Replacement: Results for the year ended 30/06/2020

NEW BUSINESS

As previously announced, our new business levels were £159.8m on a Present Value of New Business Premiums ("PVNBP") basis, 2.5% higher than FY 2019.  The primary driver of growth in 2020 was our Latin American region, up 44% for the year. 

Strategy IMPLEMENTATION

During the past financial year, the primary focus has been on delivering our two most significant near-term strategic initiatives:

·          Bringing to market our locally-licensed investment product in Japan; and

·          Upgrading and streamlining our administration systems and IT infrastructure.

While the circumstances of Covid-19 have presented challenges and some delays, we continue to work closely with a targeted number of prospective distribution partners in Japan to conclude distribution agreements and seek to launch the proposition in the third quarter of our current financial year.

TRADING RESULTS

IFRS profit before tax for the year was £4.7m (FY 2019: £4.6m).  Excluding litigation defence costs and other non-recurring provisions, underlying IFRS profit was £6.2m compared with £6.1m in FY 2019. 

Fee and commission income was £49.5m for the year (2019: £48.5m) as increased fee income in Hansard International offset lower fee income in Hansard Europe which continues to run-off since closing to new business in 2013.

Administrative expenses, exclusive of litigation and one-off items, were £23.0m (2019: £23.3m).  Investment in our Japanese branch was offset by prudent cost management across a range of areas.  No Covid-19 related government support was sought or required during the year.

During the year we implemented the Isle of Man's Group Solvency regime which has meant that we have incorporated the Group's non-insurance companies into the calculation of Value of In-Force ("VIF") and Own Funds.  VIF represents the present value of expected future shareholder profits less the present value cost of holding capital required to support the in-force business.  VIF totalled £148m as at 30 June 2020, up from £140m at 30 June 2019.  The equivalent VIF at 30 June 2019 under the revised methodology was £145m.

New Business Margin, calculated on an EEV basis, improved marginally to -0.1% as compared to -0.6% in FY 2019.  The improvement was primarily due to lower initial expenses. We expect the primary catalyst for margin improvement to be a successful launch of our new product into the Japanese market in the 2021 financial year.

DIVIDENDS

The Board has proposed a final dividend of 2.65p per share, the same level as last year.  In making this proposal, the Board has carefully considered its current financial position and future outcomes under a range of plausible adverse scenarios taking into account Covid-19.

This dividend, if approved by the shareholders at the Annual General Meeting on 4 November 2020, represents a total dividend of 4.45p (2019: 4.45p) per share in respect of the financial year. Such dividend will be paid on 12 November 2020 to shareholders on the register on 2 October 2020. The associated ex-dividend date is 1 October 2020.
 

policyholder LITIGATION

The Group continues to manage carefully its litigation exposures relating to the legacy operations of Hansard Europe.  We continue to believe we have strong defences against the claims being made.  Exposures from outstanding writs totalled €25.8m (£23.4m) at 30 June 2020, up €4.1m (£4.0m) from 30 June 2019.  The primary drivers of the increase have been a combination of additional cases being added in Italy and Belgium and a reduction in the fair value of investment assets backing the claims.

During the year, the Group successfully defended nine cases with net exposures of approximately €0.7m (£0.6m), three of which have been appealed by the plaintiffs.  Our policy is to maintain contingent liabilities even where we win cases in the court of first instance if such cases have been subsequently appealed.  These successes continue to affirm confidence in the Group's legal arguments.

We received our first insurance recovery for one of our larger cases during the year, with £0.5m in recoveries recognised. We expect such recoveries to continue during the course of that litigation.

CURRENT TRADING

With the external environment remaining a challenge, new business levels for Q1 2021 are currently running slightly behind that of Q1 2020.  We are maintaining flexibility with our customers with respect to their ability to pay recurring premiums, but have not otherwise seen any major persistency issues.  Our assets under management remain strong at similar levels to the year-end.   

NEXT TRADING UPDATE

The first trading update in respect of the year ending 30 June 2021 is expected to be published on 5 November 2020.

For further information:

Hansard Global plc                                                               +44 (0) 1624 688 000

Gordon Marr, Group Chief Executive Officer

Tim Davies, Chief Financial Officer

Email: [email protected]

Camarco                                                                                 +44 (0) 203 757 4980

Ben Woodford, Rebecca Noonan

Notes to editors:

·    Hansard Global plc is the holding company of the Hansard Group of companies. The Company was listed on the London Stock Exchange in December 2006. The Group is a specialist long-term savings provider, based in the Isle of Man.

·    The Group offers a range of flexible and tax-efficient investment products within a life assurance policy wrapper, designed to appeal to affluent, international investors.

·    The Group utilises a controlled cost distribution model via a network of independent financial advisors, and the retail operations of certain financial institutions who provide access to their clients in more than 170 countries. The Group's distribution model is supported by Hansard OnLine, a multi-language internet platform, and is scalable.

·    The principal geographic markets in which the Group currently services contract holders and financial advisors are the Middle East & Africa, the Far East and Latin America.  These markets are served by Hansard International Limited and Hansard Worldwide Limited.

·    Hansard Europe dac previously operated in Western Europe but closed to new business with effect from 30 June 2013. 

·    The Group's objective is to grow by attracting new business and positioning itself to adapt rapidly to market trends and conditions. The scalability and flexibility of the Group's operations allow it to enter or develop new geographic markets and exploit growth opportunities within existing markets often without the need for significant further investment.

Forward-looking statements:

This announcement may contain certain forward-looking statements with respect to certain of Hansard Global plc's plans and its current goals and expectations relating to future financial condition, performance and results. By their nature forward-looking statements involve risk and uncertainties because they relate to future events and circumstances which are beyond Hansard Global plc's control. As a result, Hansard Global plc's actual future condition, performance and results may differ materially from the plans, goals and expectations set out in Hansard Global plc's forward-looking statements. Hansard Global plc does not undertake to update forward-looking statements contained in this announcement or any other forward-looking statement it may make. No statement in this announcement is intended to be a profit forecast or be relied upon as a guide for future performance.

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regime.

Legal Entity Identifier: 213800ZJ9F2EA3Q24K05

Chairman's Statement

Introduction

As with many businesses, the Covid-19 global pandemic presented significant challenges to our operations. I am pleased to report that Hansard Global plc ("Hansard") adapted well to those challenges. In late March, almost all of our staff moved to working from home, with no discernible impact on our customer service or efficiency. Similarly, virtually all of our staff returned to the office in June when the Isle of Man became Covid-19 free. During this period our award-winning technology was able to provide flexible solutions to both internal operations and outward-facing new business activities. Under the circumstances we have delivered a resilient new business and profit result for the year.  However, the wider effects of Covid-19 on the world economy and investor confidence are likely to continue into 2021.

New business

New business for the 2020 financial year ("FY 2020") improved to £159.8m (in Present Value of New Business Premiums ("PVNBP") terms), up 2.5% from the FY 2019 figure of £155.9m.

Until early March 2020 we were expecting a much higher growth in new business, but the effects of Covid-19 and national lockdowns inevitably had a negative impact on our new business generation in our fourth quarter. Covid-19 presented difficult challenges for our distribution network to meet clients and conclude sales activity at a time when many people were uncertain about their future financial position.

Our Latin American region was the highlight for new business growth over the course of FY 2020, finishing up 44% compared to FY 2019.

Financial performance

Our IFRS profit before tax for the year was £4.7m, slightly higher than 2019.  This reflects a number of factors on both the revenue and cost side.

On the revenue side, fees and commissions were up £1.0m to £49.5m for the year (2019: £48.5m).  Fees and commissions from Hansard International Limited ("Hansard International") were up £1.6m, whilst fees and commissions from our closed book, Hansard Europe dac ("Hansard Europe"), continued to fall, as expected, and were £0.6m down on the prior year.

On the cost side, we have continued to invest in our Japanese branch and in our project to replace our policy administration systems. Notwithstanding this we have kept our overall costs in check, seeking to make savings where we can and taking a prudent approach to variable employee reward in light of Covid-19 uncertainties.  Overall, administrative and other expenses were £29.3m for the year (2019: £29.5m).

Further detail and analysis is contained in the Business and Financial Review.

Japan

As noted in our 2019 Annual Report, the key to significantly increased new business lies in our ability to take advantage of the opportunity we have developed in Japan.  While the circumstances of Covid-19 have presented challenges and resulted in delays, we continue to work closely with a targeted number of prospective distribution partners to conclude distribution agreements and seek to launch the proposition in the third quarter of our current financial year.

Capitalisation and solvency

The Group remains well capitalised to meet the requirements of regulators, contract holders, intermediaries and other stakeholders. We have not required any government-backed financial support as a result of Covid-19, nor placed any staff on furlough.  On a risk-based capital basis, total Group Free Assets in excess of the Solvency Capital Requirements of the Group were £66.5m (2019: £86.8m or £65.4m on the current year basis), a coverage of 180% (2019: 233% or 178% on the current year basis). We have maintained our prudent investment policy for shareholder assets, which minimises market risk and has provided a stable and resilient solvency position over many years and economic cycles.

Dividends

The Board has resolved to pay a final dividend of 2.65p per share (2019: 2.65p).  In making this decision, the Board has carefully considered its current and future cash flows, the risks and potential variabilities introduced by Covid-19, the outlook for future growth and profitability and the views of key stakeholders, including regulators and shareholders. 

The dividend is subject to approval at the Annual General Meeting.  If approved, this will represent total dividends for the financial year of 4.45p per share (2019: 4.45p).  Upon approval, the final dividend will be paid on 12 November 2020.  The ex-dividend date will be 1 October 2020 and the record date will be 2 October 2020.

Board membership

During the year we appointed a number of new independent Directors to our Board to replace the retirements of Maurice Dyson and Andy Frepp.  We welcomed Graeme Easton, Jose Ribeiro and Philip Kay to the Board who bring a wealth of international financial services experience.  I would also like to thank Maurice and Andy for their many valued years of service to Hansard.

The future

While national lockdowns related to Covid-19 have been relaxed to varying degrees around the world, the threat of a second wave remains clear and the economic environment remains uncertain and fragile.  Whilst our technology-driven platform and processes offer significant advantages, it remains challenging for our distributors to sell international savings and investment products without face to face meetings, especially when many customers have concerns over their personal financial prospects.  The outlook for new business in financial year 2021 is therefore difficult to forecast.  Importantly, our strong back-book and assets-driven income streams provide offsetting stability and cash flow.

We are continuing to invest for the future through the on-going development of our Japanese proposition and the upgrade of our systems environment. 

Philip Gregory

Chairman

23 September 2020

GROUP CHIEF EXECUTIVE OFFICER'S OVERVIEW

Our financial year this year has been a year of resilient progress amidst significant challenges.  After starting the first eight months of our financial year with strong new business growth, Covid-19 unfortunately dampened results in the latter part of the year.  Overall we ended the financial year with new business up 2.5% and with assets under administration and profit before tax broadly in line with 2019.

Our longer-term focus remains on our two key strategic projects:

·      launching our new locally-licenced investment product in Japan, and

·      replacing our policy administration systems to support our next generation of products and secure cost and efficiency gains.

Both of these projects have made steady and positive progress. 

Our objective is to supplement our existing international markets and attain the additional scale necessary to deliver greater returns to our shareholders.

COVID-19

The global spread of the Covid-19 virus has presented unprecedented challenges to public health and businesses.  The well-being and safety of our employees has been paramount and it is to their great credit in these difficult times that our business continued without significant disruption.

In March 2020 almost our entire workforce moved to working remotely.  Our technology and strong business continuity plans allowed us to achieve this with minimal disruption.  Our back-office systems and infrastructure served us well.  We were able to operate all our client servicing and processing activities remotely with little impact to turn-around times.

The Isle of Man had significant success in containing and eradicating all known cases of the Covid-19 virus and this allowed a return of our Isle of Man based employees to our head-office in June.  We implemented this cautiously ensuring that enhanced office cleaning procedures were in place and appropriate PPE and hand gel available to employees.  We also accommodated any vulnerable or higher risk employees through additional working-from-home flexibility.

For our Independent Financial Advisor ("IFA") network around the world, the difficulties in meeting clients, providing advice and concluding sales were, and in many cases remain, challenging.  We took a number of key actions to facilitate the on-boarding of new business, for example rolling out additional tools to allow customers and IFAs to provide and sign documentation electronically.

We are committed to supporting and working with our customers where they may be experiencing personal financial difficulties, for example by allowing for premium holidays without incurring any additional charges or penalties. 

We also sought to ensure any creditors or suppliers were paid on a timely basis throughout the working-from-home period.

We have not to date seen any significant spikes in redemptions or lapses, but expect to see some element of adverse impact to persistency in 2021.  We have therefore taken a prudent approach to our actuarial assumptions and projections and also provided £0.2m for anticipated irrecoverable broker balances. 
 

RESULTS FOR THE YEAR UNDER REVIEW

We believe that the following areas are the fundamental factors for the success of the Group:

·      Sourcing significant flows of new business from diversified target markets;

·      Managing our exposure to business risk;

·      Positioning ourselves to incorporate ever-increasing levels of regulation into our business model;

·      Leveraging our market-leading technology and systems; and

·      Managing our cash flows through the cycle to fund the appropriate balance of investment in new business and dividends.

I would draw your attention to the following items below. Additional information is contained in the Business and Financial Review.

1.         New business distribution

Despite a challenging final quarter due to Covid-19, the level of new business earned during the full year was £159.8m (using the PVNBP metric), up 2.5% from £155.9m in FY 2019.

Our Latin American region was the key driver of growth with new business up 44% for the full year.  Our largest region, Middle East & Africa, proved resilient despite the challenges of Covid-19 with new business up 10.3%.

2.         Operational, Business and Financial Risks

Our business model involves the acceptance of a number of risks on a managed and controlled basis. The Group's Enterprise Risk Management ("ERM") Framework provides for the identification, assessment, management, monitoring and control of current and emerging risks, recognising that systems of internal control can only provide reasonable and not absolute assurance against material misstatement or loss. The Group's internal control and risk management processes have operated satisfactorily throughout the year under review. 

2.1        Litigation Risk

As explained more fully in the Business and Financial Review, we continue to manage complaints and litigation arising from our closed-book, Hansard Europe, where the performance of assets linked to a particular contract have suffered or become illiquid.  We continue to maintain that we do not give investment advice and are not party to the selection of the asset and therefore we believe that such claims have no merit.

As at 30 June 2020, the Group had been served with cumulative writs with a net exposure totalling €25.8m, or £23.4m in sterling terms, arising from contract holder complaints and other asset performance-related issues.

During the year, the Group successfully defended nine cases with net exposures of approximately €0.7m, or £0.6m, three of which have been appealed by the plaintiffs. These successes continue to affirm confidence in the Group's legal arguments.

We have previously noted that we expect a number of our larger claims to ultimately be covered by our Group insurance cover.  During FY 2020 we received our first insurance payment on account for legal expenditure in Italy and recorded £0.5m in total recoveries during the year.  We expect such reimbursement to continue during the course of that litigation. 

As a result we also expect that a significant amount of the £23.4m of contingent liabilities referred to above would be covered by insurance should those cases be ruled against us.  We continue to estimate insurance coverage to be in the range of £6m to £13m.

3.         Hansard OnLine

Our award-winning IT systems and online customer platform are key aspects of our proposition.  Hansard OnLine is a powerful sales and business administration tool that is used by independent financial advisors ("IFAs") and clients the world over. It is an integral part of the Group's operating model and allows us to better service IFAs and clients, embed process efficiencies and be flexible in operational deployment.

Hansard OnLine provides IFAs and clients with a reliable online self-service model which they can access 24/7 from anywhere around the world with an internet connection. It provides an important foundation to our strategic goal of delivery of excellent customer service.

As noted in 2019, we have embarked on a project to replace our core administration systems and ensure our infrastructure remains fit for purpose for our next generation of products and strategic development.  Phase One of this project will deliver functionality for our Japanese product in the second quarter of this financial year, with migration of existing products scheduled for the end of the financial year.

Additional information concerning Hansard OnLine is set out in the Business and Financial Review.

4.         Operating cash flows and dividends

The Group generates operating cash flows to fund investment in new business and support dividend payments.

As outlined in the Cash Flow analysis section of the Business and Financial Review, the Group generated £2.1m in overall net cash inflows before dividends (2019: inflows of £2.0m), after the investment of £19.1m (2019: £17.5m) in acquiring new business and £3.0m (2019: £2.5m) in IT software and equipment expenditure.  Dividends of £6.0m were paid in the financial year (2019: £6.0m).

A final dividend of 2.65p per share has been proposed by the Board and will be considered at the Annual General Meeting on 4 November 2020.  When the final dividend is paid at this level, dividends will total 4.45p per share in respect of the full 2020 financial year.

FINANCIAL PERFORMANCE

Results for the year

Financial performance is summarised as follows. A detailed review of performance is set out in the Business and Financial Review that follows this report.

* £145.4m on the current year basis.
 

IFRS results

IFRS profit before tax for the year was £4.7m, slightly higher than 2019.  After eliminating litigation and non-recurring items, the underlying IFRS profit (a non-GAAP metric used by management) was £6.2m, again slightly above 2019.

Fees and commissions were £49.5m for the year (2019: £48.5m).  Fees from Hansard International were up £1.6m to £46.2m from 2019, primarily due to higher surrender fee income than the prior year.   Income from our closed book, Hansard Europe, has continued to fall, as expected, and is £0.6m down on the prior year.

Administrative and other expenses were £29.3m for the year, just under the 2019 level of £29.5m.  We have continued to invest in our Japanese branch and in our project to replace our policy administration systems. Notwithstanding this we have kept our overall costs in check, seeking to make savings where we can and taking a prudent approach to variable employee reward in light of Covid-19 uncertainties.

Further detail and analysis is contained in the Business and Financial Review.

Capitalisation and solvency

Our key financial objective is to ensure that the Group's solvency is managed safely through the economic cycle to meet the requirements of regulators, contract holders, intermediaries and shareholders. The Group continues to be well capitalised. Under risk-based capital methodologies, total Group Free Assets in excess of the Solvency Capital Requirements of our insurance subsidiaries were £66.5m (2019: £86.8m or £65.4m on the current year basis), a coverage of 180% (2019: 233% or 178% on the current year basis).  Shareholder assets are typically held in a wide range of deposit institutions and in highly-rated money market liquidity funds. This prudent investment policy for shareholder assets minimises market risk and has provided a stable and resilient solvency position over recent years.

our people

Our people are critical to our success.  We have a dedicated dynamic workforce across a number of locations around the world.  It was only through their commitment, flexibility and resilience that we were able to successfully navigate our way through the operational challenges of Covid-19 and I thank them enormously for that. 

We have a strong commitment to service and quality in relation to servicing contract holders and intermediaries.  It was therefore pleasing to have been recognised externally for our customer service.  In October 2019 we won 'Excellence in Customer Service' from International Investor for both the Latin American region and as overall global winner.  We also maintained our five-star rating for customer service by AKG Financial Analytics in their 2019 review.

Gordon Marr

Group Chief Executive Officer

23 September 2020
 

BUSINESS AND FINANCIAL REVIEW

Our Business Model and Strategy

Hansard is a specialist long-term savings provider that has been providing innovative financial solutions for international clients since 1987. We focus on helping financial advisors and institutions to provide their clients (individual and corporate investors) with savings and investment products in secure life assurance wrappers to meet long-term savings and investment objectives.

We administer assets in excess of £1 billion for just under 40,000 client accounts around the world.

Business Model

The Company's head office is in Douglas, Isle of Man, and its principal subsidiaries operate from the Isle of Man, The Bahamas and the Republic of Ireland. 

Hansard International is regulated by the Isle of Man Financial Services Authority and has a branch in Malaysia, regulated by the Labuan Financial Services Authority, to support business flows from Asian growth economies.  Through its relationship with a local insurer in the UAE, Hansard International reinsures business written in the UAE.

Launched in 2019, Hansard Worldwide underwrites international and expatriate business around the world.  It is regulated by the Insurance Commission of The Bahamas.

Hansard Europe is regulated by the Central Bank of Ireland. Hansard Europe ceased accepting new business with effect from 30 June 2013.

Our products are designed to appeal to affluent international investors, institutions and wealth-management groups. They are distributed exclusively through IFAs and the retail operations of financial institutions.

Our network of Account Executives provides local language-based support services to financial advisors in key territories around the world, supported by our multi-language online platform, Hansard OnLine.

Vision and Strategy

Our vision for the Hansard Group is:

"to share success with our clients by providing simple, understandable and innovative financial solutions".

To deliver this vision it is clear that client outcomes will be the central focus within our business and, consequently, we will need to evolve all aspects of our products, processes and distribution in order to constantly improve.

Our talented people are the foundation of our business. We have created an empowering culture, which values innovation, quality, integrity and respect.

Our strategy to improve, grow and future-proof our business will be delivered through three key areas of strategic focus:

i.           Improve our business:  We will improve customer outcomes through the introduction of new disclosures, the provision of new products and services, focusing on the quality of our IFAs with whom we work with and continuing to drive up the engagement of our people within our business.

ii.          Grow our business:  We established a new life company in The Bahamas in 2018.  We have acquired the necessary licence and approvals to access the Japanese market in the 2021 financial year. We will continue to drive our strategic alliance with Union Insurance in the UAE and hope to pursue opportunities to replicate this model in other targeted jurisdictions over the coming years.

iii.         Future-proof our business:  We are actively testing innovative technologies, propositions and business models.  It remains critical to support the online and digital needs of our clients alongside improving organisational efficiency and scalability.

Strategy DEVELOPMENT

Our strategy team, led by Ollie Byrne our Chief Strategy Officer, has three main aims:

i)          to capitalise on near term strategic opportunities;

ii)          to ensure the Group is correctly positioned for future regulatory developments and change; and

iii)         to consider and plan for longer term industry and technological evolution.

During the past financial year the primary focus has been on delivering our two most significant near-term strategic initiatives:

·      bringing to market our locally-licensed investment product in Japan; and

·      upgrading and streamlining our systems and IT infrastructure. 

We plan to launch with our first distribution partner in Japan on the new policy administration system during this financial year.  Completion of the IT implementation and migration is scheduled for the end of the financial year.

Regulatory change

The Isle of Man Financial Services Authority (the "Authority") has continued its work to revise the framework for insurance regulation and supervision and maintain a high level of observance with the International Association of Insurance Supervisors Insurance Core Principles. The Authority has sought to develop and implement these revisions in a way which is appropriate and proportionate for the Isle of Man's diverse insurance sector whilst promoting regulatory best practice and preserving the continued reputation of the Isle of Man as a stable and well-regulated jurisdiction. 

Major milestones have been reached over the course of the last two years with the implementation of both the updated risk-based capital and solvency regime and the Conduct of Business Code. A new Corporate Governance Code of Practice for Commercial Insurers has also come into force and the Group Supervision regime for long-term insurers took effect from 1 July 2019.

We have continued our pro-active work to adapt the Hansard model and strategic and business plans in line with the intent and objectives of the regulatory changes, working transparently with our regulators to shape the practical implementation of the Roadmap and develop robust transition plans.

Products

The Group's products are unit-linked regular or single premium life assurance and investment contracts which offer access to a wide range of investment assets. The contracts are flexible, secure and held within "wrappers" allowing life assurance cover or other features depending upon the needs of the client. The contract benefits are directly linked to the value of those assets that are selected by, or on behalf of, the client and held within the wrapper. The Group does not offer investment advice. Contract holders bear the investment risk.

The Group's products do not include any contracts with financial options and/or guarantees regarding investment performance and, hence, unlike the situation faced by some other life assurers, the Group carries no guarantee risk that can cause capital strain. 

As a result of high levels of service, the nature of the Group's products, the functionality of Hansard OnLine, and the ability of the contract holder to reposition assets within a contract, we aim to retain the contract holder relationship over the long term.

Contract holder servicing and related activities are performed by Hansard Administration Services Limited, which is authorised by the Financial Services Authority of the Isle of Man Government to act as an Insurance Manager to insurance subsidiaries of the Group.

Revenues

The main sources of income for the Group are the fees earned from the administration of insurance contracts. These fees are largely fixed in nature and amount. Approximately 30% of the Group's revenues, under IFRS, are based upon the value of assets under administration. The new business generated in a particular year is expected to earn income for an average period of 14 years. Our business is therefore long term in nature both from a contract holder perspective and with regards to the income that is generated. 

From this income we meet the overheads of the business, invest in our business, remunerate our distribution network and pay dividends.

Managing Risk

Risk can arise from a combination of macro events and company specific matters.  On the macro side, events such as the UK referendum result on EU membership, terrorist attacks, pandemics and geo-political tensions can cause significant volatility to stock markets and foreign exchange markets.  We therefore continue to maintain a robust, low risk balance sheet. We believe this prudent approach to be appropriate to meet the requirements of regulators, contract holders, intermediaries and shareholders.

We are conscious that managing operational risk is critical to our business and we are continuously developing our enterprise risk management system and controls.  Further details of our approach to risk management and the principal risks facing the Group are outlined in the Risk Management and Internal Control Section.

Hansard OnLine

Hansard OnLine is a powerful and secure tool that is used by our IFAs around the world.  Available in multiple languages, it allows them to access information about their clients, to generate reports for their clients, to submit new business applications online, to place dealing and switch instructions online, to access all client correspondence and to access a library of forms and literature.

Almost all investment transactions are processed electronically by intermediaries, on behalf of their clients, using Hansard OnLine and over 90% of all new business applications are submitted via the platform.

The straight-through processing of contract holder instructions (whether received directly or through their appointed agents) reduces the Group's operational risk exposures, as does the ability of the Group to communicate electronically with contract holders and intermediaries, irrespective of geographical boundaries.  Data validation happens in real-time to ensure there are no delays to the investment of client funds.

Hansard Online Lite provides prospective IFAs with easy access to a subset of the online system. Its purpose is to showcase our online proposition to prospective and new IFAs and to allow easy access to non-sensitive documents and functionality. Users can access our online document library, the Unit Fund Centre, company news and submit new business online.

The benefit of Hansard OnLine is recognised by many IFAs as market leading and our online proposition has been nominated for and won a number of independent industry awards, including in the Middle East, one of our most important markets.

Online Accounts

Whilst many of our IFAs are technologically sophisticated and have been utilising our online offering for years, our client base has typically lagged behind. However, we are now observing a growing trend amongst our clients to take more control of their financial wellbeing by embracing mobile technology to better monitor and manage their finances.

To support our commitment to delivering 'excellent customer service', we believe it is vital to provide our clients with a modern and secure online platform that allows them to access their finances easily and comprehensively, 24/7. We provide this through our client-facing version of Hansard OnLine, called Online Accounts.

Similar to our IFA-facing online platform, the client's Online Account allows them to access all their policy information, valuation statements, transaction history, premium reports, switch funds online, access all correspondence, access a library of forms and literature, and more.

A large and increasing number of clients have signed up for this service which allows them to view all documentation and communications relating to their contracts via their Online Account as well as choosing to receive post electronically, rather than in hard-copy form. This not only provides a more secure, faster and cost-efficient means of communication with clients but also the convenience to manage their own contract within a timeframe which is more suitable.

Continuous Improvements to our Online Proposition

When it comes to improving how we operate and the proposition we offer, we value the views of our clients and IFAs. This means that we regularly seek feedback through surveys and office visits in order to identify ways in which we can improve our systems and processes to best meet their needs.  However, it is not just functionality that is important, we also have running alongside a continuous programme to enhance the overall user experience, for both IFA's and our clients.

Cyber Security

As cyber crime continues to increase and target commercial and public enterprises alike, Hansard has continued to invest in its cyber security.  This includes continuous upgrades to our firewall protection, encryption of data, tokenisation of sensitive data and annual external review and testing.

Excellent Customer Service

We strive to provide excellent customer service and turn-around times to our clients and our IFA community.  We have won a number of external awards in this area over the years, most recently in October 2019 when we won 'Excellence in Customer Service' from International Investor for both the Latin American region and as overall global winner.  We also maintained our five-star rating for customer service by AKG Financial Analytics in their 2019 review.

Key performance indicators

The Group's senior management team monitors a wide range of Key Performance Indicators, both financial and non-financial, that are designed to ensure that performance against targets and expectations across significant areas of activity are monitored and variances explained.

The following is a summary of the key indicators that were monitored during the financial year under review.

business AND FINANCIAL REVIEW

NEW BUSINESS PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2020

The Group continues to focus on the distribution of regular and single premium products in a range of jurisdictions around the world, achieving well diversified new business growth.

New business performance for the year is summarised in the table below:

In Present Value of New Business Premiums ("PVNBP") terms, new business for the year to 30 June 2020 was £159.8m, 2.5% up on the prior year.  The primary area of growth during the year came from increased sales of regular savings products in Latin America.

Annualised Premium Equivalent ("APE") shows a slightly different year on year change as it does not take into account the more detailed experience assumptions for regular premiums that are accounted for within the PVNBP methodology. 

Present Value of New Business Premiums

New business flows on the PVNBP basis for the Group are further analysed as follows:

Our largest region, Middle East & Africa, proved resilient despite the challenges of Covid-19 restrictions.  New business was up 10.3% for the year.

The Rest of World region was down 8.0% for the year. The reduction was primarily due to a lower number of high value single premium cases.

New business in Latin America was up 44.0% for the year despite being hit particularly hard by Covid-19 in the fourth quarter.  Our subsidiary in The Bahamas, Hansard Worldwide Limited, continues to be well received since its launch in 2019 and has allowed us to build on our key distribution relationships and deploy targeted initiatives to encourage adoption.

As previously communicated, our current focus in the Far East region is to develop and bring our new Japanese proposition to market.  We are also working with our existing distribution network to develop additional new business via our licence in Labuan, Malaysia.

In terms of business mix, we continue to focus on higher margin regular premium savings while selectively pursuing single premiums where the margin is acceptable.  This has resulted in our regular premiums rising 19.3% and single premiums falling 17.9% for the year.

We continue to receive business from a diverse range of financial advisors around the world. The increase in new business derived from Latin America and Middle East and Africa is reflected in an increase in the percentage of the contractual premium denominated in US Dollars.

New business margins

New business margins (calculated on a PVNBP basis) are sensitive to sales levels and product mix (regular premium products and smaller single premium sizes typically have a higher margin).  Our new business margin was -0.1% for the year, compared to -0.6% for 2019.  The improvement was primarily due to lower initial expenses. We expect the primary catalyst for margin improvement to be a successful launch of our new product into the Japanese market in the 2021 financial year.

Presentation of financial results

Our business is long term in nature. The nature of the Group's products means that new business flows have a limited immediate impact on current earnings reported under International Financial Reporting Standards as adopted by the European Union ("IFRS"), as initial fees and acquisition costs from the contracts sold are mostly deferred and amortised over the life of the contract. The benefit of sales to fee income levels are felt in future financial periods, noting also that our newer products have a longer earning period than our older products.

Results for the year

The following is a summary of key items to allow readers to better understand the results for the year. IFRS profit before tax for the year was £4.7m, slightly higher than 2019.

Operating profit prior to litigation and non-recurring items was £6.2m in 2020, also slightly higher than 2019.

Abridged consolidated income statement

The consolidated statement of comprehensive income presented under IFRS reflects the financial results of the Group's activities during the year. This income statement however, as a result of its method of presentation, incorporates a number of features that might affect an understanding of the results of the Group's underlying transactions. This relates principally to:

·      investment gains during the year attributable to contract holder assets of £0.1m (2019: £47.2m); and

·      fund management fees paid by the Group to third parties having a relationship with the underlying contract.  In 2020, third party fund management fees attributable to contract holder assets were £4.8m (2019: £4.7m). These are reflected in both income and expenses under the IFRS presentation.

An abridged non-GAAP consolidated income statement in relation to the Group's own activities is presented below, excluding the items of income and expenditure indicated above.

Fees and commissions

Fees and commissions for the year attributable to Group activities were £44.7m, up 2.1% on the 2019 total of £43.8m.

Contract fee income totalled £32.2m for the year (2019: £31.3m).  Contract fee income includes the amortised element of up-front income deferred under IFRS and contract-servicing charges.  Amortisation of deferred income was broadly similar to the prior year, whilst immediately recognised fees, including surrender charges, have increased compared to the prior year.  The continuing run-off of Hansard Europe which closed to new business in 2013 resulted in lower contract fee income of £0.6m compared to 2019.

Fund management fees accruing to the Group and commissions receivable from third parties totalling £12.5m (2019: £12.5m) are related directly to the value of assets under administration and are therefore exposed to market movements, currency rates and valuation judgements.  Average assets under management for 2020 were mostly higher than 2019, however were offset by the significant drop in the markets in March 2020 when Covid-19 related lockdowns started taking place. 

A summary of fees and commissions is set out below:

Included in contract fee income is £17.0m (2019: £16.9m) representing the amortisation of fees prepaid in previous years, as can be seen in the analysis set out below:

Investment and other income

Historically low UK and US interest rates continue to result in relatively modest levels of interest income earned on the Group's deposits and money market funds.

Origination costs

Under IFRS, new business commissions paid, together with the directly attributable incremental costs incurred on the issue of a contract, are deferred and amortised over the anticipated life of that contract to match the longer-term income streams expected to accrue from the contracts issued this year. Typical terms range between 6 years and 16 years, depending on the nature of the product. Other elements of the Group's new business costs, for example recruitment costs, which reflect investment in distribution resources in line with our strategy, are expensed as incurred.

Origination costs incurred in 2020 have increased as a result of the increased level of new business, increased sales incentive schemes and a higher mix of business reinsured from the UAE which has a higher cost of acquisition.  The increased costs of sales incentive schemes were generally funded from reduced international travel and events.

Amounts totalling £14.6m (2019: £13.8m) have been expensed to match contract fee income earned this year from contracts issued in previous financial years, as can be seen in the analysis below.

Summarised origination costs for the year were:

Administrative and other expenses

We continue to manage our expense base robustly to control administrative expenses while supporting our strategic developments and other new business growth activities with targeted expenditure.

An analysis of administrative and other expenses is set out in notes 8 and 9 to the consolidated financial statements under IFRS. The following summarises some of the expenses attributable to the Group's own activities.

Salaries and other employment costs have increased by £0.1m or 1% to £10.6m, reflecting costs from the expansion of headcount in our Japan branch, the costs of short-term contractors supporting our systems project and general salary inflation. Costs were offset by annual bonuses not being accrued for the 2020 year-end due to corporate targets not being met and uncertainty over the impact of Covid-19.

The average Group headcount for the 2020 financial year was 192 people (2019: 191 people). 

Other administrative expenses have reduced from £7.8m to £7.7m.

Professional fees including audit are down a further £0.3m (2019: £0.1m) as a result of a savings programme which was commenced in 2019 and will continue to be realised into 2021.  These costs include amounts totalling £0.5m paid to the Group's auditor (2019: £0.6m); £0.6m (2019: £0.6m) for administration, custody, dealing and other charges paid under the terms of the investment processing outsourcing arrangements; recruitment costs of £0.2m (2019: £0.3m), costs of investor relations activities of £0.2m (2019: £0.3m) and general legal and professional fees of £1.3m (2019: £1.4m).

Growth investment spend represents internal and external strategic costs to generate opportunities for growth.  This includes the costs of our strategy team and costs associated with developing our Japanese proposition.

Litigation defence and settlement costs represent those costs (net of insurance recoveries) incurred in defending Hansard Europe against writs taken against it, as described more fully in the Contingent Liabilities note to the consolidated financial statements.  During 2020 we recorded a credit for expense recoveries accepted by our insurers totalling £0.5m.

Provision for doubtful debts relate to amounts due from brokers which are deemed to be irrecoverable.  The £0.2m provided for in 2020 represents an estimate due to increased risk perceived for brokers who may not be in a financial position to repay upfront commissions on lapsed business due to Covid-19.
 

Cash Flow ANALYSIS

The operational cash surplus (fees deducted from contracts and commissions received, less operational expenses paid) for the year was £22.7m (2019: £20.6m). Operating cash flows have increased this year as a result of the increase in fee income levels. 

Writing new business, particularly regular premium business, produces a short-term cash strain as a result of the commission and other costs incurred at the inception of a contract.  Annual management charges offset this strain and produce a positive return over time.

Future increases in new business levels can be funded where necessary by the Group's significant cash resources, but over time as the level of contract holder assets is built up, the annual management charges that are earned from the Group's newer products will become sufficient to sustain new business growth and dividends.

During 2020, the Group invested £2.9m (2019: £2.5m) as part of a project to replace its administration systems.  These costs are capitalised as computer software on the Group's consolidated balance sheet.

The following non-GAAP tables summarise the Group's own cash flows in the year.  Overall cash and deposits have decreased from £65.3m at 30 June 2019 to £60.8m at 30 June 2020. 

Bank deposits and money market funds

The Group holds its liquid assets in highly-rated money market liquidity funds and with a wide range of deposit institutions to minimise market risk.  Deposits totalling £21.2m (2019: £25.1m) have original maturity dates typically greater than 3 months and are therefore excluded from the definition of "cash and cash equivalents" under IFRS as reflected in note 16 to the consolidated balance sheet. The following table summarises the total shareholder cash and deposits at the balance sheet date.

Abridged consolidated balance sheet

The consolidated balance sheet presented under IFRS reflects the financial position of the Group at 30 June 2020. As a result of its method of presentation, the consolidated balance sheet incorporates the financial assets held to back the Group's liability to contract holders, and also incorporates the net liability to those contract holders of £1,080.5m (2019: £1,079.7m). Additionally, that portion of the Group's capital that is held in bank deposits is disclosed in "cash and cash equivalents" based on original maturity terms, as noted above. 

The abridged consolidated balance sheet presented below, adjusted for those differences in disclosure, allows a better understanding of the Group's own capital position.

Deferred origination costs

The deferral of origination costs reflects that the Group will earn fees over the long-term from contracts issued in a given financial year. These costs are recoverable out of future net income from the relevant contract and are charged to the consolidated statement of comprehensive income on a straight-line basis over the life of each contract. 

The movement in value over the financial year is summarised below.

Deferred income

The treatment of deferred income ensures that contract fees are taken to the consolidated statement of comprehensive income in equal instalments over the longer-term, reflecting the services to be provided over the period of the contract. This is consistent with the treatment of deferred origination costs. Deferred income at the balance sheet date is the unamortised balance of accumulated initial amounts received on new business.

The proportion of income deferred in any one year is dependent upon the mix and volume of new business flows in previous years. The Group's focus on regular premium business means that these fees are received over the initial period of the contract, rather than being received up front, as is often the case with single premium contracts. 

The majority of initial fees collected during the year relates to charges taken from contracts issued in prior financial years demonstrating the cash generative nature of the business. Regular premium contracts issued in this financial year will generate the majority of their initial fees over the next 18 months on average.

The movement in value of deferred income over the financial year is summarised below.

CONTRACT HOLDER Assets under administration

In the following paragraphs, contract holder assets under administration ("AuA"), refers to net assets held to cover financial liabilities, as analysed in note 17 to the consolidated financial statements presented under IFRS.

The Group enjoys a stream of cash flows from the large number of regular premium contracts administered on behalf of clients around the world. The Group also acquires assets via lump sum single premium business which totalled £57.2m this year (2019: £70.4m). The majority of premium contributions are designated in currencies other than sterling, reflecting the wide geographical spread of those contact holders. Premium contributions during the year also includes additional contributions of approximately £2.6m (2019: £2.9m) relating to single and regular premium contracts issued by Hansard Europe in prior years.

These flows are offset by charges and withdrawals, by premium holidays affecting regular premium policies and by market valuation movements. 

The currency composition of AuA at the balance sheet date is similar to that as at 30 June 2019, with 67% of AuA designated in US dollar (2019: 65%) and 11% in euro (2019: 13%).

The value of AuA at 30 June 2020 was £1,080.5m. 

The analysis of AuA held by each Group subsidiary to cover financial liabilities is as follows:

Assets acquired by Hansard Worldwide are administered by Hansard International and therefore are included within Hansard International's total AuA.

Since it closed to new business in 2013, Hansard Europe's AuA has been declining broadly in line with expectations as contracts are surrendered or mature.

DIVIDENDS

An interim dividend of 1.8p per share was paid in April 2020. This amounted to £2.4m.

The Board has considered the results for the full year ended 30 June 2020, the Group's continued cash flow generation and its future expectations and has resolved to pay a final dividend of 2.65p per share (2019: 2.65p). Subject to approval at the AGM, this dividend will be paid on 12 November 2020.

complaints and potential litigation

In valuation issues such as those referred to above, financial services institutions can be drawn into disputes in cases where the performance of assets selected directly by or on behalf of contract holders through their advisors fails to meet their expectations. This is particularly relevant in the case of more complex products distributed throughout Europe.

Even though the Group does not give any investment advice, as this is left to the contract holder directly or through an agent, advisor or an entity appointed at their request or preference, the Group has been subject to a number of complaints in relation to the performance of assets linked to contracts.

As at 30 June 2020, the Group had been served with cumulative writs with a net exposure totalling €25.8m, or £23.4m in sterling terms (30 June 2019: €21.7m / £19.4m) arising from contract holder complaints and other asset performance-related issues. All such writs relate to historic business written by Hansard Europe prior to its closure to new business in 2013. The increase since 30 June 2019 was driven by a combination of additional cases being added in Italy and Belgium and a reduction in the fair value of investment assets backing the claims.

During the year, the Group successfully defended nine cases with net exposures of approximately €0.7m, or £0.6m, three of which have been appealed by the plaintiffs. These successes continue to affirm confidence in the Group's legal arguments.

Our policy is to maintain contingent liabilities even where we win cases in the court of first instance if such cases have been subsequently appealed.  This includes our largest single case in Belgium where the appeal has been deferred pending the outcome of a separate constitutional court case.

We have previously noted that we expect a number of our larger claims to ultimately be covered by our Group insurance cover.  During FY 2020 we received our first insurance payment on account for legal expenditure in Italy and have recorded £0.5m in total recoveries during the year.  We expect such reimbursement to continue during the course of that litigation. 

As a result we also expect that a significant amount of the £23.4m of contingent liabilities referred to above would be covered by insurance should those cases be ruled against us.  We continue to estimate insurance coverage to be in the range of £6m to £13m.

While it is not possible to forecast or determine the final results of such litigation, based on the pleadings and advice received from the Group's legal representatives, we believe we have a strong chance of success in defending these claims. The writs have therefore been treated as contingent liabilities and are disclosed in note 25 to the consolidated financial statements.

Net asset value per shaRE

The net asset value per share on an IFRS basis at 30 June 2020 is 18.8p (2019: 19.8p) based on the net assets in the Consolidated Balance Sheet divided by the number of shares in issue, being 137,557,079 ordinary shares (2019: 137,557,079).
 

Risk management and internal control

The Group is naturally exposed to both existing and emerging internal and external risks as it pursues its strategic and business objectives. All such risks, are managed as part of the corporate model via the governance, risk management and internal control arrangements which constitute the ERM Framework. This has never been more clearly demonstrated than via the unprecedented circumstances and associated challenges presented by the Covid-19 pandemic, which emerged in the third quarter of our reporting period and escalated rapidly in terms of the societal, economic and corporate level impacts, manifesting at macro and micro levels around the world.

The Group ERM Framework enabled the Board to take swift, decisive and informed decisions in response to the immediate risks which the pandemic presented to the Group, its employees, customers and wider stakeholder groups. The early invocation of pandemic-specific business continuity planning and the inherent strength of the Group's systems infrastructure supported a smooth and stable transition to remote working, which have remained robust and resilient throughout the period of 'lockdown' measures introduced at local and international levels.

Established ERM protocols enabled targeted risk metrics and key performance indicators to be rapidly invoked, addressing both prudential and conduct elements of the principal and subordinate risk spectrum. These metrics have supported continuous monitoring of operational performance, customer and intermediary impacts and the potential consequences of market volatilities and related stresses to global economies. Operational and Executive Risk Committee Meetings have maintained close scrutiny of these monitoring activities with formal reporting to both the Board and the Group's regulators.

Approach

Having regard to the Financial Reporting Council's 'Guidance on Risk Management, Internal Control and Related Financial and Business Reporting', the ERM Framework encompasses the policies, processes, tasks, behaviours and other aspects of the Group's environment, which cumulatively:

·      Facilitate the effective and efficient operation of the Group and its subsidiaries by enabling appropriate responses to be made to significant business, operational, financial, compliance and other risks to business objectives, so safeguarding the assets of the Group;

·      Help to ensure the quality of internal and external reporting. This requires the maintenance of proper records and processes that generate a flow of timely, relevant and reliable information from within and outside the Group;

·      Seek to ensure continuous compliance with applicable laws and regulations as well as with internal policies governing the conduct of business; and

·      Drive the cultural tone and expectations of the Board in respect of governance, risk management and internal control arrangements and the delegation of associated authorities and accountabilities.

The Board of Hansard Global plc ("the Board") has overall responsibility for the effective operation of the ERM Framework and the Directors retain responsibility for determining, evaluating and controlling the nature and extent of the risks which the Board is willing to accept across the spectrum of risk types, taking account of varying levels of strategic, financial and operational stress and emerging as well as existing risks. This approach ensures that risk appetite remains an integral element of decision-making by both the Board and the Executive Management Team, including in the setting of strategy, ongoing business planning and business change initiatives. 

The ERM Framework has been designed to be appropriate to the nature, scale and complexity of the Group's business at both corporate and subsidiary level. The Framework components are reviewed on at least an annual basis and refined, if necessary, to ensure they remain fit for purpose in substance and form and continue to support the Directors' assessment of the adequacy and effectiveness of the Group's risk management and internal control systems. Such assessment depends upon the Board maintaining a thorough understanding of the Group's risk profile, including the types, characteristics, interdependencies, sources and potential impact of both existing and emerging risks on an individual and aggregate basis. The disciplines of the ERM Framework seek to coordinate risk management in respect of the Group as a whole, including for the purpose of ensuring compliance with capital adequacy requirements, liquidity adequacy requirements and regulatory capital requirements, in line with the Isle of Man Financial Services Authority risk-based capital regime.

Governance, risk management and internal control protocols remain structured upon the 'three lines of defence' model, which addresses how specific duties and responsibilities are assigned and coordinated. Front line management are responsible for identifying risks, executing effective controls and escalating risk issues and events to the Group's Control Functions. The Group Risk and Compliance Teams oversee the First Line, ensuring that functions and operations are consistent with rules, limits and risk appetite constraints.  The Group Internal Audit Department provides independent assurance services to the Board and Executive Management Team on the adequacy and effectiveness of the Group's governance, risk management and internal control arrangements.

The ERM Framework seeks to add value through embedding risk management and effective internal control systems as continuous and developing processes within strategy setting, programme level functions and day-to-day operating activities. The ERM Framework also acknowledges the significance of the Group's operating culture and values in relation to risk management and their impact on the overall effectiveness of the internal control framework.

Emerging Risks

The ERM Framework promotes the pursuit of its overarching performance, information and compliance objectives through focus on five interrelated elements, which enable the management of risk at strategic, programme and operational level to be integrated, so that layers of activity support each other. The five interrelated elements are defined as:

·      Management oversight and the control culture

·      Risk recognition and assessment

·      Control activities and segregation of duties

·      Information and communication

·      Monitoring activities and correcting deficiencies

Risk management processes are undertaken on both a top-down and bottom-up basis. The top-down aspect involves the Board assessing, analysing and evaluating what it believes to be the principal existing and emerging risks facing the Group. The bottom-up approach involves the identification, review and monitoring of current and forward-looking risks on a continuous basis at functional and divisional levels, with analysis and formal reporting to the Executive Risk Committee, established by the Board, on a quarterly basis and onward analytical reporting to the Board.  The terms of reference of the Committee are published on the Company's website.

Stress and scenario tests are used to identify emerging risks as well as to analyse and assess any changes in existing aspects of the 'Universe of Risks', which are monitored via the ERM Framework. Such analysis uses both quantitative tests and qualitative assessments to consider reasonably plausible scenario tests, approximated to the range of impact types which can be envisaged, for formal consideration by the Operational and Executive Risk Committees, the Audit and Risk Committee and the Board, as necessary and appropriate.  

The system of internal control is designed to understand and manage rather than eliminate risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

Review of risk management and internal control systems

The results of the risk management processes combine to facilitate identification of the principal business, financial, operational and compliance risks and any associated key risks at a subordinate level. Established reporting cycles enable the Board to maintain oversight of the quality and effectiveness of risk management and internal control activities throughout the year and ensure that the entirety of the governance, risk management and internal control frameworks, which constitute the ERM Framework, are operating as intended. These processes have been in place throughout the year under review and up to the date of this report.

Independently of its quarterly and ad hoc risk reporting arrangements the Board has conducted its annual review of the effectiveness of the Company's risk management and internal control systems including financial, operational and compliance controls. This review is undertaken in collaboration with the Audit Committee and is based upon analysis and evaluation of:

·      Attestation reporting from the key subsidiary companies of the Group as to the effective functioning of the risk management and internal control frameworks and the ongoing identification and evaluation of risk within each key subsidiary;

·      Formal compliance declarations from senior managers at divisional level that key risks are being managed appropriately within the functional and operational areas falling under their span of control and that controls have been examined and are effective;

·      The cumulative results of cyclical risk reporting by senior and executive management via the Operational Risk Committee and the Executive Risk Committee, covering financial, operational and compliance controls; and

·      Independent assurance work by the Group Internal Audit Department to identify any areas for enhancements to internal controls and work with management to define associated action plans to deliver them.

The Board has determined that there were no areas for enhancement which constituted a significant weakness for the year under review and they are satisfied that the Group's governance, risk management and internal control systems are operating effectively and as intended, having particular regard to the disruptions and risks arising from the Covid-19 pandemic.

Financial reporting process

The Group maintains a process to assist the Board in understanding the risks to the Group of failing to meet its objectives. This incorporates a system of planning and sensitivity analysis incorporating Board approval of forecast financial and other information. The Board receives regular representations from the senior executives.

Performance against targets is reported to the Board quarterly through a review of Group and subsidiary company results based on accounting policies that are applied consistently throughout the Group.  Financial and management information is prepared quarterly by the Chief Financial Officer ("CFO") and presented to the Board and Audit Committee. The members of the Audit Committee review the financial statements for the half year ended 31 December and for the full financial year and meet with the CFO to discuss and challenge the presentation and disclosures therein. Once the draft document is approved by the Audit Committee, it is reviewed by the Board before final approval at a Board meeting.

Outsourcing

The majority of investment dealing and custody processes in relation to contract holder assets are outsourced to Capital International Limited ("CIL"), a company authorised by the Isle of Man Financial Services Authority and a member of the London Stock Exchange.

These processes are detailed in a formal contract that incorporates notice periods and a full exit management plan. Delivery of services under the contract is monitored by a dedicated relationship manager against a documented Service Level Agreement and Key Performance Indicators.

CIL is required to confirm monthly that no material control issues have been identified in their operations; this is overseen via the delivery of services monitoring performed by the relationship manager. Each year CIL are required to confirm and evidence the adequacy and effectiveness of their internal control framework through an Assurance report, with an external independent review performed every second year. The last such report, which included an external independent review, was issued by CIL on 5 June 2018 and did not reveal any material control deficiencies in the relevant period. For 2020, it was agreed that CIL's Internal Audit department conduct the 2020 review due to difficulties in completing an external review on a timely basis due to Covid-19.  This report did not reveal any material control deficiencies in the period.  An external independent review will be conducted in 2021.

Risks relating to the Group's financial and other exposures

Hansard's business model involves the controlled acceptance and management of risk exposures. Under the terms of the unit-linked investment contracts issued by the Group, the contract holder bears the investment risk on the assets in the unit-linked funds, as the policy benefits are directly linked to the value of the assets in the funds. These assets are administered in a manner consistent with the expectations of the contract holders. By definition, there is a precise match between the investment assets and the contract holder liabilities, and so the market risk and credit risk lie with contract holders.

The Group's exposure on this unit-linked business is limited to the extent that income arising from asset management charges and commissions is generally based on the value of assets in the funds, and any sustained falls in value will reduce earnings. In addition, there are certain financial risks (credit, market and liquidity risks) in relation to the investment of shareholders' funds. The Group's exposure to financial risks is explained in note 3 to the consolidated financial statements.

The Board believes that the principal risks facing the Group's earnings and financial position are those risks which are inherent to the Group's business model and operating environment. The regulatory landscape continues to evolve at both a local and international level and the risk management and internal control frameworks of the Group must remain responsive to developments which may change the nature, impact or likelihood of such risks.

Principal Risks

The following table sets out the principal inherent risks that may impact the Group's strategic objectives, profitability or capital and provides an overview of how such risks are managed or mitigated. The Board robustly reviews and considers its principal risks on at least an annual basis and for the year ended 30 June 2020 have specifically considered the impacts, uncertainties and any emerging risks generated by the Covid-19 pandemic (see also Risk Management and Internal Control section).

Further detail around financial risks is outlined in note 3 (Financial Risk Management) to the consolidated financial statements.

Philip Gregory

Chairman

23 September 2020