Southern Rock Insurance Company 2014 Accounts

CO-93137-2173825
Co-93137-2173825
SOUTHERN ROCK INSURANCE
Document 461 (7)
ANNUAL FILING OF ACCOUNTS
YEAR ENDING 31/12/2014
Southern Rock Insurance Company Limited

Report & Financial Statements
For the year ended 31 December 2014
E.3ik;
I certify that I have seen the original docun tent
copy is a complete and accurate copy of the original.
Where the document contains a photograph, the
photograph contained In the documents bears a true
likeness to the person requesting this ceirtification:
Name: -10.car.• Lfcc

Position:
Date- — t7
Company Registration No. 93137

SOUTHERN ROCK INSURANCE COMPANY LIMITED
Financial Statements
COMPANY INFORMATION
Company Registration Number: 93137
Registered Office: 3AC 3'1 Floor

Leisure Island Business Centre
23 Ocean Village Promenade
Ocean Village
Gibraltar
Directors: J Banks
N Birrell
M Clayden
C Gillighan
T McGiffen
A Wigmore
Secretary: STM Fidecs Management Limited
Bankers: Royal Bank of Scotland

PO Box 707
57 Line Wall
Gibraltar
Barclays Private Clients International

80-90 Main Street
Gibraltar
Solicitors: Lyons Davidson

51 Victoria Street
Bristol
BSI 6AD
Auditors: BDO Limited

Registered Auditors & Chartered Accountants
Regal House
Queensway
Gibraltar
Financial Statements
Contents
Report of the Directors 1

Independent Auditor's report 6
Profit and Loss: Technical Account - General Business 8
Profit and Loss: Non-Technical Account 9
Balance Sheet: Assets 10
Balance Sheet: Liabilities II
Notes to the Financial Statements 12
Report of the Directors
The Directors present their report and the audited financial statements for the year ended 31 December 2014.
Principal Activities
The principal activity of Southern Rock Insurance Company Limited (the "Company") is the underwriting of
UK motor insurance risks. The Company is licensed by the Gibraltar Financial Services Commission ("FSC")
under the Financial Services (Insurance Companies) Act.
Business Review & Future Developments
The Directors report a loss for the year of £5.4m (2013: profit of £8.7m) driven largely by the difficult market
conditions which have been widely reported across the motor industry for 2014. Despite a reported financial
loss, the Company, has maintained its net asset position at £28.5m (2013: £31.7m) and its regulatory capital
position at £16.7m (2013: £20.7m). As at 31 December 2014 the Company was meeting and exceeding the
required minimum margin of solvency.
During 2014, the Company continued to build upon its strategy of creating a strong and loyal customer base
through up-front investment in customer acquisition and by working closely with its branded braking partners,
whilst maintaining a flexible but disciplined approach to managing the trade-off between margin and volumes.
Despite the backdrop of falling premiums in the UK motor market and increased levels of competition,
particularly in the younger driver segment, turnover has been maintained at £136m (2013: £141m), a reduction
of only 3.5%. Policies in force at 31" December 2014 stood at 163,650 compared to 180,500 at the prior year
end, a reduction of 9%, which is in line with the Company's strategy to focus its underwriting capacity through
the GoSkippy brand, a move which will provide the Company with continued and sustainable growth in the
future. Policies in force distributed via GoSkippy and related brands increased by 60,000 over the same period.
Total premium written before co-insurance fell by 16% (£20.3m) in 2014 compared to 2013, due to the
Directors decision of taking steps to be more selective in our approach to underwriting, in order to write more
sustainable business going forward. Average premiums were put under pressure from market forces, however
the average premium per policy fell by only 7% in the same period, the remainder of the reduction in premium
written being due to controls over volumes.
The reported underwriting result for 2014, a loss of £9.5m (2013: profit of £2.4m), includes the impact of
adverse developments in the 2009 to 2012 underwriting years as estimated by the Company's external actuaries.
These developments have led to an increase in provisions on those underwriting years of £5.1m. It is important
to highlight that these developments did not result from inadequate booked reserves on prior years but rather
from a higher than anticipated projected cost of bodily injury claims on a part of the business written during a
period of growth. There remains a provision for claims incurred but not reported of £4.8m on those historic
underwriting years combined, representing 23% of the outstanding net claims fund on those years. The Directors
believe that this represents a very prudent level of provisioning. These projections have also been incorporated
into the expected outcomes for the 2013 and 2014 underwriting years and have therefore further adversely
affected the 2014 reported result. Whilst the Directors recognise that the 2014 underwriting performance is less
favourable than previous years, it is believed that the reported results for 2014 present a very prudent position.
The Directors identified a deterioration in loss ratios in the early part of the year and took significant rating
action to correct the situation. The Directors also believe that the one-time impact of legislative change during
2014 adversely impacted upon the results of the actuarial review. For that reason, the Directors appointed a
second independent actuarial firm to assess the results of the initial actuarial report. This review identified that
the main source of uncertainty in the projected claims cost is caused by changes in the legal framework
(LASPO) and that capped injury claims costs continue to exhibit significantly erratic development. The review
suggests that future reports focus on the proportion of nil claims and that frequency projections should take
account of this.
Turnover comprises total premiums written including co-insurance and ancillary income
Page 1
Business Review and Future Developments (continued)
As a result of the nil claims the capped injury claims size continues to show decreases over time and the report
suggests that the Company may see average claim size reductions greater than industry figures suggest. The
report then concludes that this may result in over projection of the ultimate loss ratio by as much as 7 percentage
points at a gross level on an accident year basis. The Directors understand therefore that the ultimate loss ratio
may therefore be over-projected by 3 percentage points for the 2014 underwriting year, the impact of which
would be £0.7m or a 5% improvement on the Company's regulatory margin to 109%.
The effect of the Company's co- and re-insurance agreements is that it shares in the emerging profit on all
business written via its commission arrangements, whilst bearing limited risk of the loss arising on the co- and
re-insured portion of the business. Changes in loss ratios may therefore have a material impact on the
Company's results. For that reason, the adjustments to the loss ratios for the 2012 and prior underwriting years
have depressed profits by a further £2.4m related to commissions income.
Excluding the adverse developments to the 2012 and prior underwriting years, the combined ratio for 2014
comes in at 104% (2013: 92%). Whilst the cyclicality of the industry has contributed to this result, the Directors
and management are firmly focused on taking appropriate action as regards pricing and risk selection to re-
establish the Company as a profitable business. This includes implementing pricing action to shift the portfolio
away from poorly performing segments and accelerating initiatives to further improve risk selection, in addition
to providing appropriate higher rates for more adverse performing profiles of the book, at the expense of
slowing the projected future rate of growth.
During 2014, the Company continued to operate a capital light business model, transferring a significant portion
of its underwriting risk to its high-quality co- and re-insurance partners. The Company co-insured 50% of its
book; 35% of which was placed with Cardif Pinnacle, part of the BNP Paribas group and 15% with Alwyn, a
subsidiary of Arch Re. Both BNP Paribas and Arch Re hold A+ Standard and Poor's (S&P) ratings. The
Company placed a further 20% of its business with re-insurance partners, Partner Re and Axis Re, during 2014,
leaving the Company with a net exposure to 30% of the book. These arrangements have been extended into
2015, with the Company retaining 28.9% of the 2015 business written. Allianz Re has also joined the
reinsurance panel for 2015.
The Directors believe that the Company has sufficient capital resources to manage its business risks successfully
and as such the going concern basis has been used in preparing these financial statements.
The Company continues to prepare for the introduction of Solvency II ahead of the effective date of 1" January
2016. Solvency II aims to provide an EU-wide set of capital requirement and risk management standards.
Principal themes include risk based capital, market consistent balance sheets and own risk and solvency
assessments. The Company is making good progress towards full compliance. The Directors are confident that
the finalisation of its robust plan will ensure the Company meets its solvency capital requirements at the start of
Solvency lion I" January 2016.
As part of this process, the Company entered into an agreement with Panacea Limited on 30 April 2015 to sell
the rights attaching to the ancillary income from the renewal of its existing motor insurance policies for a
consideration of f17.5m. On the same date, Panacea Limited entered into an agreement to sell those same rights
it has acquired from the Company to Eldon Insurance Services Limited for a consideration of £17.5m. The
impact of this transaction is an increase in net assets of £ i 7.5m as these rights are currently not valued on the
balance sheet of the Company. This transaction takes the regulatory solvency margin of the company to 194%
as at 30 April 2015.
Page 2
Key Performance Indicators
The Directors measure the performance of the Company based on numerous indicators, the most important of
which are:
• Profit margin;
• Return on capital employed;
• Loss ratios; and
• Expense ratios.
Research
The Company did not carry out any activities in the field of research in the current or prior periods.
Results & Dividends
The loss for the year after taxation amounted to £5.4m (2013: £8.7m profit). No dividends have been paid in
2014(2013: bid).
Share Capital
No share capital was issued during the year (2013: L0.4m).
Directors
The Directors who served during the year and to the date of signing the financial statements were as follows:
J Banks
M Clayden
C Gillighan
T McGiffen
A Wigmore (appointed 31 May 2014)
N Birrell (appointed 1 July 2014)
T J Revill (resigned 31 March 2014)
A Kentish (resigned 31 May 2014)
A Banks (resigned 30 June 2014)
J Coetzee (resigned 30 November 2014)
Staff
To all our team members and associates who have worked so hard throughout the year, we would like to record
our thanks for their ongoing contribution to the Company's future success.
Principal Risks and Uncertainties
Claims Review and Provisioning
The Company's reserving policy is to set provisions in line with independent actuarial best estimate. This
independent actuarial review is supplemented by a second independent review of those actuarial results. This is
more fully explained within the claims reserving note 1.4.1.
There is always inherent risk in the calculation of projecting ultimate claims. However, based upon the external
actuarial best estimate, the Board believe the loss ratio levels and associated incurred but not reported provisions
included in these financial statements to be sufficient to meet future claims settlements.
Page 3
Management of Credit Risk
The Company purchases reinsurance protection from companies which are part of groups with specified
financial strength ratings of A or above according to S&P. The Company also maintains a strong credit control
function to ensure that its trade debtors are collected on a timely basis in line with FSC requirements.
Management of Insurance Risk
The Company mitigates underwriting risks through the following:
1) Purchase of reinsurance
The Company purchases excess of loss and quota share reinsurance.
2) Analytical pricing
A significant proportion of policies sold by the Company were sold directly to the customer. This allowed
the Company to obtain detailed data on which it could base its future pricing of policies. The availability of
this information is fundamental to the Company's strategy of amending rates in reaction to changes in market
conditions.
3) Effective claims management

The Company uses agreed Key Performance Indicators (KPI's) in the management of claims. Regular audits
of the claims files are completed to ensure that claims are settled promptly and fairly on behalf of customers.
Financial Risk Management Objectives and Policies
The Company uses a number of financial instruments to raise finance for the Company's operations. The
existence of these instruments exposes the Company to financial risks which are detailed below.
Liquidity Risk / Cash Flow Risk

The Company seeks to manage financial risk by ensuring sufficient liquidity is available to meet its foreseeable
needs and to invest cash assets safely and profitably. This is measured on a monthly basis. The Company
monitors cash flow using sophisticated forecasting techniques to ensure that all liabilities are met when due.
Credit Risk
In order to manage credit risk the Directors have incorporated a range of credit control procedures to monitor
debt levels and to ensure that any debts are collected as soon as reasonably possible. Strict credit control KPI's
are reported to ensure that debts do not exceed the prescribed period.
Employee Involvement
The Company supports the principle of equal opportunities. Its policy is that there should be no unfair
discrimination on the grounds of sex, age, religion or race. Equal employment opportunities are available to all
persons, including the disabled, having full regard to their particular skills and abilities.
The Directors believe in encouraging employees to become fully informed of the Company's activities and to be
closely involved in the business. The Company provides ongoing training to employees as necessary.
Branches
The Company did not operate any branches in either the current or prior year.
Page 4
Statement of Directors Responsibilities
The Directors are responsible for preparing the annual report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the
Directors have elected to prepare the financial statements in accordance with Gibraltar Generally Accepted
Accounting Practice (Gibraltar Accounting Standards and applicable law). The financial statements are required
by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the
Company for that period. In preparing these financial statements, the Directors are required to:
• Select suitable accounting policies and then apply them consistently;

• Make judgements and estimates that are reasonable and prudent;
• State whether applicable Gibraltar accounting standards have been followed, subject to any material
departures disclosed and explained in the financial statements; and
• Prepare the financial statements on the going concern basis, unless it is inappropriate to presume that
the Company will continue in business.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at
any time the financial position of the Company and enable them to ensure that the financial statements comply
with the Gibraltar Companies Act and the Gibraltar Insurance Companies (Accounts Directive) Regulations
1997. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
Provision of Information to Auditors
Each of the persons who are Directors at the time when this Directors report is approved has confirmed that:
• so far as that Director is aware, there is no relevant audit information of which the Company's auditors
are unaware, and
• that Director has taken all the steps that ought to have been taken as a Director in order to be aware of
any information needed by the Company's auditors in connection with preparing their report and to
establish that the Company's auditors are aware of that information.
Auditors
The auditors are BDO Limited who are eligible for reappointment.
This report was approved by the Board and signed on its behalf.
C Gillighan TM
Director Director
Date: Date: ILIsilmir
Page 5
7300 Regal Nouse
7590 Queensway
PO Boil 200
Gibraltar
Independent auditor's report to the members of

Southern Rock Insurance Company Limited
Report on the financial statements
We have audited the accompanying financial statements ("the financial statements") of Southern
Rock Insurance Company Limited for the year ended 31 December 2014 which comprise the profit
and loss account, the balance sheet and the related notes. These financial statements have been
prepared under the accounting policies set out therein.
This report, including the opinion, has been prepared for and only for the Company's members as a
body in accordance with Section 182 of the Gibraltar Companies Act and for no other purpose. We
do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Directors' responsibilities for the financial statements
The directors' are responsible for the preparation and true and fair presentation of these financial
statements in accordance with applicable law in Gibraltar and Gibraltar Generally Accepted
Accounting Practice. This responsibility includes: designing, implementing and maintaining internal
control relevant to the preparation and true and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or error; selecting and applying appropriate
accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors' responsibilities
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditors' judgment,
including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and true and fair presentation of the financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
a IA ,umpan Eim CO an4 forms par of the
Sum ofieid
D0
Independent auditor's report to the members of

Southern Rock Insurance Company Limited (continued)
Opinion
In our opinion, the financial statements:
• give a true and fair view, in accordance with Gibraltar Generally Accepted Accounting
Practice, of the state of the Company's affairs as at 31 December 2014 and of the
Company's loss for the year then ended; and
• have been properly prepared in accordance with the Gibraltar Companies Act and the
Insurance Companies (Accounts Directive) Regulations 1997.
Opinion on other matter prescribed by the Companies Act
In our opinion the information given in the Directors' Report for the financial year for which the
financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act requires us
to report to you if, in our opinion;
• the Company has not kept proper accounting records; or
• if information specified by law regarding directors remuneration and other transactions is

not disclosed; or
• we have not received all the information and explanations we require for our audit.
Christian Sunimerfield (Statutory Auditor)

for and on behalf of
BDO Limited
Regal House
Queen sway
Gibraltar
12 May 2015
Profit and Loss Account
Profit and Loss: Technical Account - General Business
NOTES 2014 2014 2013 2013

£'000 £'000 £'000 £'000
Gross written premiums 2 53,026 74,845

Outward reinsurance premiums 2 (30,330) (40,921)
Net written premiums 22,696 33,924
Change in the provision for unearned premiums:

- Gross 2 8,943 (722)
- Reinsurers' share 2 (5,187) (4,155)
3,756 (4,877)
Earned premiums, net of reinsurance 2 26,452 29,047
Other technical income 5 30,233 15,469
Gross claims paid 3 (66,514) (72,691)

Reinsurers' share of claims paid 3 24,104 26,303
Net claims paid (42,410) (46,388)
Change in the provision for claims:

- Gross 3 (5,210) (4,957)
- Reinsurers' share 3 5,271 11,177
61 6,220
Claims incurred, net of reinsurance (42,349) (40,168)
Net operating expenses 4 (23,823) (1,991)
Balance on the Technical Account: General Business (9,487) 2,357
The notes on pages 12 to 25 are an integral part of these financial statements.
Page 8
Profit and Loss Account
Profit and Loss: Non-Technical Account
NOTES 2014 2014 2013 2013

£'000 £'000 £'000 £'000
Balance on the Technical Account: General Business (9,487) 2,357

Investment income:
Income from land and buildings 25 24
Income from other financial investments 343 4,028
Realised gains on investments 106 89
Unrealised gains on investments (766) 3,312
(292) 7,453
Other income 5 6,503 2,354
Other charges 6 (2,133) (3,474)
(Loss)/profit on ordinary activities before tax (5,409) 8,690
Tax on (loss)Iprofit on ordinary activities 7
(Loss)/profit for the financial year 17 (5,409) 8,690
The Company has had no discontinued activities in the year. Accordingly, the above results for the Company
relate solely to continuing activities and include all recognised gains and losses in arriving at the loss for the
year. This loss is stated on an historical cost basis as modified by the revaluation of investments.
Page 9
Balance Sheet
As at 31 December 2014
Balance Sheet: Assets
NOTES 2014 2014 2013 2013

£'000 1'000 £'000 £'000
Investments:
Land and buildings 8 820 1,063
Investment in subsidiaries 9 12,488 10,294
Other financial investments 10 17,071 24,133
30,379 35,490
Debtors:
Debtors arising out of direct insurance operations 11 43,209 50,212
Debtors arising out of reinsurance operations 4,042 6,983
Other debtors 12 844 5,696
48,095 62,891
Other assets:
Tangible assets 13 143 116
Cash at bank and in hand 3,476 14,423
3,619 14,539
Prepayments and accrued income:

Deferred acquisition costs 25,229 12,861
Accrued interest 35 16
Other prepayments and accrued income 14 16,108 15,173
41,372 28,050
Total assets 123,465 140,970
The notes on pages 12 to 25 are an integral part of these financial statements,
Page 10
Balance Sheet
As at 31 December 2014
Balance Sheet: Liabilities
NOTES 2014 2014 2013 2013

£'000 l'000 £'000 £1000
Capital and reserves:

Called up share capital 16, 17 25,502 25,502
Share premium account 17 9,051 9,051
Revaluation reserve 17 2,194
Profit and loss account 17 (8,225) (2,816)
28,522 31,737
Technical provisions:
Provision for unearned premiums:
- Gross 2 27,081 36,024
- Reinsurers' share ? (14,740) (19,927)
12,341 16,097
Claims outstanding:
- Gross 3 99,637 94,427
- Reinsurers' share 3 (51,632) (46,361)
48,005 48,066
Creditors:
Creditors arising out of direct insurance 5,404 6,570
Creditors arising out of reinsurance operations 21,511 21,789
Other creditors including taxation and social security 15 665 3,832
27,580 32,191
Accruals and deferred income 7,017 12,879
Total liabilities and shareholders' equity 123,465 140,970
The financial statements were approved by the Board of Directors and were authorised for issue on its behalf by:
C Gillighan T McGif
C tr Lt
k.
Director Director
Date: 1— I Date: 1 2._ I S ( /fp i r
Page 11
Notes to the Financial Statements
I. Principle accounting policies

The following accounting policies have been applied consistently in dealing with items which are considered
material in relation to the Company's financial statements:
1.1 Basis of accounting

The financial statements have been prepared under the historical cost convention as modified by the revaluation
of investments and in accordance with Gibraltar Accounting Standards (Gibraltar Generally Accepted
Accounting Practice) and with the recommendations of the Statement of Recommended Practice on Accounting
for Insurance Business. These financial statements present information about the Company as a standalone
entity and not about the group. The Company has taken advantage of the exemptions conferred by FRS 2
'Accounting for subsidiary undertakings' and section five of the Insurance Companies (Accounts Directive)
Regulations 1997 not to produce consolidated financial statements because it is a majority owned subsidiary of
Southern Rock Holdings Limited.
1.2 Going concern basis

The financial position of the Company, its cash flows, liquidity position and borrowing facilities are monitored
on a monthly basis and the techniques used to monitor these are noted in the Directors' report. In addition the
insurance risk is monitored as noted in the critical accounting estimation policy note below. The Company has
sufficient financial resources together with sufficient renewing income from customers across different income
streams from its motor book to meet its operating requirements.
The Company is required to maintain a minimum level of solvency margin in accordance with the Insurance
Companies (Solvency Margins and Guarantee Funds) Regulations 2004. As at 31 December 2014 the Company
held regulatory capital of 104% of the required minimum margin (2013: 129%). It should be noted that a second
independent actuarial review assessed the results of the initial actuarial report and identified that the reserves for
the 2014 underwriting year may be higher than best estimate by as much as 7 percentage points at a gross level
on an accident year basis. The Directors understand therefore that the ultimate loss ratio may therefore be over-
projected by 3 percentage points for the 2014 underwriting year, the impact of which would be £0.7m or a 5%
improvement on the Company's regulatory margin to 109%.
In addition, following the sale of the ancillary income as detailed in note 24, the Company is expected to have a
solvency margin as at the end of April 2015 of approximately 194% of the Solvency I required minimum
margin, The Directors are currently assessing the level of capital the Company will need to hold in order to meet
the solvency capital requirement under Solvency II, which becomes effective on 1 January 2016 but the level is
expected to be in the region o1200% of the Solvency I required minimum margin.
The Directors believe that the Company continues to have adequate resources to manage its business risks
successfully despite the current uncertain economic outlook. After making enquiries, the Directors have a
reasonable expectation that the Company has adequate resources to continue operating for the foreseeable future
and continues to demonstrate a positive cash flow position to fund claims and other liabilities as they fall due.
The Directors have also received assurances from the Company's ultimate beneficial owner, Arron Fraser
Banks, that he will provide adequate financial support to the Company in order to ensure that the Company
meets its capital requirements both under Solvency I and Solvency II for at least one year from the date of the
signing of these financial statements. Accordingly, the going concern basis is used in preparing these financial
statements.
1.3 Cash flow statement

The Company is a majority owned subsidiary of Southern Rock Holdings Limited and is included in the
consolidated financial statements of Southern Rock Holdings Limited, which are publically available (see note
23). Consequently the Company has taken advantage of the exemption from preparing a cash flow statement
under the terms of FRS I.
Page 12
1.4 Critical accounting estimates and judgements in applying accounting policies

The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities. These
estimates and judgements are continually evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. The only
critical accounting estimate which includes a significant level of uncertainty is considered to be the ultimate
liability arising from claims made under insurance. See also note 3 for further information on claims reserves.
1.4.1 The ultimate liability arising from claims made under insurance
Claims incurred includes all losses occurring during the year, whether reported or not, related handling costs and
reasonable deductions for recoveries in respect of salvage, subrogation rights and other recoveries.
Estimation techniques are used in the calculation of the provisions for claims outstanding, which represent a
projection of the ultimate cost of settling claims that have occurred prior to the balance sheet date and remain
unsettled at the balance sheet date. The key area where these techniques are used relates to the ultimate cost of
reported claims. A secondary area relates to the emergence of claims that occurred prior to the balance sheet
date, but had not been reported at that date. The estimates of the ultimate cost of reported claims are based on
the setting of claim provisions on a case-by-case basis, for all but the simplest of claims. The sum of these
provisions are compared with projected ultimate costs using a variety of different projection techniques
(including incurred and paid chain ladder and an average cost of claim approach) to allow an actuarial
assessment of their potential outcome. They include allowance for unreported claims. The most significant
sensitivity in the use of the projection techniques arises from any future step change in claims costs, which
would cause future claim cost inflation to deviate from historic trends. This is most likely to arise from a change
in the regulatory or judicial regime that leads to an increase in awards or legal costs for bodily injury claims that
is significantly above or below the historical trend.
The Company's independent actuarial advisors project best estimate claims reserves using a variety of
recognised actuarial techniques. The Company's reserving policy is to record claims reserves at the independent
actuarial best estimate (see note 3).
1.5 Processing costs

These are included in claims paid and are deferred over the weighted average settlement period of a claim,
which is over a period o148 months (see note 3).
1.6 Premiums
General business written premiums comprise the premiums on contracts entered into during the year which
incept during the current financial year together with premiums sold on policies which incept after the year end.
Premiums are disclosed gross of commission payable to intermediaries and exclude taxes and levies based on
premiums.
1.7 Unearned premium reserve

For general business accounted for on the annual basis, the provision for unearned premiums comprises the
proportion of gross premiums written which is estimated to be earned in the following or subsequent financial
years, computed separately for each insurance contract using the daily pro rata method, adjusted if necessary to
reflect any variation in the incidence of risk during the year covered by the contract.
1.8 Acquisition costs

Acquisition costs comprise brokerage and service company acquisition costs, including marketing, incurred on
insurance contracts written during the financial year. Acquisition costs are spread over a period equivalent to
that over which the premiums on the underlying business are earned, calculated using a pro rata method.
1.9 Reinsurance
The Company cedes insurance risk in the normal course of business for all of its products. Reinsurance assets
represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a
manner consistent with the outstanding claims provision or settled claims associated with the reinsurer's policies
and are in accordance with the related reinsurance contract. Gains or losses on buying reinsurance are
Page 13
1.9 Reinsurance (continued)-

recognised in the income statement immediately at the date of purchase and are not amortised.
Ceded reinsurance arrangements do not relieve the Company from its obligations to policyholders. Reinsurance
liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner
consistent with the related reinsurance contract.
Premiums and claims are presented on a gross basis for ceded reinsurance. Reinsurance assets or liabilities are
derecognised when the contractual rights are extinguished or expire or when the contract is transferred to
another party.
1.10 Other technical income

Other technical income consists of insurance related income earned in relation to insurance products. Other
technical income is recognised when earned.
1.11 MIB levy

The Motor Insurer's Bureau annual levy ("MIB levy") is accrued on a monthly basis at a fixed percentage of
gross written premiums.
1.12 Investments in group undertakings

Investments in group undertakings are recorded in the Company's balance sheet at the Company's share of the
net asset value in the group undertaking less any necessary provision for impairment in value.
1.13 Other financial investments

Other financial investments comprise deposits with credit institutions which are stated at cost; debt securities,
other fixed income securities and other loans which are stated at amortised cost; and equities which are stated at
market value in the accounting records.
1.14 Land and buildings

Investments in land and buildings are stated at the lower of cost and open market value.
1.15 Investment income

Investment income includes income from land and buildings, which relates to the investment property.
Income from other financial investments relates to investment income from fixed income securities and
dividend income from equity investments. Investment income is recognised in the period it is earned.
Dividends are recognised in the period they are received.
Unrealised pins/losses on investments represent the difference between the current value of investments at the
balance sheet date and their purchase price or the carrying value at the start of the year. The movement in
unrealised investment gains/losses includes an adjustment for previously recognised unrealised gains/losses on
investments disposed of in the accounting period. Realised gains or losses represent the difference between net
sales proceeds and purchase price.
Investment return (including realised and the movement in unrealised investment gains and losses) on
investments attributable to the general business and associated shareholder's funds is reported in the non-
technical account.
1.16 Tangible assets

Tangible assets are stated at cost less depreciation.
Page 14
1.16.1 Depreciation
Depreciation is calculated at the following annual rates so as to write off the cost of tangible assets over their
anticipated useful lives using the straight line method:-
• Computer equipment and software: 3 years

• Fixtures & fittings, tools and equipment: 4 years
1.17 Current taxation

Current taxation is provided for on the basis of tax rates and tax law that have been enacted or substantially
enacted at the year-end date.
1.18 Deferred taxation

Deferred taxation is recognised in respect of all significant timing differences that have originated but not
reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in
future or a right to pay less tax in the future have accrued at the balance sheet date. Timing differences are
differences between the Company's taxable profits and results as stated in the financial statements that arise
from the inclusion of gains and losses in a tax assessment period different from those in which they are
recognised in the financial statements. Deferred tax is recognised in respect of the retained earnings of overseas
subsidiaries and associates only to the extent that, at the balance sheet date, dividends have been accrued as
receivable or a binding agreement to distribute past earnings in future has been entered into by the subsidiary or
associate. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which
timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially
enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.
1.19 Foreign currencies

Assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the
balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the
transaction. All differences are taken to the profit and loss account.
Page 15
2. Earned premiums, net of reinsurance

2014
Gross Reinsurance Net

£'000 £'000 11 000
Premiums receivable 53,026 (30,330) 22,696
Unearned premiums carried forward (27,081) 14,740 (12,341)

Unearned premiums brought forward 36,024 (19,927) 16,097
8,943 (5,187) 3,756
Premiums earned 61,969 (35,517) 26,452
2013

£000 v000 i' ow
Premiums receivable 74,845 (40,921) 33,924
Unearned premiums carried forward (36,024) 19,927 (16,097)

Unearned premiums brought forward 35,302 (24,082) 11,220
(722) (4,155) (4,877)
Premiums earned 74,123 (45,076) 29,047
Gross written premiums before co-insurance for the year ended 31 December 2014 amounted to £105.6m (2013:
£.125.9m).
Page 16
3. Claims incurred, net of reinsurance
2014

1'000 £'000 £'000
Claims paid (59,890) 24,104 (35,786)

Claims handling costs (6,624) (6,624)
(66,514) 24,104 (42,410)
Outstanding claims carried forward (99,637) 51,632 (48,005)

Outstanding claims brought forward 94,427 (46,361) 48,066
(5,210) 5,271 61
Claims incurred (71,724) 29,375 (42,349)
2013

£'000 £'000 £'000
Claims paid (66,668) 26,303 (40,365)

Claims handling costs (6,023) (6,023)
(72,691) 26,303 (46,388)
Outstanding claims carried forward (94,427) 46,361 (48,066)

Outstanding claims brought forward 89,470 (35,184) 54,286
(4,957) 11,177 6,220
Claims incurred (77,648) 37,480 (40,168)
The Company appointed Lane Clark & Peacock LLP (LCP) to provide an actuarial valuation of the claims
reserve as at 31 December 2014, having also used LCP in the prior year. The actuarial valuation provided the
Company with a range of outcomes and their opinion of the best estimate reserve. The Company's Underwriting
and Reserving Committee accepted LCP's best estimate and at 31 December 2014 the Company is holding a net
outstanding claims reserve position of £48.0m (2013: £48.1m).
A high-level review of the best estimate reserve was also carried out by a second independent actuary, who
noted that the results of the LCP report were not unreasonable for accident years 2013 and prior but that for the
2014 year the loss ratio was higher than best estimate.
The Directors are therefore confident that the claims reserves in the financial statements are a prudent reflection
of the future potential liability of the Company.
Page 17
4. Net operating expenses

2014 2013
£'000 £'000
Acquisition costs 43,425 20,076

Change in deferred acquisition costs (12,368) (4,900)
Administrative expenses 1,924 2,840
Reinsurance commissions and profit participation (9,158) (16,025)
23,823 1,991
5. Other technical income and other income

2014 2013
£'000 £'000
Other technical income:
Income from ancillary products 30,233 15,469
30,233 15,469
2014 2013
l'000 £'000
Other income:
Financed cost of capital (47)
Other 6,503 2,401
6,503 2,354
Other income in 2014 included a write back of a related party creditor balance as part of a wider simplification
of related party balances.
6. Other charges
2014 2013
l'000 £'000
Other charges include:
Depreciation 131 101
Staff costs (see below) 653 570
Statutory audit fees 75 111 ,
2014 2013
1'000 i'000
Staff costs:
Wages and salaries 621 523
Social security costs 28 28
Other staff costs 4 19
653 570
The Company employed 17 staff each month on average (2013: 17), of these 15 were employed in underwriting
(2013: 15) and 2 in compliance (2013: 2).
The aggregate of Directors' emoluments in 2014 amounted to £0.7m (2013: £0.7m), including consultancy costs.
Page 18
7. Taxation
2014 2013
£'000 £'000
Gibraltar
Corporation tax at 10% (2013: 10%)
Total current tax
The tax for the period is nil (2013: nil) compared with the standard effective rate of corporation tax in Gibraltar
for the year ended 31 December 2014 of 10% (2013: 10%). The differences are explained below:
2014 2013
£'000 £'000
(Loss)/profit on ordinary activities before tax (5,409) 8,690
(Loss)/profit on ordinary activities multiplied by the

standard rate of corporation of 10% (2013: 10%) (541) 869
Effects of:
- Expenses not deductible for tax purposes 4 6
- Depreciation in excess of capital allowances 4 2
- Unrelieved tax losses and other deductions 504
- Utilised tax losses (132)
-Non-taxable investment income 29 (745)
Total current tax
Factors affecting current and future tax charges
During the year, there were no factors that affected current and future tax charges.
8. Land and buildings

2014 2013
f'000 £'000
As at 1 January 1,063 1,041

Additions 22
increase in market value 20
Disposals (263)
As at 31 December 820 1,063
The property is a long leasehold apartment in Gibraltar with a historical cost of £842,000. An open market
valuation was carried out by Brian Francis & Associates Chartered Surveyors in October 2014. The property was
valued at £820,000, an increase of £20,000 on its previous market valuation.
The land in Batheaston had a carrying value of £263,000 when sold on 24 January 2014 for a consideration of
£260,000.
Page 19
9. Investment in subsidiaries
2014 2013
£'000 L'000
10,294 29,766
As at 1 January
Revaluation 2,194
(19,472)
Disposals
12,488 10,294
As at 31 December
The Company's investment in subsidiaries consist of:

2014 2013
£'000 £'000
12,488 10,294
Panacea Limited
Southern Rock Intellectual Property Limited
12,488 10,294
Panacea Limited
The Company owns 100% of the issued ordinary and preference share capital of Panacea Limited, a company
registered in Gibraltar, whose net assets at 31 December 2014 were £12.5m* (2013: £10.4m) and retained profit
for the year was £2.1m* (2013: £0.1m).
Southern Rock Intellectual Property Limited

The Company owns 100% of the issued ordinary and preference share capital in Southern Rock Intellectual
Property Limited, a company registered in Gibraltar, whose net assets at 31 December 2014 were £nil* (2013:
WI) and retained profit for the year was £nil* (2013: EMI).
* Per unaudited management accounts for the year ended 31 December 2014
10.Other financial investments

2014 2013
£'000 £'000
Shares and other variable yield securities 8,404 12,134

Debt securities and other fixed income securities 8,610 11,884
Other loans 57 115
17,071 24,133
The cost of financial investments held on 31 December 2014 was £19.3m (2013: £24.9m). Other loans consist of
loans to external entities. On 31 December 2014, the Company held listed investments with a total market value
of £6.5m (2013: £8.5m).
11.Debtors arising out of direct insurance operations
2014 2013
£'000 £'000
Amounts owed by group undertakings (note 19) 29,186 36,125

Amounts owed by related parties (note 19) 1,251
Amounts owed by third parties 14,023 12,836
434209 50,212
All the debtor balances above fall due for payment within one year.
Page 20
12. Other debtors 2013

2014
£'000 £'000
598 2,365
Amounts owed by group undertakings (note 19)
113 2,078
Amounts owed by related parties (note 19)
133 1,253
Other debtors
844 5,696
All the debtor balances above fall due for payment within one year.
13. Tangible assets

Computer Computer Fixtures
equipment software & fittings Total
£'000 £'000 L'000 £'000
Cost 544
106 399 39
At 1 January 2014
15 132 11 158
Additions
Disposals
121 531 50 702
At 31 December 2014
Depreciation
83 320 25 428
At 1 January 2014
24 102 5 131
Charge for year
Disposed assets
107 422 30 559
At 31 December 2014
14 109 20 143
Net book value at 31 December 2014
Cost 479
73 382 24
At 1 January 2013
33 17 15 65
Additions
Disposals
106 399 39 544
At 31 December 2013
Depreciation
46 261 19 326
At 1 January 2013
37 59 6 102
Charge for year
-
Disposed assets
83 320 25 428 .
At 31 December 2013
23 79 14 116
Net book value at 31 December 2013
14. Other prepayments and accrued income

2014 2013
£'000 i'000
16,108 15,173
Deferred processing costs and levies
16,108 15,173
Page 21
15. Other creditors including taxation and social security

2014 2013
1'000 £'000
Insurance premium tax payable 688 1,114

Amounts owed to group undertakings (note 19) 2,500
(23) (23)
Corporation tax
241
Other creditors
665 3,832
All the creditor balances above fall due for payment within one year and are unsecured.
16. Called up share capital

2014 2013
1'000 £'000
Allotted, called up and fully paid:
20,845 245
Class A Ordinary shares off 1 each
Class B Ordinary shares off 1 each 250
Class C Preference shares of £1 each 20,350
Class D Preference shares of f 1 each 4,657 4,657_
25,502 25,502
All preference shares are non-voting, non-cumulative, participating, redeemable and convertible.
In December 2014, all Class B Ordinary shares and Class C Preference shares were re-designated as Class A
Ordinary shares of £1 each.
17. Reconciliation of share capital and other reserves

Share Profit
Revaluation Share premium & loss
reserve capital account account Total
1'000 f'000 1'000 £'000 £'000
25,070 9,051 (11,506) 22,615

Balance at 1 January 2013
Issue of share capital 432 432
Profit for the year - 8,690 8,690
Balance at 31 December 2013 25,502 9,051 (2,816) 31,737
Balance at 1 January 2014 25,502 9,051 (2,816) 31,737

Revaluation of investment in subsidiaries 2,194 - 2,194
Loss for the year _0,4091 (5,409)
Balance at 31 December 2014 2,194 25,502 9,051 (8,2251_ 28,522
Page 22
18. Segmental information

2014
Third Party Other
Motor Motor Total
£'000 £'000 £'000
Gross written premium 31,844 21,182 53,026
Gross earned premium 41,010 20,959 61,969

Gross claims incurred (41,257) (23,843) (65,100)
Gross operating expenses (19,806) (13,175) (32,981)
Reinsurance balance 544 362 906
2013
Third Party Other
Motor Motor Total
£'000 £'000 £'000
Gross written premium 35,840 39,005 74,845
Gross earned premium 34,797 39,326 74,123

Gross claims incurred (39,675) (31,950) (71,625)
Gross operating expenses (10,585) (11,519) (22,104)
Reinsurance balance 2,304 2,507 4,811
The Company writes direct motor insurance in the United Kingdom. All contracts are concluded in Gibraltar.
19. Related party transactions
Transactions during the year with related parties were as follows:
Transactions with group undertakings 2014 2014 2013 2013

Income Expense Income Expense
£'000 £'000 £'000 L'000
E Development 2 Limited 900

Rock Services Limited 21,704 8,101
Southern Rock Intellectual Property Limited 4,000
22,604 4,000 8,101
Transactions with entities sharing key management 2014 2014 2013 2013
Income Expense Income Expense
£'000 £'000 £'000 £'000
Eldon Insurance Services Limited 24,611 9,211 14,473

ICS Risk Solutions Limited 3,437
STM Group plc 97 213
NewLaw Legal Limited 51
Hughes and Co Limited 50
28,145 9,312 14,686
Page 23
19. Related party transactions (continued)
Balances at the end of the year with related parties were as follows:
Year end balances arising from 2014 2014 2014 2013

transactions with group undertakings Receivable Payable Net Net
£'000 1'000 l'000 £'000
Balances arising from direct insurance operations:
E Development 2 Limited 29,186 2986 36,125
29,186 29.186 36,125
Other balances:
E Group (Australia) Insurance Services Pty Limited 200 200
Panacea Limited - (2,500)
Rock Holdings Limited 700
Rock Services Limited 398 398 699
Southern Rock Intellectual Property Limited 681
Southern Rock Management Services Limited 285
598 598 (135)
Year end balances arising from 2014 2014 2014 2013

transactions with entities sharing key management Receivable Payable Net Net
1'000 £'000 £'000 £'000
Balances arising from direct Insurance operations:
Brightside Group plc 929
NewLaw Legal Limited - 322
1,251
Other balances:
Eldon Insurance Services Limited 113 113 688
Precision Risk and Intelligence Limited 698
Precision Risk Services Limited 692
• 1.13 113 2,078
20. Capital management
Gibraltar insurance company law specifies the minimum amount and type of capital that must be held by the
Company to meet its insurance liabilities. The minimum required capital must be maintained at all times
throughout the period.
The Company must hold assets in excess of the minimum regulatory capital known as the 'required minimum
margin', which is calculated based on applying fixed percentages to the premiums written and earned for the
period, and claims incurred for the 3 years up to and including the current period under consideration.
As at 31 December 2014, the Company was meeting and exceeding the required minimum margin by £0.7m
(2013: £4.6m) and held regulatory capital of 104% of the required minimum margin (2013: 129%).
Page 24
21. Financial risk management
The Company's activities expose it to a variety of financial risks including price risk, credit risk and liquidity
risk.
(a) Price risk
The Company is exposed to price risk because of investments held by the Company and classified on the
balance sheet as at fair value. To manage its price risk, the Company diversifies its portfolio and its investment
committee monitors the portfolio regularly. Diversification of the portfolio is done in accordance with the limits
set by the Company.
(b) Credit risk
Credit risk arises from cash and cash equivalents including deposits with banks, as well as credit exposures to
reinsurers and retail customers. Reinsurance protection is only purchased from companies which are part of
groups with specified financial strength ratings of A or above and the ratings are monitored regularly. The
Company also maintains a strong credit control function to ensure that its trade debtors are collected on a timely
basis.
(e) Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash to meet its foreseeable needs and to
invest cash assets safely and profitably. This is measured on a monthly basis. The Company monitors cash flow
using sophisticated forecasting techniques to ensure that all liabilities are met when due. Such forecasting takes
into consideration the Company's financing plans, compliance with internal balance sheet targets and external
regulatory requirements.
23. Ultimate controlling party
The Company's immediate parent company is Southern Rock Holdings Limited, a company registered in
Gibraltar. The Company's ultimate parent company is Rock Holdings Limited, a company registered in the Isle
of Man. The ultimate controlling party of Rock Holdings Limited is Arron Fraser Andrew Banks as major
shareholder of that company.
Group consolidated accounts are prepared at the level of Southern Rock Holdings Limited and are publicly
available from 2" Floor, Lysander House, Cribbs Causeway, Bristol BSI() 7TQ, United Kingdom.
24. Post balance sheet event
On 30 April 2015, the Company entered into an agreement with its subsidiary, Panacea Limited to sell the rights
attaching to the ancillary income from the renewal of its existing motor insurance policies for a consideration of
£ 17.5m. Under the terms of the agreement, the Company would retain the ancillary income earned from policies
sold to new customers after 30 April 2015. On the same date, Panacea Limited entered into an agreement to sell
those same rights it has acquired from the Company to Eldon Insurance Services Limited for a consideration of
I 7.5m.
These agreements are subject to the approval of the Gibraltar Financial Services Commission, for which
approval has not yet been granted. However, if the transactions are successfully completed, the net assets of the
Company would be increased by £17.5m as these rights are currently not valued on the balance sheet of the
Company. This takes the regulatory solvency margin of the company to 194% as at 30 April 2015.
Page 25

Southern Rock Insurance Company 2014 Accounts

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Southern Rock Insurance Company 2014 Accounts

Uploaded by

Copyright:

Available Formats

CO-93137-2173825

Southern Rock Insurance Company Limited

For the year ended 31 December 2014

Name: -10.car.• Lfcc

Company Registration No. 93137

For the year ended 31 December 2014

Company Registration Number: 93137

Registered Office: 3AC 3'1 Floor

Secretary: STM Fidecs Management Limited

Bankers: Royal Bank of Scotland

Barclays Private Clients International

Solicitors: Lyons Davidson

Auditors: BDO Limited

For the year ended 31 December 2014

Report of the Directors 1

Report of the Directors

For the year ended 31 December 2014

Report of the Directors

Business Review & Future Developments

Report of the Directors

For the year ended 31 December 2014

Business Review and Future Developments (continued)

Report of the Directors

For the year ended 31 December 2014

Key Performance Indicators

Results & Dividends

No share capital was issued during the year (2013: L0.4m).

Principal Risks and Uncertainties

Claims Review and Provisioning

Report of the Directors

For the year ended 31 December 2014

Management of Credit Risk

Management of Insurance Risk

The Company mitigates underwriting risks through the following:

3) Effective claims management

Financial Risk Management Objectives and Policies

Liquidity Risk / Cash Flow Risk

Report of the Directors

For the year ended 31 December 2014

Statement of Directors Responsibilities

• Select suitable accounting policies and then apply them consistently;

Provision of Information to Auditors

Independent auditor's report to the members of

Report on the financial statements

Directors' responsibilities for the financial statements

a IA ,umpan Eim CO an4 forms par of the

Independent auditor's report to the members of

In our opinion, the financial statements:

Opinion on other matter prescribed by the Companies Act

Matters on which we are required to report by exception

• the Company has not kept proper accounting records; or

• if information specified by law regarding directors remuneration and other transactions is

Christian Sunimerfield (Statutory Auditor)

Profit and Loss Account

For the year ended 31 December 2014

Profit and Loss: Technical Account - General Business

NOTES 2014 2014 2013 2013

Gross written premiums 2 53,026 74,845

Change in the provision for unearned premiums:

Other technical income 5 30,233 15,469

Gross claims paid 3 (66,514) (72,691)

Change in the provision for claims:

Net operating expenses 4 (23,823) (1,991)