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Financial Statements
COMPANY INFORMATION
Directors: J Banks
N Birrell
M Clayden
C Gillighan
T McGiffen
M Robinson
Financial Statements
Table of Contents
The Directors present their report and the audited financial statements for the year ended 31 December 2015.
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.
The Directors report a profit for the year of £41.5m (2014: loss of £5.4m) and a regulatory capital position of
£53m compared to a required minimum of £16m under the Solvency I regime in force at 31' 1 December 2015.
The Company met and exceeded the required minimum margin by £3 7m at 31 ' 1 December 2015 and held
regulatory capital of 331% of the required minimum margin.
As at 1' 1 January 2016, the Company was required to comply with capital, governance and disclosure
requirements as set out in the Solvency II regime. The Directors are pleased to report that the Company both
met and exceeded its solvency capital requirement (SCR) at that date, exceeding its SCR by £10.Sm and
exceeding its minimum capital requirement (MCR) by £33.6m. The Company's SCR stood at £30.3m at 1'1
January 2016 and its MCR at £7.6m. The Company reported Own Funds of £41.2m at that date. All
other requirements of Pillar 2&3 have also been embedded in the operations of the business.
In order to comply with the enhanced capital requirements under the Solvency II regime, the Company has
taken several actions including entering into a loss portfolio transfer arrangement with Watford Re, an
associated company of Arch Re. As part of this arrangement, the Company cedes its net claims provisions for
the 2012, 2013 and 2014 underwriting years, which stand at £29.75m in aggregate, to Watford Re. The impact
of this arrangement on the Company's surplus over its SCR is c £6m.
Furthermore, during 2015 the Company entered into two arrangements with a related party company as part of
its preparations for full compliance with the Solvency II capital requirements. On 30th April 2015, the Company
entered into an agreement with 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. On the same date, Panacea
Limited entered into an agreement to sell those same rights to ICS Risk Solutions Limited for a consideration of
£17.5m. On 30th September 2015, the Company entered into a second agreement with Panacea Ltd to sell the
rights attaching to the finance arrangement fee and overrider income on new motor insurance policies sold under
the Go Skippy and Debenhams brands until 30th December 2020 for a consideration of £60.2m. On the same
date, Panacea Limited entered into an arrangement to sell those same rights to ICS Risk Solutions Limited for a
consideration of £60.2m. These arrangements provide the Company with a fixed income stream over the next 5
years and remove any risk of volatility associated with the income. During 2015, proceeds of £9m have been
received in relation to these arrangements. A further £6.7m has been received between the year-end and the date
of signing this report.
More importantly, the underlying performance of the Company was positive in 2015 with an improvement in
the 2015 pure underwriting result following various ratings actions that were made during the second half of
2014 and 2015. Further enhancements including improved credit scoring and front end adjustments enabled the
Company to grow the book whilst maintaining its controlled approach to underwriting risk. Gross written
premiums including co-insurance increased by 22% to £129m (2014: £105m) whilst policies in force at the
year-end stood at 197,103 (2014: 163,650), an increase of 20%. Private motor policies sold under the
Debenhams brand achieved good growth in volumes, representing 30,151 of the policies in force at the year-end
compared to only 905 policies at the end of 2014. The Go Skippy brand continued to represent a significant
portion of the Company's book with 121,928 policies in force at 31' 1 December 2015, which is in line with the
Company's strategy to focus its underwriting capacity through the a limited number of brands, which will
provide the Company with continued and sustainable growth in the future.
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
The Company has engaged with external actuaries to estimate appropriate levels of claims reserving. Typically
the Company takes a prudent approach to reserving in the early years of development and releases provisions
once the year has settled out. As such, reserve releases have been recorded against the 2012 and 2013
underwriting years in the 2015 reporting period. The Company has based its reserves for the 2015 underwriting
year on a full year loss ratio of 82.4% (89.8% earned) in line with the external actuarial best estimate. This
demonstrates the improvement in underwriting performance compared to the 2014 underwriting year.
Following the improvements in performance during 2015, the Company made a strategic decision to retain a
greater share of the book from August 2015 onwards. From that point on, the Company retained c 50% of the
premium underwritten, an increase from 29% at the start of the year. During 2015, the Company retained an
average of c 39% of the book.
Notwithstanding that decision, the Company continued to operate a capital light business model during 2015,
transferring a significant portion of its underwriting risk to its high quality co- and re-insurance partners. The
Company co-insured 28% of its book on average in 2015; 35% of which was placed with Cardif Pinnacle until
August 2015, part of the BNP Paribas group and 10% 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, Allianz and Axis Re during 2015, leaving the Company with a net
exposure to 39% of the book on average during the year. These arrangements have been extended into 2016,
with the Company retaining 40% of the 2016 business written. Watford Re, a related Company of Arch Re, has
also joined the coinsurance panel for 2016.
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 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.
The profit for the year after taxation amounted to £41.5m (2014: £5.4m loss). No dividends have been paid in
2015 (2014: £nil).
Share Capital
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
Directors
The Directors who served during the year and to the date of signing the financial statements were as follows:
J Banks
N Birrell
M Clayden
C Gillighan
T McGiffen
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.
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.
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.
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.
Page 3
SOUTHERN ROCK INSURANCE COMPANY LIMITED
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.
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.
Market Risk
Market risk is the risk of adverse financial impact as a consequence of market movements such as currency
exchange rates, interest rates and other price changes. Market risk arises due to fluctuations in both the value of
assets held and the value of liabilities. The objective of the Company in managing its market risk is to ensure
risk is managed in line with the Company's risk appetite. The Company has established policies and procedures
in order to manage market risk and methods to measure it. There were no changes in the Company's market risk
exposure in the financial year nor to the objectives, policies and processes for managing market risk.
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.
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
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:
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.
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 BOO Limited who are eligible for reappointment.
This report was approved by the Board and signed on its behalf.
C Gillighan T McGiffen
Director Director
Date: Date: 2...lS· o~ · l C.
Page 5
IBDO Tel: +350 20047300
Fax:+350 20047590
www.bdo.gi
Regal House
Queensway
PO Box 1200
Gibraltar
We have audited the accompanying financial statements ("the financial statements") of Southern
Rock Insurance Company Limited for the year ended 31 December 2015 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 258 of the Companies Act 2014 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.
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.
BDO Limited, a Gibraltar limited company, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the
international BOO network of independent member firms.
BOO Limited is registered in Gibraltar with company number 52200. Directors: D. MCHard, C. Summerfield.
IBDO
Opinion
• 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 2015 and of the
Company's profit for the year then ended; and
• have been properly prepared in accordance with the Companies Act 2014 and the Insurance
Companies (Accounts Directive) Regulations 1997.
Emphasisof matter
We draw attention to note five to the financial statements which describes the conditions required
for the realisation of this long term receivable from a related party. The receivable is recorded at
its fair value based on the present value of the expected future cash flows over the following five
years. The Board of Directors has reviewed the recoverability of the balance and assessedthe
circumstances under which the receivable may be considered impaired and subsequently concluded
that no impairment is required. Our opinion is not qualified in respect of this matter.
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.
We have nothing to report in respect of the following matters where the Companies Act 2014
requires us to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit.
Regal House
Queensway
Gibraltar
29 April 2016
SOUTHERN ROCK INSURANCE COMP ANY LIMITED
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SOUTHERN ROCK INSURANCE COMP ANY LIMITED
Investment income:
Income from land and buildings 25
Income from other financial investments 298 343
Realised gains on investments 572 106
Unrealised gains on investments 765 (766)
1,635 (292)
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
SOUTHERN ROCK INSURANCE COMPANY LIMITED
Balance Sheet
As at 31 December 2015
Page 10
SOUTHERN ROCK INSURANCE COMPANY LIMITED
Balance Sheet
As at 31 December 2015
Technical provisions:
Provision for unearned premiums:
- Gross 2 52,888 27,081
- Reinsurers' share 2 {29,176} (14,740)
23,712 12,341
Claims outstanding:
- Gross 3 104,726 99,637
- Reinsurers' share 3 {49,791} (51,632)
54,935 48,005
Creditors:
Creditors arising out of direct insurance 946 5,404
Creditors arising out of reinsurance operations 33,701 21,511
Other creditors including taxation and social security 15 3,579 665
38,226 27,580
The financial statements were approved by the Board of Directors and were authorised for issue on its behalf by:
~-
C Gillighan T McGiffen
Director Director
Date: 2-~ · C\ · '-b Date: )_J ·0 lt · \ C:,
Page 11
SOUTHERN ROCK INSURANCE COMPANY LIMITED
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 2015 the Company
held regulatory capital of331% of the required minimum margin (2014: 104%). The Company held regulatory
capital under the Solvency II regime at 1st January 2016 of £4lm compared to its SCR of £30.3m. Therefore, the
Directors believe that the Company continues to have adequate resources to manage its business risks
successfully. 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.
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
Page 12
SOUTHERN ROCK INSURANCE COMPANY LIMITED
1.4.1 The ultimate liability arising from claims made under insurance (continued)
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).
1.4.2 Valuation of the long term receivable due from Panacea Ltd
The directors use their judgement in selecting an appropriate valuation technique to measure the long term
receivable from Panacea Ltd (note 12). The Company uses valuation techniques which include "market
observable inputs" where available, derived from similar assets in similar and active markets, from recent
transaction prices for comparable items or from other observable market data. The fair value of the receivable
has been estimated using a discounted cash flow analysis based on assumptions supported, where possible, by
observable market prices or rates.
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.
Acquisition costs are spread over a period equivalent to that over which the premiums on the underlying
business are earned.
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
recognised in the income statement immediately at the date of purchase and are not amortised.
Page 13
SOUTHERN ROCK INSURANCE COMPANY LIMITED
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.
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.
Umealised gains/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
umealised investment gains/losses includes an adjustment for previously recognised umealised 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 umealised investment gains and losses) on
investments attributable to the general business and associated shareholder's funds is reported in the non-
technical account.
1.16.1 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:-
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SOUTHERN ROCK INSURANCE COMP ANY LIMITED
Non-financial assets
An asset is impaired where there is objective evidence that, as a result of one or more events that occurred after
initial recognition, the estimated recoverable value of the asset has been reduced. The recoverable amount ofan
asset is the higher of its fair value less costs to sell and its value in use. The recoverable amount of goodwill is
derived from measurement of the present value of the future cash flows of the cash-generating units ("CGU") of
which the goodwill is a part. Any impairment loss in respect of a CGU is allocated first to the goodwill attached
to that CGU, and then to other assets within that CGU on a pro-rata basis.
Where indicators exist for a decrease in impairment loss, the prior impairment loss is tested to determine
reversal. An impairment loss is reversed on an individual impaired asset to the extent that the revised
recoverable value does not lead to a revised carrying amount higher than the carrying value had no impairment
been recognised. Where a reversal of impairment occurs in respect of a CGU, the reversal is applied first to the
assets (other than goodwill) of the CGU on a pro-rata basis and then to any goodwill allocated to that CGU.
Financial assets
For financial assets carried at amortised cost, the amount of an impairment is the difference between the asset's
carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original
effective interest rate. For financial assets carried at cost less impairment, the impairment loss is the difference
between the asset's carrying amount and the best estimate of the amount that would be received for the asset ifit
were to be sold at the reporting date.
Where indicators exist for a decrease in impairment loss, and the decrease can be related objectively to an event
occurring after the impairment was recognised, the prior impairment loss is tested to determine reversal. An
impairment loss is reversed on an individual impaired financial asset to the extent that the revised recoverable
value does not lead to a revised carrying amount higher than the carrying value had no impairment been
recognised.
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
Recognition
Financial assets and liabilities are recognised when the Company becomes a party to the contractual provisions
of the instrument. Financial liabilities and equity instruments are classified according to the substance of the
contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in
the assets of the Company after deducting all of its liabilities.
Initial measurement
All financial assets and liabilities are initially measured at transaction price (including transaction costs), except
for those financial assets classified as at fair value through profit or loss, which are initially measured at fair
value (which is normally the transaction price excluding transaction costs), unless the arrangement constitutes a
financing transaction. If an arrangement constitutes a finance transaction, the financial asset or financial liability
is measured at the present value of the future payments discounted at a market rate of interest for a similar debt
instrument.
Subsequent measurement
Non-current debt instruments which meet the following conditions are subsequently measured at amortised cost
using the effective interest method:
a) Returns to the holder are (i) a fixed amount; or (ii) a fixed rate ofretum over the life of the instrument; or (iii)
a variable return that, throughout the life of the instrument, is equal to a single referenced quoted or observable
interest rate; or (iv) some combination of such fixed rate and variable rates, providing that both rates are
positive.
b) There is no contractual provision that could, by its terms, result in the holder losing the principal amount or
any interest attributable to the current period or prior periods.
c) Contractual provisions that permit the issuer to prepay a debt instrument or permit the holder to put it back to
the issuer before maturity are not contingent on future events, other than to protect the holder against the credit
deterioration of the issuer or a change in control of the issuer, or to protect the holder or issuer against changes
in relevant taxation or law.
d) There are no conditional returns or repayment provisions except for the variable rate return described in (a)
and prepayment provisions described in (c ).
Debt instruments that are classified as payable or receivable within one financial year and which meet the above
conditions are measured at the undiscounted amount of the cash or other consideration expected to be paid or
received, i.e. net of impairment.
Other debt instruments not meeting these conditions are measured at fair value through profit or loss.
Commitments to make and receive loans which meet the conditions mentioned above are measured at cost
(which may be nil) less impairment.
Investments in non-convertible preference shares and non-puttable ordinary shares or preference shares shall be
measured at fair value with changes in fair value recognised in profit or loss, if the shares are publicly traded or
their fair value can otherwise be measured reliably; and all other such investments shall be measured at cost less
impairment.
Realised and unrealised gains and losses arising from changes in the fair value of investments are presented in
the non-technical profit and loss account in the period in which they arise. Dividend and interest income is
recognised when earned. Investment management and other related expenses are recognised when incurred.
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
Financial liabilities are derecognised only when the obligation specified in the contract is discharged, cancelled
or expires.
For financial assets carried at cost less impairment, the impairment loss is the difference between the asset's
carrying amount and the best estimate of the amount that would be received for the asset if it were to be sold at
the reporting date.
Where indicators exist for a decrease in impairment loss, and the decrease can be related objectively to an event
occurring after the impairment was recognised, the prior impairment loss is tested to determine reversal. An
impairment loss is reversed on an individual impaired financial asset to the extent that the revised recoverable
value does not lead to a revised carrying amount higher than the carrying value had no impairment been
recognised. The amount of the reversal is recognised in profit and loss immediately.
Page 17
SOUTHERN ROCK INSURANCE COMPANY LIMITED
2014
Gross written premiums before co-insurance for the year ended 31 December 2015 amounted to £128.7m (2014:
£105.6m).
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
2015
2014
The Company appointed Lane Clark & Peacock LLP (LCP) to provide an actuarial valuation of the claims
reserve as at 31 December 2015, 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 2015 the Company is holding a net
outstanding claims reserve position of £54.9m (2014: £48.0m).
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 19
SOUTHERN ROCK INSURANCE COMPANY LIMITED
2015 2014
£'000 £'000
Other income:
Other 73,163 6,503
73,163 6,503
Other income in 2015 included the profit on sale of the ancillary rights attaching to the ancillary income from the
renewal of its existing motor insurance policies to Panacea Ltd, a subsidiary company, for a consideration of
£17.5m. On the same date, Panacea Ltd entered into an agreement to sell those same rights to ICS Risk Solutions
Limited for a consideration of £17.5m. Other income in 2015 also included the profit on sale of the rights
attaching to the finance arrangement fee and overrider income on new motor insurance policies sold under the
Go Skippy and Debenhams brands until 30th December 2020 to Panacea Ltd for a consideration of £60.2m. On
the same date, Panacea Ltd entered into an arrangement to sell those same rights to ICS Risk Solutions Limited
for a consideration of £60.2m. Between entering into these deals and the date of signing these financial
statements, the Company has received cash consideration of £9.8m and £5.9m respectively. The remaining
consideration outstanding on the rights to the renewals income of £7.7m is due monthly at £700,000 per month
and will be fully paid up by March 2017. The remaining consideration outstanding on the rights to the finance
and overrider income of £54.3m is due monthly at £970,000 per month and will be fully paid up by December
2020.
The receivable balances have been recorded at their fair value as at 31st December 2015 of £17.3m and £54.8m
respectively (note 12 and note 19). The difference between the fair value and the nominal consideration due will
be unwound as interest over the term of each deal.
The Directors have given due consideration to the recoverability of the balances due from Panacea and
concluded that no impairment is necessary at the balance sheet date in accordance with relevant financial
reporting standards. In assessing the recoverability of the balances, the Directors have assessed the current
performance and net asset position of ICS Risk Solutions, the ultimate counterparty in these transactions. The
Directors have considered the performance of ICS since each deal was signed and are satisfied that sufficient
profits and cash funds are available to pay down the balances due in line with the contractual obligations. All
payments have been received on time and in accordance with the contractual obligations since the deals were
signed. The Directors have also considered the circumstances which might reasonably be expected to lead to a
default and the impact this would have on the recoverability of the outstanding balances. Such circumstances are
considered to be remote but would include the Company ceasing to write business under the GoSkippy and
Debenhams brands. The Directors have no plans to follow such a strategy, however are comfortable that should
such an action take place then ICS would have sufficient resources available to it so that it could meet its
obligations. Therefore the recoverability of the debtor is not reliant on the Company continuing to write
business.
Other income also includes £921,000 related to settlement of a litigation that was concluded during 2015.
Other income in 2014 included a write back of a related party creditor balance as part of a wider simplification
of related party balances.
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
6. Other charges
2015 2014
£'000 £'000
Other charges include:
Depreciation 95 131
Staff costs (see below) 718 653
Statutory audit fees 80 75
2015 2014
£'000 £'000
Staff costs:
Wages and salaries 670 621
Social security costs 33 28
Other staff costs 15 4
718 653
The Company employed 19 staff each month on average (2014: 17), of these 14 were employed in underwriting
(2014: 15), 2 in compliance (2014: 2), and 3 in Ml/pricing.
The aggregate of Directors' emoluments in 2015 amounted to £0.7m (2014: £0.7m), including consultancy costs.
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SOUTHERN ROCK INSURANCE COMP ANY LIMITED
7. Taxation
2015 2014
£'000 £'000
Gibraltar
Corporation tax at 10% (2014: 10%)
Total current tax
The tax for the period is nil (2014: nil) compared with the standard effective rate of corporation tax in Gibraltar
for the year ended 31 December 2015 of 10% (2014: 10%). The differences are explained below:
2015 2014
£'000 £'000
Effects of:
- Expenses not deductible for tax purposes 27 4
- Depreciation in excess of capital allowances 6 4
- Unrealised loss/(gain) on investments (76)
- Realised loss/(gain) on investments (58)
- Non trading interest and dividend income (30)
- Unrelieved tax losses and other deductions 3,177 504
- Capital gain arising from sale of rights to ancillary (7,199)
income
- Non-taxable investment income 29
Total current tax
During the year, there were no factors that affected current and future tax charges.
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
The property is a long leasehold apartment in Gibraltar with an open market valuation in October 2014 of
£820,000.
9. Investment in subsidiaries
2015 2014
£'000 £'000
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 2015 were £10.3m* (2014: £12.5m*) and retained loss
for the year was £2.2m* (2014: profit of £2.lm*).
* Per unaudited management accounts for the year ended 31 December 2015 and 31 December 2014
The cost offmancial investments held on 31 December 2015 was £13.7m (2014: £19.3m). Other loans consist of
loans to external entities. On 31 December 2015, the Company held listed investments with a total market value
of £6.2m (2014: £6.5m).
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
2015 2014
£'000 £'000
All the debtor balances above fall due for payment within one year.
2015 2014
£'000 £'000
Debtors due after 1 year:
Amounts owed by related parties (note 19 and note 5) 43,392
43,392
Depreciation
At 1 January 2015 107 422 30 559
Charge for year (2) 91 6 95
Disposed assets
At 31 December 2015 105 513 36 654
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
Depreciation
At 1 January 2014 83 320 25 428
Charge for year 24 102 5 131
Disposed assets
At 31 December 2014 107 422 30 559
All the creditor balances above fall due for payment within one year and are unsecured.
All preference shares are non-voting, non-cumulative, participating, redeemable and convertible.
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
Share Profit
Revaluation Share premium & loss
reserve capital account account Total
£'000 £'000 £'000 £'000 £'000
The share capital reserve includes the called up share capital as laid out in note 16. The share premium reserve
includes the associated premium on that share capital.
The revaluation reserve includes movements in the net asset value of Panacea Ltd and Southern Rock
Intellectual Property Ltd, the Company's two subsidiaries.
The profit and loss account includes the cumulative profits earned by the Company, which have not been
distributed.
2014
Third Party Other
Motor Motor Total
£'000 £'000 £'000
The Company writes direct motor insurance in the United Kingdom. All contracts are concluded in Gibraltar.
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
Transactions with entities sharing key management 2015 2015 2014 2014
Income Expense Income Expense
£'000 £'000 £'000 £'000
Balances at the end of the year with related parties were as follows:
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SOUTHERN ROCK INSURANCE COMP ANY LIMITED
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 2015, the Company was meeting and exceeding the required minimum margin by £37m
(2014: £0.7m) and held regulatory capital of33 l % of the required minimum margin (2014: 104%).
The Company's activities expose it to a variety of financial risks including price risk, credit risk and liquidity
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.
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.
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.
Market risk is the risk of adverse financial impact as a consequence of market movements such as currency
exchange rates, interest rates and other price changes. Market risk arises due to fluctuations in both the value of
assets held and the value of liabilities. The objective of the Company in managing its market risk is to ensure
risk is managed in line with the Company's risk appetite. The Company has established policies and procedures
in order to manage market risk and methods to measure it. There were no changes in the Company's market risk
exposure in the financial year nor to the objectives, policies and processes for managing market risk.
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
The Company accepts insurance risk through its insurance contracts where it assumes the risk of loss from
persons or organisations that are directly subject to the underlying loss. The Company is exposed to the
uncertainty surrounding the timing, frequency and severity of claims under these contracts.
The Company manages its risk through underwriting and reinsurance strategy within an overall risk
management framework. Pricing is based on assumptions which have regard to trends and past experience, and
exposures are managed by having documented underwriting limits and criteria. Reinsurance is purchased to
mitigate the effect of potential loss to the Company from individual large or catastrophic events and also to
provide access to specialist risks and to assist in managing capital. Reinsurance policies are written with
approved reinsurers on either a quota share or excess of loss treaty basis.
The Company mainly writes motor insurance business in the United Kingdom, and therefore a concentration of
risk exists. This risk is mitigated by the variability of the Company's types of policyholders.
The Company's loss ratios are subject to a number of variables and sensitivities which may have an impact on
profit before tax and equity reserves. However, the historic loss ratios did not significantly move year on year,
which indicates that the Company has a minimal exposure to changes in relevant assumptions.
The following tables lay out the gross claims incurred on a gross and net basis for each underwriting year.
(i) Southern Rock Insurance Gross Claims Incurred-net of co-insurance, XOL and quota share
reinsurance
(ii) Southern Rock Insurance Gross Claims Incurred - gross of co-insurance and quota share
reinsurance, net ofXOL
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 2nd Floor, Lysander House, Cribbs Causeway, Bristol BSIO 7TQ, United Kingdom.
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SOUTHERN ROCK INSURANCE COMPANY LIMITED
During the first quarter of 2016, the Company entered into a loss portfolio transfer arrangement with Watford
Re, an associated company of Arch Re. As part of this arrangement, the Company cedes its net claims
provisions for the 2012, 2013 and 2014 underwriting years, which stand at £29.75m in aggregate, to Watford
Re. The impact of this arrangement on the Company's surplus over its SCR is c £6m.
This is the first financial year that the Company has presented its financial statements under Gibraltar Financial
Reporting Standards 102 and 103 (GFRS 102 and 103), which are now the applicable Gibraltar Generally
Accepted Accounting Practice. The last financial statements under previous standards were for the financial year
ended 31 December 2014 and the date of transition to GFRS102 and 103 was therefore 1 January 2014. This
transition did not result in material changes in the accounting policies of the Company, and therefore no
adjustments have been made to equity reserves.
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