London General Life Company LimitedLiquidiert

London General Life Company Limited

Frankfurt am Main

Jahresabschluss zum Geschäftsjahr vom 01.01.2018 bis zum 31.12.2018

Company Registration Number 02443666

Corporate information

Corporate Information

Directors

The following directors were appointed after the period

The following directors resigned during the period

Auditors

Bankers

Custodial bankers

Registered office

Strategic Report

The directors present their annual report and financial statements for the year ended 31 December 2018.

Principal activities

The Company continued to write creditor protection life insurance and permanent health insurance business during the year.

During 2018 the Company operated through branch establishments in Belgium, Germany, Ireland, Netherlands and Spain as well as through freedom of services arrangements in Germany and Portugal.

The Company is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA in the UK to conduct insurance business in the majority of European Union countries.

Strategic objectives

Due to the size of the book, the Company holds minimal levels of capital and is not pursuing new clients.

Business performance review

The Company's key financial performance indicators were as follows:

During the year the Company has made a voluntary change in accounting policy to align the accounting for technical provisions with the Solvency II reporting requirements. This also resulted in the impairment of deferred acquisition costs. Please refer to Note 25 for details of restatements of comparative results.

Gross premiums written decreased by £4.7 million to £0.8 million.

The significant decrease in gross premiums was primarily due to the strategic decision to stop writing new business. The Company continues to support and pro-actively manage existing relationships.

The underlying profit before tax and after the exclusion of realised and unrealised investment gains / (losses) was £0.1 million (2017: £1.8 million). The decrease in profit is mainly caused by lower premiums written partially offset by lower claims incurred compared to prior year.

There had been no material change in the position of the Company's business compared to 2017. The directors continue to view the Company's strong balance sheet and pan European licensed capabilities as an integral part of the group's strategy.

On 2 August 2018, following Assurant, Inc.'s announcement that it had completed the acquisition of TWG Holdings Limited and its subsidiaries, the independent assessment of the Company's financial strength by AM Best was upgraded to A (excellent) rating, with a stable outlook.

Investment policy and performance

The Company continues to adopt a conservative investment policy, with very limited exposure to equity investments. Additionally, the Company does not use financial instruments to manage yields, interest rates or currency risks.

The details of the Company's invested assets held at 31 December 2018 are set out in Note 11 to these financial statements.

The investment return on the Company's asset portfolio has remained constant year on year because of poor performance on realisation on sales of investments (see Note 3 to the financial statements for further details). Interest rates rose marginally during 2018 with further increases expected in the coming years. The Company recorded net unrealised losses of £22k loss during the year ended 31 December 2018 and a loss of £41k recorded in respect of the previous year.

Principal risks and uncertainties

The Board Risk Committee of TWG Europe Limited (the parent company of London General Insurance Company Limited, London General Life Company Limited and TWG Services Limited) (the "Group") was responsible for overseeing the effectiveness of the Group's Risk Management framework which applies to the Company throughout the year. The Group's Risk Management framework is underpinned by risk policies and the process of review and validation through the Group's second line of defence. From 1 January 2019, the Boards of TWG Europe Limited and its key subsidiaries were combined with those of Assurant Group Limited (the fellow UK group as a result of the acquisition of The Warranty Group, Inc. by Assurant, Inc.) and the responsibilities of the TWG Europe Limited Board Risk Committee were combined with those of the Assurant Group Limited Audit, Risk & Compliance Committee.

The Group's Risk Management function is responsible for ensuring that the risks facing the business are properly identified, evaluated and controlled, and for the maintenance of the Risk Register and the events log, reporting any material changes and additions to the Board and Management Risk Committees. The Board's Risk Committee receives a quarterly risk update that identifies any changes to the Company's risk profile together with the mitigating controls and actions that have been taken. The Company manages its risks in accordance with its risk appetite.

The Group has an embedded Own Risk and Solvency Assessment (ORSA) reporting and process framework that includes consideration of the risk universe, risk profile against appetite, strategy and business and other metrics to project the Company's own forward-looking view and quantification of risk, over the planning period.

This own view of risk is considered alongside a regulatory solvency projection and credit rating capital expectations to manage capital. The Risk appetite of the Company is to manage capital at a level that, over the planning period, ensures:

The principal risks facing the Company arise from deterioration of claims experience; maintaining adequate resources; failure to comply with local regulatory and legal requirements; and exposure to changes in the value of investments.

Further details are given in Note 20 to the financial statements.

UK Exit from the EU "Brexit"

The Company utilised EU passporting regulations in order to underwrite insurance policies in other EU countries outside of the UK. As a result of Brexit, the Group has worked to establish new EU insurers to underwrite this business in the future, however, there is continuing uncertainty in respect of a no-deal Brexit. Several of the major EU countries in which the Company writes business have already announced contingency legislation and following recommendation from the European Insurance and Occupational Pension Authority, we expect other countries to follow suit.

In addition, the Company has initiated the process with UK regulators to transfer any remaining EU portfolio to the new EU insurers (a "Part VII" transfer) if necessary, which would be expected to be completed in 2020.

Risk Capital Management

Risk Capital Management is managed within a framework, with clear risk appetite tolerances and triggers that consider the capital requirements of maintaining an AM Best A- rating; any ORSA capital requirements; and, the maintenance of Solvency II Own Funds in excess of capital requirements, with the addition of a suitable management buffer to ensure continuous solvency.

Capital management and its associated framework is governed by the Capital Management Policy, which is approved by the Board. The Policy applies consistently across the Group for TWG Europe Limited and its subsidiaries.

Future developments

The Company continues to support and pro-actively manage existing relationships, with the view of not seeking new business.

The Company continues to focus the business on delivering improved systems and operational processes to its clients and customers.

Directors' Report

The directors present their report and financial statements for the year ended 31 December 2018.

Results and dividends

For 2018 net premiums written were £0.8 million (2017: £5.5 million) with pre taxation losses of £0.1 million (2017: profit of £1.6 million).

The underlying profit, before tax and after the exclusion of realised and unrealised investment gains / (losses) was £0.1 million (2017: £1.8 million). No dividend was paid or declared in 2018 (2017: Nil).

Financial instruments

Details of financial instruments are provided in the Strategic Report and these risks are covered in substantial detail in note 20 to the financial statements.

Research and development

The Company has not undertaken any research and development activities during the year.

Political contributions

The Company has not made any political contributions during the year.

Going concern

The Company has considerable financial resources, together with long-term contracts with a broad customer base across different geographic areas. As a consequence, the directors believe that the Company is well placed to manage its business risks successfully.

The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Directors

The current directors are shown on page 1.

Directors' interests and transactions with directors

There are no directors' interests or transactions with directors requiring disclosure under the Companies Act 2006.

Events since the reporting date

There are no events to disclose since the reporting date.

Disclosure of information to the auditors

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditors in connection with preparing its report, of which the auditors are unaware. Having made enquiries of fellow directors and the company's auditors, each director has taken all the steps that he / she is obliged to take as director in order to make himself / herself aware of any relevant audit information and to establish that the auditors are aware of that information.

Auditors

PricewaterhouseCoopers LLP have indicated their willingness to be reappointed for another term and appropriate arrangements are being made for them to be deemed reappointed as auditor in the absence of an Annual General Meeting.

Directors' Responsibilities Statement

The directors are responsible for preparing the Strategic Report, Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.

In preparing those financial statements, the directors are required to:

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006.

Independent auditors' report to the members

of London General Insurance Company Limited

Report on the audit of the financial statements

Opinion

In our opinion, London General Life Company Limited's financial statements:

We have audited the financial statements, included within the Report and Financial Statements (the "Annual Report"), which comprise: the statement of financial position as at 31 December 2018; the income statement, the statement of comprehensive income, the statement of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.

Our opinion is consistent with our reporting to the Audit Committee.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided to the company.

We have provided no non-audit services to the company in the period from 1 January 2018 to 31 December 2018.

Our audit approach

Overview

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.

Capability of the audit in detecting irregularities, including fraud

Based on our understanding of the company and industry, we identified that the principal risks of non-compliance with laws and regulations related to the Companies Act 2006, the Prudential Regulation Authority's and the Financial Conduct Authority's regulations, and we considered the extent to which noncompliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to increase gross written premiums and management bias in accounting estimates. Audit procedures performed by the engagement team included:

There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.

Key audit matters

Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the industry in which it operates.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £5,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Conclusions relating to going concern

ISAs (UK) require us to report to you when:

We have nothing to report in respect of the above matters.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the company's ability to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the company's trade, customers, suppliers and the wider economy.

Reporting on other information

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic Report and Directors' Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described below.

Strategic Report and Directors' Report

In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors' Report for the year ended 31 December 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.

In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors' Report.

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the Directors' Responsibilities Statement set out on page 7, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditors' responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report

Use of this report

This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Other required reporting

Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion:

We have no exceptions to report arising from this responsibility.

Appointment

Following the recommendation of the audit committee, we were appointed by the directors on 30 November 2018 to audit the financial statements for the year ended 31 December 2018 and subsequent financial periods. This is therefore our first year of uninterrupted engagement.

Income statement For the year ended 31 December 2018

Statement of comprehensive income For the year ended 31 December 2018

Statement of changes in equity For the year ended 31 December 2018

Please see note 25 for further information on restatement.

Statement of financial position As at 31 December 2018

ASSETS

The financial statements on pages 12 to 46 were approved at a meeting of the Board of directors on 17 April 2019 and signed on its behalf by

Notes to the financial statements For the year ended 31 December 2018

1. Accounting policies

(a) Statement of compliance

London General Life Company Limited (the Company) is a limited liability company incorporated in England. The registered office is TWENTY Kingston Road, Staines-upon-Thames, Surrey, TW18 4LG. The financial statements cover those of the individual entity and are prepared as at 31 December 2018 and for the year ended 31 December 2018.

The financial statements have been prepared in compliance with FRS 102 and FRS 103, being applicable UK GAAP accounting standards, and in accordance with the provisions of Schedule 3 of the Large and Medium-sized Companies and Groups 2008 (Accounts and Reports) Regulations relating to insurance companies.

The financial statements are prepared under the historical cost convention except for financial instruments which are measured at fair value.

(b) Basis of preparation

The financial statements for the year ended 31 December 2018 were approved by the Board of directors on 17 April 2019.

The financial statements are prepared in pounds sterling which is the presentational currency of the Company and rounded to the nearest £'000.

The Company meets the definition of a qualifying entity under FRS 102 and has therefore taken advantage of the disclosure exemptions available to it in respect of its separate financial statements. The Company is consolidated in the financial statements of its ultimate parent, Assurant Inc., which may be obtained from the address given in Note 24. Exemptions have been taken in these separate financial statements in relation to presentation of a cash flow statement and remuneration of key management personnel. As the Company is a wholly owned subsidiary it has taken advantage of the exemption permitted by FRS 102 Section 33 Related Party Disclosures, not to disclose transactions or balances with other wholly owned members of the same group.

During the year the Company has changed its accounting policy for the basis of accounting for technical provisions. The Company has made a voluntary change in accounting policy to align the accounting for technical provisions with the Solvency II reporting requirements.

Following the alignment of accounting for technical provisions with Solvency II reporting requirements, the Company reviewed the recoverability of deferred acquisition costs and found that they are not supportable by future margins within the Solvency II technical provisions. As a consequence, an impairment was booked at year end. Please refer to Note 25 for details of restatements of comparative results.

(c) Judgements and key sources of estimation uncertainty

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported as revenues and expenses during the year. However, the nature of estimation means that the actual outcomes could differ from those estimates. The following are the Company's key sources of estimation uncertainty:

Insurance contract technical provisions

The liability for life insurance contracts is either based on current assumptions or on assumptions established at the inception of the contract, reflecting the best estimate at the time. All contracts are subject to a liability adequacy test, which reflect management's best current estimate of future cash flows.

The main assumptions used relate to mortality, morbidity, longevity, investment returns, expenses, lapse and surrender rates and discount rates. The Company bases mortality and morbidity on standard industry mortality tables which reflect national experience. These are adjusted when appropriate to reflect the Company's unique risk exposure, product characteristics, target markets and own claims experiences.

Assumptions on future expenses are based on current expense levels, adjusted for expected expense inflation, if appropriate. Lapse and surrender rates are based on the Company's historical experience of lapses and surrenders. Discount rates are based on current market risk rates, adjusted for the Company's own risk exposure. Further details are given in Note 15.

Taxation

The Company establishes provisions based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience with previous tax audits and differing interpretations of tax regulations by the tax authority.

Management estimation is required to determine the amount of deferred tax assets that can be recognised, based upon likely timing and level of future taxable profits together with an assessment of the effect of future tax planning strategies. Further details are contained in Note 12.

(d) Significant accounting policies

Impairment of non-financial assets

The Company assesses at each reporting date whether an asset may be impaired. If any such indication exists the Company estimates recoverable amount of the asset. If it is not possible to estimate the recoverable amount of the individual asset, the Company estimates, the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount of an asset or cash-generating unit is the higher of its fair value less costs to sell and its value in use. If the recoverable amount is less than its carrying amount, the carrying amount of the asset is impaired and it is reduced to its recoverable amount through an impairment in profit and loss unless the asset is carried at a revalued amount where the impairment loss of a revalued asset is a revaluation decrease.

An impairment loss recognised for all assets is reversed in a subsequent period if and only if the reasons for the impairment loss have ceased to apply.

Financial investments

The Company classifies its financial investments as either financial assets at fair value through profit or loss, loans and receivables or available for sale. The Company determines the classification of its financial assets at initial recognition. Financial assets are initially recognised at fair value plus, in the case of instruments not at fair value through profit or loss, directly attributable transaction costs.

The classification depends on the purpose for which the investments were acquired or originated. In general, financial assets are classified as fair value through profit or loss as the Company's documented investment strategy is to manage financial investments acquired on a fair value basis.

All purchases and sales of financial assets are recognised on the trade date. (I.e. the date the Company commits to purchase or sell the asset). Purchases or sales of financial assets require delivery of assets within the time frame generally established by regulation or convention in the market place.

Financial assets at fair value through profit or loss has two sub categories namely financial assets held for trading and those designated at fair value through profit or loss at inception.

Investments typically bought with the intention to sell in the near future are classified as held for trading. For investments designated as at fair value through profit or loss, the following criteria must be met:

These investments are initially recorded at fair value. Subsequent to initial recognition, these investments are re-measured at fair value at each reporting date. Fair value adjustments and realised gains and losses are recognised in the profit and loss account.

Loans and receivables with fixed or determinable payments that are not quoted in an active market are initially recognised at cost, being the fair value of the consideration paid for the acquisition of the investment. All transaction costs directly attributable to the acquisition are also included in the cost of the investment. Subsequent to initial recognition, these investments are carried at amortised cost, using the effective interest method. Gains and losses are recognised in the profit and loss account through the amortisation process. Currently any loans made to, or received from, third parties are repayable on demand and are at a commercial rate of interest.

Cash and cash equivalents

Cash and cash equivalents consist of cash at bank and in hand, deposits held at call with banks, treasury bills and other short term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Such investments are those with less than three months' maturity from the date of acquisition, or which are redeemable on demand with only an insignificant change in their fair values.

A statement of cash flows has not been presented as the Company is a qualifying entity under FRS 102 section 1.12. Its cash flows are included within the consolidated cash flow statement of Assuranct Inc., the ultimate holding company.

Fair value of financial assets

The Company uses the following hierarchy for determining the fair value of financial instruments by valuation technique:

See Note 11 for details of financial instruments classified by fair value hierarchy.

Impairment of financial assets

For financial assets not held at fair value through profit or loss, the Company assesses at each reporting date whether the financial asset or group of financial assets is impaired. The Company first assesses whether objective evidence of impairment exists for financial assets. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in the collective assessment of impairment.

If an available for sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in the profit and loss account, is transferred from other comprehensive income in equity to the profit and loss account. Impairment losses recognised in the profit and loss account in respect of an equity instrument are not subsequently reversed through the profit and loss account. Reversals of impairment losses on debt instruments classified as available for sale are reversed through the profit and loss account, if the increase in the fair value of the instruments can be objectively related to an event occurring after the impairment losses were recognised in the profit and loss account.

Derecognition and offset of financial assets and financial liabilities

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a currently enforceable legal right to set off the recognised amounts and there is the ability and intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Insurance contracts

Product classification

Insurance contracts are those contracts when the Company (the insurer) has accepted significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholders. As a general guideline, the Company determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur. Insurance contracts can also transfer financial risk.

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire.

Gross Premiums

Gross recurring premiums are recognised as revenue when payable by the policyholder. For single premium business, revenue is recognised on the date on which the policy is effective.

Gross premiums written comprise the total premiums receivable for the whole period of cover provided by the contracts entered into during the reporting period, regardless of whether these are wholly due for payment in the reporting period, together with any adjustments arising in the reporting period to such premiums receivable in respect of business written in prior reporting periods. They are recognised on the date on which the policy commences. Additional or return premiums are treated as a remeasurement of the initial premium. Gross premiums written are stated gross of commission.

Written premiums include an estimate for pipeline premiums (i.e. premiums written but not reported to the Company by the reporting date) relating only to those underlying contracts of insurance where the period of cover has commenced prior to the reporting date. The most significant assumption in this estimate is that prior year experience will be consistent with current experience.

Reinsurance Premiums

The Company assumes and cedes reinsurance in the normal course of business. Premiums on reinsurance assumed are recognised as revenue in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business.

Under some policies, reinsurance premiums payable are adjusted retrospectively in the light of claims experience or where the risk covered cannot be assessed accurately at the commencement of cover.

Reinsurance premiums are earned over the period of the policy based upon the likely incidence of risk.

Claims

Gross benefits and claims

Gross benefits and claims for life insurance contracts include the cost of all claims arising during the year. Life claims and surrenders are recorded on the basis of notifications received.

Reinsurance Claims

Reinsurance claims are recognised when the related gross insurance claim is recognised according to the terms of the relevant contract.

Technical provisions

Technical provisions comprise of the long-term business provision and claims outstanding.

Long-term business provision

The long-term business provision is determined by an actuarial valuation and is calculated to contain the premium provision elements of the Solvency II technical provisions.

Included in the Long-term business provision is the provision for unearned premiums. This represents that portion of premiums received or receivable that relates to risks that have not yet expired at the reporting date. The provision is recognised when contracts are entered into and premiums are charged, and is brought to account as premium income over the term of the contract in earned in line with the unwind of the assumptions in the Solvency II technical provisions.

Further details of long-term business provision are disclosed in Note 15.

Claims outstanding

Full provision is made on an individual case basis for the estimated ultimate cost of claims notified but not settled by the balance sheet date after taking into account handling costs, anticipated inflation and settlement trends. Full provision is also made for the estimated ultimate cost of claims incurred but not reported. Any estimate represents a point within a range of possible outcomes and any differences between provisions and subsequent settlements are dealt with in the technical accounts of later years.

Acquisition costs and deferred acquisition costs

Acquisition costs comprise of commission and management costs which are primarily related to the acquisition of new insurance contracts and the renewal of existing insurance contracts. In certain circumstances advance commissions are paid to clients in consideration for fixed volume or fixed term contracts. These advance commissions are repaid over the agreed contract terms or volumes.

Deferred acquisition costs are costs arising from conclusion of insurance contracts that are incurred during the reporting period but which relate to a subsequent reporting period and which are carried forward to subsequent reporting periods.

Deferred acquisition costs are amortised over the period in which the related premiums are earned.

The reinsurers' share of deferred acquisition costs is amortised in the same manner as the underlying asset amortisation is recorded in the income statement.

Commissions receivable on outwards reinsurance contracts are deferred and amortised on a straight line basis over the term of the expected premiums payable.

Other assessments and levies

The Company is subject to various periodic insurance-related assessments or guarantee fund levies. Related provisions are established where there is a present obligation (legal or constructive) as a result of a past event. Such amounts are not included in insurance liabilities but are included under 'Provisions' in the statement of financial position.

Reinsurance assets

The Company cedes insurance risk in the normal course of business for all of its businesses. Reinsurance assets represent balances due from reinsurance companies.

Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer's policies and are in accordance with the related reinsurance contract.

Reinsurance assets are reviewed for impairment at each reporting date, or more frequently, when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Company may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the Company will receive from the reinsurer. Any impairment losses are recorded in the income statement.

Gains or losses on buying reinsurance are recognised in the income statement immediately at the date of purchase and are not amortised. There were no such gains recognised in either 2018 or 2017.

Ceded reinsurance arrangements do not relieve the Company from its obligations to policyholders.

Investment return

Investment income comprises interest and dividends received, together with realised investment gains. Realised gains are calculated as the difference between net sales proceeds and cost. Investment return relating to investments which are directly connected with the carrying on of long-term business are recorded in the long-term business technical account. The investment return arising in relation to all other investments is recorded in the non-technical account.

Foreign currency translation

The Company's principal functional currency and presentational currency is pounds sterling.

Income statements and cash flows of foreign branches are translated into the Company's presentation currency at average exchange rates for the year while their statements of financial position are translated at the year-end exchange rates.

Exchange differences arising from the translation of the net investment in foreign branches are recognised in other reserves within equity. Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities (which include unearned premiums and deferred acquisition costs) denominated in foreign currencies are retranslated into the functional currency at the exchange rate ruling on the reporting date. Non-monetary items denominated in a foreign currency, measured at fair value are translated into the functional currency using the exchange rate ruling at the date when the fair value was determined.

Exchange differences are recorded in the non-technical account.

Provisions

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Income taxes

Current tax

Current tax liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the profit and loss account.

Deferred tax

Provision is made for deferred tax liabilities, or credit taken for deferred tax assets on all material timing differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the timing differences can be utilised.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

Dividends

Dividends on ordinary shares are recognised as a liability and deducted from distributable profits when they are approved by the shareholders. Interim dividends are deducted from equity when they are paid.

2. Segmental analysis

(a) Premiums written

Periodic premium relates to monthly renewable business where one month's premium is for one month's cover.

(b) Gross new single premium

Gross new single premiums comprise the total premiums receivable for the whole period of cover provided by contracts incepted during the financial year, and excludes cancellation.

(c) Gross premiums written - geographical distribution

The geographical analysis of gross written premium by source and destination is not materially different.

(d) Technical account by class of business 2018

A breakdown of the net technical provisions by geographical segment is as follows:

⁽¹⁾ Permanent Health Insurance

(e) Balance sheet analysis

3. Investment return

4. Capital position statement

The available capital resources as at 31 December 2018 and 31 December 2017 to meet regulatory capital requirements can be derived from the financial statements as follows:

The shareholders have 100% (2017: 100%) interest in the non-participating fund.

Analysis of movement in surplus capital over regulatory requirements from last year

The Company is subject to the Solvency II capital regime. The Company's capital requirement is calculated using the Standard Formula. Due to the size of LGL the capital requirement is equal to the Absolute Minimum Capital Requirement (AMCR). The Company aims to maintain a surplus above the capital requirement at least equal to its Board-approved capital buffer, which reflects board risk appetite for meeting prevailing solvency requirements. The buffer is currently set to 25% of the capital requirement.

Capital management policies and objectives

Capital Management is covered in Note 20(b).

5. Net operating expenses

Commissions related to direct insurance business amounted to £274,000 in 2018 (£9,268,000 in 2017).

Following the alignment of accounting for technical provisions with Solvency II reporting requirements, the Company reviewed the recoverability of deferred acquisition costs and found that they are not supportable by future margins within the Solvency II technical provisions. As a consequence, 2017 and 2018 balances of deferred acquisition costs were impaired. Please refer to Note 25 for details of restatements of comparative results.

6. Auditors' remuneration

The remuneration of the auditors of the Company is analysed as follows:

Auditors' remuneration is included as part of the administrative expenses in Note 5 of the financial statements.

7. Directors' emoluments

The directors of the Company are also directors of fellow group undertakings. The directors received total remuneration for the year of £5,076,000 (2017: £1,429,000), all of which was paid by TWG Services Limited. The total remuneration of the highest paid director was £3,333,000 (2017: £551,000), and the total value of pension contributions paid to the highest paid director was £Nil (2017: £Nil).

Mr Wagner is employed by the Company's US parent and receives no direct remuneration from the Company or from TWG Services Limited.

The directors do not believe that it is practicable to apportion this amount between their services as directors of the Company and their services as directors of other fellow group undertakings.

At 31 December 2018 one director (2017: 1) was a member of a defined contribution scheme and the total value of contributions paid to this director was £10,000 (2017: £10,000).

Share options awarded to the directors of the Company were cancelled in 2018 (2017: £307,000).

8. Tax on (loss) / profit on ordinary activities

(a) Analysis of the tax (credit) / charge in the non-technical account for the year

(b) Analysis of the tax charge in the technical account for the year

(c) Factors affecting the total tax (credit)/charge for the year in respect of the non-technical account

9. Other income

10. Dividends

The directors do not recommend the payment of a final dividend for the year ended 31 December 2018 (2017: Nil).

11. Other financial investments

There was no material change in fair value for financial instruments held at fair value attributable to own credit risk in the current or comparative year. There have been no (2017:nil) day 1 profits recognised in respect of financial instruments designated at fair value through profit and loss.

Included in the level 1 category are financial assets that are measured by reference to published quotes in an active market. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm's length basis.

Included in the level 2 category are financial assets measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions. For example, assets for which pricing is obtained via pricing services but where prices have not been determined in an active market, financial assets with fair values based on broker quotes, investments in private equity funds with fair values obtained via fund managers and assets that are valued using the Company's own models whereby the significant inputs into the assumptions are market observable.

The Company does not (2017:none) currently hold any financial investments which fall into the level 2 category.

Included in the level 3 category, are financial assets measured using a valuation technique (model) based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. Therefore, unobservable inputs reflect the Company's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available, which might include the Company's own data.

The Company does not (2017:none) currently hold any financial investments which fall into the level 3 category.

12. Deferred tax asset

Management have reviewed the business plans and are of the opinion that there are insufficient projected taxable profits within the European group against which the deferred tax asset can be recovered. The Company therefore has not provided for deferred taxation in respect of timing differences.

Movements in deferred tax asset are as follows:

A reduction in the UK corporation tax rate from 20% to 19% was substantively enacted in July 2015 and came into effect on 1 April 2017. A further rate reduction to 17% from 1 April 2020 have also been legislated for and, accordingly used as the deferred tax rate in these financial statements to calculate the Company's deferred tax assets / liabilities as at 31 December 2018.

13. Other debtors

14. Called up share capital

15. Long-term business provision

(a) Methodology

A proportion of the premium net of commission relating to unexpired period of cover is held to cover future claims costs. An additional test is carried out to check the adequacy of these reserves by using appropriate mortality and morbidity tables.

In addition, there is an IBNR reserve for claims that have occurred but are not yet reported on the valuation date. This is based on the unearned premium reserve and claims experience.

(b) Provision for bonuses

There are no (2017:none) participating contracts.

(c) Valuation of participating insurance and investment contracts

There are no (2017:none) participating or investment contracts.

(d) Valuation of non-participating insurance contracts

The non-participating insurance contract liabilities are determined using the gross premium valuation method that involves using the amount of the contractual premiums and includes explicit assumptions for investment return and discount rates, mortality, morbidity, persistency and future expenses. These assumptions vary by contract type and reflect current and expected future experience.

There are no significant options and guarantees.

(e) Key assumptions

A degree of judgement is required in the process of determining liabilities and the choice of assumptions. The assumptions are made in relation to future deaths, voluntary terminations, investment returns and administration expenses based on past experience, current internal data, external market indices and benchmarks which reflect current observable market prices and other published information. As the technical provisions are based on a series of assumptions, the actual results may significantly differ from those estimated.

The key assumptions used in the determination of the liabilities are set out in the notes and tables overleaf.

(f) Mortality and morbidity rates

Assumptions are typically based on standard industry and national tables, according to the type of contracts written and the geographical area in which the insured person resides, reflecting historical experience adjusted when appropriate to take account of the company's own experiences. Assumptions are differentiated by product type.

(g) Lapse and surrender rates (persistency)

Policy lapse and surrender rates are determined using statistical measures based on the Company's experience and vary by product type. A decrease in lapse and surrender rates will typically reduce profits.

(h) Discount rate

Life insurance liabilities are determined as the present value of the expected benefits and future expenses directly related to the contract, less the present value of expected premiums. Discount rates are based on current industry risk rates adjusted for the Company's own experience.

A decrease in the discount rate will increase the value of the insurance liability and therefore reduce current year profits for the shareholders, unless the assets have been fully matched.

(i) Operating Expenses

Operating expense assumptions reflect the projected costs of maintaining and servicing in force policies and associated overhead expenses. The current level of expenses is taken as an appropriate expense base, adjusted for expected inflation if appropriate.

A rise in the level of expense would result in an increase in the expense assumption, thereby reducing profits for the shareholders.

16. Provision for deferred tax

The deferred tax included in the statement of financial position is as follows:

17. Creditors arising out of direct insurance operations

Amounts due to fellow group undertakings are not interest bearing and repayable on demand.

18. Other creditors including taxation and social security

19. Accruals and deferred income

20. Risk management

(a) Overview - Group approach to Risk Management

TWG Europe Limited (the parent company of London General Insurance Company Limited, London General Life Company Limited and TWG Services Limited) operates with a single, aligned Risk Management Framework. Thus the Company's risks are managed in accordance with this framework, which is overseen by the TWG Europe Limited Operational Board and its Board Risk Committee.

The Company's risk policy is aligned with the TWG Europe Limited risk strategy: TWG Europe Limited will seek to effectively manage the risks that it faces in pursuit of its objectives, with a clear understanding of risks before making material decisions.

To ensure the appropriate and ongoing risk management, TWG Europe Limited uses a Risk Lifecycle of: Identification, Assessment, Management and Reporting, and, Monitoring. This cycle ensures that risks continue to be identified, articulated, understood, ranked, and mitigated where appropriate and transparently communicated. This focus increases the probability of success and reduces the likelihood of failure and uncertainty of achieving business objectives.

Risk management is a continuous and evolving process that runs throughout the strategies and service/product delivery of TWG Europe Limited. Learning lessons from past activities, both beneficial and adverse, will help to inform the current and future decisions by reducing threats and optimising the uptake of opportunities, all of which is captured and documented in the risk and event logs and overseen and analysed by the Risk function.

TWG Europe Limited aims to adhere to sound principles of good governance as appropriate to the scope and nature of its business and operations. These principles are set within the framework of:

Governance is delivered through:

TWG Europe Limited's governance is based around a traditional "three lines of defence" model.

The Three Line of Defence Model provides for:

The First Line of Defence - all personnel have responsibilities to identify, mitigate and control the risks which form part of their processes and procedures.

The Second Line of Defence - Risk Management, Compliance and Legal functions provide support to those in the first line of defence by providing:

The Third Line of Defence - Internal Audit is structured to function independently of the management of the Company to provide to the Board the independent validation of the effectiveness of controls. Internal Audit will also make recommendations to improve the effectiveness of risk management controls and governance processes.

Whilst External Audit are independent of the Company's own governance structure, their findings are reported to the Audit Committee of the Board.

(b) Capital Management

Capital management is governed by the Capital Management Policy, which is approved by the Board. The policy provides a framework for capital to be managed within, with clear risk appetite tolerances and triggers that consider the capital requirements of maintaining an AM Best A- rating; any ORSA capital requirements; and, the maintenance of Solvency II own funds in excess of capital requirements, with the addition of a suitable management buffer to ensure continuous solvency. Solvency II own funds, solvency margins and capital management risk buffers are reviewed quarterly by the Solvency and Capital committee. The Company aims to maintain a risk based margin of solvency over the regulatory minimum in order to cover both its solvency II capital requirements and the solvency requirements of its external rating agency (AM Best). The Company maintains a capital management and dividend plan in order to meet its capital objectives.

The Company manages Solvency II own funds as capital.

As at 31st December 2018, capital was maintained above the required risk appetite levels for AM Best, ORSA and SCR capital requirements. The available capital resources as at 31st December 2017 and 2018 to meet regulatory capital requirements can be derived from the financial statements as follows:

The Company's regulatory Solvency II capital resources comprise total shareholders' equity, and retained earnings on a Solvency II basis.

The Company complied with all capital requirements during the year.

(c) Insurance Risk

Risk description and sub-risks

Insurance risk is split into two distinct sub risks: Underwriting risk - Loss or adverse change in the value of insurance liabilities, due to inadequate pricing - i.e. underwritten events do not occur/crystallise as assumed in pricing business; and, reserving risk - Loss or adverse change in the value of insurance liabilities, due to inadequate provisioning assumptions - i.e. Reserves (claims, including IBNR, and AURR where appropriate) are inadequate to meet future liabilities.

Risk profile, management and monitoring

Insurance risk is the key risk in TWG Europe's strategy. The Company is currently not pursuing new business opportunities, but continuing to service existing single premium and monthly-pay-monthly-cover policies. Performance of insured products is overseen by the Claims and Commercial committee. The Claims and Commercial committee, inter alia, reviews the underwriting performance of existing business and variance of performance to plan.

Reserving risk is governed by the Reserving policy and overseen by the Actuarial department. Inherently, with low volumes of business, reserving risk is relatively low for the Company. The creditor and life books have a higher risk profile relative to the rest of the group, but are managed and monitored for adverse trends/experience.

Reinsurance ceded counterparty exposure

Concentration

Concentrations of insurance risk are considered as part of the business planning process, as well as when considering new business deals. Typically, risks across the business lines underwritten are considered to have minimal correlation. Line of business premium analysis is contained below:

Gross Written Premium

The table below sets out the concentration of claim liabilities by type of contract:

The geographical concentration of the outstanding claim liabilities is noted below. The disclosure is based on the countries where business is written. The analysis would not be materially different if based on the countries in which the counterparties are situated.

The principal assumption underlying the liability estimates is that the future claims development will follow a similar pattern to past claims development experience. This includes assumptions in respect of average claim costs, claim handling costs, claim inflation factors and claim numbers for each accident year. Additional qualitative judgements are used to assess the extent to which past trends may not apply in the future, for example: one-off occurrence; changes in market factors such as public attitude to claiming: economic conditions: as well as internal factors, such as portfolio mix, policy conditions and claims handling procedures. Judgement is further used to assess the extent to which external factors such a judicial decisions and government legislation affect the estimates.

Other key circumstances affecting the reliability of assumptions include variation in interest rates, delays in settlement and changes in foreign currency rates.

Sensitivities

The claim liabilities are sensitive to the key assumptions that follow. It has not been possible to quantify the sensitivity of certain assumptions such as legislative changes or uncertainty in the estimation process.

The following analysis is performed for reasonably possible movements in key assumptions with all other assumptions held constant, showing the impact on gross and net assets, (loss)/profit before tax and equity. The correlation of assumptions will have a significant effect in determining the ultimate claims liabilities, but to demonstrate the impact due to changes in assumptions, assumptions had to be changed on an individual basis. It should be noted that movements in these assumptions are non-linear.

The method used for deriving sensitivity information and significant assumptions did not change from the previous period.

⁽¹⁾ The impact on equity reflects adjustments for tax, where applicable.

(d) Financial risk

Market Risk

Risk description and sub-risks

Market risk is the risk of loss or of adverse change in the financial situation resulting, directly or indirectly, from fluctuations in the level and in the volatility of market prices of assets, liabilities and financial instruments. TWG Europe Limited manages market risk with the following sub-risks: adverse foreign exchange movements; credit spreads widen; interest rate increase; failure of an investment counterparty;equity risk; and, securitised securities risk.

Market risk is managed by the limits and tolerances outlined in the Investment Management Agreement between TWG Europe Limited and the Investment Manager. Adherence to the agreement and market risk sensitivities are monitored by the Investment Committee. Below is a summary of the approach taken by TWG Europe Limited in managing the key characteristics of the investment portfolio:

Risk profile and changes in 2018

The outlook for the yield environment continued to be challenging in 2018, reflected in persistent low investment yields in TWG Europe Limited's core markets. TWG Europe Limited seeks to manage its investment risk by keeping assets matched to liabilities (with assets being approximately 1 year longer than liabilities in duration), and by investing in high quality government and corporate bonds with a target

Risk management and monitoring

Financial risks (Credit, Market and Liquidity risks) are overseen by the Investment Committee. The management of market risk is prescribed in the TWG Europe Limited Market Risk and Investment Risk policies, which align to the detailed Investment Management Agreement between TWG Europe Limited and the Investment Manager.

Concentration

The maximum single investment counterparty exposure at 31st December 2018 was: 18.2% to UK GILTS and 3.8% to a single corporate issuer in the Company's portfolio. These exposures are within Risk Appetite tolerances. The below table further details investment instrument types by geographical concentration.

Sensitivities

Credit risk

Risk description and sub-risks

Credit risk is the risk of loss or of adverse change in the financial situation, resulting from fluctuations in the credit standing of issuers of securities, counterparties and any debtors. TWG Europe Limited manages credit risk in three material sub-risks:

Risk profile and changes in 2018

For the Company, the credit risk profile is relatively small within the group and is managed as part of overall group governance and monitoring frameworks.

Risk management and monitoring

Reinsurance risks are governed by the TWG Europe Limited Reinsurance Policy, that is approved by the Board, and is prescriptive in the requirements of credit standing/rating of counterparties and additional security to be sought if the former criterion is not met. The Credit Risk Policy dove-tails to the reinsurance policy, ensuring prudent management of both reinsurance and credit exposures.

Monies owed tend not to be material, with escalation processes in place as and when required.

Concentration

The tables below show the maximum exposure to credit risk (including an analysis of financial assets exposed to credit risk) for the components of the statement of financial position. The maximum exposure is shown gross, before the effect of any mitigation.

The table below provides information regarding the credit risk exposure of the Company at 31 December 2018 and 31 December 2017 by classifying assets according to Standard & Poor's credit ratings of the counterparties. AAA is the highest possible rating. Assets that fall outside the range of AAA to BBB are classified as speculative grade and have not been rated.

Maximum credit exposure

It is the Company's policy to maintain accurate and consistent risk ratings across its credit portfolio. This enables management to focus on the applicable risks and the comparison of credit exposures across all lines of business, geographic regions and products. The rating system is supported by a variety of financial analytics combined with processed market information to provide the main inputs for the measurement of counterparty risk. All internal risk ratings are tailored to the various categories and are derived in accordance with the Company's rating policy. The attributable risk ratings are assessed and updated regularly.

During the year, no (2017:none) credit exposure limits were exceeded.

The Company actively manages its product mix to ensure that there is no (2017: none) significant concentration of credit risk.

Liquidity risk

Risk description and sub-risks

Liquidity risk is the risk that the Company is unable to realise investments and other assets in order to settle financial obligations when they fall due.

TWG Europe Limited manages this risk on two levels, one, considers the day-to-day cash flow needs of the business, including the associated processes for cash flow management; secondly, is in a crisis event, the liquidity of the investment portfolios.

Risk profile and changes in 2018

Liquidity risk (both elements described above) rate low in TWG Europe Limited's overall risk profile. Day-to-day cash flows are reasonably stable, with any accumulation of cash above the define threshold passed over to the investment portfolio. The conservative investment portfolio helps reduce liquidity risk, with no significant funds inaccessible in the short term.

Day-to-day cash flow monitoring and planning has not materially changed in the period, nor has the liquidity within the investment portfolio.

Risk management and monitoring

Liquidity risk is overseen by the investment committee and managed in line with the Liquidity Policy. Above and beyond the day-to-day cash management controls, quarterly liquidity assessments are in place, overseen by the Investment Committee.

The tables below show the maturity profile of the Company's financial liabilities.

Operational and conduct risk

Risk description and sub-risks

Operational risk is associated with the internal or day-to-day operation of the organisation; it is the risk of loss arising from inadequate or failed internal processes, personnel, systems or from external events. Operational risk is typically not taken in exchange for an expected return; it inherently exists in the normal course of business activity.

At a high-level, operational risk can occur due to:

Conduct risk is the risk of loss arising from failure to conduct business in a manner to ensure the delivery of fair customer outcomes and ensure market integrity, including meeting the regulatory requirements relating to the documentation of such process. As conduct risk has touchpoints across the Company, it requires management in much the same way as operational risk, therefore these two risks are jointly considered.

Risk profile and changes in 2018

Overall the operational risk profile of TWG Europe Limited remains relatively stable, with personnel risks continuing to receive focus following the acquisition of The Warranty Group, Inc. by Assurant and subsequent changes in key personnel. Similarly, outsourcing risk is unaltered, as controls are monitored, amended and further embedded.

Risk management and monitoring

Operational risks are proportionately managed by TWG Europe Limited, with suitable controls in place. Each risk is assigned an executive risk owner, who is responsible for ensuring the appropriate management of their risks.

With the scope of operational and conduct risks wide and diverse, TWG Europe Limited has in place a number of group-wide corporate policies, with the majority aimed at setting out the principles for managing operational and conduct risks. The policies set the overarching tone, requirements and responsibilities for individuals within the group. Beneath each policy sits controlled processes and operational activity that fulfils the requirements of each of the policies.

Conduct risk is a key area of focus for TWG Europe Limited, and this focus is informed and overseen by an embedded Governance function in the 1st Line of Defence, which acts as a key function and control in ensuring that conduct risks are effectively managed.

Brexit Risk

The majority of the EU countries in which the Company underwrites existing policies have announced contingency legislation that provide a "transition period" in the event of a no-deal Brexit for UK insurers to manage the run-off of existing policies. The Company is in contact with member state supervisors to seek guidance on ensuring it can fulfil obligations to policyholders in a compliant manner, should a nodeal outcome arise.

21. Asset management

The majority of the portfolio is in long-term, high credit quality fixed interest securities.

The duration of the assets backing liabilities is closely matched to the estimated duration of the expected liabilities.

22. Contingent liabilities

There were no contingent liabilities as at 31 December 2018 and 31 December 2017.

23. Post reporting date event

There have been no reportable events post 31 December 2018 and 31 December 2017.

24. Immediate and ultimate parent company and controlling party

On 18 October 2017, the acquisition of The Warranty Group by Assurant Inc. was formally announced. This acquisition was completed on 31 May 2018.

The immediate parent undertaking is TWG Europe Limited, registered in England and Wales. The ultimate holding company is Assurant Inc., a publicly listed company on the New York Stock Exchange, registered in Delaware, United States of America. Copies of the consolidated financial statements of Assurant Inc. can be obtained from the Company Secretary, Europe, Assurant, Emerald Buildings, Westmere Drive, Crewe, Cheshire, CW1 6UN.

25. Restatement

During the year the Company has made a voluntary change in accounting policy for the basis of accounting for the basis of accounting for technical provisions. The change aligns the accounting policy with Solvency II reporting requirements introduced on 1 January 2016.

Previously the technical provisions were measured on a Solvency I basis, which is no longer a reporting requirement or used by the business, and therefore this change in accounting policy is deemed to provide users of financial information with more relevant figures.

Following the alignment of accounting for technical provisions with Solvency II reporting requirements, the Company reviewed the recoverability of deferred acquisition costs and found that they are not supportable by future margins within the Solvency II technical provisions. As a consequence, an impairment was booked at year end.

The impact of the voluntary change in accounting policy is a reduction in both assets and liabilities in the balance sheet. The reduction in assets is primarily the result of the impairment of deferred acquisition costs. The reduction in liabilities is due to the Solvency II premium provision being less than the Solvency I unearned premium reserve.

Glossary of terms

C

Claims

Demand by an insured for indemnity under an insurance contract.

Claims incurred

Claims that have occurred, regardless of whether or not they have been reported to the insurer.

Claims outstanding

The amounts provided to cover the estimated ultimate cost of settling claims arising out of events, which have been notified by the reporting date being the sums due to beneficiaries together with claims handling expenses, less amounts already paid in respect of those claims.

D

Deferred acquisition costs

Costs incurred for the acquisition or renewal of insurance policies (e.g. brokerage and underwriter related costs) which are capitalised and amortised over the term of those policies.

Deferred tax

Income tax payable / (recoverable) in respect of the taxable profit / (tax loss) for future reporting periods as a result of past transactions or events.

F

Financial Conduct Authority (FCA)

The FCA regulates financial firms providing services to consumers and maintains the integrity of the UK's financial markets. It focuses on the regulation of conduct by both retail and wholesale financial services firms. Like its predecessor the FSA, the FCA is structured as a company limited by guarantee.

G

Gross premium written

Amounts payable by the insured, including any brokerage or commission deducted by intermediaries but excluding any taxes or duties levied on the premium.

L

Long term business

Insurance contracts (including reinsurance) falling within one of the classes of insurance specified in Part II of schedule 1 the Financial Services and Marketing Act 2000 (regulated activities) Order 2001 (SI2001 /544).

N

Net written premiums

Gross premiums written less outwards reinsurance premiums.

O

Own Risk and Solvency Assessment

ORSA is the name given to the entirety of the processes and procedures employed by a (re)insurance undertaking to identify, assess, monitor, manage and report the short and long term risks it faces or may face and to determine the own funds necessary to ensure that the undertaking's overall solvency needs are met at all times.

P

Prudential Regulation Authority (PRA)

The PRA is a subsidiary of the Bank of England. It works alongside the FCA and has two statutory objectives: to promote the safety and soundness of banks, building societies, credit unions, insurers and investment firms; and to secure protection for policyholders.

R

Risk Management Framework

An integrated framework expanding on internal control to provide a more robust and extensive focus on the broader subject of risk management.

S

Solvency Capital Requirement (SCR)

Key quantitative capital requirement defined in the Solvency II Directive. The SCR is the higher of the two capital levels required in Solvency II and provides an approximant 1 in 200 year level of protection.

Standard Formula

A non-entity specific risk-based mathematical formula used by insurers to calculate their Solvency Capital Requirement under Solvency II.

Solvency II

Initiative launched by the European Commission to revise current EU insurance solvency rules. Solvency II focuses on capital requirements, risk modelling, prudential rules, supervisory control, market discipline and disclosure.

T

Technical provisions

The term 'technical provisions' is an all-embracing term to cover provisions for items such as long-term business provisions, unexpired risk provisions and claims outstanding (whether or not reported).