-off.

Change in deferred tax: As the move to a Solvency II basis balance sheet increases the net asset position of the Group, a deferred tax liability is generated to offset the increase.

 

Sabre Insurance Group plc's SCR, expressed on a risk module basis, is set out in the following table:

 

 

as at 31 December 2021

as at 31 December 2020

 

£'k

£'k

£'k

£'k

£'k

£'k

Interest rate risk

 

 

 3,359

 

 

 3,706

Equity risk

 

 

 -

 

 

 -

Property risk

 

 

 956

 

 

 956

Spread risk

 

 

 4,965

 

 

 4,748

Currency risk

 

 

 1,082

 

 

 1,073

Concentration risk

 

 

 -

 

 

 -

Correlation impact

 

 

 (3,449)

 

 

 (3,560)

Market risk

 

 6,913

 

 

 6,923

 

Counterparty risk

 

 3,403

 

 

 2,386

 

Underwriting risk

 

 51,985

 

 

 53,236

 

Correlation impact

 

 (6,422)

 

 

 (5,991)

 

Basic SCR

 55,879

 

 

 56,554

 

 

Operating risk

 6,515

 

 

 6,677

 

 

Loss absorbing effect of deferred taxes

 (9,439)

 

 

 (2,904)

 

 

Total Solvency Capital Requirement

 52,955

 

 

 60,327

 

 

 

The total Solvency Capital Requirement ("SCR") is primarily driven by the underwriting risk element, which is a function of the Group's net earned premium (or projected net earned premium) and the level of reserves held. Therefore, the SCR is broadly driven by the size of the business.

The Group's capital management objectives are:

to ensure that the Group will be able to continue as going a concern

to maximise the income and capital return to its equity

The Board monitors and review the broad structure of the Group's capital on an ongoing basis. This review includes consideration of the extent to which revenue in excess of that which is required to be distributed should be retained.

The Group's objectives, policies and processes for managing capital have not changed during the historical period.

 

 

3. Insurance liabilities and reinsurance assets

ACCOUNTING POLICY

Claims incurred include all losses occurring through the year, whether reported or not, related handling costs and any adjustments to claims outstanding from previous years. Significant delays are experienced in the notification and settlement of certain claims, particularly in respect of liability claims, the ultimate cost of which cannot be known with certainty at the balance sheet date. Reinsurance recoveries (or amounts due from reinsurers) are accounted for in the same period as the related claim.

A. Provision for claims outstanding

The provision for claims outstanding is based on information available at the balance sheet date. Significant delays are experienced in the notification and settlement of certain claims and accordingly the ultimate cost of such claims cannot be known with certainty at the balance sheet date. Subsequent information and events may result in the ultimate liability being less than, or greater than, the amount provided. Any differences between provisions and subsequent settlements are dealt with in the profit or loss account. Claims provisions are not discounted, with the exception of Periodic Payment Orders ("PPOs"), which are discussed more fully in the "Critical accounting estimates and judgements" section in Note 3.

The provision for claims outstanding includes the following:

Claims Incurred and Reported (individual case estimates)

Claims Incurred but Not Reported ("IBNR")/Claims Incurred But Not Enough Reported ("IBNER")

Claims Handling Provision

(i)  Claims Incurred and Reported (individual case estimates)

When claims are initially reported, case estimates are set at fixed levels based on previous average claims settlements. As soon as sufficient information becomes available, the case estimate is amended by a claim handler within the Claims Department to reflect the expected ultimate settlement cost of the claim, including external claims handling costs. The case estimate will be amended throughout the life of a claim as further information emerges. Case estimates generally do not allow for possible reductions in our liability due to contributory negligence, favourable court judgments or settlements until these are known to a high probability. Because of this, the outstanding case reserve recorded is generally greater than the probability-weighted likely settlement amount of the claim.

(ii)  Claims Incurred But Not Reported ("IBNR")/Claims Incurred But Not Enough Reported ("IBNER")

The Claims IBNR provision consists of two elements:

IBNR - An amount in respect of claims incurred but not yet recorded on the policy administration system ("pure" IBNR), which is typically a "positive"

IBNER - An adjustment to open case reserves, booked at a portfolio level, which converts the open reserve recorded on our underwriting system to a true "best estimate" basis. If the case reserves held are in excess of a "best estimate" basis, this will result in a "negative" IBNER. If the case reserves are below a 'best estimate' basis, this will result in a "positive" IBNER

The Group refers to these collectively as "IBNR" and unless stated otherwise, when referring to IBNR this always include both elements.

These reserves are calculated using standard actuarial modelling techniques such as chain ladder and Bornhuetter-Ferguson methods. The IBNR adjustment is set after considering the results of these statistical methods based on, inter alia, historical claims development trends, average claims costs and expected inflation rates.

(iii) Claims Handling Provision

A provision for claims handling costs is estimated based on the number of outstanding claims at the balance sheet date and the estimated average internal cost of settling claims.

B. Provision for unexpired risks

Provision is made for unexpired risks when, after taking account of an element of attributable investment income, it is anticipated that the unearned premiums will be insufficient to cover future claims and expenses on existing contracts. The expected claims are calculated having regard to events which have occurred prior to the balance sheet date. Unexpired risk surpluses and deficits are offset when business classes are managed together and a provision is made if an aggregate deficit arises.

At each reporting date, a liability assessment is performed to ensure the adequacy of the claims liabilities net of deferred acquisition costs and unearned premium reserves. In performing this assessment, current best estimates of future contractual cash flows and claims handling expenses are used. Any deficiency is immediately charged to the statement of profit or loss, initially by writing off deferred acquisition costs and subsequently by establishing a provision for losses arising from the liability assessment ("unexpired risk provision"). There is currently no unexpired risk provision.

C. Deferred acquisition costs

Deferred acquisition costs represent a proportion of commission and other acquisition costs that relate to policies that are in force at the year end. Deferred acquisition costs are amortised over the period in which the related premiums are earned. Such costs are identified as being directly attributable to the acquisition of business, or are indirectly attributed to acquisition activity through an allocation exercise.

D. Gross written premiums

Gross written premiums comprise all amounts during the financial year in respect of contracts entered into regardless of the fact that such amounts may relate in whole or in part to a later financial year. All premiums are shown gross of commission payable to intermediaries (where applicable) and are exclusive of taxes, duties and levies thereon. Insurance premiums are adjusted by an unearned premium reserve which represents the proportion of premiums written that relate to periods of risk subsequent to the balance sheet date.

E. Unearned premium reserve ("UPR")

Unearned premiums are those proportions of the premiums written in a year that relate to the periods of risk subsequent to the balance sheet date. They are computed principally on a daily pro-rata basis.

 

Risk management

Refer to Notes 3.5 and 3.6 for detail on risks relating to insurance liabilities and reinsurance assets, and the management thereof.

 

Critical accounting estimates and judgements

Valuation of insurance contracts

The three key elements impacting the valuation of insurance contracts are:

i.  Claims reserves

For the valuation of insurance contracts, estimates are made both for the expected ultimate cost of claims reported at the reporting date, consisting of a reserve for claims incurred and reported, and an estimate of the sufficiency of these reserves (through the calculation of an Incurred But Not Enough Reported ("IBNER") estimate, and for the expected ultimate cost of claims incurred, but not yet reported ("IBNR"), at the reporting date). It can take a significant period of time before the ultimate claims cost can be established with certainty.

ii.  Outstanding claims

The ultimate cost of outstanding claims is estimated by using a range of standard actuarial claims projection techniques, such as Chain Ladder and Bornhuetter-Ferguson methods. The main assumption underlying these techniques is that the Group's past claims development experience can be used to project future claims development and hence ultimate claims costs. As such, these methods extrapolate the development of paid and incurred losses, average costs per claim and claim numbers based on the observed development of earlier years and expected loss ratios. Historical claims development is analysed by accident years and types of claim. In most cases, no explicit assumptions are made regarding future rates of claims inflation or loss ratios. Instead, the assumptions used are those implicit in the historical claims development data on which the projections are based. Additional qualitative judgement is used to assess the extent to which past trends may not apply in future, (e.g., to reflect one-off occurrences, changes in external or market factors such as public attitudes to claiming, economic conditions, levels of claims inflation, climate change, judicial decisions and legislation, as well as internal factors such as portfolio mix, policy features and claims handling procedures) in order to arrive at the estimated ultimate cost of claims that present the likely outcome from the range of possible outcomes, taking account of all the uncertainties involved.

iii.  Periodic Payment Orders ("PPO")

Liability claims may be settled through a PPO, established under the Courts Act 2003, which allows a UK court to award damages for future loss or any other damages in respect of personal injury. The court may order that the damages either partly or fully take the form of a PPO. To date, the Group has three PPOs within its reserve for claims incurred and reported. Reinsurance is applied at the claim level, and therefore as PPOs generally result in a liability in excess of the Group's reinsurance retention, the net liability on acquisition of a PPO is not significantly different to that arising in a non-PPO situation. Management will continue to monitor the level of PPO activity. Where management expect the total probability-weighted cash flows for actual and potential PPOs to generate a net outflow following settlement of reinsurance recoveries, this is reflected within the IBNR calculation.

 

The Group's insurance liabilities and reinsurance assets are summarised below:

 

 

2021

2020

 

Notes

£'k

£'k

Outstanding claims

3.1

 232,516

 226,546

Unearned premium reserve

3.1.1

 90,776

 87,350

Deferred acquisition costs

3.1.2

 (13,791)

 (14,791)

Reinsurance assets

3.1

 (112,312)

 (99,921)

Receivables arising from insurance and reinsurance contracts

3.2

 (38,003)

 (33,976)

Payables arising from insurance and reinsurance contracts

3.3

 7,115

 6,246

Total

 

 166,301

 171,454

 

A reconciliation between the opening and closing balances is provided in Note 3.7.

 

 

3.1. Insurance liabilities and reinsurance assets

 

 

2021

2020

 

Notes

£'k

£'k

GROSS

 

 

 

Claims incurred and reported

 

 309,892

 313,164

Claims incurred but not reported

 

 (81,272)

 (90,267)

Claims handling provision

 

 3,896

 3,649

Outstanding claims liabilities

3.1.1

 232,516

 226,546

Unearned premium reserve

3.1.1

 90,776

 87,350

Total insurance liabilities - Gross

 

 323,292

 313,896

 

 

 

 

Expected to be settled within 12 months (excluding UPR)

 

 112,975

 100,794

Expected to be settled after 12 months (excluding UPR)

 

 119,541

 125,752

 

 

 

 

RECOVERABLE FROM REINSURERS

 

 

 

Claims incurred and reported

 

 (127,812)

 (123,440)

Claims incurred but not reported

 

 24,184

 31,424

Outstanding claims liabilities

3.1.1

 (103,628)

 (92,016)

Unearned premium reserve

3.1.1

 (8,684)

 (7,905)

Total reinsurers' share of insurance liabilities

 

 (112,312)

 (99,921)

 

 

 

 

Expected to be settled within 12 months (excluding UPR)

 

 (43,546)

 (33,541)

Expected to be settled after 12 months (excluding UPR)

 

 (60,082)

 (58,475)

 

 

 

 

NET

 

 

 

Claims incurred and reported

 

 182,080

 189,724

Claims incurred but not reported

 

 (57,088)

 (58,843)

Outstanding claims liabilities

3.1.1

 128,888

 134,530

Unearned premium reserve

3.1.1

 82,092

 79,445

Total insurance liabilities - Net

 

 210,980

 213,975

 

 

3.1.1. Movement in insurance liabilities and reinsurance assets

 

2021

 

2020

 

Gross

RI share

Net

 

Gross

RI share

Net

 

£'k

£'k

£'k

 

£'k

£'k

£'k

CLAIMS AND CLAIMS HANDLING EXPENSES

 

 

 

 

 

 

 

Claims incurred and reported

 313,164

 (123,440)

 189,724

 

 290,963

 (97,788)

 193,175

Claims incurred but not reported

 (90,267)

 31,424

 (58,843)

 

 (82,565)

 21,427

 (61,138)

Claims handling provision

 3,649

 -

 3,649

 

 3,769

 -

 3,769

Total at the beginning of the year

 226,546

 (92,016)

 134,530

 

 212,167

 (76,361)

 135,806

 

 

 

 

 

 

 

 

Cash paid for claims settled in the year

 (92,247)

 12,357

 (79,890)

 

 (82,027)

 278

 (81,749)

Increase in liabilities

 

 

 

 

 

 

 

- arising from current year claims

 89,480

 (8,072)

 81,408

 

 100,944

 (16,242)

 84,702

- arising from prior year claims

 8,737

 (15,897)

 (7,160)

 

 (4,538)

 309

 (4,229)

Total at the end of the year

 232,516

 (103,628)

 128,888

 

 226,546

 (92,016)

 134,530

 

 

 

 

 

 

 

 

Claims incurred and reported

 309,892

 (127,812)

 182,080

 

 313,164

 (123,440)

 189,724

Claims incurred but not reported

 (81,272)

 24,184

 (57,088)

 

 (90,267)

 31,424

 (58,843)

Claims handling provision

 3,896

 -

 3,896

 

 3,649

 -

 3,649

Total at the end of the year

 232,516

 (103,628)

 128,888

 

 226,546

 (92,016)

 134,530

 

Amounts due from reinsurers in respect of claims already paid by the Group on the contracts that are reinsured are included in Note 3.2.

 

 

2021

 

2020

 

Gross

RI share

Net

 

Gross

RI share

Net

 

£'k

£'k

£'k

 

£'k

£'k

£'k

UNEARNED PREMIUM RESERVE

 

 

 

 

 

 

 

At the beginning of the year

 87,350

 (7,905)

 79,445

 

 99,877

 (7,570)

 92,307

Charged to the profit or loss account

 3,426

 (779)

 2,647

 

 (12,527)

 (335)

 (12,862)

Total at the end of the year

 90,776

 (8,684)

 82,092

 

 87,350

 (7,905)

 79,445

 

 

3.1.2. Movement in deferred acquisition costs

 

2021

2020

 

£'k

£'k

DEFERRED ACQUISITION COSTS

 

 

At the beginning of the year

 14,791

 16,211

Net decrease during the year

 (1,000)

 (1,420)

Total at the end of the year

 13,791

 14,791

 

 

3.2. Receivables arising from insurance and reinsurance contracts

ACCOUNTING POLICY

Insurance receivables are recognised when due and measured on initial recognition at the fair value of the consideration received or receivable. Subsequent to initial recognition, insurance receivables are measured at amortised cost, using the effective interest rate method. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the profit or loss account.

 

 

2021

2020

 

£'k

£'k

Due from brokers and intermediaries

 17,954

 11,374

Due from policyholders

 20,139

 22,702

Less: provision for impairment of broker and intermediary receivables

 (90)

 (100)

Total at the end of the year

 38,003

 33,976

 

The carrying value of insurance and other receivables approximates to fair value. There are no amounts expected to be recovered more than 12 months after the reporting date.

 

 

3.3. Payables arising from insurance and reinsurance contracts

ACCOUNTING POLICY

Payables are recognised when due. Reinsurance payables represent premiums payable to reinsurers in respect of contracts which have been entered into at the date of the financial position.

 

 

2021

2020

 

£'k

£'k

Insurance creditors

 1,244

 1,034

Amounts due to reinsurers

 5,871

 5,212

Total at the end of the year

 7,115

 6,246

 

Payables arising from insurance and reinsurance contracts are expected to be settled within 12 months. The carrying value of payables approximates fair value.

 

 

3.4. Insurance claims

 

2021

 

2020

 

Gross

RI share

Net

 

Gross

RI share

Net

 

£'k

£'k

£'k

 

£'k

£'k

£'k

Movement in claims provision

 97,970

 (23,969)

 74,001

 

 96,525

 (15,933)

 80,592

Movement in claims handling provision

 247

 -

 247

 

 (119)

 -

 (119)

Claims handling expenses allocated

 6,767

 -

 6,767

 

 7,637

 -

 7,637

Net insurance claims

 104,984

 (23,969)

 81,015

 

 104,043

 (15,933)

 88,110

 

 

3.4.1. Claims development tables

The presentation of the claims development tables for the Group is based on the actual date of the event that caused the claim (accident year basis).

Gross outstanding claims liabilities

Accident year 

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Total

£'k

£'k

£'k

£'k

£'k

£'k

£'k

£'k

£'k

£'k

£'k

Estimate of ultimate claims costs

 

 

 

 

 

 

 

 

 

 

 

At the end of the accident year

 103,139

 84,939

 75,649

 103,599

 111,518

 165,707

 120,077

 126,981

 101,965

 89,233

 

- One year later

 103,989

 70,567

 65,639

 90,133

 100,935

 131,803

 108,089

 122,663

 97,953

 

 

- Two years later

 94,297

 63,197

 62,039

 82,537

 94,294

 123,651

 107,988

 127,225

 

 

 

- Three years later

 65,313

 79,845

 60,301

 79,845

 91,336

 122,674

 113,257

 

 

 

 

- Four years later

 97,170

 68,763

 59,149

 77,095

 90,789

 124,128

 

 

 

 

 

- Five years later

 94,150

 64,290

 58,367

 77,038

 92,629

 

 

 

 

 

 

- Six years later

 88,795

 63,153

 58,718

 77,469

 

 

 

 

 

 

 

- Seven years later

 88,016

 63,088

 58,438

 

 

 

 

 

 

 

 

- Eight years later

 87,295

 63,213

 

 

 

 

 

 

 

 

 

- Nine years later

 87,301

 

 

 

 

 

 

 

 

 

 

Current estimate of cumulative claims

 87,301

 63,213

 58,438

 77,469

 92,629

 124,128

 113,257

 127,225

 97,953

 89,233

 

Cumulative payments to date

 (83,662)

 (59,810)

 (57,779)

 (74,441)

 (87,991)

 (79,963)

 (89,530)

 (92,946)

 (55,416)

 (35,534)

 

Liability recognised in balance sheet

 3,639

 3,403

 659

 3,028

 4,638

 44,165

 23,727

 34,279

 42,537

 53,699

 213,774

2011 and prior

 

 

 

 

 

 

 

 

 

 

 14,846

Claims handling provision

 

 

 

 

 

 

 

 

 

 

 3,896

Total

 

 

 

 

 

 

 

 

 

 

 232,516

 

 

 

Net outstanding claims liabilities

Accident year 

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Total

£'k

£'k

£'k

£'k

£'k

£'k

£'k

£'k

£'k

£'k

£'k

Estimate of ultimate claims costs

 

 

 

 

 

 

 

 

 

 

 

At the end of the accident year

 89,901

 77,316

 74,609

 97,288

 104,808

 106,478

 111,433

 115,011

 85,723

 81,161

 

- One year later

 81,403

 64,071

 65,639

 85,814

 93,664

 96,446

 99,649

 111,550

 81,882

 

 

- Two years later

 75,938

 59,301

 60,953

 81,164

 87,824

 91,806

 98,641

 111,347

 

 

 

- Three years later

 73,606

 57,739

 59,741

 77,869

 85,243

 91,179

 99,071

 

 

 

 

- Four years later

 74,304

 56,947

 59,008

 76,409

 84,995

 88,545

 

 

 

 

 

- Five years later

 72,731

 56,892

 58,259

 76,254

 84,891

 

 

 

 

 

 

- Six years later

 76,624

 56,593

 58,481

 76,011

 

 

 

 

 

 

 

- Seven years later

 72,296

 56,572

 58,198

 

 

 

 

 

 

 

 

- Eight years later

 72,237

 56,685

 

 

 

 

 

 

 

 

 

- Nine years later

 72,249

 

 

 

 

 

 

 

 

 

 

Current estimate of cumulative claims

 72,249

 56,685

 58,198

 76,011

 84,891

 88,545

 99,071

 111,347

 81,882

 81,161

 

Cumulative payments to date

 (72,531)

 (54,495)

 (57,561)

 (74,353)

 (82,161)

 (79,848)

 (86,493)

 (90,198)

 (55,187)

 (35,534)

 

Liability recognised in balance sheet

 (282)

 2,190

 637

 1,658

 2,730

 8,697

 12,578

 21,149

 26,695

 45,627

 121,679

2011 and prior

 

 

 

 

 

 

 

 

 

 

 3,313

Claims handling provision

 

 

 

 

 

 

 

 

 

 

 3,896

Total

 

 

 

 

 

 

 

 

 

 

 128,888

 

The 2012 negative net liability reflects a reinsurance recovery due to the Group for a claim payment made by the Goup at the end of December 2021.

 

3.5. Underwriting risk

The principal risk the Group faces under insurance contracts is that the actual claims and benefit payments or the timing thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of long-term claims. Therefore, the objective of the Group is to ensure that sufficient reserves are available to cover these liabilities.

The Group issues only motor insurance contracts, 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 certain assumptions such as legislative changes or uncertainty in the estimation process.

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.

 

 

Decrease

in profit after tax

 

Decrease

in total equity

 

2021

2020

 

2021

2020

At 31 December

£'k

£'k

 

£'k

£'k

Insurance risk

 

 

 

 

 

Impact of a 10% increase in gross loss ratio

 (7,921)

 (9,945)

 

 (7,921)

 (9,945)

Impact of a 10% increase in gross outstanding claims and claims provision

 (8,710)

 (8,971)

 

 (8,710)

 (8,971)

 

A substantial increase in individually large claims which are over our reinsurance retention limit, generally will have no impact on profit before tax. The table shows the impact of a 10% increase on a net basis.

 

 

Decrease

in profit after tax

 

Decrease

in total equity

 

2021

2020

 

2021

2020

At 31 December

£'k

£'k

 

£'k

£'k

Insurance risk

 

 

 

 

 

Impact of a 10% increase in net loss ratio

 (9,739)

 (12,239)

 

 (9,739)

 (12,239)

Impact of a 10% increase in net outstanding claims and claims provision

 (10,440)

 (10,897)

 

 (10,440)

 (10,897)

 

COVID-19

Management has evaluated the short-term impact of COVID-19 on the Group's earnings and capital position, and has assessed the risks associated with this. The most material risk in the short term is a significant drop in premium. Expectations regarding claims frequency and changes in claims costs and settlement patterns have been considered in calculating the Group's insurance liabilities.

 

Climate change

Management has assessed the short, medium and long-term risks which result from climate change. The short-term risk is low. Given the geographical diversity of the Group's policyholders within the UK and the Group's reinsurance programme, it is highly unlikely that a climate event will materially impact the Group's ability to continue trading. More likely is that the costs associated with the transition to a low-carbon economy will impact the Group's indemnity spend in the medium term, as electronic vehicles are currently relatively expensive to fix. This is somewhat, or perhaps completely, offset by advances in technology reducing the frequency of claims, in particular bodily injury claims which are generally far more expensive than damage to vehicles. These changes in the costs of claims are gradual and as such reflected in the Group's claims experience and fed into the pricing of policies. However, if the propensity to travel by car decreases overall this could impact the Group's income in the long term.

Further discussion on climate change can be found in the "Principal Risks and Uncertainties" section on pages 19 to 26 and the "Responsibility and Sustainability" section on page 37 to 45.

 

3.6. Insurance related credit risk

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

Reinsurers default on presentation of a large claim or dispute of cover

Reinsurers default on their share of the Group's insurance liabilities

Default on amounts due from insurance contract intermediaries or policyholders

Sabre uses a large panel of secure reinsurance companies. The credit risk of reinsurers included in the reinsurance programme is considered annually by reviewing their credit worthiness. Sabre's largest reinsurance counterparty is Munich Re. The credit risk exposure is further monitored throughout the year to ensure that changes in credit risk positions are adequately addressed.

The following tables demonstrate the Group's exposure to credit risk in respect of overdue insurance debt and counterparty creditworthiness. Unearned premium reserve ("UPR") is excluded as there are no credit risks inherent in them.

 

Overdue insurance related debt

 

Neither past due nor impaired

Past due 1-90 days

Past due more than 90 days

Assets that have been impaired

Carrying value in the balance sheet

At 31 December 2021

£'k

£'k 

£'k

£'k

£'k

Reinsurance assets (excluding UPR)

 103,628

 -

 -

 -

 103,628

Insurance receivables

 37,840

 163

 -

 -

 38,003

Total

 141,468

 163

 -

 -

 141,631

 

 

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 2020

£'k

 'k

£'k

£'k

£'k

Reinsurance assets (excluding UPR)

 92,016

 -

 -

 -

 92,016

Insurance receivables

 33,821

 155

 -

 -

 33,976

Total

 125,837

 155

 -

 -

 125,992

 

Exposure by credit rating

 

AAA

AA+ to AA-

A+ to A-

BBB+ to BBB-

BB+ and below

Not rated

Total

At 31 December 2021

£'k

£'k

£'k

£'k

£'k

£'k

£'k

Reinsurance assets (excluding UPR)

 -

 72,498

 31,130

 -

 -

 -

 103,628

Insurance receivables

 -

 -

 -

 -

 -

 38,003

 38,003

Total

 -

 72,498

 31,130

 -

 -

 38,003

 141,631

 

 

AAA

AA+ to AA-

A+ to A-

BBB+ to BBB-

BB+ and below

Not rated

Total

At 31 December 2020

£'k

£'k

£'k

£'k

£'k

£'k

£'k

Reinsurance assets (excluding UPR)

 -

 66,492

 25,524

 -

 -

 -

 92,016

Insurance receivables

 -

 -

 -

 -

 -

 33,976

 33,976

Total

 -

 66,492

 25,524

 -

 -

 33,976

 125,992

 

 

3.7. Reconciliation of opening to closing balances

 

The below table reconciles the opening and closing balances of insurance liabilities and reinsurance assets.

 

2021

2020

 

£'k

£'k

Insurance liabilities and reinsurance assets - at the start of the year

 

 

Outstanding claims

 226,546

 212,167

Unearned premium reserve

 87,350

 99,877

Deferred acquisition costs

 (14,791)

 (16,211)

Reinsurance assets

 (99,921)

 (83,931)

Receivables arising from insurance and reinsurance contracts

 (33,976)

 (37,754)

Payables arising from insurance and reinsurance contracts

 6,246

 6,009

 

 171,454

 180,157

 

 

 

Profit or loss account movements

 

 

Net earned premium

 (145,442)

 (165,707)

Current year net incurred claims

 81,408

 84,702

Movement in prior year net incurred claims

 (7,160)

 (4,229)

Claims handling expenses

 6,767

 7,637

Change in deferred acquisition costs

 1,000

 1,420

 

 (63,427)

 (76,177)

 

 

 

Cash flow movements

 

 

Premiums received

 165,505

 176,974

Reinsurance premiums paid

 (20,574)

 (20,114)

Claims and other claims expenses paid

 (86,657)

 (89,386)

 

 58,274

 67,474

 

 

 

Insurance liabilities and reinsurance assets - at the end of the year

 166,301

 171,454

 

 

4. Financial assets

Risk management

Refer to the following notes for detail on risks relating to financial assets:

Investment concentration risk - Note 4.2

Credit risk - Note 4.6

Liquidity risk - Note 6

 

The Group's financial assets are summarised below:

 

 

2021

2020

 

Notes

£'k

£'k

Debt securities held at fair value through other comprehensive income

4.1.1

 234,667

 246,281

Loans and receivables

4.4

 74

 84

Cash and cash equivalents

4.5

 30,611

 37,904

Total

 

 265,352

 284,269

 

 

4.1. Debt securities at fair value

 

4.1.1. Debt securities held at fair value through other comprehensive income

ACCOUNTING POLICY - FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE

Classification

The Group classifies the following financial assets at fair value through other comprehensive income ("FVOCI"):

Debt securities

A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated at fair value through the profit or loss account ("FVTPL"):

The asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets

The contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest ("SPPI") on the principal amount outstanding on specified dates

Recognition and measurement

At initial recognition, the Group measures debt securities through other comprehensive income at fair value, plus the transaction costs that are directly attributable to the acquisition of the financial asset. Debt securities at FVOCI are subsequently measured at fair value.

Impairment

At each reporting date, the Group assesses debt securities at FVOCI for impairment. Under IFRS 9 a "three-stage" model for calculated Expected Credit Losses ("ECL") is used, and is based on changes in credit quality since initial recognition. Refer to Note 4.6.

 

The Group's debt securities held at fair value through other comprehensive income are summarised below:

 

2021

 

2020

 

£'k

% holdings

 

£'k

% holdings

Government bonds

 86,192

36.73%

 

 121,859

49.48%

Government-backed securities

 83,878

35.74%

 

 84,210

34.19%

Corporate bonds

 64,597

27.53%

 

 40,212

16.33%

Total

 234,667

100.00%

 

 246,281

100.00%

 

 

4.2. Investment concentration risk

Excessive exposure to particular industry sectors or groups can give rise to concentration risk. The Group has no significant investment concentration in any particular industrial sector and therefore is unlikely to suffer significant losses through its investment portfolio as a result of over-exposure to sectors engaged in similar activities or which have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions.

A significant part of the Group's investment portfolio consists primarily of UK Government bonds and government-backed bonds, therefore the risk of government default does exist, however the likelihood is extremely remote. The remainder of the portfolio consists of investment grade corporate bonds. The Group continues to monitor the strength and security of all bonds.

 

The Group's exposure by geographical area is outlined below:

 

 

Government bonds

Government-backed securities

Corporate bonds

Total

 

At 31 December 2021

£'k

£'k

£'k

£'k

% holdings

United Kingdom

 86,192

 105

 28,460

 114,757

48.90%

Europe

 -

 55,786

 26,446

 82,232

35.04%

North America

 -

 27,987

 9,691

 37,678

16.06%

Total

 86,192

 83,878

 64,597

 234,667

100.00%

 

 

Government bonds

Government-backed securities

Corporate bonds

Total

 

At 31 December 2020

£'k

£'k

£'k

£'k

% holdings

United Kingdom

 121,859

 10,505

 17,922

 150,286

61.02%

Europe

 -

 61,018

 15,727

 76,745

31.16%

North America

 -

 12,687

 6,563

 19,250

7.82%

Total

 121,859

 84,210

 40,212

 246,281

100.00%

 

 

The Group's exposure by investment type for government-backed securities and corporate bonds is outlined below:

 

Agency

Supranational

Total

At 31 December 2021

£'k

£'k

£'k

Government-backed securities

 48,987

 34,891

 83,878

% of holdings

58.40%

41.60%

100.00%

 

 

Financial

Industrial

Utilities

Total

At 31 December 2021

£'k

£'k

£'k

£'k

Corporate bonds

 30,642

 31,863

 2,092

 64,597

% of holdings

47.43%

49.33%

3.24%

100.00%

 

 

Agency

Supranational

Total

At 31 December 2020

£'k

£'k

£'k

Government-backed securities

 59,309

 24,901

 84,210

% of holdings

70.43%

29.57%

100.00%

 

 

Financial

Industrial

Utilities

Total

At 31 December 2020

£'k

£'k

£'k

£'k

Corporate bonds

 21,863

 16,160

 2,189

 40,212

% of holdings

54.37%

40.19%

5.44%

100.00%

 

 

4.3. Fair value

ACCOUNTING POLICY

Fair value is the price that would be received to sell an asset 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 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. 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 values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: fair values measured using valuation techniques for all inputs significant to the measurement other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3: fair values measured using valuation techniques for any input for the asset or liability significant to the measurement that is not based on observable market data (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 2021

£'k

£'k

£'k

£'k

Assets held at fair value

 

 

 

 

Financial investments

 234,667

 -

 -

 234,667

Total

 234,667

 -

 -

 234,667

 

 

Level 1

Level 2

Level 3

Total

As at 31 December 2020

£'k

£'k

£'k

£'k

Assets held at fair value

 

 

 

 

Financial investments

 246,281

 -

 -

 246,281

Total

 246,281

 -

 -

 246,281

 

Transfers between levels

There have been no transfers between levels during the year (2020: no transfers).

 

 

4.4. Loans and receivables

ACCOUNTING POLICY

Classification

The Group classifies its loans and receivables as at amortised cost only if both of the following criteria are met:

The asset is held within a business model whose objective is to collect the contractual cash flows

The contractual terms give rise to cash flows that are solely payments of principle and interest

Recognition and measurement

Loans and receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less provision for expected credit losses.

Impairment

The Group measures loss allowances at an amount equal to lifetime ECL. To measure the expected credit losses, loans and receivables have been grouped based on shared credit risk characteristics and the days past due to create the categories namely performing, underperforming and not performing. The expected loss rates are based on the payment profiles of receivables over a period of 36 months before year end. The loss rates are adjusted to reflect current and forward-looking information on macro-economic factors, such as the socio-economic environment affecting the ability of the debtors to settle the receivables. Receivables that are 30 days or more past due are considered to be "not performing" and the default rebuttable presumption of 90 days prescribed by IFRS 9 is not applied.

Performing

Customers have a low risk of default and a strong capacity to meet contractual cash flows.

Underperforming

Loans for which there is a significant increase in credit risk. A significant increase in credit risk is presumed if interest and/or principal repayments are past due.

Not performing

Interest and/or principal repayments are 30 days past due.

 

The Group's loans and receivables comprises of:

 

2021

2020

 

£'k

£'k

Other debtors

 76

 86

Provision for expected credit losses

 (2)

 (2)

Total

 74

 84

 

The estimated fair values of loans and receivables are the discounted amounts of the estimated future cash flows expected to be received.

The carrying value of loans and receivables approximates fair value. Provision for expected credit losses are based on the recoverability of the individual loans and receivables.

 

 

ECL

rate

ECL method

Gross

Provision opening balance

(Released)/

raised in the period

Provision closing balance

Net

At 31 December 2021

%

£'k 

£'k

£'k

£'k

£'k

£'k

Performing

2.5%

Lifetime

 76

 (2)

 -

 (2)

 74

Underperforming

25.0%

Lifetime

 -

 -

 -

 -

 -

Not performing

50.0%

Lifetime

 -

 -

 -

 -

 -

Total

 

 

 76

 (2)

 -

 (2)

 74

 

 

ECL

rate

ECL method

Gross

Provision opening balance

(Released)/

raised in the period

Provision closing balance

Net

At 31 December 2020

%

£'k 

£'k

£'k

£'k

£'k

£'k

Performing

2.5%

Lifetime

 86

 -

 (2)

 (2)

 84

Underperforming

25.0%

Lifetime

 -

 -

 -

 -

 -

Not performing

50.0%

Lifetime

 -

 -

 -

 -

 -

Total

 

 

 86

 -

 (2)

 (2)

 84

 

The forward-looking information considered was deemed to have an immaterial impact on expected credit losses.

 

 

4.5. Cash and cash equivalents

ACCOUNTING POLICY - CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and deposits held on call with banks. Cash and cash equivalents are carried at amortised cost.

 

 

2021

2020

 

£'k

£'k

Cash and cash equivalents

 30,611

 37,904

Total

 30,611

 37,904

 

Cash and cash equivalents include money market funds with no notice period for withdrawal.

The carrying value of cash and cash equivalents approximates fair value. The full value is expected to be realised within 12 months. While cash and cash equivalents are also subject to the impairment requirements of IFRS 9 the identified impairment loss was immaterial.

 

 

4.6. Credit risk

ACCOUNTING POLICY

Impairment of financial assets

At each reporting date, the Group assesses financial assets measured at amortised cost and debt securities at FVOCI for impairment. Under IFRS 9 a "three-stage" model for calculated Expected Credit Losses ("ECL") is used, and is based on changes in credit quality since initial recognition as summarised below:

Performing financial assets

Stage 1: From initial recognition of a financial asset to the date on which an asset has experienced a significant increase in credit risk relative to its initial recognition, a stage 1 loss allowance is recognised equal to the credit losses expected to result from its default occurring over the earlier of the next 12 months or its maturity date ("12-month ECL").

Stage 2: Following a significant increase in credit risk relative to the initial recognition of the financial asset, a stage 2 loss allowance is recognised equal to the credit losses expected from all possible default events over the remaining lifetime of the asset ("Lifetime ECL"). The assessment of whether there has been a significant increase in credit risk, such as an actual or significant change in instruments external credit rating; significant widening of credit spread; changes in rates or terms of instrument; existing of 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 2021

£'k

£'k

£'k

£'k

£'k

£'k

£'k

UK Government bonds

 -

 86,192

 -

 -

 -

 -

 86,192

Government-backed securities

 75,294

 8,584

 -

 -

 -

 -

 83,878

Corporate bonds

 -

 3,128

 39,417

 22,052

 -

 -

 64,597

Loans and other receivables

 -

 -

 -

 -

 -

 74

 74

Cash and cash equivalents

 368

 51

 30,192

 -

 -

 -

 30,611

Total

 75,662

 97,955

 69,609

 22,052

 -

 74

 265,352

 

 

AAA

AA+ to AA-

A+ to A-

BBB+ to BBB-

BB+ and below

Not rated

Total

At 31 December 2020

£'k

£'k

£'k

£'k

£'k

£'k

£'k

UK Government bonds

 -

 121,859

 -

 -

 -

 -

 121,859

Government-backed securities

 61,649

 12,164

 10,397

 -

 -

 -

 84,210

Corporate bonds

 -

 2,087

 20,094

 18,031

 -

 -

 40,212

Loans and other receivables

 -

 -

 -

 -

 -

 84

 84

Cash and cash equivalents

 20,957

 63

 16,884

 -

 -

 -

 37,904

Total

 82,606

 136,173

 47,375

 18,031

 -

 84

 284,269

 

With exception of loans and other receivables, all the Company's financial assets are investment grade (AAA to BBB).

 

Analysis of credit risk and allowance for 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 2021

£'k

£'k 

£'k

Government bonds

 86,192

 (8)

 86,184

Government-backed securities

 83,878

 (4)

 83,874

Corporate bonds

 64,597

 (52)

 64,545

Loans and other receivables

 74

 (2)

 72

Cash and cash equivalents

 30,611

 - 

 30,611

Total

 265,352

 (66)

 265,286

 

 

Gross carrying amount

Allowance for ECL

Net amount

At 31 December 2020

£'k

 'k

£'k

Government bonds

 121,859

 (10)

 121,849

Government-backed securities

 84,210

 (2)

 84,208

Corporate bonds

 40,212

 (36)

 40,176

Loans and other receivables

 84

 (2)

 82

Cash and cash equivalents

 37,904

 - 

 37,904

Total

 284,269

 (50)

 284,219

 

 

4.7. Interest rate risk - financial assets

Interest rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Floating rate instruments expose the Group to cash flow interest risk, whereas fixed interest rate instruments expose the Group to fair value interest risk. Currently the Group holds only fixed rate securities.

The Group's interest risk policy requires it to manage the maturities of interest-bearing financial assets and interest-bearing financial liabilities. Interest on fixed interest rate instruments is priced at inception of the financial instrument and is fixed until maturity.

The Group has a concentration of interest rate risk in UK Government Bonds and other fixed-income securities.

The analysis that follows is performed for reasonably possible movements in key variables with all other variables held constant, showing the impact on profit before tax and equity. The correlation of variables will have a significant effect in determining the ultimate impact on interest rate risk, but to demonstrate the impact due to changes in variables, variables had to be changed on an individual basis. It should be noted that movements in these variables are non-linear.

Note that the Group's investment portfolio has been designed such that the cash flows yielded from investments match the projected outflows inherent primarily within the claims reserve. While these insurance liabilities are shown on an undiscounted basis under IFRS, their economic value will move broadly in line with the underlying assets.

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

 

2021

2020

 

2021

2020

At 31 December

£'k

£'k

 

£'k

£'k

Interest rate

 

 

 

 

 

Impact of a 100-basis point increase in interest rates on financial investments

 -

 -

 

 (3,861)

 (1,958)

 

 

4.8. Investment income

ACCOUNTING POLICY

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.

 

 

2021

2020

 

£'k

£'k

Interest income on financial assets using effective interest rate method

 

 

Interest income from debt securities

 1,507

 1,680

Investment fees

 (308)

 (331)

Interest income from cash and cash equivalents

 11

 68

Total

 1,210

 1,417

 

 

4.9. Net gains/(losses) from fair value adjustments on financial assets

ACCOUNTING POLICY

Movements in the fair value of debt instruments classified as FVOCI are taken through the OCI. When the instruments are derecognised, the cumulative gain or losses previously recognised in OCI is reclassified to profit or loss.

 

 

2021

2020

 

£'k

£'k

Profit or loss

 

 

Realised fair value losses on debt securities

 (16)

 -

Realised fair value losses on debt securities reclassified to profit or loss

 (16)

 -

 

 

 

Other Comprehensive Income

 

 

Unrealised fair value (losses)/gains on debt securities

 (5,674)

 2,415

Expected credit loss

 16

 21

Unrealised fair value (losses)/gains on debt securities through other comprehensive income

 (5,658)

 2,436

 

 

 

Net (losses)/gains from fair value adjustments on financial assets

 (5,674)

 2,436

 

 

5. Financial liabilities

The Group's financial liabilities are summarised below:

 

 

2021

2020

 

Notes

£'k

£'k

Financial liabilities at amortised cost

 

 

 

Lease liabilities

5.1

 193

 194

Trade and other payables, excluding insurance payables

5.3

 5,831

 5,530

Total

 

 6,024

 5,724

 

 

5.1. Lease liability

 

2021

2020

 

£'k

£'k

As at the beginning of the year

 194

 194

Cash movements

 

 

Lease payments

 (264)

 (264)

Non-cash movements

 

 

Lease extension during the year

 247

 251

Interest

 16

 13

As at 31 December

 193

 194

 

 

 

Current

 193

 194

Non-current

 -

 -

 

 

5.2. Finance costs

ACCOUNTING POLICY

Finance costs are recognised using the effective interest method.

 

 

2021

2020

 

£'k

£'k

Interest on lease liabilities

 16

 13

Total

 16

 13

 

 

5.3. Trade and other payables, excluding insurance payables

ACCOUNTING POLICY

Trade and other payables, including accruals, are recognised when the Group has a present obligation arising from past events, the settlement of which is expected to result in an outflow of economic benefits from the Group. Trade and other payables are carried at amortised cost.

 

 

2021

2020

 

£'k

£'k

Trade and other creditors

 321

 1,345

Other taxes

 5,510

 4,185

Total

 5,831

 5,530

 

 

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 the maturity profile of its financial investments to the expected cash outflows.

The liquidity of the Group's insurance liabilities and supporting assets is given in the tables below.

 

 

Total

Within 1 year

1-3 years

3-5 years

5-10 years

Over 10 years

At 31 December 2021

£'k

£'k

£'k

£'k

£'k

£'k

Reinsurance assets, excluding UPR(1)

 103,628

 43,546

 34,496

 18,393

 7,193

 -

Government bonds

 86,192

 27,313

 22,845

 35,001

 1,033

 -

Government-backed securities

 83,878

 8,479

 64,752

 10,647

 -

 -

Corporate bonds

 64,597

 2,203

 14,034

 48,360

 -

 -

Loans and other receivables

 74

 74

 -

 -

 -

 -

Cash and cash equivalents(2)

 30,611

 30,611

 -

 -

 -

 -

Total

 368,980

 112,226

 136,127

 112,401

 8,226

 -

 

 

 

 

 

 

 

 

Total

Within 1 year

1-3 years

3-5 years

5-10 years

Over 10 years

At 31 December 2021

£'k

£'k

£'k

£'k

£'k

£'k

Insurance liabilities, excluding UPR(1)

 232,516

 112,975

 75,661

 32,848

 11,032

 -

Insurance payable

 7,115

 7,115

 -

 -

 -

 -

Lease liabilities

 193

 193

 -

 -

 -

 -

Trade and other payables

 5,831

 5,831

 -

 -

 -

 -

Total

 245,655

 126,114

 75,661

 32,848

 11,032

 -

 

(1) Unearned premiums are excluded as there are no liquidity risks inherent in them.

(2) Includes money market funds with no notice period for withdrawal.

 

 

 

Total

Within 1 year

1-3 years

3-5 years

5-10 years

Over 10 years

At 31 December 2020

£'k

£'k

£'k

£'k

£'k

£'k

Reinsurance assets, excluding UPR(1)

 92,016

 33,541

 34,203

 17,654

 6,618

 -

UK Government bonds

 121,859

 60,861

 43,158

 14,019

 3,821

 -

Government-backed securities

 84,210

 -

 17,338

 66,872

 -

 -

Corporate bonds

 40,212

 -

 6,763

 31,263

 2,186

 -

Loans and other receivables

 84

 84

 -

 -

 -

 -

Cash and cash equivalents(2)

 37,904

 37,904

 -

 -

 -

 -

Total

 376,285

 132,390

 101,462

 129,808

 12,625

 -

 

 

 

 

 

 

 

 

Total

Within 1 year

1-3 years

3-5 years

5-10 years

Over 10 years

At 31 December 2020

£'k

£'k

£'k

£'k

£'k

£'k

Insurance liabilities, excluding UPR(1)

 226,546

 100,794

 82,568

 33,113

 10,071

 -

Insurance payables

 6,246

 6,246

 -

 -

 -

 -

Lease liabilities

 194

 194

 -

 -

 -

 -

Trade and other payables

 5,530

 5,530

 -

 -

 -

 -

Total

 238,516

 112,764

 82,568

 33,113

 10,071

 -

 

(1) Unearned premiums are excluded as there are no liquidity risks inherent in them.

(2) Includes money market funds with no notice period for withdrawal.

 

 

7. Other operating income

ACCOUNTING POLICY

Other operating income consists of marketing fees, commissions resulting from the sale of ancillary products connected to the Group's direct business, and other non-insurance income such as administrative fees charged on direct business. Such income is recognised once the related service has been performed. Typically, this will be at the point of sale of the product.

 

 

2021

2020

 

£'k

£'k

Marketing fees

 463

 834

Fee income from the sale of auxiliary products and services

 196

 113

Administration fees

 1,439

 1,224

Total

 2,098

 2,171

 

 

8. Operating expenses

 

 

2021

2020

 

Notes

£'k

£'k

Employee expenses

8.1

 12,338

 13,518

Property expenses

 

 331

 394

IT expense including IT depreciation

 

 5,125

 4,965

Other depreciation

 

 33

 45

Industry levies

 

 5,000

 5,170

Policy servicing costs

 

 2,282

 2,463

Other operating expenses

 

 2,189

 3,055

Expected credit loss on financial assets

 

 16

 23

Impairment loss on owner-occupied properties

9.1

 - 

 65

Before adjustments for deferred acquisition costs and claims handling expenses

 

 27,314

 29,698

Adjusted for:

 

 

 

Claims handling expense reclassification

 

 (6,767)

 (7,637)

Movement in deferred acquisition costs

 

 939

 309

Total operating expenses

 

 21,486

 22,370

 

 

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. 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:

 

2021

2020

 

£'k

£'k

Wages and salaries

 9,417

 9,568

Issue of share-based payments

 1,075

 1,648

Social security expenses

 1,193

 1,460

Pension expenses

 475

 511

Other staff expenses

 178

 331

Before adjustments for deferred acquisition costs and claims handling expenses

 12,338

 13,518

Adjusted for:

 

 

Claims handling expense reclassification

 (5,239)

 (5,696)

Movement in deferred acquisition costs

 535

 (26)

Employee expenses

 7,634

 7,796

 

 

8.2. Number of employees

The table below analyses the average monthly number of persons employed by the Group's operations.

 

2021

2020

Operations

 124

 130

Support

 30

 31

Total

 154

 161

 

 

8.3. Directors' remuneration

Amounts paid to Directors are disclosed within the "Annual Report on Director's Remuneration" in the Group's Annual Report and Accounts.

 

 

8.4. Auditors' remuneration

The table below analyses the Auditor's remuneration in respect of the Group's operations.

 

2021

2020

 

£'k

£'k

Audit of these financial statements

 124

 110

Audit of financial statements of subsidiaries of the Group

 255

 295

Total audit fees

 379

 405

Fees for non-audit services - Audit-related assurance services

 80

 78

Total non-audit fees

 80

 78

Total auditor remuneration

 459

 483

 

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.

 

2021

2020

 

£'k

£'k

Property, plant and equipment - owned

 4,066

 4,174

Property, plant and equipment - leased (Right-of-use assets)

 187

 189

Total

 4,253

 4,363

 

 

9.1. Owned assets

ACCOUNTING POLICY

A. Owner-occupied property

Owner-occupied properties are held by the Group for use in the supply of services or, for its own administration purposes.

Owner-occupied property is held at fair value, with subsequent revaluation gains taken through 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. Owner-occupied property is also revalued by an external qualified surveyor, at least every three years. Owner-occupied land is not depreciated. As the depreciation of owner-occupied buildings is immaterial and properties are revalued every three years, no depreciation is charged on owner-occupied buildings.

B. Fixtures, fittings and computer equipment

Fixtures, fittings and computer equipment are stated at historical cost less accumulated depreciation and impairment charges. Historical cost includes expenditure that is directly attributable to the acquisition of property and equipment.

Depreciation is calculated on the difference between the cost and residual value of the asset and is charged to the profit or loss account over the estimated useful life of each significant part of an item of fixtures, fittings and computer equipment, using the straight-line basis.

Estimate useful lives are as follows:

Fixtures and fittings: 5 years

Computer equipment: 5 years

The assets' residual values and useful lives are reviewed at each statement of financial position date and adjusted if appropriate. An asset's carrying amount is written down to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of the assets and are included in profit or loss before tax.

Repairs and maintenance costs are charged to the profit or loss account during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits from the existing asset will flow to the Group.

 

 

Owner- occupied

Fixtures and fittings

Computer equipment

Total

 

£'k

£'k

£'k

£'k

Cost/Valuation

 

 

 

 

At 1 January 2021

 4,250

 235

 825

 5,310

Additions

 -

 5

 23

 28

Disposals

 -

 -

 -

 -

Revaluation

 -

 -

 -

 -

At 31 December 2021

 4,250

 240

 848

 5,338

Accumulated depreciation and impairment

 

 

 

 

At 1 January 2021

 425

 185

 526

 1,136

Depreciation charge for the year

 -

 33

 103

 136

Disposals

 -

 -

 -

 -

Impairment losses on revaluation

 -

 -

 -

 -

At 31 December 2021

 425

 218

 629

 1,272

 

 

 

 

 

Carrying amount

 

 

 

 

As at 31 December 2021

 3,825

 22

 219

 4,066

 

 

Owner-occupied (1)

Fixtures and fittings

Computer equipment

Total

 

£'k

£'k

£'k

£'k

Cost/Valuation

 

 

 

 

At 1 January 2020

 4,415

 235

 813

 5,463

Additions

 -

 -

 12

 12

Disposals

 -

 -

 -

 -

Revaluation

 (165)

 -

 -

 (165)

At 31 December 2020

 4,250

 235

 825

 5,310

Accumulated depreciation and impairment

 

 

 

 

At 1 January 2020

 360

 140

 395

 895

Depreciation charge for the year

 -

 45

 131

 176

Disposals

 -

 -

 -

 -

Impairment losses on revaluation

 65

 -

 -

 65

At 31 December 2020

 425

 185

 526

 1,136

 

 

 

 

 

Carrying amount

 

 

 

 

As at 31 December 2020

 3,825

 50

 299

 4,174

 

(1) In the prior year the opening and closing balances of the valuation of owner-occupied properties were disclosed net of historic impairments. Historic impairments are now separately disclosed.
 

The Group holds two owner-occupied properties, Sabre House and The Old House, which are both managed by the Group. In accordance with the Group's accounting policies, owner-occupied buildings are not depreciated. The properties are measured at fair value which is arrived at on the basis of a valuation carried out on 1 December 2020 by Hurst Warne and Partners LLP. The valuation was carried out on an open-market basis in accordance with the Royal Institution of Chartered Surveyors' requirements, which is deemed to equate to fair value. While transaction evidence underpins the valuation process, the definition of market value, including the commentary, in practice requires the valuer to reflect the realities of the current market. In this context valuers must use their market knowledge and professional judgement and not rely only upon historical market sentiment based on historical transactional comparables.

The fair value of the owner-occupied properties was derived using the investment method supported by comparable evidence. The significant non-observable inputs used in the valuations are the expected rental values per square foot and the capitalisation rates. The fair value of the owner-occupied properties valuation would increase (decrease) if the expected rental values per square foot were to be higher (lower) and the capitalisation rates were to be lower (higher).

The fair value measurement of owner-occupied properties of £3,825k (2020: £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:

 

 

2021

2020

Owner-occupied

£'k

£'k

At 1 January

 3,825

 4,055

Revaluation losses

 -

 (165)

Impairment losses

 -

 (65)

At 31 December

 3,825

 3,825

 

Revaluation losses are charged against the related revaluation reserve to the extent that the decrease does not exceed the amount held in the revaluation surplus in respect of the same asset. Any additional losses are charged as an impairment loss in the profit or loss account. Reversal of such impairment losses in future periods will be credited to the profit or loss account to the extent losses were previously charged to the profit or loss account.

The table below shows the impact a 15% decrease in property markets will have on the Company's profit after tax and equity:

 

At 31 December

Decrease

in profit after tax

 

Decrease

in total equity

2021

£'k

2020

£'k

 

2021

£'k

2020

£'k

Owner-occupied property

 

 

 

 

 

Impact of a 15% decrease in property markets

 (131)

 (131)

 

 (465)

 (465)

 

Historical cost model values

If owner-occupied properties were carried under the cost model (historical costs, less accumulated depreciation and impairment losses), the value of owner-occupied properties in the balance sheet would have been £2,845k (2020: £3,074k).

 

 

9.2. Leased assets

ACCOUNTING POLICY

Right-of-use assets

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying assets or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

Lease liabilities

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprises the following:

Fixed payments, including in-substance fixed payments

Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date

Amounts expected to be payable under a residual value guarantee

The exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early

The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option.

Short-term leases and leases of low-value assets

The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery that have a lease term of 12 months or less and leases of low-value assets, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

The Group has one lease contract for computer equipment used in its operations, with the exception of short-term leases and leases of low-value underlying assets. This lease is reflected on the balance sheet as a right-of-use asset and a lease liability. The Group classifies its right-of-use assets in a consistent manner to its property, plant and equipment (see Note 9.1).

Leases of computer equipment generally have lease terms between zero and five years. The lease payments are fixed and the lease is not linked to revenue or annual changes in an index (such as the Consumer Price Index ("CPI")).

The right-of-use asset can only be used by the Group and the Group cannot sub-lease the asset. The Group is prohibited from selling or pledging the underlying assets as security. The lease may only be cancelled by incurring a termination fee. The Group's obligations under the lease are secured by the lessor's title to the leased assets. No lease contracts require the Group to maintain certain financial ratios.

The table below describes the nature of the Group's leasing activity by type of right-of-use asset recognised on balance sheet:

 

 Right-of-use asset

No of assets leased

Range of remaining term

Average remaining lease term

No. of leases with extension options

No. of leases with option to purchase

No. of leases with variable payments linked to an index

No. of leases with termination options

Computer equipment

1

0 to 1 years

0.75 years

1

 -

 -

 -

 

Right-of-use assets

Additional information on the right-of-use assets by class of assets is as follows:

 

Computer equipment

Total

 

£'k

£'k

As at 1 January 2021

 189

 189

Additions

 247

 247

Depreciation

 (249)

 (249)

As at 31 December 2021

 187

 187

 

 

Computer equipment

Total

 

£'k

£'k

As at 1 January 2020

 189

 189

Additions

 252

 252

Depreciation

 (252)

 (252)

As at 31 December 2020

 189

 189

 

The right-of-use assets are included in the same line items as where the corresponding underlying assets would be presented if they were owned.

Lease liabilities

Lease liabilities are presented in the statement of financial position as follows:

 

2021

2020

 

£'k

£'k

As at 1 January

 194

 194

Additions

 247

 251

Accretion of interest

 16

 13

Payments

 (264)

 (264)

As at 31 December

 193

 194

 

 

 

Current

 193

 194

Non-current

 -

 -

 

The maturity analysis of lease liabilities is disclosed in Note 6.

The following are the amounts recognised in the profit or loss account:

 

2021

2020

 

£'k

£'k

Depreciation expense of right-of-use assets

 249

 252

Interest expense on lease liabilities

 16

 13

Expenses relating to short-term leases (included in IT expenses)

 -

 -

Expenses relating to low-value assets (included in other operating expenses)

 14

 14

Variable lease payments

 -

 -

Total

 279

 279

 

The Group had total cash outflows for leases of £278k in 2021 (2020: £278k). The Group had no non-cash additions to right-of-use assets or lease liabilities. The Group has not entered into any lease agreements which have not yet commenced.

The Group has no lease contracts that contains variable payments.

The Group's lease contract expired in October 2020. Under the lease contract, the Group can extend the lease for 12 months. At the extension date, the contract no longer contains a termination option and management has the option to extend the lease every year for another 12-month period. Given the uncertainty of the impact of COVID-19 at the extension dates, management extended the lease for 12 months in 2020 and another 12 months in 2021. No decision on extending or terminating the lease in 2022 has yet been taken.

 

 

10. Tax charge

ACCOUNTING POLICY

The taxation charge in the profit or loss account is based on the taxable profits for the year. It is Group policy to relieve profits where possible by the surrender of losses from Group companies with payment for value.

 

 

2021

2020

 

£'k

£'k

Current taxation

 

 

Charge for the year

 6,935

 9,452

 

 6,935

 9,452

Deferred taxation (Note 11)

 

 

Origination and reversal of temporary differences

 124

 (128)

 

 124

 (128)

 

 

 

Current taxation

 6,935

 9,452

Deferred taxation (Note 11)

 124

 (128)

Tax charge for the year

 7,059

 9,324

 

Tax recorded in other comprehensive income is as follows.

 

2021

2020

 

£'k

£'k

Current taxation

 -

 (31)

Deferred taxation

 (1,069)

 463

 

 (1,069)

 432

 

The actual income tax charge differs from the expected income tax charge computed by applying the standard rate of UK corporation tax of 19.00% (2020: 19.00%) as follows:

 

 

2021

2020

 

£'k

£'k

Profit before tax

 37,199

 49,122

Expected tax charge

 7,068

 9,333

Effect of:

 

 

Expenses not deductible for tax purposes

 6

 2

Adjustment of deferred tax to average rate of 19%

 -

 (24)

Other permanent difference

 -

 7

Adjustment in respect of prior periods

 (99)

 -

Income/loss not subject to UK taxation

 8

 7

Other Income Tax Adjustments

 76

 (1)

Tax charge for the year

 7,059

 9,324

 

 

 

Effective income tax rate

18.98%

18.98%

 

 

11. Deferred tax charge

ACCOUNTING POLICY

Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more, tax, with the following exception.

Deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

 

 

Provisions and other temporary differences

Depreciation in excess of capital allowances

Share-based Payments

Fair value movements in debt securities at FVOCI

Total

 

£'k

£'k

£'k

£'k

£'k

At 1 January 2020

 19

 (41)

 232

 -

 210

(Debit)/Credit to the profit or loss

 2

 17

 115

 (6)

 128

(Debit)/Credit to other comprehensive income

 -

 -

 -

 (463)

 (463)

At 31 December 2020

 21

 (24)

 347

 (469)

 (125)

(Debit)/Credit to the profit or loss

 (2)

 (2)

 (114)

 (6)

 (124)

(Debit)/Credit to other comprehensive income

 -

 -

 -

 1,069

 1,069

At 31 December 2021

 19

 (26)

 233

 594

 820

 

 

2021

2020

 

£'k

£'k

Per statement of financial position:

 

 

Deferred tax assets

 846

 368

Deferred tax liabilities

 (26)

 (493)

 

 820

 (125)

 

From 1 April 2023, The Finance Act 2021 increases the UK corporation tax from 19% to 25%. This means that for any temporary differences expected to reverse on or after 1 April 2023, the new tax rate of 25% will be relevant. The Group has adjusted deferred tax balances accordingly. The impact of this adjustment on the deferred tax balances is not material.

 

 

12. Dividends

ACCOUNTING POLICY - DIVIDEND DISTRIBUTION

Dividend distribution to the Group's shareholders is recognised as a liability in the Group's financial statements in the period in which the Board of Directors approves the dividend.

 

 

2021

 

2020

 

pence per share

£'k

 

pence per share

£'k

Amounts recognised as distributions to equity holders in the period

 

 

 

 

 

Interim dividend for the current year

 3.7

 9,218

 

 9.5

 23,680

Final dividend for the prior year

 11.7

 29,168

 

 8.1

 20,190

 

 15.4

 38,386

 

 17.6

 43,870

Proposed dividends

 

 

 

 

 

Final dividend (1)

 9.3

 23,250

 

 11.7

 29,250

 

(1)  Subsequent to 31 December 2021, the Directors declared a final dividend for 2021 of 9.3p per ordinary share. This dividend will be accounted for as an appropriation of retained earnings in the year ended 31 December 2021 and is not included as a liability in the Statement of Financial Position as at 31 December 2021.

The trustees of the employee share trusts waived their entitlement to dividends on shares held in the trusts to meet obligation arising on share incentive schemes, which reduced the dividends paid for the year ended 31 December 2021 by £114k (2020: £130k).

 

 

13. Prepayments, accrued income and other assets

 

2021

2020

 

£'k

£'k

Prepayments and accrued income

 821

 868

Total

 821

 868

 

The carrying value of prepayments, accrued income and other assets approximates to fair value. There are no amounts expected to be recovered more than 12 months after the reporting date.

 

 

14. Goodwill

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 2021 and 31 December 2020. The Group considers the relationship between its market capitalisation and its book value, among other factors, when reviewing for indicators of impairment. As at 31 December 2021 and 31 December 2020, the Group's securities were traded on a liquid market, therefore market capitalisation could be used as a definitive indicator of market capitalisation.

 

Key assumptions

Market capitalisation of the Company as at 31 December 2021 was £459,500k (2020: £691,250k).

The group has identified one Cash Generating Units ("CGUs") for which goodwill has been fully allocated to. The Group has assessed the recoverable amount of the CGU as its "value-in-use". Value-in-use is defined as the present value of the future cash flows expected to derive from the CGU and represents the recoverable amount for the CGU.

We have used a dividend discount model to estimate the value-in-use, wherein dividend payments are discounted to the present value. Dividends have been estimated, based on forecasted financial information, over a four-year forecast period, with a terminal value applied therein. The key assumptions used in the preparation of future cash flows are: premium growth rates, implied combined ratio, dividend payout ratio, discount rate and long-term growth rate.

The key assumptions used in the calculation for the value in use is set out below

Premium growth rate in line with the Group's view on claims inflation

Combined Operating Ratio towards the upper end of the Group's target range

Dividend payout ratio in line with dividend policy and past payouts

Discount rate of 7.1%, being a calculated cost of capital using market rate returns of Sabre and FTSE 350 Insurers over the past 4 years

Long-term growth rate beyond 4 years of 2%

These calculations use post-tax cash flow projections based on the Group's most recent 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, which provided additional assurance that goodwill is not deemed to be impaired.

Premium growth rate within the first 4 years - Sensitivity analysis has been used to assess the impact of variance in the premium growth rate on the value-in-use calculation. Average premium growth rate was flexed by +5% and -5%. Within these ranges, the value-in-use exceeds the carrying amount and thus the recoverable amount remains supportable.

Combined Operating Ratio - To assess the impact of reasonable changes in the combined operating ratio on our base case impairment analysis and headroom, we flexed the combined ratio by +10% and 10%. Within this ranges, the value-in-use exceeds the carrying amount and thus the recoverable amount remains supportable.

Dividend payout ratio - To assess the impact of reasonable changes in the dividend payout ratio on our base case impairment analysis and headroom, we flexed the average dividend payout ratio by +10% and -10%. Within this ranges, the value-in-use exceeds the carrying amount and thus the recoverable amount remains supportable.

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%. Within this ranges, the value-in-use exceeds the carrying amount and thus the recoverable amount remains supportable.

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 +2% and -2%. Within this ranges, the value-in-use exceeds the carrying amount and thus the recoverable amount remains supportable.

 

 

15. Share capital

 

2021

2020

 

£'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 2021, The Sabre Insurance Group Employee Benefit Trust held 866,855 (2020: 604,239) of the 250,000,000 issued ordinary shares with a nominal value of £866.86 (2020: £604.24) in connection with the operation of the Group's share plans. Refer to Notes 16 and 17 for additional information on own shares held.

 

 

16. Share-based payments

The Group operates equity-settled share-based schemes for all employees in the form of a Long-Term Incentive Plan ("LTIP"), Deferred Bonus Plan ("DBP") and Share Incentive Plans ("SIP"), including Free Shares and Save As You Earn ("SAYE"). The shares are in the ultimate parent company, Sabre Insurance Group plc.

 

 

Free shares donated at listing

 

Shares bought/(sold) on open market

 

Total

 

Number of shares

Average

price

(pence)

£

 

Number of shares

Average

price

(pence)

£

 

£

As at 31 December 2019

 540,583

 0.001

 541

 

 395,587

 268.073

 1,060,461

 

 1,061,002

Shares purchased

 -

 -

 -

 

 145,621

 297.443

 433,140

 

 433,140

Shares disposed

 (38,961)

 0.001

 (39)

 

 - 

 - 

 - 

 

 (39)

Shares vested

 (438,591)

 0.001

 (439)

 

 - 

 - 

 - 

 

 (439)

As at 31 December 2020

 63,031

 0.001

 63

 

 541,208

 275.975

 1,493,601

 

 1,493,664

Shares purchased

 - 

 - 

 - 

 

 928,186

 256.295

 2,378,897

 

 2,378,897

Shares disposed

 - 

 - 

 - 

 

 (176,672)

 255.443

 (451,296)

 

 (451,296)

Shares vested

 (39,901)

 0.001

 (40)

 

 (448,997)

 259.367

 (1,164,550)

 

 (1,164,590)

As at 31 December 2021

 23,130

 0.001

 23

 

 843,725

 267.463

 2,256,652

 

 2,256,675

 

 

 

 

 

 

 

 

 

 

In thousands

 

 

£'k

 

 

 

£'k

 

£'k

As at 31 December 2020

 

 

 -

 

 

 

 1,494

 

 1,494

As at 31 December 2021

 

 

 -

 

 

 

 2,257

 

 2,257

 

As at 31 December 2021 there were NIL (2020: NIL) exercisable shares outstanding.

The Group recognised a total expense in the profit or loss for the year ending 31 December 2021 of £1,075k (2020: £1,648k), relating to equity-settled share-based plans.

Long-Term Incentive Plan ("LTIP")

The LTIP is a discretionary share plan, under which the Board may grant share-based awards ("LTIP Awards") to incentivise and retain eligible employees.

LTIP Awards - Awards with performance conditions

The LTIP with performance conditions is a discretionary share plan, under which the Board may grant share-based awards ("LTIP Awards") to incentivise and retain eligible employees. The vesting of LTIP Awards may (and, in the case of an LTIP Award to an Executive Director other than a Recruitment Award, will) be subject to the satisfaction of performance conditions. Any performance condition may be amended or substituted if one or more events occur which cause the Board to consider that an amended or substituted performance condition would be more appropriate and would not be materially less difficult to satisfy.

LTIP Awards which are subject to performance conditions will normally have those conditions assessed as soon as reasonably practicable after the end of the relevant performance period and, to the extent that the performance conditions have been met, the LTIP Awards will vest either on that date or such later date as the Board determines. LTIP Awards (other than Recruitment Awards) granted to the Executive Directors will normally be subject to a performance period of at least three years. LTIP Awards (other than Recruitment Awards) which are not subject to performance conditions will normally vest on the third anniversary of the date of grant or such other date as the Board determines.

The LTIP Awards issued by the Group for 2019 and 2020 have two performance metrics with a 50%/50% weighting, being Total Shareholder Return ("TSR") and Earnings Per Share ("EPS").

The Group's TSR is compared to the TSR of the constituents of the FTSE 250 Index (excluding investment trusts and extractive industries). The TSR tranche will vest in accordance with the following schedule:

 

 

2020 LTIP grant

2019 LTIP grant

TSR performance

Vesting (% max)

Below median

0%

0%

Median (Threshold)

25%

25%

Between median and upper quartile

Straight-line

Straight-line

Upper quartile (Stretch)

100%

100%

 

The Group's EPS performance is the Groups cumulative EPS over the performance period.

 

 

2020 LTIP grant

EPS performance

 

 

Below 48.6p

 

0%

48.6p (Threshold)

 

25%

Between threshold and target

 

Straight-line

54.0 (Target)

 

60%

Between target and stretch

 

Straight-line

66.7p or higher (Stretch)

 

100%

 

 

 

2019 LTIP grant

EPS performance

 

 

Below 54.5p

 

0%

54.5p (Threshold)

 

25%

Between threshold and target

 

Straight-line

60.6p (Target)

 

60%

Between target and stretch

 

Straight-line

66.7p or higher (Stretch)

 

100%

 

Shares granted under the 2018 LTIP vested on 12 April 2021.

The following table lists the inputs to the model used to value the remaining two LTIP plans for the year ended 31 December 2021. The TSR fair value of the awards granted is measured using the Monte Carlo method and the Black-Scholes model is used for the EPS fair value. The amount recognised as an expense under IFRS 2 is adjusted to reflect the actual number of share awards that vest.

 

 

2020 LTIP grant

2019 LTIP grant

Weighted average fair value per award at grant date

 226 pence

 206 pence

Share price at grant date

282 pence

288 pence

Expected term

 4.43 years

 4.51 years

Expected volatility(1)

30.09%

23.26%

Expected exercise price on outstanding awards

NIL

NIL

Grant-date TSR performance of the Group

(2.73%)

8.54%

Average risk - free interest rate

0.10%

0.81%

 

(1) Volatility has been estimated using the historical daily average volatility of the share price of similar companies to Sabre over a period of time. This assumption has no impact on the fair value of the EPS tranche, as the Awards were granted with a nil-cost exercise price.

Shares granted under the LTIP with performance conditions have a three-year vesting period. The Leadership Team Awards are subject to a two-year post-vesting holding period. To reflect the lack of liquidity of the two-year holding period, a discount rate of 15.40% for the 2020 LTIP grant and 11.85% for the 2019 LTIP grant has been applied in determining the fair value of the grants to the Leadership Team.

 

The tables below detail the movement in the LTIP:

 

LTIP without performance conditions

 

LTIP with performance conditions

 

Number and WAEP(1)

 

Number and WAEP

 

Number

£

 

Number

£

Outstanding at 1 January 2021

 -

NIL

 

 1,935,124

NIL

Granted

 -

NIL

 

 -

NIL

Forfeited

 -

NIL

 

 (499,442)

NIL

Vested

 -

NIL

 

 (286,323)

NIL

Outstanding at 31 December 2021

 -

NIL

 

 1,149,359

NIL

 

(1)  Weighted average exercise price - as a proxy for fair value.

 

 

 

LTIP without performance conditions

 

LTIP with performance conditions

 

Number and WAEP

 

Number and WAEP

 

Number

£

 

Number

£

Outstanding at 1 January 2020

 274,539

NIL

 

 1,217,394

NIL

Granted

 -

NIL

 

 717,730

NIL

Forfeited

 -

NIL

 

 -

NIL

Vested

 (274,539)

NIL

 

 -

NIL

Outstanding at 31 December 2020

 -

NIL

 

 1,935,124

NIL

 

LTIP Awards - Restricted Share Awards ("RSA")

From 2021 the Group will no longer issue awards under the LTIP Awards with performance conditions, but instead will issue restricted share awards.

The RSA is 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 441,684 (2020: NIL) with an estimated fair value at grant date of £1,170k (2020: NIL). The fair value is based on the average closing share price of the five trading days before the grant date.

The awards granted during the year ending 31 December 2021 are subject to the following underpins:

Maintaining a solvency ratio in excess of 140%

Achieving a Return of Tangible Equity in excess of 10%

No material regulatory censure

Overall Committee discretion

Future dividends are accrued separately and are not reflected in the fair value of the grant.

 

Deferred Bonus Plan ("DBP")

To encourage behaviour which does not benefit short-term profitability over longer-term value. Directors and some key staff were awarded shares in lieu of a bonus, to be deferred for two years, using the market value at the grant date. The total numbers of shares awarded under the scheme was 278,084 (2020: 220,130) with an estimate fair value of £672k (2020: £621k). Of this award, the number of shares awarded to Directors and PDMRs was 247,007 (2020: 200,065) with an estimated fair value of £597k (2020: £564k). Fair values are based on the share price at grant date. All shares are subject to a two-year service period and are not subject to performance conditions.

Future dividends are accrued separately and are not reflected in the fair value of the grant.

The DBP is recognised in the profit or loss account on a straight-line basis over a period of two years from grant date.

 

Share Incentive Plans ("SIPs")

The Sabre Share Incentive Plans provide for the award of free Sabre Insurance Group plc shares, Partnership Shares, Matching Shares and Dividend 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 ending 31 December 2021, 6,987 (2020: 7,366) matching shares were granted to employees with an estimated fair value of £13k (2020: £20k).

As at 31 December 2021, 16,838 (2020: 9,851) matching shares were held on behalf of employees with an estimated fair value of £31k (2020: £27k). The average unexpired life of Matching Share awards is 1.1 years (2020: 1.8 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 2019: 41p
SAYE 2020: 71p
SAYE 2021: 55p

The following table lists the inputs to the Black-Scholes model used to value the awards granted in respect of the 2021 SAYE scheme.

 

 

 

2021 SAYE

Share price at grant date

 

 254.50 pence

Expected term

 

3 years

Expected volatility(1)

 

28.49%

Continuously compounded risk-free rate

 

1.5%

Continuously compounded dividend yield

 

6%

Strike price at grant date

 

192.3 pence

 

(1) Volatility has been estimated using the historical daily average volatility of the share price of the Group for the year immediately preceding the grant date.

 

 

17. RESERVES

Own shares

Sabre Insurance Group plc established an Employee Benefit Trust ("EBT") in 2017 in connection with the operation of its share plans. The investment in own shares as at 31 December 2021 was £2,257k (2020: £1,494k) The market value of the shares in the EBT as at 31 December 2021 was £1,593k (2020: £1,671k)

Merger reserve

Sabre Insurance Group plc was incorporated as a limited company on 21 September 2017. On 11 December 2017, immediately prior to the Company's listing on the London Stock Exchange, Sabre Insurance Group plc acquired the entire share capital of the former ultimate parent company of the Group, Barbados TopCo Limited ("TopCo"). As a result, Sabre Insurance Group plc became the ultimate parent of the Sabre Insurance Group. The merger reserve resulted from this corporate reorganisation.

FVOCI reserve

The FVOCI reserve records the unrealised gains and losses arising from changes in the fair value of debt securities at FVOCI. The movements in this reserve are detailed in the consolidated Statement of Comprehensive Income.

Revaluation reserve

The revaluations reserve records the fair value movements of the Group's owner-occupied properties. Refer to Note 9 for more information on the revaluation of owner-occupied properties.

Share-based payments reserve

The Group's share-based payments reserve records the value of equity settled share-based payment benefits provided to the Group's employees as part of their remuneration that has been charged through the income statement. Refer to Note 16 for more information on share-based payments.

 

 

18. Related party transactions

Sabre Insurance Group plc is the ultimate parent and ultimate controlling party of the Group. The following entities included below form the Group.

Name

Principle Business

Registered Address

Binomial Group Limited

Intermediate holding company

Sabre House, 150 South Street, Dorking, Surrey, United Kingdom, RH4 2YY

Sabre Insurance Company Limited

Motor insurance underwriter

Sabre House, 150 South Street, Dorking, Surrey, United Kingdom, RH4 2YY

Barbados TopCo Limited

Non-Trading

Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY

Barb IntermediateCo Limited

Non-Trading

26 New Street, St Helier, Jersey, JE2 3RA

Barb MidCo Limited

Non-Trading

26 New Street, St Helier, Jersey, JE2 3RA

Barb BidCo Limited

Non-Trading

26 New Street, St Helier, Jersey, JE2 3RA

Barb HoldCo Limited

Non-Trading

26 New Street, St Helier, Jersey, JE2 3RA

Other controlled entities

 

 

EBT - UK SIP

Trust

Ocorian, 26 New Street, St Helier, Jersey, JE2 3RA

The Sabre Insurance Group Employee Benefit Trust

Trust

Ocorian, 26 New Street, St Helier, Jersey, JE2 3RA

 

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 Share Incentive Plan ("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 2021, the Group donated no shares to the EBTs (2020: NIL).

 

Key Management compensation

Key Management includes Executive Directors, Non-executive Directors and other senior management personnel. Further details of Directors' shareholdings and remuneration can be found in the "Annual Report on Director's Remuneration" on pages 71 to 81 of the Annual Report and Accounts.

 

 

19. LINE OF BUSINESS ANALYSIS

The Group provides only two products to clients, which are motor vehicle insurance and motorcycle insurance, which are written solely in the UK. The Group has no other lines of business, nor does it operate outside of the UK. Other income relates to auxiliary products and services, including marketing and administration fees, all relating to the motor insurance business. The Group does not have a single client which accounts for more than 10% of revenue.

 

 

2021

 

2020

 

Motor vehicle

Motorcycle

Total

 

Motor vehicle

Motorcycle

Total

 

£'k

£'k

£'k

 

£'k

£'k

£'k

Profit or Loss Account information

 

 

 

 

 

 

 

Gross written premium

 166,091

 3,231

 169,322

 

 173,235

 - 

 173,235

Less: Reinsurance premium ceded

 (21,203)

 (30)

 (21,233)

 

 (20,390)

 - 

 (20,390)

Net written premium

 144,888

 3,201

 148,089

 

 152,845

 - 

 152,845

 

 

 

 

 

 

 

 

Gross written premium

 166,091

 3,231

 169,322

 

 173,235

 - 

 173,235

Less: Change in unearned premium reserve

 (485)

 (2,941)

 (3,426)

 

 12,527

 - 

 12,527

Gross earned premium

 165,606

 290

 165,896

 

 185,762

 - 

 185,762

Reinsurance premium ceded

 (21,203)

 (30)

 (21,233)

 

 (20,390)

 - 

 (20,390)

Less: Change in unearned premium reserve

 779

 - 

 779

 

 335

 - 

 335

Reinsurance premium payable

 (20,424)

 (30)

 (20,454)

 

 (20,055)

 - 

 (20,055)

Net earned premium

 145,182

 260

 145,442

 

 165,707

 - 

 165,707

 

The Group started writing motorcycle business on 8 November 2021. Due to the immaterial contribution to the Group's overall results and limited claims development experience, the Group does not deem it suitable to currently provide additional disclosure beyond premium information.

In 2020 the Group had only one line of business, being motor vehicle insurance. As a result, no comparative information for 2020 is provided as all income and expenses relating to this one market segment. The Group only operates in the UK with information being reported to the chief operating decision makers and the Board done on an aggregated UK basis. No geographical segmentation is disclosed.

 

 

20. Earnings per share

Basic earnings per share

 

2021

 

2020

 

After tax

£'k

Per share

pence

 

After tax

£'k

Per share

pence

Profit for the year attributable to equity holders

 30,140

 12.09

 

 39,798

 15.98

 

Diluted earnings per share

 

2021

 

After tax

£'k

Weighted average number of shares

£'k

Per share

pence

Profit for the year attributable to equity holders

 30,140

 249,221

 12.09

Net share awards allocable for no further consideration

 

 2,320

 (0.11)

Total diluted earnings

 

 251,541

 11.98

 

 

2020

 

After tax

£'k

Weighted average number of shares

£'k

Per share

pence

Profit for the year attributable to equity holders

 39,798

 249,113

 15.98

Net share awards allocable for no further consideration

 

 2,452

 (0.16)

Total diluted earnings

 

 251,565

 15.82

 

 

21. Contingent liability

In 2019 HMRC issued a determination in relation to the 2015 corporation tax filing of a subsidiary of the Group, which is currently dormant. In Q2-2021 further determinations were received in respect of 2016 and 2017 on the same basis. These asserted that the interest rate applied on intercompany debt, and the resultant allowable expense, was inconsistent with transfer pricing rules and was excessive. The excess interest per the determinations is £6.5m, tax relief for which equates to a reduction in the Group's overall tax liability of £1.3m. The Directors obtained professional advice both at the time the returns were filed and subsequent to the determinations, and are satisfied that the Group's application of transfer pricing rules was correct. As such, appeals have been raised against the determinations. The Board does not consider it likely that the subsidiary will be required to resubmit its 2015, 2016 or 2017 filings.

 

 

22. EVENTS AFTER THE BALANCE SHEET DATE

Other than the declaration of a final dividend as disclosed in Note 12, there have been no material changes in the affairs or financial position of the Company and its subsidiaries since the statement of financial position date.

 

 

 

PARENT COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2021

 

 

2021

2020

 

Notes

£'k

£'k

Assets

 

 

 

Investments

2

 580,963

 579,889

Debtors

4

 128

 81

Prepayments

 

 204

 168

Cash and cash equivalents

 

 915

 745

Total assets

 

 582,210

 580,883

 

 

 

 

Equity

 

 

 

Issued share capital

5

 250

 250

Own shares

 

 (2,257)

 (1,494)

Merger reserve

 

 369,515

 369,515

Share-based payments reserve

 

 1,841

 1,817

Retained earnings

 

 212,794

 210,449

Total equity

 

 582,143

 580,537

 

 

 

 

Liabilities

 

 

 

Creditors: Amounts falling due within one year

3

 - 

 183

Accruals

 

 67

 163

Total liabilities

 

 67

 346

Total equity and liabilities

 

 582,210

 580,883

 

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 £40,846k (2020: £45,284k).

 

 

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

2021

2020

 

Notes

£'k

£'k

ORDINARY SHAREHOLDERS' EQUITY - at 1 January

 

 250

 250

At 31 December

 

 250

 250

 

 

 

 

OWN SHARES - at 1 January

 

 (1,494)

 (1,061)

Net movement in own shares

 

 (763)

 (433)

At 31 December

 

 (2,257)

 (1,494)

 

 

 

 

MERGER RESERVE - at 1 January

 

 369,515

 369,515

At 31 December

 

 369,515

 369,515

 

 

 

 

SHARE-BASED PAYMENT RESERVE - at 1 January

 

 1,817

 1,362

Settlement of share-based payments

 

 (1,051)

 (1,193)

Charge in respect of share-based payments

 

 1,075

 1,648

At 31 December

 

 1,841

 1,817

 

 

 

 

RETAINED EARNINGS - at 1 January

 

 210,449

 207,743

Share-based payments

 

 (115)

 1,291

Profit for the year

 

 40,846

 45,284

Ordinary dividends paid

 

 (38,386)

 (43,869)

At 31 December

 

 212,794

 210,449

 

 

 

 

Total equity at 31 December

 

 582,143

 580,537

 

 

PARENT COMPANY CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

2021

2020

 

 

£'k

£'k

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

Profit after tax for the year

 

 40,846

 45,284

Operating cash flows before movements in working capital

 

 40,846

 45,284

Movements in working capital:

 

 

 

Change in debtors

 

 (47)

 (81)

Change in prepayments

 

 (36)

 (135)

Change in trade and other payables

 

 (183)

 (1,304)

Change in accruals

 

 (96)

 163

Net cash generated from operating activities

 

 40,484

 43,927

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

Net cash used in acquiring and disposing of own shares

 

 (1,928)

 (433)

Dividends paid

 

 (38,386)

 (43,870)

Net cash used by financing activities

 

 (40,314)

 (44,303)

Net increase/(decrease) in cash and cash equivalents

 

 170

 (376)

Cash and cash equivalents at the beginning of the year

 

 745

 1,121

Cash and cash equivalents at the end of the year

 

 915

 745

 

 

NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2021

 

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 2021, comprising the parent company statement of financial position, parent company statement of changes in equity, parent company statement of cash flows, and related notes.

The financial statements of the Company have been prepared in accordance with UK-adopted international accounting standards, comprising International Accounting Standards ("IAS") and International Financial Reporting Standards ("IFRS"), and the requirements of the Companies Act 2006. Endorsement of accounting standards is granted by the UK Endorsement Board ("UKEB").

In accordance with the exemption permitted under section 408 of the Companies Act 2006, the Company's income statement and related notes have not been presented in these separate financial statements.

The financial statements are prepared in accordance with the going concern principle using the historical cost basis, except for investment properties and those financial assets that have been measured at fair value.

The financial statements values are presented in pounds sterling (£) rounded to the nearest thousand (£'k), unless otherwise indicated.

The accounting policies that are used in the preparation of these separate financial statements are consistent with the accounting policies used in the preparation of the consolidated financial statements of Sabre Insurance Group plc as set out in those financial statements.

As permitted by section 408 of the Companies Act 2006, the statement of comprehensive income of the parent company is not presented. The additional accounting policies that are specific to the separate financial statements of the Company are set out below.

 

 

2. Investments

The Company's financial assets are summarised below:

 

2021

2020

 

£'k

£'k

Investment in subsidiary undertakings

 580,963

 579,889

Total

 580,963

 579,889

 

 

2.1 Investment in subsidiary undertakings

ACCOUNTING POLICY - INVESTMENT IN SUBSIDIARY UNDERTAKINGS

Investment in subsidiaries is stated at cost less any impairment.

 

 

2021

2020

 

£'k

£'k

As at 1 January

 579,889

 578,143

Additions

 1,074

 1,746

As at 31 December

 580,963

 579,889

 

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 2021 and 31 December 2020. 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 2021 and 31 December 2020, the Company's securities were traded on a liquid market, therefore market capitalisation could be used as an indicator of value.

Key assumptions

During the year, the Group's market capitalisation has fallen below the book value of the Company's subsidiary undertakings. The Directors have considered the reduction in market capitalisation as an indicator of impairment. Market capitalisation of the Company at 31 December 2021 of £459,500k (2020: £691,250k).

The Group has calculated the recoverable amount of the subsidiaries using an assessment of "value-in-use".

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 value applied therein. The key assumptions used in the preparation of future cash flows are: premium growth rates, implied combined ratio, dividend payout ratio, discount rate and long-term growth rate.

The key assumptions used in the calculation of the recoverable amount is set out below

Premium growth rate in line with the Group's view on claims inflation

Combined Operating Ratio towards the upper end of the Group's target range

Dividend payout ratio in line with dividend policy and past payouts

Discount rate of 7.1%, being a calculated cost of capital using market rate returns of Sabre and FTSE 350 Insurers over the past 4 years

Long-term growth rate beyond 4 years of 2%

These calculations use post-tax cash flow projections based on the Group's most recent capital models. As the value-in-use exceeds the carrying amount, the recoverable amount remains supportable.

The company has conducted sensitivity testing to the recoverable amount, which provided additional assurance that goodwill is not deemed to be impaired.

Premium growth rate within the first 4 years - Sensitivity analysis has been used to assess the impact of variance in the premium growth rate on the value-in-use calculation. Average premium growth rate was flexed by +5% and -5%. Within these ranges, the value-in-use exceeds the carrying amount and thus the recoverable amount remains supportable. The amount by which the premium growth rate must change is 16%, after incorporating any consequential effects of that change on the other variables used within our base case impairment analysis, in order for the units recoverable amount to be equal its carrying amount

Combined Operating Ratio - To assess the impact of reasonable changes in the combined operating ratio on our base case impairment analysis and headroom, we flexed the combined ratio by +10% and 10%. Within this ranges, the value-in-use exceeds the carrying amount and thus the recoverable amount remains supportable.

Dividend payout ratio - To assess the impact of reasonable changes in the dividend payout ratio on our base case impairment analysis and headroom, we flexed the average dividend payout ratio by +10% and -10%. Within this ranges, the value-in-use exceeds the carrying amount and thus the recoverable amount remains supportable.

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%. Within this ranges, the value-in-use exceeds the carrying amount and thus the recoverable amount remains supportable.

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 +2% and -2%. Within this ranges, the value-in-use exceeds the carrying amount and thus the recoverable amount remains supportable.

The subsidiary undertakings of the Company are set out on the next page. Their capital consists of ordinary shares which are unlisted. In all cases, the Company owns 100% of the ordinary shares, either directly or through its ownership of other subsidiaries.

 

 Name of subsidiary

Place of incorporation

Principal activity

Directly held by the Company

 

 

Binomial Group Limited

United Kingdom

Intermediate holding company

Barbados TopCo Limited

Guernsey

Non-trading company

Barb IntermediateCo Limited

Jersey

Non-trading company

Barb MidCo Limited

Jersey

Non-trading company

Barb BidCo Limited

Jersey

Non-trading company

Barb HoldCo Limited

Jersey

Non-trading 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.

 

 

3. Creditors

 

2021

2020

 

£'k

£'k

Due within one year

 

 

Creditors

 -

 183

As at 31 December

 -

 183

 

 

4. Debtors

 

2021

2020

 

£'k

£'k

Due within one year

 

 

Amounts owed to Group undertakings

 126

 81

Other debtors

 2

 -

As at 31 December

 128

 81

 

 

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:

 

 

2021

2020

 

£'k

£'k

Due from

 

 

Sabre Insurance Company Limited

 126

 81

Total

 126

 81

 

The outstanding balance represents cash transactions effected by Sabre Insurance Company Limited on behalf of its parent company, and will be settled within one year.

 

 

8. Share-based payments

Full details of share-based compensation plans are provided in Note 16 to the consolidated financial statements.

 

 

9. Risk management

The risks faced by the Company, arising from its investment in subsidiaries, are considered to be the same as those presented by the operations of the Group. Details of the key risks and the steps taken to manage them are disclosed in Note 3 to the consolidated financial statements.

 

 

10. Directors and key management remuneration

The Directors and key management of the Group and the Company are the same. The aggregate emoluments of the Directors and the remuneration and pension benefits payable in respect of the highest paid Director are included in the Directors' Remuneration Report in the Governance section of the Annual Report and Accounts.

 

 

 

APPENDIX - FINANCIAL RECONCILIATIONS

AS AT 31 DECEMBER 2021

 

 

Adjusted Profit Before Tax

 

2021

£'k

2020

£'k

2019

£'k

Profit before tax

 37,199

 49,122

 56,479

Add:

 

 

 

Amortisation of intangible assets

 -

 -

 -

Exceptional items

 -

 -

 -

Adjusted profit before tax

 37,199

 49,122

 56,479

 

 

Adjusted Profit After Tax

 

2021

£'k

2020

£'k

2019

£'k

Profit after tax

 30,140

 39,798

 45,711

Add:

 

 

 

Amortisation of intangible assets

 -

 -

 -

Exceptional items

 -

 -

 -

Tax on exceptional items

 -

 -

 -

Adjusted profit after tax

 30,140

 39,798

 45,711

 

 

Net Loss Ratio

 

2021

£'k

2020

£'k

2019

£'k

Net insurance claims

 81,015

 88,110

 101,990

Less: Claims handling expenses

 (6,767)

 (7,637)

 (7,558)

Net claims incurred

 74,248

 80,473

 94,432

Net earned premium

 145,442

 165,707

 183,238

Net loss ratio

51.1%

48.6%

51.5%

 

 

Expense Ratio

 

2021

£'k

2020

£'k

2019

£'k

Total expenses

 34,444

 36,670

 32,507

Plus: Claims handling expenses

 6,767

 7,637

 7,558

Net operating expenses

 41,211

 44,307

 40,065

Net earned premium

 145,442

 165,707

 183,238

Expense ratio

28.3%

26.7%

21.9%

 

 

Combined Operating Ratio

 

2021

£'k

2020

£'k

2019

£'k

Total expenses

 34,444

 36,670

 32,507

Net insurance claims

 81,015

 88,110

 101,990

 

 115,459

 124,780

 134,497

Net earned premium

 145,442

 165,707

 183,238

Combined operating ratio

79.4%

75.3%

73.4%

 

 

Solvency Coverage Ratio - Pre-Dividend

 

2021

£'k

2020

£'k

2019

£'k

Solvency II net assets

 110,114

 122,500

 127,086

Solvency capital requirement

 52,955

 60,327

 59,495

Solvency coverage ratio - pre-dividend

207.9%

203.1%

213.6%

 

 

Solvency Coverage Ratio - Post-Dividend

 

2021

£'k

2020

£'k

2019

£'k

Solvency II net assets

 110,114

 122,500

 127,086

Less: Final dividend

 (23,250)

 (29,250)

 (20,250)

Solvency II net assets (post-dividend)

 86,864

 93,250

 106,836

Solvency capital requirement

 52,955

 60,327

 59,495

Solvency coverage ratio - post-dividend

164.0%

154.6%

179.6%

 

 

Return on Tangible Equity

 

2021

£'k

2020

£'k

2019

£'k

IFRS net assets at year end

 252,727

 266,400

 267,417

Less:

 

 

 

Goodwill at year end

 (156,279)

 (156,279)

 (156,279)

Closing tangible equity

 96,448

 110,121

 111,138

Opening tangible equity

 110,121

 111,138

 108,869

Average tangible equity

 103,285

 110,630

 110,004

Adjusted profit after tax

 30,140

 39,798

 45,711

Return on tangible equity

29.2%

36.0%

41.6%

 

 

Dividend Payout Ratio

 

2021

£'k

2020

£'k

2019

£'k

Adjusted profit after tax

 30,140

 39,798

 45,711

Dividend declared in respect of the financial year

 32,500

 53,000

 32,000

2019 deferred special dividend

 -

 (13,000)

 13,000

Effective dividend declared in respect of the financial year

 32,500

 40,000

 45,000

Dividend payout ratio

107.8%

100.5%

98.4%

 

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