Homeowners Friendly Society Group 31 December 2003 › ... › em-report-accounts-2003.pdf · 27 years, the last four and a half years as Chairman. Gordon is a retired Civil Servant

for the year ended 31 December 2003

Homeowners Friendly Society Group

annual report & accounts

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HOMEMARK 31097 Accounts 30/3/05 12:05 pm Page 2

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contentssociety information 2mission 3your board of directors 4chairman’s report 6chief executive’s operational report 8our products 10other services 16directors’ report 18independent auditor’s report 20income and expenditure 21balance sheet 22notes to the accounts 23

registered officeHornbeam Park Avenue, Harrogate HG2 8XE

telephone 01423 855 000

e-mail [email protected]

websites www.homeowners.co.uk

www.theukgroup.com

Registered and Incorporated under the Friendly Societies Act 1992

Registered No: 964F

Authorised and regulated by the Financial Services Authority

board of directorsRaymond F Pierce BA FRSA

Peter N Sparling LLB

Andrew S Haigh BSc

Kevin D Chidwick BSc FCCA MBA

Rt. Hon. Lord Clark of Windermere BA MSc PhD

David G Hargrave BCom MSc FIA

Chris Lazenby BSc(Eng) CEng MBCS (appointed 6 January 2004)

Gordon A Murison MBE (appointed 1 November 2003)

secretary

Andrew J Horsley MSI FCIS

appointed actuary

Trevor M Batten FIA

auditors

KPMG Audit Plc

Registered Auditor

solicitors

Addleshaw Goddard

bankers

Barclays Bank plc

board committeesaudit

David G Hargrave (Chairman)

Rt. Hon. Lord Clark of Windermere

Peter N Sparling

finance

David G Hargrave (Chairman)

Trevor M Batten

Kevin D Chidwick

Peter W Mason

nominations

Raymond F Pierce (Chairman)

Andrew S Haigh

remuneration

Raymond F Pierce (Chairman)

Rt. Hon. Lord Clark of Windermere

Gordon A Murison

Peter N Sparling

society information


3

We will do this by providing our memberswith accessible, simple, value for money protection and savings products.

to enable people to protect their welfare.

our mission is

themselves

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19 pensicomm(contin

21 stateminformrelatinappo

20 opera

your board of directors

4

Kevin Chidwick BSc FCCA MBA (40) Finance DirectorKevin joined Homeowners asFinance Director in July 2001.His previous position was working for Cigna Group asFinance and UnderwritingDirector and prior to that asFinance and Actuarial Directorfor National Australia Life wherehe helped launch a start-up lifecompany in the UK. Kevin is aCertified Accountant and anMBA graduate from LondonBusiness School and has spentall of his working life in thefinancial services industry.

Andrew Haigh BSc (41) Chief ExecutiveAndrew became Chief Executiveof Homeowners in March 2002.He joined the Society in 1998and was appointed to the Boardas Sales and Marketing Directorin 1999. He is a marketing professional with over 19 yearsexperience. Prior to joiningHomeowners, Andrew heldsenior positions with NCRCorporation and National & Provincial Building Society.His early career was withBarclays Bank, British Airwaysand Volvo. He is also a memberof the Executive Committee of the Association of FriendlySocieties and a member of theIndustry Standards Group of theAssociation of British Insurers.

Peter Sparling LLB (70)Vice ChairmanPeter was appointed to theBoard in 1989 and appointedVice Chairman in 1991. He servedas Chairman of the Board during1998/1999. Peter is a Solicitor,Chairman of Governors of LeedsGrammar School and a Directorof Opera North. He is also a Governor of the EnglishSpeaking Union.

Ray Pierce BA FRSA (58)

ChairmanRay joined the Board, and was appointed Chairman, in 1999.He has extensive experience inthe financial services industry,in both general managementand strategic marketing roles.Ray was Group MarketingDirector on the main board of Guardian Royal Exchange plcand has also held senior positionsat The Mortgage Corporationand American Express. He isNon-Executive Chairman ofCrown Sports plc, Chairman of SPARKS charity and a Trusteeof The National Motor Museumat Beaulieu.


5

Rt. Hon. Lord Clark of Windermere BA MSc PhD (64)Non-Executive DirectorLord Clark joined Homeownersas a consultant in 1982 andbecame a Director in 1989.He left to join the Cabinet in 1997 as Chancellor of theDuchy of Lancaster beingresponsible for, amongst other things, the machinery of government, including IT.Lord Clark, who rejoined theHomeowners Board in 1999,was MP for South Shields from1979 until his elevation to theHouse of Lords in July 2001.He is currently Chairman of the Forestry Commission,and a Non-Executive Director of Thales plc and Carlisle UnitedFootball Club Limited.

David Hargrave BCom MSc FIA (53)Non-Executive DirectorDavid joined the HomeownersBoard in 1981 and served as ViceChairman during 1998/1999.David is an Actuary and in 1995formed David Hargrave Limited,an independent company specialising in project-basedfinancial consultancy. He is alsoNon-Executive Chairman ofDeutsche Asset ManagementLife and Pensions Limited andthe independent trustee of anumber of pension funds.

Chris Lazenby BSc(Eng) CEng MBCS (53)Operations DirectorChris joined Homeowners inAugust 2003 and was appointedto the Board as OperationsDirector in January 2004. Hehas extensive experience ofleading business-wide changehaving been responsible forprojects as diverse as developingstrategy, setting up a customercontact centre, cost reductionand many technology-basedinitiatives. Chris’s previous roleshave included Head of BusinessImprovement in the mutualsector with Britannia BuildingSociety, IT Director for Lunn Polyas well as senior positions atLadbrokes and Massey Ferguson.

Gordon Murison MBE(61)Non-Executive DirectorGordon joined the HomeownersBoard in 2003 having served onthe Board of UKCSBS Limited for27 years, the last four and a halfyears as Chairman. Gordon is a retired Civil Servant havingworked for the Dept for NationalSavings for 34 years in bothLondon and Glasgow. He spentthe major part of his career in Staff Training and PersonnelManagement. Over the past fewyears since his retirement hehas been involved in a numberof voluntary positions with theChurch of Scotland and theWest of Scotland Post OfficeAdvisory Board.

2002

£’000

359

65

9

56

489

(897)

(408)

82

(326)

ecember

2002

£’000

39

-

39

BS

2002

£’000

39

(55)

(16)

BS

2002

£’000

(148)

142

(50)

(56)

BS

2002

£’000

489

(897)

(408)

BS


19 pensicomm(contin

6

chairman’s report for the year ended 31 December 2003


dear memberI am pleased to be able to report anotherpositive year for your Society, in whichHomeowners became a larger, more efficientand financially stronger organisation.

We have maintained a consistent strategyover the last few years, despite the manychanges in the external environment anddifficult market conditions. It is our aim toprotect our members’ welfare by providinga range of simple, good value and accessiblesavings and protection products.Our products are easily understood andspecifically designed to be bought direct,without the need for provision of expensiveadvice, enabling us to focus on keepingcharges low and maintaining membervalue. We will continue to build on thisapproach in the years to come.

We saw growth in equities in 2003 for thefirst time in three years.We understand andappreciate how it has been a difficult timefor members invested in the equity marketsover the last few years and we are delightedto see the position improving. We remainhopeful that at least modest growth will continue through 2004, offering the potential for further recovery andgrowth in our members’ funds.

In July and August 2003, members ofUnited Kingdom Civil Service BenefitSociety (UKCSBS) and HomeownersFriendly Society were asked to vote onthe transfer of UKCSBS to Homeowners.Both sets of members were overwhelminglyin favour, with 97% of the UKCSBS membersand 98% of Homeowners members whovoted, approving the proposal. As a result,we were delighted to welcome more than 30,000 ‘UK’ members to the Societyin October. The merger was a result of athorough and thoughtful debate betweenthe Societies. We believe the outcome isextremely positive for both organisationsand hope that we have created an approachwhich will have appeal for other societies,who may now consider working in muchcloser association with us in the future.

The merger also provides an importantleap forward in our strategy, to make our products available to people in their place of work, commonly known as ‘worksite marketing’.

In my report last year, I referred to theGovernment plans for the Child TrustFund and a suite of simple, good valueproducts, often referred to as Sandler“stakeholder” products. We still await finaldetail on the “stakeholder” products, butthese have been defined in outline and,at the time of writing, Child Trust Fund isbeing finalised as legislation. We remainoptimistic about the potential of both initiatives to play a significant part in the delivery of our future strategy.

These developments have sparked alengthy debate about what an appropriatelevel of charge for such products shouldbe. The Government has announced thatfor the basic Child Trust Fund product,the maximum charge will be 1.5%.Homeowners remains committed todelivering the best value we can and willcontinue to offer a range of high value, 1%investment products wherever possible.

The challenging environment broughtabout by low equity values has drivenmany financial organisations to reviewtheir approach to the provision and servicing of their products. Outsourcing,either in the UK or overseas, is becomingincreasingly popular. Last year welaunched our own administration subsidiary, Homeowners FinancialAdministration (HFA) which provides services to other organisations.

There was only one change to the Boardin 2003. Gordon Murison, former Chairmanof UKCSBS joined the Homeowners Boardas a Non-Executive Director. Gordon bringsconsiderable experience from his timewith UKCSBS and his earlier career withNational Savings.

In August, we welcomed Chris Lazenby to the Society as Operations Director.Chris was invited to join the Board witheffect from 6 January 2004.

At our Annual General Meeting in 2004we will be sorry to say goodbye to PeterSparling, who retires as a member of the Homeowners Board. Peter has had a long and dedicated association withHomeowners, for over 15 years, and hasserved as Non-Executive Director, ViceChairman and between May 1998 andJuly 1999, Chairman. We are all grateful for Peter’s contribution over the years and wish him well for the future.

Following the merger with UKCSBS, wehave changed a number of our Boardprocesses. We have created a FinanceCommittee to oversee the managementof the with-profits fund in particular and,more generally, our unit linked funds. TheFinance Committee has an independentmember, Peter Mason, who is a qualifiedactuary. We have also formed an AdvisoryBoard, chaired by Gordon Murison andcurrently including former directors ofUKCSBS. The Advisory Board will providecontinuity for the views of UKCSBS members and will also have a key role in the future development of the civilservice and public sector distribution.

Changes to the regulatory regime,particularly with regard to the capitalrequirements for with profits funds, havebrought the solvency position of somequite large organisations into question.Homeowners does not have any suchproblem. I am pleased to report thatHomeowners’ free assets have more thandoubled in 2003 and the Society is in astrong financial position for its size andstructure. Our new Finance Committeemonitors the capital requirements andprofile of investments carefully and willrecommend appropriate actions to theBoard to ensure that members’ interestsare protected.

Finally, as always, I thank you, the membership and the staff of the organisation, for your continued supportand involvement. Providing members with good value and excellent service is at the heart of what we do.We continueto look to the future with optimism andthe potential to develop your Society stillfurther in 2004.

Ray PierceChairman18 February 2004

7

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8

progress

We continued to progress well against our plans for the development of the Society in 2003.We have maintained our cautiousapproach to risk and careful management of expenses, whileseeking innovative ways to makethe most of the many opportunitiesand challenges that face us.

The merger with UKCSBS was themajor event in 2003 which, I ampleased to report, was completedto schedule and within budget.This was a significant achievementfor the Society, proving our abilityto take on major projects of thistype. The planned cost savings forthe combined organisation havealready been realised and the overallproject can be regarded as a clearsuccess for both sets of members.

2003 was a good year for new policy sales. Although the volumesof new business were lower thanthe previous year, this was a resultof focusing on the most efficientmarketing activities, which ensureda strong financial performance for2003 from a lower overall spend.

The membership at the end of theyear was nearly 237,000, an increaseof 16% on 2002. Even without theaddition of the UKCSBS members,we experienced net growth inmembership, despite a significantnumber of policies reaching maturity during the year. Our fundsunder management grew by morethan £160m to over £600m by theend of 2003.

child trust fundHomeowners has been very involvedfrom an early stage in helping theGovernment develop the proposals forChild Trust Fund.This work continued in2003 and we were invited to participate in a number of workshops and informalmeetings with H M Treasury and InlandRevenue officials during the year.Homeowners was proud to be one of the few financial organisations to be invited to the official launch at 10 Downing Street in October.

We very much look forward to the launch of Child Trust Fund. It is an excitingopportunity to build on our many years of experience in providing simple, goodvalue savings products, which encourageparents to save regularly for their children.Homeowners continues to be the lowestcharge provider of children’s tax exemptsavings products (see FSA comparativetables on the FSA website athttp://www.fsa.gov.uk) with our 1%charge, Better Start product. We aim to extend this tradition of providing excellent value savings products intoChild Trust Fund, subject to the final detail of the regime.

partnershipsWe have continued to build on our strongrelationships with other mutuals such as Medicash and UIA and the medicalresearch charity, Candis Club.We were verypleased to launch a marketing initiativewith Furness Building Society, rekindlingour long tradition of working with buildingsocieties. We also launched an innovativenew relationship with Mecca Bingo in 2003.

Partnerships with other organisations area key element of our future strategy andwe hope to make further announcementsin 2004. We are particularly enthusiasticabout developing initiatives with othermutuals which make the most of ourcombined desire to offer members the best possible value we can.

for the year ended 31 December 2003

chief executive’s operational report


9

civil service and public sectorThe UKCSBS merger has providedHomeowners with a unique opportunityto build on over 100 years history of providing good value financial products to the Civil Service and Public Sectoremployees. We are determined to keepthe ‘UK’ brand alive for the future and willwork, in 2004, to find new opportunities toreach even more Public Sector employeesin their place of work. The merger alsoprovided us with an opportunity to offerwith-profits products. After careful restructuring to ensure the safety of members’ benefits into the future andto achieve greater operational efficiency,we are pleased to be able to keep the UK fund open for members to invest in, in future years.

third party administrationAs announced in last year’s report, thestaff of the Society were all transferred toour third party administration subsidiary,HFA, which has become the principalemployer of the Group. HFA now providesadministration services to HomeownersFriendly Society, the UK with-profits fund,Homeowners Investment Fund ManagersLimited and our first external client,Pension Annuity Friendly Society (PAFS).We strengthened the senior managementteam for HFA in 2003 with the addition of Chris Lazenby as Operations Director.Chris brings a wealth of experience in IT,customer service, call centres and organisation design. He has a backgroundin mutuality, with his most recent role atBritannia Building Society. I am sure thatChris will make an excellent contributionto the Society’s Executive team and in theoperational delivery of HFA in particular.We will continue to develop our HFAoperations in 2004 and look forward to adding new clients in due course.

financial performanceThe Society managed an extremely busyyear in 2003 with slightly fewer staff thanthe previous year. Putting aside the one-offcosts of the merger, our operating costswere also tightly controlled, giving goodcause for optimism for our ability to continueimproving our efficiency in future years.We will continue to invest, with care, inour infrastructure and staff through 2004to ensure we maintain an effective operation,capable of delivering further growth anddevelopment as we meet the opportunitiesand challenges of the years to come.

In 2002 we reported a third year of stockmarket decline and our concern for theimpact this would have on members’investments.We are encouraged, therefore,to report a far more positive year for equitiesin 2003, with growth in the FTSE® All-ShareIndex of 19.8% and a welcome recoveryfor many of our members’ funds.

We are hopeful that this improvement will be sustained in 2004. The early signsare encouraging, but we will have to seehow the year unfolds. Of course, stockmarket based investments are not intendedfor short-term savings. They should beregarded with a medium to long-termtime frame i.e. five to ten years. Youshould also be aware that the value ofstock market based investments can fall or rise and investors may not get back all they have invested.

Many Homeowners members have theirfunds invested in deposit based policies.Theaverage tax-free return for our deposit basedpolicies in 2003 was 4.02% after charges.

These are exciting times for the Society.The Government initiatives for Child TrustFund and stakeholder products are movingfrom theory to practice; our involvementwith the public sector through UKCSBSpresents many new opportunities and ourthird party operations are now ready forfurther expansion.We aim to move forwardon all these fronts to strengthen the Society,ensuring that we can continue to provideour members with an increasing range ofsimple, good value, savings and protectionproducts. I look forward to 2004 withenthusiasm for the Society.

Andrew HaighChief Executive18 February 2004

Society

2002

£’000

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(1,747)

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2002

£’000

8,147

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8,147

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2002

£’000

594

553

1,564

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overview and statement abouthow well the funds have done

despite difficult market conditions.

savingsfriendly society savings planEveryone knows it’s a good idea to save, but it is not always easy to find an affordable, worthwhile way of doing it. Our savings plan takes advantage of the personal tax-exempt friendly society savings allowance granted by the Government. It offers an affordableway to build up a cash lump sum for the future. It is possible to save monthly from £10 to £25 or annually from £110 to £270, for 10 years or more.

e-friendly savings planThe e-friendly savings plan is a marketleader in terms of charges. It offers thelowest charges of any unit linked friendlysociety tax-exempt savings plan and hasno initial charge. Find out more on theHomeowners website at www.homeowners.co.uk

10

our products


11

homeowners insurance ISAThe Homeowners Insurance ISA offers a flexible way of saving free of all incomeand capital gains tax. This is an effectiveway to make use of a tax-free ISA savingsallowance. Up to £1,000 can be saved tax-free in each tax year either by monthlypremiums or lump sums.

homeowners equity ISAIntroduced by Homeowners InvestmentFund Managers Limited, the HomeownersEquity ISA provides the opportunity toinvest in the growth potential of a stockmarket based investment fund. It is possibleto save from £30 a month or £500 as a lump sum in this CAT standard, equityISA. Subscriptions can be invested in eitherone or both of the funds available - theHomeowners Investment Growth Fundand the Homeowners High Income Fund.Investment can be up to the current government limits of £3,000 in a mini ISA or up to £7,000 in a maxi ISA.

fund factsStock market based, unit linked investmentscan go up and down in value so what ispaid out could be less than what is paid in.

life coverover 50’s friendly life cover planThis plan offers over 50s straightforward,low cost whole of life cover of up to£18,500.We guarantee to accept applicantswithout a medical. It is available to UK residents aged 50 to 75. For an affordablemonthly premium of between £8 and £30 it provides a tax-free cash lump sumwhen you die. We also guarantee that the monthly premium will never increase.In some cases what is paid in may bemore than what is paid out.This dependson how long the plan is held.The cost ofcover depends on the amount of coverchosen and other factors.

Society

2002

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(1,538)

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savingsbetter start child savings planThe Better Start Child Savings Plan is anaffordable way to save in either a depositbased investment or a stock market based,unit linked investment. It is a tax-exemptfriendly society savings plan designed tobe taken out by an adult on behalf of achild under 16. It is possible to save up to£25 per month for a minimum of 10 yearsor for a child’s 18th or 21st birthday. Thereis only an annual management charge of 1%, which gives the Better Start ChildSavings Plan top place for value on theFSA’s comparative tables for 10 year tax-exempt savings plans for children. Fulldetails can be seen on the FSA website,at www.fsa.gov.uk.

The Better Start Child Savings Plan offers a choice of three funds – one aims tomatch the performance of the FTSE® AllShare Index, the second aims to matchthe performance of the FTSE4Good UKIndex.These are both stock market based,unit-linked investments. The third is adeposit based fund – the Better StartDeposit Exempt Fund.

better start education ISAEvery parent wants the best for their child,which may mean them going on to furthereducation. The Better Start Education ISAprovides the opportunity to invest in astock market based investment fund for a child’s future. It is possible to save fromjust £30 a month or £500 a year as a lumpsum in Homeowners Investment FundManagers Limited CAT standard ISA.Money can be invested in either one or both of the funds available - theHomeowners Investment Growth Fundand the Homeowners High Income Fund.Investment can be up to the current government limits of £3,000 in a mini ISA or up to £7,000 a year in a maxi ISA.

fund factsStock market based, unit linked investmentscan go up and down in value so what ispaid out could be less than what is paidin. The deposit based fund doesn’t have a guaranteed interest rate, therefore therate can vary.

our products better start

Better Start is a range of simple,good value savings and protection

products from Homeowners FriendlySociety, designed to meet the specific

needs of young families.

12


child trust fundIn April 2003 the Chancellor unveiled plansfor a new tax-free child savings account to be called the Child Trust Fund. Childrenborn on or after 1st September 2002 willautomatically receive a Government nestegg of at least £250 in 2005, to save in a Child Trust Fund. In line with our commitment to provide simple, accessibleand value-for-money products, we fullysupport the Government’s plans. It is ourintention to offer a Better Start Child TrustFund account. In the meantime we offereligible parents and parents-to-be thechance to register with us online atwww.betterstart.co.uk to be updatedon the progress of Child Trust Fund ingeneral as more details become available.

life coverbetter start life insuranceThe new Better Start Life Insurance will be launched in Spring 2004. It will be avalue-for-money way to help take stepstowards protecting a family’s financialfuture. Cover will be available on a singleor joint life basis for between 10 and 25years. There will be a choice of premiumlevels available, starting from just £5 amonth. It will pay out a tax-free cash lumpsum of up to £200,000 on death and terminal illness benefit will also be included.It will give UK residents, aged between 18 and 60, the opportunity to enjoy realpeace of mind, knowing that importantsteps have been taken to help ensure thattheir loved ones do not suffer financially if they die.

family income benefitFrom Spring 2004 Homeowners will beoffering Family Income Benefit, anotherway to help protect a family’s financialsecurity. Rather than paying out a lumpsum on death, it will pay out a monthlytax free income for the remainder of theterm. The plan will be available for UK residents aged between 18 and 60 and also includes terminal illness benefit.The plan will provide single or joint cover for 20 years, with levels of cover at a cost to suit most budgets.

13

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16

The UK Civil Service Benefit Societymerged with Homeowners Friendly

Society in October 2003.The ‘UK’ iswell known and respected amongst

civil service and public sectoremployees, with a great heritage,

built up over more than 100 years.The name lives on as a trading styleof Homeowners, with a new range

of with profits, unit linked and protection products available

under the ‘UK’ brand.

The ‘UK’ is already well representedin the Inland Revenue, Royal Mail,the Prison Service and Government

Ministries. In the coming year we will seek new opportunities to attract additional members,ensuring that the ‘UK’ is widely

recognised for providing simple,good value savings and protection

products to employees within thecivil service and public sector, formany years to come. We are also

keen to extend our worksite marketing activities under the ‘UK’

brand to new opportunities outsidethe public sector, where appropriate.

Savings and InvestmentEasySaveEasySave is a “with profits” savings planwhich places regular monthly paymentsin the “UK With Profits Fund”. It is a simpleway to build up a tax-free lump sum forthe future. It allows UK residents aged 16 to 74 to take advantage of the personaltax-exempt friendly society savingsallowance granted by the Government.Up to £25 a month or £270 a year can be saved for between 10 and 25 years.At the end of the chosen savings term,a tax-free lump sum will be paid.The plan also includes life cover.

EasyBondEasyBond is a “with profits” investmentplan which places lump sum investmentsof £1,000 or more in the “UK With ProfitsFund”. It is a simple way for UK residentsover the age of 18 to help provide anest egg for the future.There is no fixedinvestment term, although EasyBondshould be viewed as a medium to longterm investment (5 to 10 years). All orpart of the money can be withdrawn at any time. In fact, if £2,000 or more is invested, regular withdrawals can be made. However, this will reduce thevalue of the fund and could take theplan value down to less than originallyinvested. Further bonds can be openedat any time and EasyBond can be heldin joint names.

14

our products UK Civil Service Benefit


17

A range of unit linked savings and protection products will also be availableunder the ‘UK’ brand. These will includethe market leading, Better Start ChildSavings Plan and the Over 50’s FriendlyLife Cover Plan. Additional products willbe launched during 2004.

fund factsWhen saving with EasySave and EasyBond,the money buys units in the UK With ProfitsFund, investing in a mixture of stock marketequities, fixed interest bonds, deposits andproperties.You should bear in mind thatfuture bonuses depend upon investmentperformance and are not guaranteed andyou could get back less than you paid in.

For the Better Start Child Savings Plan it is important to bear in mind the following.Stock market based, unit linked investmentscan go up and down in value so what ispaid out could be less than what is paid in. The deposit based fund doesn’t have a guaranteed interest rate, therefore therate can vary.

15

Societymber 2003

Society

2002

£’000

5,175

2,000

21,830

29,005

430,706

1,059

793

602

442

1,044

257

6,652

1,159

8,068

470,675

26,815

6,479

4,030

10,509

430,706

161

1,593

1,754

891

470,675


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Business

Services include:product servicing

policy administrationpremium collectionclaims managementmaturity managementcustomer enquiries by post, telephone and email

sales processing

application processingunderwritingtelephone follow-up calls

marketing

direct marketingresponse handlingpersonalised literature fulfilment

HFA has proven experience in both the transfer of existing business from legacy systems and the development of new products to client’s specific requirements.

Homeowners Financial AdministrationLimited (HFA) is our third party

administration subsidiary. HFA offersadministration services to external clients

as well as providing the product andoperational delivery for Homeowners

Friendly Society, Homeowners Investment Fund Managers Limited,

and the ‘UK’ with profits fund.

Modern, customer centric systems and highly efficient staff provide the

basis for a wide range of services across unit linked investment, with profits

and protection products.

Outsourcing product administration to HFAhelps companies that want to increase

their business without increasing their ownresources, or provides an alternative for

those companies looking to improve the efficiency of their existing business.

16

other services third party


partnershipsHomeowners is committed to working with partners,especially mutual and not-for-profit organisations, in order to provide their customers or members with new, value for money products.

Following our merger with the UK Civil Service BenefitSociety, we are keen to develop new relationships, withorganisations that serve people in their workplace.

We also aim to be a significant provider of Child Trust Funds,when they are launched in 2005.We are particularly interestedin developing partnerships which help provide exceptionallygood value Child Trust Fund products to a very wide audience.

17

The success of our current partnership programme hasenabled many thousands of new members to take out goodvalue savings and protection products with Homeowners.We have continued to develop our relationships with thehospital cashplan provider, Medicash and Candis Club,associated with Candis magazine, the UK’s largest sellingmonthly women’s lifestyle magazine and major donor to medical charities. In 2003 we started working with theFurness Building Society, offering our Better Start ChildSavings Plan to their members. During the summer of 2003 we also commenced a partnership with Mecca Bingo.

Homeowners offers a caring and mutually beneficial alternative to other financial services providers. Our modern,customer focused IT infrastructure enables us to deliver efficient product administration and new business processing.Supported by our highly trained telephone team, we are ableto provide high levels of customer service, personalised asrequired by the partner.

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board coThe Audit CNon-ExecuChairmansCommitteeyear to reviand risk maaudit reporstatementsThe Audit Cwith the exmanagemefrom the auof the Audwith the Intof internal

The FinancFinance Dirand an indqualified acof David Hameets monfinancial mthan is posIn particulaCommitteerecommenmanagemebusiness, minvestmenof the Grou

The Nominthe Chairmmeets as apsize and coto make rewith regarddeemed nefor identifyapproval oBoard vaca

The Remunof four Nonthe Chairmas appropriExecutive rthe Commiencourageperformanfairly and rindividual

Audit (4) N/A 4 N/A N/A 4 4 N/A

Finance(3) N/A N/A N/A 3 N/A 3 N/A

Nominations (3) 3 N/A 3 N/A N/A N/A N/A

Remuneration (3) 3 3 N/A N/A 3 N/A N/A

Committee Meetings

RayPierce

PeterSparling

AndrewHaigh

KevinChidwick

LordClark

DavidHargrave

GordonMurison

HFS (15) 14 14 15 15 12 15 1 of 2

HIFML(4) 4 4 4 4 N/A N/A N/A

HMS (1) 1 1 1 1 1 0 N/A

HFA (2) 2 2 2 2 2 1 N/A

Board Meetings

RayPierce

PeterSparling

AndrewHaigh

KevinChidwick

LordClark

DavidHargrave

GordonMurison

attendance of directors at board and committee meetings

18

directors’ report for the year ended 31 December 2003

The Directors present their annualreport, together with the financialstatements and auditor’s report forthe year ended 31 December 2003.

business objectivesThe mission of the Society is to enablepeople to protect their welfare. We will do this by providing our members withaccessible, simple, value for money protection and savings products.

Looking forward, the Society’s subsidiariesare expected to play an increasinglyimportant role in meeting the mission:

Homeowners Investment Fund ManagersLimited, the provider of our equity ISAproduct, may play a central role in meeting the Society’s aspirations to be a Child Trust Fund provider.

Homeowners Financial AdministrationLimited (HFA), the Society’s third partyadministration subsidiary, offers chargeableservices to other organisations, creatingan income which can be used to offsetthe Society’s operating expenses.

The role of the subsidiaries and theimpact on the finances of the Society issuch that we now present consolidatedaccounts for the Homeowners Group.

The Board is committed to Homeowners’ongoing development as a leading friendlysociety, delivering a range of good value,welfare products to a wide audiencethrough direct and partnership distribution.

The Directors are of the opinion that allactivities performed during the year bythe Society and its subsidiaries have beencarried out within their respective powers.

board of directorsA list of Directors who held office duringthe year appears within the ‘society information’ on page 2. As at the year end,no Director of the Society had any interestin the shares of the Society’s subsidiarycompanies. The Society does not have a Senior Independent Director, which weregard as inappropriate to an organisationof our size and structure. Although we donot currently have a majority of independentNon-Executive Directors, as recommendedby the recently issued Combined Code onCorporate Governance, we are committedto a balanced Board with appropriateskills and experience and our approach tosuccession planning is designed to meetthis objective. The Chairman meets eachNon-Executive Director annually to discussindividual performance. A meeting of the Non-Executive Directors is also held,without the Executive Directors present,to discuss collectively the performance of the Executive Directors.

The Society maintains Directors’ andOfficers’ Insurance for the Board ofDirectors in respect of their duties as Members of the Board.

statement of responsibilities of the board of directorsThe Friendly Societies Act 1992 requiresthe Board of Directors to prepare financialstatements which give a true and fair viewof the state of affairs of the Society andGroup as at the end of the financial yearand of the income and expenditure forthe year then ended. In preparing thosefinancial statements, the Board ofDirectors is required to:

• select suitable accounting policies andthen apply them consistently;

• make judgements and estimates thatare reasonable and prudent;

• state whether applicable accountingstandards have been followed, subjectto any material departures disclosed andexplained in the financial statements; and

• prepare the financial statements on the going concern basis, unless it isinappropriate to presume that theGroup will continue in business.

The Directors are also responsible forensuring that the Society and Group keepproper accounting records which disclose,with reasonable accuracy, at any time thefinancial position of both the Society andthe Group, and for ensuring that the Societyand Group establishes and maintains systems of control of its business andrecords and of inspection and report in accordance with the Friendly Societies Act 1992.The Directors also have a generalresponsibility for taking such steps as arereasonably open to them to safeguard the assets of the Group and to preventand detect fraud and other irregularities.


board committeesThe Audit Committee consists of threeNon-Executive Directors, under theChairmanship of David Hargrave. TheCommittee currently meets four times ayear to review systems of internal controland risk management; to receive externalaudit reports and to review annual financialstatements before submission to the Board.The Audit Committee also meets annuallywith the external auditors, without management, to discuss issues arisingfrom the audit. In addition, the Chairmanof the Audit Committee meets regularlywith the Internal Auditor to discuss issuesof internal control.

The Finance Committee consists of theFinance Director, the Appointed Actuary,and an independent member, who is aqualified actuary, under the Chairmanshipof David Hargrave.The Committee currentlymeets monthly to review the Group’sfinancial management in greater detailthan is possible at regular Board meetings.In particular, the Board has charged theCommittee with providing direction andrecommending strategy in the areas ofmanagement of the Society’s with-profitsbusiness, management of the Group’sinvestment strategy and monitoring of the Group’s investment performance.

The Nominations Committee consists ofthe Chairman and the Chief Executive. Itmeets as appropriate to review the structure,size and composition of the Board and to make recommendations to the Boardwith regard to any adjustments that aredeemed necessary. It is also responsiblefor identifying and nominating for theapproval of the Board, candidates to fillBoard vacancies as and when they arise.

The Remuneration Committee consists of four Non-Executive Directors, under the Chairmanship of Ray Pierce. It meetsas appropriate to determine the policy forExecutive remuneration. The objective ofthe Committee is to give Executive Directorsencouragement to enhance the Society’sperformance by ensuring that they arefairly and responsibly rewarded for theirindividual and collective contributions.

advisory boardFollowing the Society’s merger with the United Kingdom Civil Service BenefitSociety Limited (UKCSBS), the Societyformed an Advisory Board. Currently, theAdvisory Board consists of the former Non-Executive Directors of UKCSBS, underthe Chairmanship of Gordon Murison.The Chief Executive and the AdvisoryBoard’s primary function is to advise theSociety how best to expand distributionthrough worksite marketing in general,and the Civil Service channel in particular.The views of the Advisory Board are communicated to the Board of the Societythrough the Advisory Board Chairman.

statement of solvencyAs at 31 December 2003, the Society’smargin of solvency for each class of relevant business exceeded the minimumrequirements prescribed by the FinancialServices Authority’s “Interim PrudentialSourcebook: Friendly Societies”.

membershipMembership of the Society as at 31 December 2003 stood at 236,538.(2002: 204,069).

member complaints policyThe Society aims to deliver the highestpossible level of service to our members. Ifany member believes that the Society hasfailed in this aim, the member has recourseto the Society’s complaints procedures.

The Society has documented proceduresfor the handling and recording of complaints.We deal with all complaintswith due care, ensuring that they are thoroughly investigated. The Board ofDirectors regularly reviews the numberand type of complaints received to monitor that complaints are properlydealt with, and corrective action has been taken to prevent recurrence.

Serious complaints are dealt with by seniormanagement. In the unlikely event that a complaint cannot be resolved to themember’s satisfaction, the member will be made aware of the option to appeal to the Financial Services Ombudsman.

employeesThe average number of Directors and staff employed by the Group, in eachweek of the year, totalled 136.The aggregateremuneration paid to Directors and staffemployed by the Group, during the year,amounted to £4,674,000. All of the staffare employed by the Society’s third partyadministration subsidiary, HFA.

Homeowners has an equal opportunitiespolicy for recruitment and continues to becommitted to the ongoing developmentof its staff. Following re-assessment in 2003, the Society again received an ‘Investors in People’ award.

charitable donationsIn 2003 we donated £6,662 to charities,which included donations to our local St Michael’s Hospice, as well as nationalcharities MENCAP and Cancer Research.We met all the costs of maintaining thegrounds that we share with our localHospice. We also sponsored local juniorfootball clubs.

Our staff fully support charities and haveraised £887 through participating inmarathons, raffles, organising and baking for cake stalls in aid of SCOPE, HeartFoundation, Cancer Research as well as local charities.

re-appointment of auditorsA resolution to re-appoint KPMG Audit Plcas Auditors will be proposed at the forthcoming Annual General Meeting.Auditors are rotated at least once everyseven years with a full review processbeing conducted every three years.

By Order of the BoardAndrew HorsleySecretary18 February 2004

19

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independent auditor’s report

20

Independent auditor’s report to the members of HomeownersFriendly Society limited.

We have audited the financial statementson pages 21 to 34.

This report is made solely to the Society’smembers, as a body, in accordance withsection 73 of the Friendly Societies Act1992. Our audit work has been undertakenso that we might state to the Society’smembers those matters we are requiredto state to them in an auditors’ report andfor no other purpose. To the fullest extentpermitted by law, we do not accept orassume responsibility to anyone other thanthe Society and the Society’s members asa body, for our audit work, for this report,or for the opinions we have formed.

respective responsibilities of directors and auditorsThe Directors are responsible for preparingthe financial statements. As described on page 18, this includes responsibility for preparing the financial statements in accordance with applicable UnitedKingdom law and accounting standards.

Our responsibilities, as independent auditors, are established in the UnitedKingdom by statute, the AuditingPractices Board and by our profession’s ethical guidance.

We report to you our opinion as to whetherthe accounts give a true and fair view andare properly prepared in accordance withthe Friendly Societies Act 1992 and theregulations made under it. We also reportto you our opinion as to whether theDirectors' Report has been prepared inaccordance with the Friendly Societies Act1992 and the regulations made under it,and as to whether the information giventherein is consistent with the accountingrecords and the financial statements.

We also report to you, if, in our opinion, theSociety has not kept proper accountingrecords, or if we have not received all theinformation, explanations and access todocuments we require for our audit.

We read the other information containedin the Annual Report and consider whetherit is consistent with the audited financialstatements. We consider the implicationsfor our report if we become aware of any apparent mis-statements or material inconsistencies with the financial statements.

basis of audit opinion We conducted our audit in accordancewith Auditing Standards issued by theAuditing Practices Board. An audit includesexamination, on a test basis, of evidencerelevant to the amounts and disclosuresin the financial statements. It also includesan assessment of the significant estimatesand judgements made by the directors in the preparation of the financial statements, and of whether the accountingpolicies are appropriate to the Society’scircumstances, consistently applied andadequately disclosed.

We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us with sufficient evidence to give reasonableassurance that the financial statementsare free from material mis-statement,whether caused by fraud or other irregularity or error. In forming our opinionwe also evaluated the overall adequacy of the presentation of information in the accounts.

opinionIn our opinion the accounts give a trueand fair view of the state of affairs of theSociety and the Group as at 31 December2003 and of the income and expenditureof the Society and the Group for the yearthen ended and have been properly prepared in accordance with the FriendlySocieties Act 1992 and the regulationsmade under it.

In our opinion the Directors’ Report on pages 18 to 19 has been prepared in accordance with the Friendly Societies Act 1992 and the regulations made under it and the information given therein is consistent with the accounting recordsand the financial statements for the year.

KPMG Audit PlcRegistered AuditorChartered AccountantsLeeds18 February 2004


income and expenditurefor the year ended 31 December 2003

Technical Account - Long Term Business

Group Society Group Society

2003 2003 2002 2002

£’000 £’000 £’000 £’000

Continuing Operations

Earned premiums

- Gross premiums written : continuing operations 28,585 28,585 30,125 30,125

- Gross premiums written : acquisitions 1,325 1,325 - -

- Outward reinsurance premiums (2,790) (2,790) (1,645) (1,645)

Total earned premiums 27,120 27,120 28,480 28,480

Investment income 16,499 16,499 16,070 16,070

Other technical income 334 509 187 13

Total Technical Income 43,953 44,128 44,737 44,563

notes

2

2

3

11


2003 2003 2002 2002

£’000 £’000 £’000 £’000

Claims incurred

- Gross claims incurred 44,778 44,778 45,638 45,638

- Outward claims reinsurance (1,083) (1,083) (803) (803)

Total claims incurred 43,695 43,695 44,835 44,835

notes

4


2003 2003 2002 2002

£’000 £’000 £’000 £’000

Change in other technical provisions

- Long term business provision (net of reinsurance) (1,392) (1,392) 813 813

- Change in technical provisions for linked liabilities 12,953 12,953 (52,005) (52,005)

- Net operating expenses (Including exceptional charges) 12,760 11,415 12,628 10,935

- Write down of investment in subsidiaries - 2,550 - -

- Investment expenses and charges 262 262 169 169

- Unrealised (gains) / losses on investments (27,994) (27,994) 41,847 41,847

- Other Technical Charges 558 - 159 -

- Tax attributable to the long term & linked business (293) (293) (284) (284)

- Transfer to / (from) Fund for Future Appropriations

- continuing operations 2,688 2,216 (3,425) (1,747)

- acquisitions 716 716 - -

Total change in other technical provisions 258 433 (98) (272)

Total Technical Charges 43,953 44,128 44,737 44,563

Balance on the Long Term Business

- Technical Account - - - -

notes

5

10

3

11

8

9

All recognised gains and losses in

relation to long term business and

subsidiaries are dealt with in the Group

Income and Expenditure – Long Term

Business – Technical Account.

21

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A range of protection under the ‘the marketSavings PlaLife Cover Pbe launche

Socibalance sheet at 31 December 2003

22


2003 2003 2002 2002

£’000 £’000 £’000 £’000

Investments

- Investment in land and buildings 5,800 5,800 5,175 5,175

- Investment in subsidiaries - - - 2,000

- Other Financial Investments 141,437 141,437 21,830 21,830

Total investments 147,237 147,237 27,005 29,005

Assets held to cover linked liabilities 443,659 443,659 430,706 430,706

notes

10

10

10

12

Reinsurers’ share of technical provisions

- Long term business provision 1,507 1,507 1,059 1,059

Debtors

Other debtors 686 3,262 294 793

Other assets

- Tangible assets 408 - 602 602

- Cash at bank 3,387 2,821 835 442

Total other assets 3,795 2,821 1,437 1,044

14

Prepayments and accrued Income

- Accrued interest and rent 1,066 1,066 257 257

- Deferred acquisition costs 4,548 4,548 6,652 6,652

- Other prepayments and accrued income 1,740 715 1,159 1,159

Total prepayments and accrued Income 7,354 6,329 8,068 8,068

Total Assets 604,238 604,815 468,569 470,675

Fund for future appropriations 41,951 43,627 24,667 26,815

Technical provisions

- Long term business provision 111,762 111,762 6,479 6,479

- Claims outstanding 4,206 4,206 4,030 4,030

Total technical provisions 115,968 115,968 10,509 10,509

Technical provisions for linked liabilities 443,659 443,659 430,706 430,706

9

15

15

15

Creditors

- Creditors arising out of insurance operations 64 64 161 161

- Other Creditors including taxation & social security 882 543 1,593 1,593

Total creditors 946 607 1,754 1,754

Accruals and deferred income 1,714 954 933 891

Total Liabilities 604,238 604,815 468,569 470,675

16

17

Approved at a meeting of the

Board of Directors on 18 February 2004

and signed on its behalf by:

R F Pierce - Chairman

A Haigh – Chief Executive

Liabilities

Assets


23

1 accounting policies

notes to the accounts at 31 December 2003

Basis of presentation

The accounts are prepared on the basis of the accounting policies set out below. The accounts have been prepared in

compliance with the Friendly Societies (Accounts and Related Provisions) Regulations 1994 and with the Association of

British Insurers’ Statement of Recommended Practice on Accounting for Insurance Business (“ABI SORP”), dated December

1998. In implementing the requirements of these regulations, the Society has adopted a modified statutory solvency basis

for determining technical provisions. The true and fair override provisions of the Companies Act 1985 have been invoked

in relation to investment properties (see accounting policies on Investments below).

The accounts comply with applicable accounting standards.

Basis of Consolidation

The transfer of engagements of the UK Civil Service Benefit Society to Homeowners Friendly Society Limited on

31 October 2003 has been accounted for using the acquisition accounting principles set out in Financial Reporting

Standard (FRS6) “Acquisitions and Mergers”, with the fair value of the assets and liabilities acquired being included in

the Society’s and the Group’s results from the date of the transfer of engagements.

The Group Accounts comprise the assets, liabilities, and income and expenditure account transactions of the Society and

its subsidiary undertakings. The ongoing results of subsidiary undertakings are included within Other Technical Income

and Other Technical Charges.The net results are included in the Fund for Future Appropriations for the Group.The activities

of the Society and Group are accounted for in the income and expenditure – Technical Account.

Premiums

Premiums are credited when they become due. Reinsurance premiums are charged when they become payable.

Claims

Death claims are recorded on the basis of notifications received. Annuity payments are recorded when due. Maturities

and surrenders are recorded on the earlier of the date when paid or when the policy ceases to be included within the

long-term business provision and/or the technical provision for linked liabilities. Reinsurance recoveries are credited to

match the relevant gross amounts.

Investment income and expenses

Investment income and expenses include dividends, interest, rents, gains and losses on the realisation of investments

and related expenses. Dividends are included as investment income on the date that shares become quoted ex-dividend.

Interest, rents and expenses are included on an accruals basis.

Realised gains and losses on investments are calculated as the difference between net sales proceeds and original cost.

Unrealised gains and losses are calculated as the difference between the valuation of investments at the balance sheet

date and their original purchase price, or if they have been previously valued, their valuation at the last balance sheet date.

The movement in unrealised gains and losses recognised in the year also includes the reversal of unrealised gains and

losses recognised in earlier years in respect of investment disposals in the current period.

Investments

Investments consist of land and buildings, listed investments, loans secured on house purchases, units in authorised unit

trusts, shares in open ended investment companies (OEICs), subsidiary companies and deposits. Land and buildings are

included on the basis of independent valuations. Listed investments are included at mid-market value. Units in unit trusts

are included at published bid prices. OEICs are included at the published price. Subsidiary companies are valued at the

cost of share capital. Deposits are included at current value. Mortgage loans are included at amount outstanding less any

provision for unrecoverable amounts.

The Freehold property investments are valued at open market value. In accordance with SSAP 19, no depreciation is provided

in respect of freehold investment properties. This is a departure from the requirements of the Regulations, which require

all properties to be depreciated. Depreciation is only one amongst many factors reflected in the valuation of properties

and accordingly the amount of depreciation, which might otherwise have been charged, cannot be separately identified

or quantified. The directors consider that this policy results in the accounts giving a true and fair view.

Deferred Acquisition Costs

The costs of acquiring new insurance contracts are deferred to the extent that they are recoverable out of future revenue

margins. Such costs are disclosed as an asset in the balance sheet. The rate of amortisation of the deferred acquisition cost

assets are consistent with a prudent assessment of the pattern of receipt of future revenue margins over the period the

relevant contracts are expected to remain in force.

Technical provisions

The long-term business provision is determined by the Society’s Appointed Actuary following his annual investigation

of the long-term business. It is calculated initially to comply with the reporting requirements under the Friendly Societies

(Insurance Business) Regulations 1994. This statutory solvency basis of valuation is then adjusted by eliminating certain

reserves required under Friendly Society Regulations. This adjusted basis is referred to as the modified statutory solvency

basis. The long-term business provision includes the non-linked liabilities in respect of linked business.

The technical provision for linked liabilities is based on the actuarial valuation of the related assets.

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1 accounting policies(continued)


Uncertainties and Estimation Techniques

One of the purposes of insurance is to enable policyholders to protect themselves against uncertain future events.

Insurance companies accept the transfer of uncertainty from policyholders and seek to add value through the aggregation

and management of these risks. The uncertainty inherent in insurance is inevitably reflected in the financial statements

of insurance companies and principally arises in respect of the technical provisions of the company.

As a consequence of this uncertainty, the insurance company needs to apply sophisticated estimation techniques to

determine the appropriate provisions.

Long-term business provisions are computed using statistical or mathematical techniques, which are expected to give

approximately the same results as if an individual liability were calculated for each long-term contract. The computations

are made by suitably qualified personnel (employed by the group) on the basis of recognised actuarial methods. This

methodology takes into account the risks and uncertainties of the particular classes of long term business written and

the results are certified by the professionals undertaking the valuations.

Fund for future appropriations

The fund for future appropriations represents all funds, the allocation of which has not yet been determined by the end of

the financial year. Any surplus or deficit arising on the Technical Account is transferred to or from the fund on an annual basis.

Deferred taxation

Deferred tax assets and liabilities are recognised in accordance with the provisions of FRS19, issued in December 2000.

The Society has chosen not to apply the option available under FRS 19 of discounting such assets and liabilities to reflect

the time value of money. Except as set out in FRS 19, deferred tax is recognised in respect of all timing differences that

have originated but not reversed by the balance sheet date. Deferred tax assets are recognised only to the extent that

it is regarded as more likely than not that they will be recovered.

Allowance is made in the long term business provision for deferred taxation at appropriate discounted rates in respect

of the unrealised gains on investments, unrelieved management expenses and other timing differences.

Fixed assets

Depreciation is provided on the cost of assets in annual instalments over their estimated lives. The rates of depreciation

applied per annum are as follows:

Fixtures, fittings and office equipment 20% straight line

Computer equipment 25% straight line

Motor vehicles 25% straight line

The cost of new computer software is depreciated in full in the year in which it is incurred and eliminated from the

accounts after five years.

Cash Flow Statement

The Society, being a mutual life assurance company, is exempt from the requirement under Financial Reporting Standard

1 (FRS1) to produce a cash flow statement.

Foreign currencies

Assets and liabilities held in foreign currencies are translated to sterling at rates of exchange ruling at the end of the year.

Income and expenditure denominated in foreign currencies are translated at the appropriate rates prevailing during the year.

Financial derivatives

The Society’s fund managers use derivative financial instruments for efficient portfolio management. The profits or losses

arising on these contracts are recognised in the Long Term Business - Technical Account, as they arise.The Society monitors

exposure to such instruments on a weekly basis.The fund managers must justify and obtain prior approval from the Society

for any exposure in excess of 5% of the underlying fund.

Pensions

The Group operates a defined benefit pension scheme for staff whose employment commenced before 6 April 2001, and

a defined contribution pension scheme for those whose employment commenced on or after 6 April 2001. The defined

benefit scheme requires contributions to be made to a separately administered fund. Contributions to the fund are charged

to the profit and loss account so as to spread the cost of pensions over the employees’ working lives with the Group.

The regular cost of the defined benefit scheme is attributed to individual years, using the projected unit method.Variations

in pension cost, which are identified as a result of actuarial valuations, are amortised over the average expected remaining

working lives of employees in proportion to their expected payroll costs. Differences between the amounts funded and

the amounts charged to the profit and loss account are treated as either provisions or prepayments in the balance sheet.

The Group also administers a pension scheme on behalf of the former UK Civil Service Benefit Society (UKCSBS). The

UKCSBS operated a defined benefit scheme, which was closed in July 2002 with staff becoming deferred members of the

scheme. The UKCSBS then operated a defined contribution scheme. The assets of the defined benefit scheme are held

separately from those of the Society and Group, being invested with an insurance company. Any deficit on the scheme

will be met wholly by the with profits fund.24


2 premium analysis

All business is written in the UK in

respect of continuing operations and

relates exclusively to individual policy-

holders and life assurance business.

25

a

2003 2002

£’000 £’000

Gross premiums written

Group and Society Life Assurance Business

Linked contracts

- periodic premium 19,542 22,271

- single premium 347 895

Non-linked contracts

- periodic premium 8,696 6,959

- with profits periodic premium 1,325 -

Total premiums written 29,910 30,125

Gross new annualised periodic premiums

Group and Society Life Assurance Business

Linked contracts 320 1,127

Non-linked contracts 2,666 2,620

2,986 3,747

b

3 investment income

4 claims incurred

2003 2002

£’000 £’000

Group and Society

Income from listed investments 6,894 8,192

Income from other investments 10,850 10,498

Realised gains / (losses) on investments (1,245) (2,620)

Investment income 16,499 16,070

Unrealised gains / (losses) on investments 27,994 (41,847)

Net investment return 44,493 (25,777)

2003 2002

£’000 £’000

Group and Society

Gross claims paid 45,019 45,399

Change in provision for claims outstanding at year end (241) 239

44,778 45,638

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5 net operating expenses

26


2003 2003 2002 2002

£’000 £’000 £’000 £’000

Acquisition costs 7,158 7,158 7,100 7,100

Change in deferred acquisition costs 2,104 2,104 (947) (947)

Administrative expenses - ongoing 6,305 6,305 6,880 6,320

- exceptional 1,345 - 1,133 -

Reinsurance commissions and profit participation (4,152) (4,152) (1,538) (1,538)

12,760 11,415 12,628 10,935

Included in Net Operating Expenses are: 2003 2003 2002 2002

audit non-audit audit non-audit

Auditors’ Remuneration £’000 £’000 £’000 £’000

Group

KPMG Audit Plc 109 99 67 5

KPMG LLP - 53 - 39

Society

KPMG Audit Plc 97 - 59 -

KPMG LLP - - - 29

During 2003 the Group incurred

exceptional expenditure of

£1.3m on a project to effect the

transfer of engagements of the

UK Civil Service Benefits Society

Ltd to Homeowners Friendly

Society Limited.

6 staff costs The total staff costs for the Group were comprised as follows:

2003 2002

£’000 £’000

Wages and salaries 4,051 3,699

Social security costs 439 424

Other pension costs 184 202

4,674 4,325

The average weekly number of employees in the Group,

including Directors, during the year was comprised as follows:

2003 2002

No. No.

Administration 98 106

Management 22 22

Marketing 16 14

136 142


7 directors’ emoluments

8 taxation

Also paid for 2003 in respect of former directors and their spouses were £323 benefits (2002 £323) and £4,000

pension (2002 £4,000). There were no payments relating to loss of office in 2003 (2002 £196,000).

Of the two Executive Directors Kevin Chidwick is a member of the stakeholder pension scheme and Andrew Haigh

is a member of the defined benefit pension scheme.

The Remuneration Committee is responsible for the Group’s Executive remuneration policy. The objective of the

committee is to give Executive Directors encouragement to enhance the Society’s performance by ensuring that

they are fairly and responsibly rewarded for their individual contributions.

The level of remuneration is set by reference to jobs carrying similar responsibilities in similar organisations.

There is a performance-related element within the remuneration which is linked to the achievement of objectives.

The standard terms for executive directors include a contractual notice period of 12 months.

The Chief Executive is awarded a maximum of 66% of basic salary for achievement of Society objectives.

The Finance Director is awarded a maximum of 15% of basic salary for the achievement of individual objectives

with a further maximum of 15% awarded for the achievement of Society objectives.

In addition to this the Directors also participate in a long-term bonus scheme, based on the long-term performance

of the Group. This has been provided for in the financial statements of Homeowners Financial Administration

Limited, but is not due to the Directors until January 2006.

The remuneration of our Non-Executive Directors, including our Non-Executive Chairman, is recommended

by the Chairman and the Chief Executive for the Remuneration Committee to agree annually at the year end.

The remuneration is calculated on the basis of an agreed minimum number of days committed to Society

business, and is paid at a rate, which has been confirmed as competitive, when compared with other similar

sized financial services organisations.

Emoluments of the Group’s Directors

from the Society and its subsidiary

undertakings are detailed opposite.

27

2003 2002

salary bonus benefits sub-total contributions total total

£’000 £’000 £’000 £’000 £’000 £’000 £’000

Executive Directors

Andrew Haigh (Chief Executive) 140 70 8 218 15 233 194

Kevin Chidwick 100 35 7 142 10 152 126

Nigel Brinn (resigned 21/3/02) - - - - - - 55

240 105 15 360 25 385 375

Non-Executive Directors

Ray Pierce (Chairman) 50 - - 50 - 50 50

Lord Clark of Windermere 18 - - 18 - 18 18

David Hargrave 39 - 1 40 - 40 19

Peter Sparling 24 - 1 25 - 25 22

Gordon Murison 4 - - 4 - 4 -

135 - 2 137 - 137 109

2003 Total 375 105 17 497 25 522 484

Society’s pension


2003 2003 2002 2002

£’000 £’000 £’000 £’000

Corporation tax at 20% and 22% - - - -

Adjustment for corporation tax and

income tax payable relating to prior year - - 35 35

Adjustment for corporation tax and

income tax recoverable relating to prior year - - (57) (57)

Tax credits recoverable on dividends (293) (293) (262) (262)

(293) (293) (284) (284)

marketers thed friendlyand hason the


civil serviThe UKCSBHomeownto build onproviding gto the Civiemployeesthe ‘UK’ brawork, in 200reach even in their plaprovided uwith-profitrestructurinof memberto achieve we are pleUK fund opin, in future


Land and buildings are freehold.

The Society’s Head Office was valued

on an ‘open market with vacant

possession’ basis as at 31 December

2001, by independent valuers

Eddisons Commercial - FRICS,

Chartered Surveyors, Leeds in

accordance with the RICS Appraisal

and Valuation Manual.

The property in Kew Gardens was

valued on an ‘open market value’basis as

at 31 December 2002, by independent

valuers Drivers Jonas - FRICS, Chartered

Surveyors, London in accordance with

the Statement of Asset Valuation Practice

and Guidance Notes published by the

Royal Institution of Chartered Surveyors.

28

9 fund for future appropriations


2003 2003 2002 2002

£’000 £’000 £’000 £’000

Balance at 1 January 24,667 26,815 28,092 28,562

Transfer from /(to) profit and loss account 3,404 2,932 (3,425) (1,747)

Transfer from UK Civil Service 13,880 13,880 - -

Balance at 31 December 41,951 43,627 24,667 26,815

10 investmentsGroup and Society Current value Historical cost

2003 2002 2003 2002

£’000 £’000 £’000 £’000

Land and buildings

- Property occupied by the Society 5,175 5,175 8,147 8,147

- Property in Kew Gardens 625 - - -

5,800 5,175 8,147 8,147

Current value Historical cost

2003 2002 2003 2002

Group and Society £’000 £’000 £’000 £’000

Other financial investments:

Shares, other variable yield securities and unit trusts

- UK 43,745 393 42,209 594

- Overseas 414 367 509 553

Debt securities and other fixed income securities 68,579 1,542 68,517 1,564

Mortgage loans 169 - 169 -

Deposits with credit institutions 28,530 19,528 28,530 19,528

141,437 21,830 139,934 22,239

property

The Society owns 100% of the ordinary share capital of the following subsidiaries:

Name of Subsidiary Undertaking Nature of Business

Homeowners Investment Fund Managers Limited Authorised Corporate Director (ACD) of an OEIC

Homeowners Financial Administration Limited Third Party Administrator

Homeowners Membership Services Limited Insurance and non-regulated financial product intermediary

UK Friendly Insurance Services Limited Insurance and non-regulated financial product intermediary

All four Companies are registered in England and Wales.The investment in subsidiaries can be analysed as follows:

subsidiaries

financial investments

£’000 £’000

Society

Cost at 1 January 2003 2,000 132

Additions 550 3

Repayment - -

Cost at 31 December 2003 2,550 135

Provision at 1 January 2003 - (132)

Write down (2,550) (3)

Provision at 31 December 2003 (2,550) (135)

Shares in subsidiary undertakings

Loans to subsidiary undertakings


11 other technicalincome and othertechnical charges

12 assets held to coverlinked liabilities

Other technical income in the Society is in relation to rental charged to its subsidiary, Homeowners Financial

Administration Ltd, for the use of Gardner House. Other technical income in the Group figures refers to income

that is wholly earned in the subsidiaries of the Society. Other technical charges in the Group figures refer to

expenses that are wholly incurred in the subsidiaries of the Society.

13 transfer of engagements

29

Current value Historical cost

2003 2002 2003 2002

Group and Society £’000 £’000 £’000 £’000

Assets held to cover linked liabilities 443,659 430,706 455,487 474,551

These assets are analysed as follows:

Shares, other variable yield securities and unit trusts 163,485 139,505 177,801 184,967

Debts and other fixed income securities 64,125 68,149 61,637 66,079

Deposits with credit institutions 215,218 221,368 215,218 221,821

Accrued income and receivables 831 1,684 831 1,684

443,659 430,706 455,487 474,551

On 31 October 2003, the whole of

the long term business of the UK

Civil Service Benefit Society Ltd, an

incorporated Friendly Society, was

transferred to the Society. The value

of the assets and liabilities at the

date of transfer is set out below and

the method of their incorporation

into the Society’s balance sheet is set

out in Note 1 to the accounts.

The charge for depreciation for

the Group in the year ended

31 December 2002 was £331,000.

On 1 January 2003, computer

equipment and office equipment

was transferred at net book value

from Homeowners Friendly

Society to Homeowners Financial

Administration Limited, the figures

opposite therefore relate to the

Group position. Homeowners

Financial Administration Limited

now holds all the fixed assets

within the Group.

£’000 £’000 £’000

Investments 117,210 - 117,210

Other assets 3,430 - 3,430

Long term business provision (106,227) - (106,227)

Other Liabilities (533) - (533)

Fund for future appropriations - (13,880) (13,880)

Net Assets Acquired 13,880 (13,880) -

14 tangible assetsGroup £’000 £’000 £’000

Cost:

At 1 January 2003 4,385 254 4,639

Additions 569 19 588

Disposals (4,385) (234) (4,619)

At 31 December 2003 569 39 608

Depreciation:

At 1 January 2003 3,937 100 4,037

Provided in the year 178 22 200

On disposals (3,937) (100) (4,037)

At 31 December 2003 178 22 200

Net book value:

At 31 December 2003 391 17 408

At 31 December 2002 448 154 602

Motor vehicles TotalOffice and computer

equipment

Fair ValueAdjustments

Fair Value toSociety/Group

Value on Acquisition

our strongls such

medicalwere veryinitiativeekindlingh buildingnnovativego in 2003.

ations aretegy andncementsusiasticth otherof ourbers .

ber 2003

ort


dear memI am pleasepositive yeHomeowneand financ

We have mover the laschanges indifficult maprotect oura range of ssavings anOur produspecificallywithout theadvice, enacharges lowvalue. We wapproach i

We saw grofirst time inappreciate for membeover the lasto see the hopeful thwill continthe potentgrowth in o

In July andUnited KinSociety (UKFriendly Sothe transfeBoth sets ofin favour, wand 98% ofvoted, apprwe were dthan 30,00in Octoberthorough athe Societieextremely and hope thwhich will who may ncloser asso

The mergeleap forwaour productheir place as ‘worksite


15 technical provisions

30

Included within the Long Term Business Provision is a deferred tax liability of £900,000 relating to deferred acquisition

costs. The long term business provision has been calculated on the basis of the following principal interest

assumptions for 2003:

Class of business Interest

Linked assurance tax exempt / taxable 3.5% gross / 2.8% net

Life annuities in payment 3.07%

Term assurance / whole of life 2.8%

With profit tax exempt / taxable 3.0% gross / 2.5% net

The mortality assumptions have been based on actual experience with the addition of prudent margins.

All creditors are payable within a period of five years.

The Group operates a defined benefit pension scheme for its employees. This Scheme was closed to new

entrants on 29 March 2001. A stakeholder pension scheme is in place for all new employees.

The assets of the defined benefit scheme are held separate from those of the Group in an independently

administered fund. The pension cost charged in the accounts in relation to the scheme in 2003 is £78,000 (2002

£115,000) and is based on the advice of the Actuary to the fund. The current pension cost, under SSAP 24, may

increase in 2004, when the next formal triennial valuation is performed, as a result of the recent deterioration in

stock market conditions. In addition the Group incurred costs amounting to £77,426 in respect of the administration

of the pension fund.

There was no expenditure contracted but not provided for in the financial statements (2002 nil).

At 31 December 2003, the Society held FTSE Future contracts with a book value of £10,127,000 (2002 £3,374,000)

and a market value of £10,452,000 (2002 £3,325,000). The unrealised gain on these contracts of £325,000 has

been included in the Long Term Business - Technical Account.These contracts are only used for efficient portfolio

management of the Society’s funds invested in UK equities.


2003 2003 2002 2002

£’000 £’000 £’000 £’000

Other taxes and social security costs 46 46 157 157

Other 836 497 1,436 1,436

882 543 1,593 1,593

19 pension commitments

18 commitments

17 other creditors and accruals,including taxationand social security

16 creditors arising out of insuranceoperations

£’000 £’000 £’000

At 1 January 2003 6,479 4,030 430,706

Change in Other Technical Provisions - - 12,953

Transfer of Engagements 106,227 - -

Movement in Provision for Outstanding Claims - 176 -

Transfer from Technical Account (944) - -

At 31 December 2003 111,762 4,206 443,659

Long Term Business Provision

Provision for Outstanding

Claims

TechnicalProvision for LinkedLiabilities

The movements on funds and technical provisions during the year are as follows:


19 pension commitments(continued)

31

2003 2002 2001 2003 2002 2001

annum annum annum annum annum annum

Long term salary progression 4.30 3.80 4.00 N/A N/A 4.00

Rate of increase in pensions payment guaranteed 2.70 2.40 2.50 3.00 3.00 3.00

Discretionary rate of increase in pensions payment 1.35 1.20 1.25 N/A N/A N/A

Rate of price inflation and deferred pension revaluation 2.80 2.30 2.50 2.80 2.25 2.50

Discount rate 5.60 5.70 6.00 5.60 5.50 5.90

The recommended level of contribution was based on the triennial Actuarial Review of the pension scheme

as at 31 December 2001, which was based on the following information and assumptions:

• The valuation uses the ‘projected unit’ method.

• Investment return of 6% per annum.

• Long term salary progression of 4% per annum.

• Guaranteed pension increases of 2.5% per annum.

• Discretionary pension increases of 1.25% per annum.

• Market value for assets of £9,265,000.

The valuation showed a surplus of £1,798,000 and a funding ratio of 124%, and the Actuary recommended

a funding rate for future service benefits of 20% of pensionable salary (including 5% member’s contribution).

The Group’s actual pension scheme contributions for the year exceeded the pension cost charged in the

accounts.The difference of £160,000 has increased the prepayment included in the Balance Sheet to £805,000.

Homeowners Pensions Limited is the Corporate Trustee of the UK Civil Service Benefit Society Retirement Benefits

Scheme. This is a defined benefit scheme, which was closed in July 2002 with staff becoming deferred members

of the scheme. The assets of the defined benefit scheme are held separately from those of the Group, being

invested with an insurance company.

FRS17 Reporting Requirements

Whilst the Group continues to account for pension costs in accordance with SSAP 24, under FRS17 the following

transitional disclosures are required.

A full actuarial valuation of both the Homeowners Friendly Society Pension Scheme and the UK Civil Service

Benefit Society Retirement Benefits Scheme was carried out as at 31 December 2001. An independent qualified

actuary has updated this valuation to 31 December 2003. Scheme assets are stated at their market value at

31 December 2003. The liabilities of the scheme are calculated using the ‘projected unit’ method. The major

assumptions by the actuary at 31 December 2003 were:

The following information in respect of the potential impact of FRS17 is for disclosure only and amounts have not

been included in the Income and Expenditure or the Balance Sheet.The total assets and liabilities in the HFS scheme

and the expected rates of return are:

HFS Scheme UKCSBS Scheme

% per % per % per % per % per % per

Long-term rate of returnexpected at 31 December Value at 31 December

2003 2002 2001 2003 2002 2001

% % % £’000 £’000 £’000

Equities 7.75 pa 8.0 pa 8.4 pa 6,463 4,909 6,020

Bonds 4.75 pa 4.5 pa 4.9 pa 2,614 2,588 2,819

Other 4.0 pa 4.0 pa 2.5 pa 331 767 355

Total market value of schemes assets 9,408 8,264 9,194

Present value of scheme liabilities (9,569) (8,293) (7,154)

(Deficit) / surplus in scheme (161) (29) 2,040

Related deferred tax asset/(liability) (at an assumed rate 20%) 32 6 (408)

Net pension (liability)/asset (129) (23) 1,632


Rt. Hon. Loof WinderBA MSc PhNon-ExecuLord Clark joias a consultabecame a DHe left to joiin 1997 as ChDuchy of Laresponsible other things,of governmeLord Clark, wHomeownerwas MP for S1979 until hisHouse of LoHe is currentthe Forestry and a Non-Exof Thales plc Football Club


19 pension commitments(continued) 2003 2002 2003 2002

% % £’000 £’000

Equities 8.0 pa 8.0 pa 449 359

Bonds 5.0 pa 5.0 pa 63 65

Property 7.0 pa 7.0 pa 6 9

Other 4.0 pa 4.0 pa 109 56

Total market value of schemes assets 627 489

Present value of scheme liabilities (992) (897)

Deficit in scheme (365) (408)

Related deferred tax asset (at an assumed rate 20%) 73 82

Net pension liability (292) (326)

32

Long-term rate of returnexpected at 31 December Value at 31 December

Analysis of amount charged to Technical Charges 2003 2002 2003 2002

£’000 £’000 £’000 £’000

Current service cost 233 265 - 39

Past service cost - - 16 -

Total charge 233 265 16 39

HFS UKCSBS

Analysis of amount credited to Technical Income 2003 2002 2003 2002

£’000 £’000 £’000 £’000

Expected return on pension scheme assets 542 658 37 39

Interest on pension scheme liabilities (473) (432) (48) (55)

Net return 69 226 (11) (16)

HFS UKCSBS

The total assets and liabilities in the UKCSBS scheme and the expected rates of return are:

Analysis of Actuarial Gains and Losses 2003 2002 2003 2002

£’000 £’000 £’000 £’000

Actual return less expected return

on pension scheme assets 580 (1,689) 44 (148)

Experience gains and losses

arising on the scheme liabilities (32) (38) 6 142

Changes in assumptions underlying the present

value of the scheme liabilities (754) (587) (47) (50)

Actuarial (loss) / gain (206) (2,314) 3 (56)

HFS UKCSBS

Reconciliation to the Balance Sheet 2003 2002 2003 2002

£’000 £’000 £’000 £’000

Total market value of assets 9,408 8,264 627 489

Present value of scheme liabilities (9,569) (8,293) (992) (897)

Deficit in scheme (161) (29) (365) (408)

HFS UKCSBS


19 pension commitments(continued)

33

2003 2002 2003 2002

£’000 £’000 £’000 £’000

(Deficit) / surplus in scheme at 1 January (29) 2,040 (408) (332)

Current service cost (233) (265) - (39)

Contributions 238 284 67 35

Past service costs - - (16) -

Other finance income 69 226 (11) (16)

Actuarial (loss) / gain (206) (2,314) 3 (56)

Deficit in scheme at 31 December (161) (29) (365) (408)

HFS UKCSBSAnalysis of movement insurplus/(deficit) during the year

£’000 % £’000 %

Difference between the expected

and actual return on scheme assets 580 (1,689)

Percentage of scheme assets 6.2 20.4

Experience losses on scheme liabilities (32) (38)

Percentage of present value of scheme liabilities (0.3) (0.5)

Total amount recognised in actuarial gains & losses (206) (2,314)

Percentage of present value of scheme liabilities (2.2) (27.9)

HFS2003 2002

History of experience gains and losses

The Appointed Actuary of the Society is Mr T M Batten, an employee of the Society. The following information

has been provided, in accordance with Section 77 of the Friendly Societies Act 1992:

• Mr T M Batten was not a member of the Society at any time during 2003;

• No other member of his family was a member of the Society during 2003;

• Mr T M Batten is a member of the Homeowners Friendly Society Pension Scheme;

• The aggregate rate of the remuneration and benefits (excluding pension contributions) of Mr T M Batten

for 2003 amounted to £91,707.

21 statement of information relating to theappointed actuary

20 operating leases Annual commitments under non-cancellable leases are as follows:

2003 2002

£’000 £’000

Operating leases which expire:

- within one year 7 -

- between two and five years 91 -

98 -

£’000 % £’000 %

Difference between the expected

and actual return on scheme assets 44 (148)

Percentage of scheme assets 7.0 (30.0)

Experience gains on scheme liabilities 6 142

Percentage of present value of scheme liabilities 1.0 16.0

Total amount recognised in actuarial gains & losses 3 (56)

Percentage of present value of scheme liabilities 1.0 (6.0)

UKCSBS2003 2002

History of experience gains and lossesk 40)

owners asJuly 2001.

on was Group asrwritingo that as

rial Directora Life wherestart-up life. Kevin is ant and an

m Londond has spentfe in the

ndustry.


We wwithprot

to e

our

22 related party transactions

34

Homeowners Friendly Society and its subsidiaries (the Group) have a number of transactions between themselves

all of which are undertaken in the normal course of business. As these Accounts cover the Society and the Group,

no transactions or balances between group entities, which eliminate on consolidation, require disclosure in

accordance with the exemption given in FRS8.

During 2003, no members of the Board of Directors of Homeowners Friendly Society Limited and its key

management had material transactions with any of the Group’s related parties.

23 deferred tax In accordance with FRS19 the Group is required to disclose any deferred tax that has not been provided for in

the balance sheet.The Group has an unprovided deferred tax asset of £6.6m (£13.5m in 2002) and the Society

has £5.4m (£12.9m in 2002).



35


annual re

to find out more, call free 0500 848 262*

Freephone applies to UK calls only. Calls may be recorded for security and training purposes.

Homeowners Group consists of Homeowners Friendly Society Limited (HFS), Registered andIncorporated under the Friendly Societies Act 1992, Reg. No. 964F and its wholly owned subsidiary,Homeowners Investment Fund Managers Limited (HIFML), registered number 3224780, whotogether form Homeowners Marketing Group, Homeowners Financial Administration Limited,registered number 4301736, Homeowners Membership Services Limited, registered number3091667 and UK Friendly Insurance Services Limited, registered number 3088162.

HFS and HIFML are authorised and regulated by the Financial Services Authority.

Homeowners Investment Funds ICVC is an investment company with variable capital, registered in England No IC00044. Homeowners Financial Administration Limited, Homeowners MembershipServices Limited and UK Friendly Insurance Services Limited are non-regulated limited companies.

All registered at Hornbeam Park Avenue, Harrogate, HG2 8XE.

500223/001

*


Documents

Homeowners Friendly Society Group 31 December 2003 › ... › em-report-accounts-2003.pdf · 27 years, the last four and a half years as Chairman. Gordon is a retired Civil Servant