annual report and financial statements · financial performance.a modest surplus for 2018 followed...

Civil Service Healthcare Society LimitedYear ended 31 December 2018

Annual Report andFinancial Statements

Annual Report and Financial Statements 2018

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CONTENTS

ContentsChair’s Statement 4

Reports 6

Strategic Report Purpose 6 Vision 6 Mission 6 Values 6 StrategicObjectives 7 Performance of the Society in 2018 8 Our Products 10 PrincipalRisksandUncertainties 10 Future Outlook and Plans 11 Viability Statement 11 Corporate Social Responsibility 12

Board of Directors 14

Report from the Board of Directors Members of the Board 14 PrincipalActivity 18 Going Concern 18 Risk Management and Control 18 ResponsibilitiesoftheBoard 19 DirectorandOfficersLiabilityInsurance 20 Complaints Policy 20 Auditors 20

Report from the Board on Corporate Governance Chair’sStatementonCorporateGovernance 21

AnnotatedCorporateGovernanceCode forMutualInsurers 23 TheBoard 23 TheBoard’sDiversityPolicy 24 Terms of Appointment 25 InformationandProfessionaldevelopment 25 The Chair 25 SeniorIndependentDirector 25 BoardBalanceandIndependence 25 Appointments to the Board 25 PerformanceandEvaluation 26 BoardCommittees 26 FinancialReporting 33 InternalControl 33 ControlEnvironment 33 RelationswithMembers 35 AnnualGeneralMeeting 35 StatementofCompliancewithAnnotated CorporateGovernanceCodeforMutualInsurers 35

Report from the Board on Remuneration RemunerationPolicy 36

Independent Auditor’s Report to the Members of Civil Service Healthcare 38

Opinion 38 Summaryofourauditapproach 39 Goingconcern,PrincipalrisksandViabilitystatement 39 KeyAuditMatters 40 OurApplicationofMateriality 42 AnoverviewoftheScopeofouraudit 42 Otherinformation 43 ResponsibilitiesofDirectors 43 Auditor�sResponsibilitiesfortheAuditofthe FinancialStatements 43 ReportontheOtherLegalandRegulatory Requirements 44 Mattersonwhichwearerequiredtoreport byexception 44 OtherMatters 44

Financial Statements 46 StatementofIncomeandExpenditure 46 StatementofOtherComprehensiveIncome 47 StatementofFinancialPosition 48 StatementofCashFlows 49 Notes To The Financial Statements 50 ProfessionalAdvisors backcover

2018hasseenawelcometurnaroundintheSociety’sfinancialperformance.Amodestsurplusfor2018followedthedeficitreportedin2017.A50%increaseinsalesofnewpoliciesovertheyear,asaresultoftheactionstakenfollowingthesalesstrategyreviewconductedin2017,wasgoodnewsalbeitnotyetsufficienttoarrestthedeclineinmembership.

Overthecourseof2018theSocietygeneratedasurplusof£23kcomparedwithadeficitof£500kin2017.Whilstgrosspremiumincomefellby3%to£26.5mandourexpensesgrewslightlyto£7.2mwesawa10%reductioninourclaimscoststo£19.4m.Ourbalancesheetandsolvencyremainstrongandallowedustoreviewourinvestmentsduringtheyear,movingalargerproportionintobondfundsthatshouldprovideahigheryieldoverthemediumtolongterm.

Thefallinpremiumincomewasprimarilyaresultofthecontinuingdeclineinourtotalmembership:downfrom21,702to20,395overtheyear.Ireportedlastyearonthechangesbeingmadetooursalesandmarketingapproach,including:anewtelesalesteam;repositioningourmarketingeffortsacrossawiderrangeofeligiblegroups;andinvestinginourwebsiteanddigitalcapabilities.Improvingoursalesandretentionperformancehasbeenthekeyfocusovertheyear.Wehavecontinuedtodevelopandrefineourapproachandhave,forexamplestartedworkingwithemployerstoenableustosellfacetoface.Theseinitiativeshaveresultedina50%increaseinnewpoliciessoldin2018comparedwith2017.Salesnearly70%higherinthesecondhalfoftheyeargiveusagoodplatformonwhichtobuild.

Claimscostsfellby10%in2018.Itisinthenatureofinsurancethatclaimscostswillvaryfromyeartoyear.In2018,wesawclaimsincidencerisebutthiswasmorethanoffsetbythefallintheaverageamountofclaims.OurclaimscostscontinuetobenefitfromthelowerproviderchargesfrompoolingourpurchasingpowerwiththatofHealixHealthServices.

Ourfinanceteammaintainedtightcontrolonadministrationexpensesduringtheyear.Additionalinvestment,primarilyinsalesandmarketing,andalsointheclaimsteamandtoimplementnewregulationsledtooverallexpensesgrowingto£7.2mintheyear.Werecruitedseveralnewclaimsadviserstoensurewecontinuetodeliverthehighestlevelofservicethatyou,ourmembers,expect.Everyonewhoworksforthe

Chair’s StatementThisyearwecelebrate90years’historyofCSHealthcare.

Societyiscommittedtoprovidingexcellentservicetoourmembers.WeareverygratefulthatmembersarekeentomakeknownhowmuchtheyappreciatetheservicetheyreceivefromtheSociety.AsaresulttheSocietywontheMoneywiseMostTrustedHealthInsuranceProvider2018award–thethirdyearinarowthatwehavebeenaccordedthisaccolade.Iamalsopleasedtoreportthatthroughout2018andasatthedateIwrite,wearethehighest-ratedUKHealthInsureronTrustpilot.

Significantregulatorychangesoccurredduringtheyear,withtheimplementationoftheGeneralDataProtectionRegulations,InsuranceDistributionDirectiveandSeniorManagersandCertificationRegimeforinsurers.CarefulplanningandmanagementmeanttheSocietywasreadyaheadoftherelevantdeadlinesandsmoothlyimplementedthetransitions.Inthis,asinourhigh-qualityserviceandourimprovingsalesresultsIwouldliketothankallourstaffandourCEO,JamesParker,whocontinuetoworksohardtoensuretheSocietydeliversthebestforyou,ourmembers.

IwouldliketothankRussellStephens,DeputyChiefExecutivewhomovedonduringtheyear,andAlanFleming,whosteppeddownasanon-executivedirector,fortheirmanyyearsofvaluableservice.FollowingareviewofskillsontheBoardwhichwouldbestdeliverourstrategy,andinlightofanexternalBoardEvaluationReviewconductedinearly2018,theBoardconductedanexternalsearchwiththeaimofsecuringnon-executivedirectorswithcommercialexperience.IampleasedtowelcomeNicolaBrucetotheBoard.

TheSocietycontinuestofacemanychallengesinadifficultmarketofwhichachievinggrowthisthemostpressing.TheSociety’sfinancesarestrongbut,fortheSocietytoendure,membershipcannotcontinueonitsdownwardpath.2018sawsignificantimprovementinnewpoliciessold.Workcommissionedtowardstheendoftheyeardemonstratedthatourvalueshavestrongresonanceinthemarket.TheBoardwillbetakingeveryopportunitytobuildonthesesuccessesindeliveryofitsstrategytosecuretheSociety’sfutureandmembers’interests.

AndrewJohnstonChair11April2019

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STRATEGIC REPORTAnnual Report and Financial Statements 2018

GrowthInordertoensuretheSocietyremainsviableinthelongerterm,weneedamembershipbaseofsufficientscaletobeabletooperateefficientlyandtogeneratethefundstoinvestincontinuingtoofferattractiveproductsandservice.

The Board has set a number of short- and long-term targets for each of the strategicobjectivesandthe2018reviewcoverseachoftheseareasinmoredetail.

Financial SecurityWewantourmemberstofeelconfidentintheSociety.Securingourfinancesguaranteesthatwewillbethereforourmemberswhentheyneedus.

ImprovementWearecommittedtodeliveringthehighestqualityproductstoourmembers. Thisalldependsontheexcellentperformanceofourpeopleandsystems:we aimtoinvestinourpeopleandthetoolstheyneedtodeliverfast,caringandgoodvalueservice.

Strategic Objectives

MutualityWewerefoundedasanot-for-profitorganisationin1929tolookafterpeopleandthat’showweplantostay:withourmembersattheheartofeverythingwedo.

Strategic ReportThe purpose of this Strategic Report is to provide:• Acontextforthefinancialstatementsthatfollow;• AninsightintotheSociety’smainobjectivesandstrategies;• AnanalysisoftheSociety’sperformance;and• AnassessmentoftheprincipalrisksfacedandhowtheyaffecttheSociety’sfutureprospects.

PurposeCivilServiceHealthcareSocietyLimitedprovidesprivatemedicalinsurance(PMI)productsforthosewhowork,orhaveworked,incivilorpublicserviceandtheirfamilies.Employeesinothernot-for-profitorganisationssuchascharitiesandothermutualsarealsoeligibleformembership.

TheSocietyhasbeenprovidingmemberswithhealthinsurancefor90years.Asamutual,premiumsareusedforthebenefitofmembersratherthantogenerateaprofitforshareholders.Ourintentionistooperateinawaythatpreservesthevalueofmembershipforcurrentmembersbutalsogeneratesvalueinthefuture.ThissustainablebusinessmodelwillenabletheSocietytocontinuetomeetthehealthinsuranceneedsofpresentandfuturemembers.

VisionTobetheleadingproviderofhealthinsurancetocivilandpublicservants.

MissionTherightproducts,attherightprice,deliveredbygreatpeopleandservice,alltailoredtoourmarketplace.

ValuesInpursuingourmissionwewillalwaysadheretothefollowingcorevalues:• Excellence• Responsibility• Integrity• Care


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STRATEGIC REPORT

Since 1 January 2016, the Society has been required to maintain a minimum level of capital as determined in accordance with the Solvency II Directive of the European Union. The Board’s policy is to exceed the Solvency Capital Requirement by a sufficient margin to provide assurance to members and the Prudential Regulation Authority (PRA) that the Society is financially sound. The level of capital the Board has determined is required to meet these objectives has been set at 1.5x the regulatory Solvency Capital Requirement (SCR).

ImprovementTheSocietyinvestsinitsbusinesstoensurethatwecanprovideaconsistentlyexcellentserviceatanaffordablepricetoallourmembers.

In2018webenefitedfromimprovedclaimsexperience,helped in no small part by our purchasing arrangements withHealixHealthServices.Inadditiontotheinvestmentsinoursalesandmarketingcapabilitiesdescribedabovewealsomadeseveralchangestoimproveourservicetomemberswhilstkeeping costsdown:

• Werecruitedadditionalclaimsstafftoimproveourresponsetimestobothphoneandwrittenqueriesandclaims;

• Wemadechangestoourpre-authorisationandinvoiceprocessingarrangementstoreducethenumberoftimesmembershavetocallus;

• Weintroducedapersonalcasemanagementserviceforheartandcancercases;

• WereplacedourITserversandcompletedthechanges required in our processes and systems intimeforthenewGeneralDataProtectionRegulations(GDPR),theInsuranceDistributionDirective(IDD)andtheSeniorManagersandCertificationRegime(SM&CR),allofwhichrepresentedsignificantregulatorychangesthatcameintoforcein2018;

• WereplacedourInternalAuditorandActuarialAdvisers,reducingcostswhilstensuringwestillobtainthesupportweneedfrombothabusinessandaregulatorystandpoint;

• Wemovedourinvestmentmanagementinhousetoreducecostswhilstalsomakingchangestoourinvestmentportfoliothatweexpecttoincreasethelong-termreturnonourassets;

• WeweredelightedduringtheyeartowintheMoneywiseawardforMostTrustedHealthInsuranceProviderforthethirdyearinarow.Coupledwithourmarket-leadingratingsonTrustpilotthis

demonstratesourcommitmenttodeliveringthebest-qualityservicetoourmembersandisatributetothehardworkofallourstaff.

Asweenter2019wecontinuetoinvestinourcapabilities.Weareexpandingthesystemsupportforourin-fieldsellingcapabilities,makingchangestostreamlineourclaimsprocessandreviewingourproductfeatures.

MutualityWeareproudofourmutualityandweaimtokeepitattheheartofwhatweareandwhatwedo.WeaimtoruntheSocietyinawaythattakesaccountof

the needs of all our members and seeks to meet those inafairandsustainableway.

Towardstheendof2018weundertookareviewofourpropositiontobetterunderstandwhatourexistingandpotentialcustomers,alongwithstaffandotherstakeholders,feltmadetheSocietyspecial.TheresultsofthisexerciseweresharedwiththeBoardinearly2019andwillhelpshapeourapproachtoevolvingthebusinessinthemonthsandyearsahead.WealsotookthisopportunitytofurtherexploreviewsonoureligibilitycriteriaandwewillpresentourconclusionsonthisatourAGM.

WemaintainanongoingdialoguewithourmembersthroughourAGM,memberforums,surveysandCaremagazine.

Wearealsoconsciousofourrolewithinsocietymorewidelyandlooktoactinawaythatrecognisesboththeletterandthespiritofourobligationsandresponsibilities.WehaveaCorporateSocialResponsibility(“CSR”)Policyonhowweincorporateourvaluesintohowweoperate.Staffchosetwolocalcharitiesasbeneficiariesformoneyraisedfromarangeofactivitiesundertakenduringtheyear,namelySamaritansKingstonandMomentum(alocalchildren’scharitybasedinSurrey).FurtherinformationonourCSRactivitiesduringtheyearcanbefoundonpage12.

Performance of the Society in 2018

TheSociety’sfinancialpositionremainedstrongthroughout 2018 and the business generated a small surplusof£23k.TheSociety’sSolvencyCapitalRatio(SCR)was2.14(2017:1.89)atyearend.AnanalysisoftheSociety’ssolvencypositionattheendof2018willbeincludedintheSociety’sSolvencyandFinancialConditionReport(SFCR),whichwaspublishedinApril2019andmadeavailableonourwebsite.

AstheSociety’sfinanceshaveremainedsecure,safeguarding the funding of the business for the foreseeable future, the Board has focused on the challengeofhowtosecuresustainablegrowthnecessaryforlong-termviability.

GrowthAttheendof2018,CSHealthcareinsured12,950policies,whichwas752(5%)fewerthanattheendof2017.Itinsured20,395lives,areductionof

1,307(6%)duringtheyear.

The Society enjoys a high degree of loyalty from membersand,incommonwithrecentyears,wellover90%ofmembersrenewedtheirpolicieswiththeSocietyduring2018.Newbusinesssalesremainedbelowthelevelneededtoreplacelostmembers,butincreasedbyover50%intheyearfollowingtheimplementationofthechangesidentifiedintheStrategicMarketingandDistributionReviewwhichwascompletedinthesecondhalfof2017.

Themostsignificantchangesintroducedduringthe yearwere:•Thecreationofanewdedicatedsalesteam,separatefromtheteamdealingwithmemberqueriesandrenewals;

•Designandrolloutofdetailednewsalesprocessescoveringthefollow-upofwebleadsanddealingwithoutboundandinboundtelemarketing;

•ArangeofnewmarketingactivitytargetingsegmentswheretheSociety’sprofilehasbeenlow–theemergencyservicesandeducationsectorsforexample;and

•Theintroductionofanew“in-field”salescapabilitywherehealthchecksatanemployees’workplacecanbecombinedwithquotegenerationandsales.

Therehavebeenasignificantnumberofnewreportingtools introduced during the year to help monitor sales andmarketingactivityandfurtherimprovementstoourwebsiteandsalesprocesses.

Lookingaheadto2019weaimtoexpandourin-fieldandaffinitypartnersaleswhilstcontinuingtobuildonthegrowthofourtelesalesbusiness.Wherepossiblewewilllooktoworkwithpartnerstopromoteourproductseitherthroughlocalised“worksitemarketing”oraspartofamoregeneraloffertoaffinitypartnermembers.

Despitethedifficulteconomicclimate,ashrinkingoverallmarketforindividualPMIandtheincreasesinInsurancePremiumTax(IPT)inthesecondhalfof2017,newbusinessin2018wasthehighestforfiveyears.TheBoardislookingtobuildonthatin2019tobringsalesuptothelevelneededtodeliverbusinessgrowth.

Financial SecurityIn2017theSocietyreportedalossof£0.5mfollowingadeteriorationinclaims.In2018claimsperformanceimproved,helpedbythelowercosts

andincreasedpurchasingpowerweareabletoaccessthroughourarrangementwithHealixHealthServices.Thisallowedustoreportasmallsurplusof£23k,inlinewithourbudgetdespitethereductioninmembership.Ourfavourableclaimsexperienceandmanagementofdiscretionaryspendmeantwewerealsoabletoabsorbincreasedcostsof£7.2m(£6.6min2017)resultingfrominvestmentinoursalesandmarketingactivitiesand in ensuring our systems and processes kept pace withregulatorychanges.TheSociety’ssolvencypositionremainsstrong.Wehavebudgetedforafurthersmallsurplusin2019.

The key measures of the performance of the Society arepremiumsandclaims.Earnedpremiumincome,netofIPT,reducedduring2018,from£27.6min2017to£26.5min2018.Thecostofclaimsfortheyearfellfrom£21.4min2017to£19.3min2018.

The General Fund is the name for the Society’s main reserveswhichcoverongoingbusinessactivityandsolvencyrequirements.Thefundendedtheyearwithabalanceof£12.9m,inlinewith2017.


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STRATEGIC REPORT

JamesParkerChief Executive11April2019


TheSociety’sapproachistoidentifyriskstoitsbusinessand to put in place appropriate controls for managing and mitigatingthelikelihoodandpotentialeffectsofeachrisk.Thisinformationisrecordedinariskregisterwhichisakeytoolforreviewandmonitoringbymanagers,RCGC,theBoardandauditors.TheSocietyappointedaChiefRiskOfficer(CRO)in2016toco-ordinateinternalriskmanagementactivityasrequiredundertheSeniorInsuranceManager’sRegime.TheCROreportsonriskateveryBoardmeeting.EverypapersubmittedtotheBoardincludesariskimpactassessment.

InaccordancewiththerequirementsofSolvencyII,theBoardmaintainsitsOwnRiskandSolvencyAssessment(ORSA)Report,anessentialriskmanagementandsystemtoolthatdocuments,inbothqualitativeandquantitativeterms, the processes and procedures employed to identify,assess,monitorandreportonshort-andlong-termrisksthattheSocietyfacesormayface.TheORSAisadynamicdocument–keptunderreview–whichincorporates the Board’s assessment of the capital requiredtoensurethattheSCRismetatalltimes.

TherequirementsofSolvencyIIcomplementCSHealthcare’sapproachtorisk.ThekeybusinessrisksanduncertaintiesaffectingtheSocietyareidentifiedintheReportfromtheBoardofDirectorsonpage18.

TheBoarddoesnotanticipatethatBrexitwillhaveanimmediate, direct impact on the Society’s principal risks however;thereisalikelihoodofsecondaryeffects.Thesewillbeconsideredandaddressedin2019aspartoftheSociety’sORSA,andstress-testingframework.

Future Outlook and PlansTheBoardremainscommittedtothefourstrategicobjectivesoutlinedonpage7.ThestrongfinancialpositionoftheSocietyandourrecentinvestmentsinimprovingourbusinessmeanthatourfocuscontinuestobeonachievingsustainablegrowth.InvestingtoenhancetheSociety’scapabilitiesandtodelivergrowtharereflectedinourplansfor2019.

Viability StatementTheUKCorporateGovernanceCoderequirestheDirectorstostatewhethertheyhaveareasonableexpectationthatthecompanywillbeabletocontinueinoperationandmeetitsliabilitiesastheyfalldueoveradefinedperiod.Thisisknownasaviabilitystatement.AstheSocietyaimstocomplywiththecorrespondingprovisionsoftheAnnotatedCorporateGovernanceCodeforMutualInsurers,aviabilitystatementisincludedbelow.

TheBoardhasconsideredtheviabilityoftheSocietyoverathree-yearperiod.InarrivingatthisperiodtheBoard took account of the strategic plan, the short-term nature of the Society’s insurance commitments to membersandtheinherentuncertaintyoftherisksfaced.

TheBoardassessedviabilitythrough:theORSA;byreviewingtheSociety’sfinancialpositionandsolvencyratio;byevaluatingtheprocessesandcontrolstheSocietyhasinplacetoidentify,manageandmitigatefinancialandoperationalrisks;andbyconsideringtheexternalmarketenvironmentinwhichtheSocietyoperates.TheBoardalsoconductedstresstestsaspartoftheannualplanningprocess.Therisksfacedandcontrolsinplacetomitigatethesearedescribedinmoredetailonpage18.BasedonthisassessmenttheBoardhasareasonableexpectationthattheSocietywillbeabletocontinueinoperationandmeetallofitsliabilitiesastheyfalldueuptoDecember2021.InmakingthisstatementtheBoardhasmadethefollowingkeyassumptions:•ThattheUKgovernmentandregulatorswillnotmakeanychangestothetaxationorlegalframeworkofprivatemedicalinsurancewhichmateriallyrestricttheabilityoftheSocietytooperate;and

•ThattheSociety’sinvestmentswillnotsuffermateriallossesresultingfromaseveredislocationintheUKcapital and banking market

TheBoardwillcontinuetorefineitsapproachtoassessingviabilityin2019throughtheenhancementoftheSociety’sstresstestingandreversestresstesting.

ApprovedonbehalfoftheBoardofCSHealthcare:

Our Products TheSocietyisproudtoofferprivatemedicalinsurance(PMI)productswhichsupportourmembers’healthandwellbeing,providingpeaceofmindandhelpingtorestorethemtogoodhealthwhentheyneeditmost.

Your Choiceisdesignedtooffercomprehensivecoverandofferstheflexibilitytochoosefromarangeofbenefitoptionsenablingmemberstocreatetheirownpersonalisedplan.Memberscanchoosewheretoreceivetreatmentfromourdirectoryofover300UKindependentandprivatehospitals.

HealthBridgeisourlower-pricedsolutionthathasbeenspeciallydesignedtohelpbridgethegapbetweentheNHSandprivatehealthcare.Amorelimitedrangeofcoveraimstoavoidlengthywaitingtimesfortests,consultationsandtreatment.

Forlong-standingmembersweoffertwoproductoptions,Standard and Premiumwhichprovidecover

withindefinedlimits.PremiumprovideshigherlevelsofcovertoallowmemberstoreceivemedicaltreatmentfromarangeofmoreexpensiveLondonhospitals.WenolongeroffertheStandardandPremiumproductstonewmembers.

Principal Risks and UncertaintiesTheBoardhasultimateresponsibilityforoverseeingtheidentificationandmanagementofrisk.Theprincipalrisks inherent in the business are described in the ‘Risk ManagementandControl’sectionoftheReportfromtheBoardofDirectors.Riskidentification,impactandcontrolarekeycomponentsofthenewregulatoryframeworkknownasSolvencyII,whichtookeffectinJanuary2016.

During 2018 detailed monitoring of the Society’s controlswasundertakenbytheRiskComplianceandGovernanceCommittee(RCGC)whichreportstotheBoardaftereachofitsmeetings.


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STRATEGIC REPORT

Corporate Social ResponsibilityCorporateSocialResponsibility(CSR)isintegraltoourSociety;itsupportsthedeliveryofourstrategyandalignswithourvaluestoensurethatwebehaveinanethicalandresponsiblemanner,whilstkeepingourcommitmenttoourmembersandmakingsurewecontinuetobeinapositiontodeliveranexcellentservice.

Our PeopleEmployeesWesupportouremployeestobehappy,healthyandengagedinordertoachieveourgoals.Webelieveinfairtreatment,agoodwork-lifebalanceandgivingemployeesopportunitiestodevelop.

2018 examples:Traininganddevelopment, professionalqualifications,coachingcultureandmentoringprogramme.

CommunityWehaveestablishedrelationshipswithorganisationswithinthelocalcommunity.Wecontinuetobuildapositivepublicprofilethroughinitiativessuchasemployeevolunteeringandcharitablegiving.

2018 examples:Charitablegivingandofferinganapprenticeshipscheme.

During2018ouremployeeschosetocontinuesupportingtwolocalcharities:

Momentum–whichsupportschildrenwithcancerandlife-limitingconditions,andtheirfamilies,inSurreyandSouthWestLondon.

The Kingston Samaritans–whoworkaroundtheclocktoprovideconfidentialsupporttoanyoneinemotionaldistress, struggling to cope, at risk of suicide or anyone thatsimplyneedstotalk.

Throughout 2018 employees raised money through a rangeoffundraisingactivitiesincluding:araffle,bakesale, fancy dress, quiz nights and The Thames Path Challenge!During2018employeesraisedover£1,800forthesetwoworthycharities.

WearelookingforwardtoorganisingmorefundraisingactivitiesthisyearandcontinuingtosupportTheKingstonSamaritansasourchosencharityfor2019.

During2018weintroducedanapprenticeshipscheme,workingwithlocalcollegesinourareaandofferingopportunitiesinvariousdepartmentsacrosstheSociety.

“ Providing an outstanding service to our membersˮ

“ There is a good work-life balanceˮ

“ The culture, the people, the opportunitiesˮ

“ I feel like I am a valued employeeˮ

“ The Society is full of passionate and talented people who care about our success and are willing to work hard to achieve itˮ

Employee quotes WeaskedouremployeeswhatisthebestthingaboutworkingforCSHealthcare?

The EnvironmentWeactasaresponsibleeco-consciousbusiness,throughtheintroductionofmanagementpoliciesandprocedures.Wesupportouremployeesandencouragethem to be accountable for the resources they use, as togetherweaimtoreduceourcostsandminimiseourimpactontheenvironment.

2018 examples:Recycling,e-payslips,removingoursingle-useplasticcups,switchingtoblackandwhite,double-sidedautomatedprinting.

MarketplaceWeworkwithoursupplierstoensureweoperateinanethicalandresponsiblemanner,whilstkeepingourcommitmenttoourmembers.

2018 examples:GettingourvendorstocompleteaCSRSupplierQuestionnairetoensureweareworkingwithethicalvendors.

AwardsMoneywise Customer Service Award 2018ThankyouforvotingCSHealthcare‘TheMostTrustedHealthInsuranceProvider’forthethirdyearrunning(2016,2017and2018).ThisawardidentifiesthatCSHealthcare,asafinancialprovideroffersoutstandingcustomerserviceandgreatvalueformoney.

Investors in People – Silver AccreditationWeweredelightedtohavebeenaccreditedbyInvestorsinPeople.InvestorsinPeoplemarkhighperformanceinbusinessandpeoplemanagement.Accreditationisthesignofagreatemployer,anoutstandingplacetoworkandaclearcommitment tosustainablegrowth.

Advocacy ProgrammeAtCSHealthcarewerunanAdvocacyProgramme. Anadvocate’sroleistocommunicate,engage,representandsupporttheircolleagues.WewanttoengageouremployeestoensuretheyarecommittedtotheSociety’sgoalsandvalues,motivatedtocontributetooursuccessandareable,atthesametime,toenhancetheirownsenseofwellbeing.


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STRATEGIC REPORT

Board of DirectorsAndrew Johnston MA, FSS (63)ChairAndrewJohnstonjoinedtheBoardinSeptember2013andwasappointedChairinSeptember2015.Andrew’scareerwasspentattheGovernmentActuary’sDepartment(GAD)givingstrategic,policyandpracticalactuarialadviceontheprovisionandfinancialmanagementofemployment-basedandstatepensions.HewastheDeputyGovernmentActuaryandaBoardMemberatGAD.AndrewservedontheManagementBoardoftheWorldTradeOrganisationPensionPlanformanyyears.HehasbeenamemberofCSHealthcaresince1990.

Key areas of experience:business/commercialmanagement,privatemedicalinsurance,finance,governance,investments,leadership,riskmanagement,civil/publicservice.

Committee membership in 2018:NominationsCommittee(Chair);andRemunerationCommittee.

Adrian Rees LL.M, LL.B, BA, FCIPD (74)Senior Independent Director AdrianReesjoinedtotheBoardinJanuary2013.HewasnominatedastheSeniorIndependentDirectorandSociety’sWhistleblowers’ChampioninJuly2018.Heisacharteredhumanresourcespractitionerwithextensiveexperienceintheinsuranceandhealthcaresector.From1987hewasamemberoftheBenendenHealthcareSocietyCommitteeofManagementandwasappointedasitsChiefExecutivein1995,remaininginthispositionuntil2004.Healsohasexperienceinanumberofotherfieldsincludinglaw,changemanagementandregulation,buthisfirstcareerwasinthethenInlandRevenue.HeisamemberofCSHealthcare,DeputyChairmanoftheCivilServiceInsuranceSocietyandanadvisertotheDaughtersoftheCrossofLiège,acharitabletrust.

Key areas of experience:business/commercialmanagement,finance,governance,HR,leadership,marketing,riskmanagementandlaw.

Committee membership in 2018:AuditCommittee;FinanceCommittee;NominationsCommittee;andRemunerationCommittee.


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BOARD OF DIRECTORS

James Parker BSc, ACMA (51)Chief ExecutiveJamesParkerjoinedCSHealthcareasChiefExecutiveinJanuary2016.Jameshasover30years’experienceintheInsuranceindustrywithseniorrolesinbothCignaHealthcareandPrudential.HehasastrongfinancialbackgroundasaqualifiedCharteredManagementAccountantandexperienceofleadingandgrowingbusinessesthroughchangingcommercialenvironments.

Key areas of experience:business/commercialmanagement,privatemedicalinsurance,finance,leadership,salesandmarketing.

Committee membership in 2018:NominationsCommittee.

Gloria Craig CB, MA (70)Non–Executive DirectorGloriaCraigjoinedtheBoardinApril2011.Gloriahasheldanumberofseniorpositionsduringhercareerinthecivilservice,mostrecentlyreachingthelevelofDirectorGeneralintheMinistryofDefencebeforesheretiredfromthecivilservicein2011.Shehaspastexperienceasanon-executivedirectorofaLondonhousingassociationandisnowalso a trustee of the Somerset Army Cadet Force and a mentor at the Royal College of DefenceStudies.ShehasbeenamemberoftheSocietysince2007.

Key areas of experience:education,governance,HR,investments,IT,leadership,riskmanagement,civil/publicservice.

Committee membership in 2018:Risk,ComplianceandGovernanceCommittee;NominationsCommittee;andRemunerationCommittee(Chair).

Alan Peddle BA, FCA (67)Non–Executive DirectorAlanPeddlejoinedtheBoardinAugust2015.Alan’sexpertiseliesinfinanceandhehasawealthofexperienceinbusinessandcommercialmanagement,governanceandriskmanagement.HespenthiscareerwithPwCandduringthistimeworkedcloselywithitsin-houseteamoflawyersinbothlitigationandcounselling.Healsohasvaluableexperienceofstrategicplanningandprojectmanagement.

Key areas of experience:business/commercialmanagement,finance,governance,investments,IT,riskmanagement.

Committee membership in 2018: AuditCommittee;andRisk,ComplianceandGovernanceCommittee.

Russell Stephens BA (49)Deputy Chief Executive (from 1999 to November 2018)RusselljoinedCSHealthcareinNovember1999andwasappointedtotheBoardin2004.RussellbecameamemberoftheCivilServiceInsuranceSociety(CSIS)CommitteeofMembersin2016.Hehasmanyyears’experienceinthehealthinsuranceindustry,havingworkedbothinthemutualandprivatesector.PriortojoiningCSHealthcare,RussellwasemployedasanaccidentandhealthunderwriteratUNUM,andbeforethatheworkedinasimilarroleforAIGEurope.FollowingaSocietyrestructureRussell’srolewasmaderedundantandheleftCSHealthcareinNovember2018.

Alan Fleming ACII (73)Senior Independent Director (from 2014 to June 2018)AlanFlemingjoinedtheBoardin2010.AlanalsoservedontheAuditRiskandComplianceCommitteefromFebruary2011untilOctober2013.Hisbackgroundwasininsuranceandriskmanagementinmultinationalcorporations,includingservingasanhonoraryvicepresidentandformerchairmanandchiefexecutiveoftheAssociationofInsuranceandRiskManagers.Healsohasexperienceasaninsuranceregulator.Alanisalsoanon-executivedirectoroftwoGuernseyinsurancecompaniesandisamemberoftheSociety.AlanretiredfromtheBoardattheendofJuly2018.

Fiona McAnena (54)Non–Executive Director (From September 2018 to March 2019)FionaMcAnenawasappointedtotheBoardasanon-executivedirectorinSeptember2018andtenderedherresignationfromtheCSHBoardwitheffectfrom25March2019.

Tom Gidaracos CA (SA) (35)Director of FinanceTomGidaracosjoinedCSHealthcareasFinanceDirectorinDecember2017andwasappointedtotheBoardinJanuary2018.Tomisaqualifiedcharteredaccountantwithovereightyears’experienceintheinsuranceindustry.TomwaspreviouslyChiefFinancialOfficerofAMTMortgageInsurance(formerlyGenworthFinancial).SinceJune2018hehasactedinanadvisorycapacitytoastart-uptechcompany,InvoiceInsure.

Key areas of experience:finance,business/commercialmanagement,investments,SolvencyII,generalinsurance.


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BOARD OF DIRECTORS

Nicola Bruce, MA (Oxon), MBA (49)Non–Executive DirectorNicolaBrucejoinedtheBoardasanon-executivedirectorinOctober2018.Nicola’sexpertiseliesinstrategicsupportandbusinessdevelopment.Inherexecutivecareer,shewasapartnerattheinternationalstrategyboutique,TheMonitorGroupandservedontheOperatingBoardatDeLaRuePLCastheDirectorofStrategyandBusinessDevelopment.Nicolawasanon-executivedirectorattheGovernment’sMoneyAdviceServicewhereshechairedtheInvestmentCommittee.Sheiscurrentlyanon-executivedirectorofTheAnchorHanoverGroupaswellasWingsTravelManagement.

Key areas of experience:strategy,finance,corporategovernance.

Roger Cawse, MA (Exon), DMS, FCIB, FRSA (68)Non–Executive DirectorRogerCawsejoinedtheBoardinJuly2013.Hespent42yearsworkinginfinancialservices,thelast17yearsofwhichwereasachiefexecutiveinprivatemedicalinsurance.Hehasheldbothexecutiveandnon-executivepostsontheboardsoffriendlysocieties,inadditiontopreviousexperienceaschairmanofthefinancecommitteesofamajornationalhousingassociationandaHospiscarecharity.Rogerbecameanon-executivedirectorofCornishMutualin2016wherehechairstheRemunerationandNominationCommittee.InDecember2018,hebecameanon-executivedirectoratSouthWestMutual.

Key areas of experience:business/commercialmanagement,privatemedicalinsurance,finance,governance,leadership,financialservicesregulation,civil/publicservice.

Committee membership in 2018:AuditCommittee(Chair);andFinanceCommittee(Chair).

Nigel Fawcett MBA (69)Vice ChairNigelFawcettjoinedtheBoardinFebruary2011andwasappointedViceChairinSeptember2013.NigelalsoservedasamemberoftheInvestmentCommitteefromNovember2012untilOctober2013.Nigelhasextensiveexperienceworkingintheindustry,demonstratedbyhistimewiththeFinancialServicesAuthorityandhissecondmenttoHerMajesty’sTreasuryasheadoftheMutualdivision.In2016,hebecameagovernoroftheCollegeofOsteopaths.Nigel’sparticularareaofexpertiseisinlegislativepolicyandthecorporategovernanceofmutuals,whichhasbeenparticularlyrelevanttohischairmanshipoftheAudit,RiskandComplianceCommittee.Heisalong-standingmemberoftheSociety.

Key areas of experience:business/commercialmanagement,legislation,IT,leadership,education,governance,financialservicesregulation,riskmanagement,civil/publicservice.

Committee membership in 2018:Risk,ComplianceandGovernanceCommittee(Chair);NominationsCommittee;andRemunerationCommittee.

Report from the Board of DirectorsTheBoardofCivilServiceHealthcareSocietyLimited(CSHealthcare)ispleasedtosubmititsreporttogetherwiththe auditedfinancialstatementsfortheyearended31December2018.

Members of the BoardAlistofBoardmemberswhoheldofficeduringtheyearappearsintheBoardofDirectorssectioninthisreport.

Principal ActivityCSHealthcareisafriendlysociety.Asamutualinsurer(Mutual),theSocietyoffersprivatemedicalinsurance(PMI)productstocurrentandformerpublicservantsandtheirfamilies.

Going ConcernThe Society's Report and Accounts Financial Statements havebeenpreparedonagoingconcernbasis.TheBoardhasreviewedtheSociety’sbusinessactivities,financialpositionandprincipalrisksassetoutintheStrategicReportandsupportedbythefinancialpositionoftheSociety,itscashflowsandliquidityposition.TheBoardbelievestheSocietyhasadequateresourcestocontinueitsoperationalexistencefortheforeseeablefuture.Forthis reason the going concern basis is adopted for the preparationoftheAnnualFinancialStatements.

Risk Management and ControlThe Society seeks to manage all risks that arise from its activities.Theprincipalrisksinherentinthebusinessareunderwritingandinsurance,operational,strategic,cyberandtechnology,regulatory,credit,marketandinvestment.

Theunderwritingandinsuranceriskisthatclaimsexceedtheamountexpected.Thismayeitherarisefromaninaccurateassessmentoftherisksentailedinwritinganinsurancepolicy,orfromfactorswhollyoutoftheunderwriter’scontrol,resultinginthepolicycostingtheinsurermuchmorethanitearnedinpremiums.Claimsprocesses, procedures and costs are monitored on a regularbasis.

Theoperationalriskisoflossarisingfrominadequateor failed internal processes or systems, human error orexternalevents.TheSocietymanagesthisriskbydividingitintoanumberofdiscreteareas,andthenputsinplaceappropriatecontrolsorothermitigatingpoliciesforeach.

Thestrategicriskisthecurrentandprospectiveimpactonearningsorcapitalarisingfromadversebusinessdecisions,improperimplementationofdecisions,orlackofresponsivenesstoindustrychanges.Thisriskismanagedthroughconsiderationofourstrategicgoals,strategiesdevelopedtoachievethosegoals,theresources deployed against these goals, and the quality ofimplementation.

Cyberandtechnologyriskistheriskoffinancialloss,disruptionordamagetoourreputationandabilitytoperformoperationaltasksduetoafailureof,orunauthorisedaccesstoinformationtechnologysystems.Inrecenttimes,manyorganisationshavebeensubjecttodeliberateattemptstocauseharmthroughtheexploitationofanysystemvulnerabilities.TheSocietyconductsregularsystemspenetrationtestingandachievedtheCyberEssentialsPlusaccreditationduring2016–thislevelofsecurity,alongsidearobustandregularlytestedBusinessContinuityPlan,ensureseffectivemitigationofthisrisk.

Regulatoryriskistheriskofnon-compliancewiththeevolvingregulatoryenvironmentinwhichweoperate.Regulators make judgements both about the robustness ofregulatedfirms’businessmodels,andthesuitabilityoftheproductstheyaresellingandwillintervenepromptlyiftheyseeoranticipateproblems.Throughmanagement controls, the compliance monitoring programmeandInternalaudit,thisriskiscloselymonitoredandmanaged.

Credit risk refers to loss arising due to another party notbeingabletomeetitsfinancialobligationstothe

Societyastheyfalldue.Theexposuretocreditriskfrommembersisnotconsideredtobesignificant,asitistheSociety’spolicynottopaybenefitforanytreatmentinitiatedwhilepremiumsareinarrears.AnycreditriskarisingfromthepotentialfailureoftheissuerormanagerofanyoftheSociety’sinvestmentsismitigatedbyhavingstrictguidelinesonassetallocationandcreditratings,andassetsoverseenbyaprofessionalcustodian.ThereisnocreditriskarisingfromreinsurancecounterpartiesbecausetheSocietydoesnotreinsureanyofitsbusiness.

Marketandinvestmentriskcouldarisefromfluctuationsinvaluesofincomefromassetsorininterestorexchangerates.Additionally,thereisariskthattheSociety’sfundperformancedoesnotachievetheexpectedreturns,orthatassetsheldlosevalue. The Society manages these risks by ensuring that its assetmixisappropriatefortheliabilitiesarisingfromthebusiness,byfactoringfluctuationsinratesandvaluesintoitsmodellingandbyholdingitsreserves incash-basedandfixedincomeassets.

TheSocietyhasaformalstructureforidentifyingrisks,determininganacceptablelevelofrisk,andmanagingthoseriskswithappropriatecontrols,utilisingthethreelinesofdefenceriskmanagementmodel.TheBoardhasultimateresponsibilityforoverseeingriskmanagement,withdetailedmonitoringundertakenbytheRisk,ComplianceandGovernanceCommittee,theAuditCommitteeandtheFinanceCommittee.Risksarecontrolledbygradingandreportingexposureandfocusingreviewprocedures,eitherinternalorexternal,onkeyareas.TheBoardanditscommitteesareassistedin risk management by internal auditors appointed by theSociety,whooperatewithinthetermsofanagreedInternalAuditCharter(acopyofwhichisavailabletomembersonrequest).Controlpoliciesandproceduresare clearly set out and regularly updated and circulated throughouttheSociety.

Responsibilities of the BoardTheBoardisempoweredtodirectthebusinessoftheSociety.TheBoardconfirmsthatnoactivitycarriedoutbytheSocietyduring2018hasbeenoutsideitspowers.

ItistheBoard’sresponsibilitytobringindependentjudgement to bear on issues of strategy, performance, resourcesandstandardsofconduct.

TheBoardisrequiredtopreparefinancialstatementsforeachfinancialyear,whicharefair,balancedandunderstandable,andprovidethenecessaryinformationfor members to assess the Society’s performance, businessmodelandstrategy.InpreparingthosefinancialstatementstheBoardisrequiredto:

• selectsuitableaccountingpoliciesandthenapplythemconsistently;

• makejudgementsandestimatesthatarereasonableandprudent;

• statewhetherapplicableaccountingstandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosedandexplainedinthefinancialstatements;andpreparethefinancialstatementsonthegoingconcern basis unless it is inappropriate to presume thattheSocietywillcontinueinbusiness.

TheBoardisresponsibleforkeepingproperaccountingrecordswhichdisclosewithreasonableaccuracyatanytimethefinancialpositionoftheSocietyandenabletheBoardtoensurethatthefinancialstatementscomplywiththeFriendlySocietiesAct1992andtheregulationsmadeunderit.

The Board has general responsibility for safeguarding the assets of the Society and for taking reasonable stepsforthepreventionanddetectionoffraudandotherirregularities.

The Board is responsible for the maintenance and integrityofcorporateandfinancialinformationavailableontheSociety’swebsite.

Followingreviewanddiscussion,theBoardconsidersthattheSociety’s2018annualreportandfinancialstatementstakenasawhole,arefair,balanced,andunderstandableandprovidestheinformationnecessaryformemberstoassesstheSociety’spositionandperformance,businessmodelandstrategy.

Areas of focus for the Board during 2018There is a standing list of agenda items for discussion ateveryBoardmeeting,withextratimefactoredinforadditionalitems.AteachBoardmeeting,committeechairsreportontheirlatestcommitteemeetinganddevelopmentsintheirarea.ThefollowingshowtheprincipaltopicscoveredatBoardmeetings,trainingdaysandstrategyawaydaysduring2018whichfallundertheheadingsofourfourstrategicobjectives:

GrowthIncreasethenumberofinsuredlivesoftheSociety:• StrategicMarketingandDistributionReview(SMDR)implementation

• Approvalofthe2018OperationalPlan• Membership eligibility discussions• EnsuringoverallcompliancewiththeRegulator’shigh-levelstandardsandotherFCAHandbookrequirements


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BOARD OF DIRECTORS

Financial SecurityEnsurethattheSociety’sfinancesaresecure:• Reporting,monitoringandcontrolunderSolvencyIIPillar3

• RegularreviewsofCSH’sOwnRiskandSolvencyAssessment(ORSA)Report,RiskAppetitestatementandORSAPoliciestoensuretheyreflectcurrentpractices

• DecisionstodevelopCSH’sInvestmentstrategytoenhanceitsportfolio

• 2017AnnualReportandFinancialStatementssign-off• Stress-testingandapprovalof2019budgetand

business plan• Discussion and challenge of the Chief Actuary’s Report• Reviewofthecost/benefitanalysisoftheclaimsinvoiceoutsourcing

• Regularriskreviews

ImprovementInvestinourpeopleandresources:• Finance Director appointment• TwonewNon-ExecutiveDirectorappointments• OngoingBoardtraininganddevelopment• ExternalBoardeffectivenessreview• ReviewandapprovalofMattersReservedfortheBoardandCommitteeTermsofReference

• Regularpricingreviews• Succession planning

MutualityOperateasaneffectivemutualthatreflectsourvalues:•TCF(TreatingCustomersFairly)AnnualReportreview•CorporateGovernancequestionnairereview• Discussion of feedback from member forums•ApprovalofnewValuesfortheSociety

Directors and Officers Liability InsuranceThe Society maintains an indemnity insurance policy tocovererrorsandomissionswhichmaybemadebymembersoftheBoardandtheExecutive.

Complaints PolicyTheSocietytakesallexpressionsofdissatisfactionseriously and has a robust complaints policy in placetoacknowledgeandaddresstheconcernsofourmembers.AnymemberwhohasexhaustedourcomplaintsprocessandremainsdissatisfiedhasrecoursetotheFinancialOmbudsmanService.

Theproceduresforinvestigatingandrecordingcomplaintsarefullydocumentedandreviewedonan annual basis, to ensure they remain suitable and effective.Abi-annualcomplaintsreportisissuedtotheRisk,ComplianceandGovernanceCommittee,containingthenumberofcomplaintsreceived,theoutcomeofthese complaints and root cause analysis to help the Societyidentifythemostfrequentcausesofmemberdissatisfaction.Thecommitteediscusscomplaintsperformance and agree appropriate steps necessary toimproveoperationalpracticesandthecomplaintshandlingprocess.TheSocietyalsoreportscomplaintsdatatotheFCA,onabi-annualbasis,asrequired.

AuditorsMembersapprovedthere-appointmentofDeloitteLLPasitsexternalauditoratthe2018AGM.

Report from the Board on CorporateGovernance2018Chair’s Statement on Corporate GovernanceIampleasedtointroducethisCorporateGovernancereport.Theterm‘corporategovernance’referstothestructures, processes and procedures in place to ensure theeffectivecontrolandrunningoftheSociety.Goodcorporategovernanceisessentialtoanywell-runorganisation.Inthisreport,wesetoutourapproachto,andcompliancewith,governanceusingthefivemainprinciplesoftheUKCorporateGovernanceCode,explaininghowtheBoardanditscommitteesare structured and their areas of focus during the year.TheCodeappliestolargeandsmallcompanies.Aslightlysimplifiedversion–knownastheAnnotatedCode–appliestotheSocietyundertheauspicesoftheAssociationofFinancialMutuals(AFM)forthe2018reportingyear.

TheSocietyisamemberoftheAssociationof FinancialMutuals(AFM),thetradebodythat representsmutualandnot-for-profitinsurers,friendlysocietiesandotherfinancialmutualsacrosstheUK. TheAFMworkswithitsmemberorganisationstodeveloptheconceptofmutualitythroughthepromotionofbestpracticeandacommitmenttoworkingtogetherintheinterestofmembers,organisations,theircustomersandotherstakeholders.

Intheautumnof2018,theAFMconsultedonanewCode,basedonthecorporategovernancecodeforpremium-listed companies, to replace the Annotated CorporateGovernanceCode,whichhadbeeninplacesince2007.CSHealthcarewassupportiveoftheAFM’sapproachtoretainaCodewhichisproportionatetotheneedsofAFMmemberorganisationsandwhichhelpsdirectorsmeettheirobligationsforeffectivecorporategovernance.InDecember2018,theAFMpublishedtheAFMCorporateGovernanceCode.CSHealthcarewillapplytheprinciplessetoutintherevisedCodeduring2019,andreportontheminsubsequentreportsandfinancialstatements.

Inthesummerof2018,CSHealthcareemployeeswereinvitedtotakepartinanemployeesurveytohelptheAFMbetterunderstandhowcultureandleadershipinthesectorhelpsachievegoodoutcomes.Thesurveyprovidedawealthofinformationaboutemployees’

perceptions.Maintainingtherightculturehasbeen,andremains,crucialtoCSHealthcare.TheSociety’scultureisbasedonitsvalues,whichwerereviewedbytheBoardduring2018followingconsultationwithallofourstaff.CSHealthcare’sfourvaluesare:excellence;responsibility;integrity;andcare.TheBoardrecognisesthe importance of ‘tone from the top’ and in ensuring thesevaluesareembeddedintheSociety.

Directorsattendedatrainingdayinthespring,whichcoveredunderwriting,SeniorManagersandCertificationRegime,GeneralDataProtectionRegulationandInsuranceDistributionDirective.Boardmembersalsoreceivedindividualtrainingthroughouttheyeartodeveloptheirskills.FullinductionprogrammeswerecreatedbytheCompanySecretary,withapprovaloftheNominationsCommitteeforourtwonewNon-ExecutiveDirectors.

TheBoard’sregularmeetingsaresupplementedbyanautumnstrategyday.In2018,theBoardrevieweditsstrategyfortheSocietywithparticularfocusonimprovement.Workstreamswerecreatedcoveringkeyaspectsofsales,marketing,retentionandclaimshandling.Eachwasassignedaprojectsponsorwiththeaimofimprovingcommunication,establishingcross-functionalparticipationandcriticallyensuringdeliveryinQ12019.

In2018,CSHealthcarewontheMoneywise‘MostTrustedHealthInsuranceProvider’forthethirdyearrunning.Beingtrustedbyourmembersisanimportantpartofwhoweare,andcriticaltothatoutcomeisthatwemaintainstrongandeffectivecorporategovernance.EachyeartheBoardformallyassessesitsownperformancewiththeaimofimprovingtheeffectivenessofboththeBoardanditscommittees.InlinewithrecommendationsoftheCode,anexternallyfacilitatedreviewofboardeffectivenessiscarriedoutatleasteverythreeyears.Inearly2018,areviewwasundertakenbyindependentspecialistsatMazarsLLP.Followingthisreview,theBoardagreedanumberofactions,whichwereaddressedthroughout2018,andarecoveredinthisReportalongwithdetailsoftheBoard’sactivities.

Followingthe2018AGM,wesentquestionnairestothosememberswhohadattendedthemeetingand

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REPORT FROM THE BOARD ON CORPORATE GOVERNANCEAnnual Report and Financial Statements 2018

toarandomselectionofmemberswhodidnot,aspartofanexercisetoincreasememberengagement.Wehadapositiveresponse,andthankallthosewhotookthetroubletorespond;youreffortswereverymuchappreciated.Basedonmembers’viewsweshallcontinuetoholdtheAGMinGreaterLondonandtoofferfreehealthcheckstothoseinattendance.

IwouldliketoencourageallmemberstofindthetimetoattendourAGMinLondoninJune.2019isCSHealthcare’s90thyear.TheSocietyexiststoserveitsmembersanditisimportantthatwehearmembers’views.Asusual,therewillbeanopportunityformemberstomeettheBoardandaskquestionsattheAGM.Thoseunabletoattendareinvitedtosubmitquestionspriortothemeeting.Asummaryofthemainquestionsandanswerscoveredatthemeetingwillbecirculatedafterwards.TheNoticeofAnnualGeneral

Meeting,tobecirculatedtoallmembersinMay2019,willincludefurtherdetails.

Wewillcontinuetomonitor,developandreportonourcorporategovernance.Ourcommitmenttofollowingbestpracticeinthisareaiscriticalinmaintainingmembers’trustintheSociety.


The Annotated Corporate Governance Code for Mutual InsurersTheSocietyiscommittedtofollowingbestpracticeinallaspectsofcorporategovernance.TheBoardis accountable to the Society’s members for the operationoftheSocietyandregardsgoodcorporategovernanceasbeingfundamentaltothisresponsibility.TheBoardisfirmlyoftheviewthat,tocomplywithcorporategovernancebestpractice,theSocietyshouldaimtoadheretotheprinciplesandprovisionsoftheUKCorporateGovernanceCodeannotatedbytheAssociationofFinancialMutuals(theAnnotatedCode),whichisavailableonitswebsite(www.financialmutuals.org/mutual-governance/our-governance-code).Witheffectfrom1January2019theSocietywillaimtoadheretotheprinciplesandprovisionsinthenewAFMCorporateGovernanceCode,andwillreportunderthisnewCodeinthe2019AnnualReport.

ItistheBoard’spolicytoobservetheAnnotatedCodewhereverappropriateforanorganisationoftheSociety’ssizeandstatus,ortoexplainwhywefeelanydeviationfromtheAnnotatedCodeisacceptableornecessary.

The Board considers that, throughout the year ended 31December2018,theSocietyhascompliedwithallrelevantprovisionsoftheAnnotatedCode.ItistheBoard’sviewthattheSocietyhasappliedprinciplesofgoodcorporategovernancebyadoptingtheproceduresstatedbelow.

The BoardTheBoardsetsthetonefortheorganisation’sgovernance,cultureandvaluesandisresponsibleto members for ensuring that the Society meets its objectivesandisappropriatelymanaged.TheBoardmeetsregularlytodeterminethestrategicdirection,toreviewtheSociety’soperatingandfinancialperformanceand to ensure that the Society is adequately resourced, effectivelycontrolledandcomplieswithalltherelevantlawsandregulations.

ThespecificdutiesoftheBoardareclearlysetoutinitstermsofreferencewhichaddressawiderangeofcorporategovernanceissuesandliststhoseitemsthatarespecificallyreservedfordecisionbytheBoard.Theterms of reference for the Board can be found on our website.MattersrequiringBoardapprovalinclude:• theSociety’sstrategyandbusinessplans;• acquisitions,disposalsandothertransactionsoutsidedelegatedlimits;

• financialreportingandcontrols;• solvency;• membershiprules;

• theconstitutionofBoardcommittees;and• keybusinesspolicies,includingtheremunerationpolicy;

MattersthatarenotspecificallyreservedfortheBoardanditscommitteesundertheirtermsofreference,ortomembersingeneralmeetings,aredelegatedtotheChiefExecutive.TheBoard’stermsofreferencealsosetoutthosemattersthatmustbereportedtotheBoard,suchassignificantlitigationormaterialregulatorybreaches,andcoverhowmattersarehandledthatarisebetweenscheduledmeetings.

TheBoardanditscommitteesoperateinlinewithworkplansagreedpriortothestartofeachyear.AtBoardandcommitteemeetings,directorsreceiveregularreportsontheSociety’sfinancialposition,riskmanagement,regulatorycompliance,keybusinessoperationsandothermaterialissues.TheCompanySecretaryisresponsibleforensuringtheBoardfollowsitsagreedproceduresandprovidingadvicethroughtheChairongovernancematters.AlldirectorshaveaccesstotheChair,ChiefExecutiveandCompanySecretary.Theyalsohaveopportunitiestoupdatetheirskillsandknowledge.

TheBoardhasadoptedaprocedurewherebydirectorsmay,intheperformanceoftheirduties,seekindependentprofessionaladviceattheSociety’sexpense.

TheBoardreliesontheExecutiveTeamtorunthebusinessandmonitorthemanagementofactivities, andtoproperlyexecutethestrategicplans.The formalscheduleofmattersreservedfortheBoard canbefoundontheaboutus/ourboardsectionof ourwebsite.TheSociety’sNon-ExecutiveDirectors(NEDs)provideindependentchallengeandreview,andbringwideexperience,specificexpertiseandanobjectiveperspective.


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REPORT FROM THE BOARD ON CORPORATE GOVERNANCE

The Board’s Diversity PolicyTheSocietyrecognisesthebenefitsofdiversity.DiversitythroughoutallstaffattheSociety,aswellastheBoard,isseenasanessentialelementinmaintainingacompetitiveedge.AdiverseBoardwillmakegooduseofdifferencesinpeoplethroughtheirskills,industryexperience,backgrounds,genderandrace,aswellasotherqualities.

Diversityalsoincludesaspectrumofperspectivesandpersonalitiesaswellasworkstyle.TheSocietyiscommittedtoincreasingdiversityamongtheBoardthroughsuccessionplanning,withoutcompromisingonthecalibreofDirectors.

NewappointmentstotheBoardwillbeselectedbytheNominationsCommitteeandwillbebasedonmeritagainstobjectivecriteriaaswellascomplementingandexpandingtheskills,knowledgeandexperienceoftheBoardasawhole.Recruitmentfromgroupsthatreflectourmemberbasewillbeencouragedwheretheyarecurrentlyunder-represented.

Furthermore,theNominationsCommitteewillconsiderthebenefitsofallaspectsofdiversityincluding,butnotlimitedto,thosedescribedabove,andwillcomplywithall/anyrelevantlegislation(throughadviceandguidancefromthePeopleandCultureDepartment)toensurethatdueprocessisfollowed.

AspartoftheperformanceevaluationoftheDirectors,BoardandBoardcommittees,theNominationsCommitteeconsidersthebalanceofskills,experience,independence,andrelevantknowledge,andisresponsiblefordevelopingmeasurableobjectivesfordiversityoftheBoard.

ThispolicyhasthefullsupportandapprovaloftheBoardofDirectors.

CandidatesforNon-Executiveroleshavepreviouslybeenidentifiedthroughindustryandothersourcesandcontacts.During2016theBoarddecidedthatinfutureitwould,whereappropriate,employexternalrecruitmentadviserstobroadenthepoolofpotentialcandidatesandtotakeforwarditsdiversityagenda.Short-listedcandidatesareinterviewedbytheBoardChair,ChiefExecutiveandanothermemberoftheNominationsCommittee.ThisprocesstakesaccountoftheSociety’sdiversitypolicyandtheneedtoappointpeoplewiththerightcombinationofskills,experienceandpersonalitytocomplementtheexistingBoardmembership.


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Terms of AppointmentThetermsofappointmentfortheNon-ExecutiveDirectorsareavailableforreview,uponrequest,fromtheSociety’sregisteredofficeandbeforetheSociety’sAGM.

Information and Professional DevelopmentTheBoardbelievesstronglyinthedevelopmentofallitsemployeesandDirectors.AllnewemployeesandDirectorsundergoaformalinductionprocessoverseenbytheNominationsCommittee,andongoingtrainingisprovidedasrequired.During2018,Directorsattendedexternalcoursesonvariousissuesincludingemploymentlaw,GDPR,IDDandSMCRregulation,datasecurity,complaints,anti-moneylaundering,healthandsafety,resilience, and mentoring and coaching and also took partinonlinecoursesandwebinars.DirectorsalsoattendedeventssuchastheAFMNEDConference, AMIIconferenceandGlobalInsuranceSummit.

The ChairTherespectiverolesoftheChairandChiefExecutivearedistinctandheldbydifferentpersons.TheChairisresponsibleforleadingtheBoard,andtheChiefExecutiveisresponsibleforthemanagementoftheSociety.

Senior Independent DirectorThe Board has appointed one of the independent Non-ExecutiveDirectorstobetheSeniorIndependentDirectortoprovideasoundingboardfortheChairandtoserveasanintermediaryfortheotherdirectorswhennecessary.TheSeniorIndependentDirectorisavailabletomembersiftheyhaveconcernswhichcontactthroughthenormalchannelsofChair,ChiefExecutiveorotherExecutivedirectorshasfailedtoresolveorforwhichsuchcontactisinappropriate.

Board Balance and IndependenceTheBoardcurrentlycomprisessevenindependentNon-ExecutiveDirectors,includingtheChair,plustwoExecutiveDirectors.EachNon-ExecutiveDirectorservesforafixedtermnotexceedingthreeyearsafterwhichtimetheymaycontinuetoservesubjecttore-electionataGeneralMeeting.Thereisnospecifiedlimit regarding the number of terms a director may serve,butNon-ExecutiveDirectorswhohaveservedlongerthannineyearswillbesubjecttoannualre-electionataGeneralMeeting.TheBoard,ontherecommendationoftheNominationsCommittee,mayatitsdiscretionnominateacandidateforre-electionoverthenormalretirementage(70).TheBoard’s

policyistoappointandretainNon-ExecutiveDirectorswhocanapplytheirwiderknowledgeandexperiencetotheirunderstandingoftheSociety.Inadditiontothestrengthsofexperienceanddiversity,theBoardalsoseekstocomplywiththerequirementsoftheAnnotatedCodeontheindependenceofdirectors.

TheBoardperformsanannualreviewofdirectors’interestsinwhichallpotentialorperceivedconflicts,includingtimecommitments,lengthofserviceandotherissuesrelevanttotheirindependence,areconsidered.ItistheBoard’sviewthatanindependentNon-ExecutiveDirectoralsoneedstobeabletopresentanobjective,rigorousandconstructivechallengetomanagement,drawingonhisorherwiderexperienceasappropriateandwherenecessarytodefendtheirposition.Tobeeffective,anindependentNon-ExecutiveDirectorneeds to acquire a sound understanding of the industry andtheSocietytobeabletoevaluateproperlytheinformationprovided.Havingconsideredthesematterscarefully the Board is of the opinion that all the current Non-ExecutiveDirectorsareindependentandfreefromanyrelationshiporcircumstancesthatcouldaffect,orappeartoaffect,theirindependentjudgement.Anumber of the Society’s directors are also members of theSociety.Theadministrationandclaimsmanagementofallsuchpoliciesinvolvingdirectorsareconductedatarm’slength.

Appointments to the BoardAnynewappointmentstotheBoardareamatterfortheconsiderationoftheBoardasawholeandaresubjecttoelectionatthenextAnnualGeneralMeeting(AGM).Non-ExecutiveDirectorsaresubmittedforre-electionbymembersoftheSocietyatthree-yearintervalsandonlyonanannualbasiswhereaNon-ExecutiveDirectorhasservedlongerthannineyearsorisoverthenormalageofretirement.ExecutiveDirectorsarenotsubjecttore-election.TheBoardbelievesthatthisensuresanappropriatedegreeofcontinuityofoperation.TheBoardhasaNominationsCommitteecomprisingfourNon-ExecutiveDirectors(includingtheChair,ViceChairandtheSeniorIndependentDirector)andtheChiefExecutive.TheCommitteeisresponsibleforthenominationofanynewdirectorfortheBoard’sconsiderationinaccordancewiththeSociety’sRules,andtheBoard’sDiversityPolicy.

Inaddition,in2018allNon-ExecutiveDirectorswerebriefedoncurrentissuesandupdatesontax,underwriting,long-termcancercare,regulations(GDPR,IDDandSMCR)andcybersecurityandblockchain.

In2018theCommitteereviewedandapprovedtheSociety’sSolvencyandFinancialConditionReport(SFCR)andSolvencyIIQuarterlyandAnnualReturnsubmissions.

Asnotedabove,theCommitteereviewedandapproveditsTermsofReferencetoensuretheywereappropriate.

TheCommitteereviewedthe2017AnnualReportandFinancialStatementswhichincorporatetheaccountingpoliciesandthesignificantjudgementsandestimatesunderpinningthefinancialstatements.TheCommitteeassessedtheeffectivenessoftheauditattheendofthe2017annualauditcycle,reviewingtheexternalauditors’findings(includingthosecontainedinmanagementletters)andmanagement’sresponsetothem.

TheCommitteecontinuedtoreviewandmonitortheexternalauditors’independence,objectivity,expertise,resourcesandeffectiveness,takingintoconsiderationrelevantUKprofessionalandregulatoryrequirements,includingtheprovisionofanynon-auditservices.

Inthesummerof2018theCommitteeChaircarriedoutanevaluationoftheAuditCommitteebyitsmembers;theresultswerefedbacktotheBoardatitsSeptembermeeting.

InDecember2018theBoardapprovedacommitteestructurechangetomergethefinancialaspectsoftheFinanceCommitteewiththeAuditCommitteetocreateaFinanceandAuditCommittee(“FAC”)witheffectfrom1January2019.

Finance CommitteeMembershipduring2018:RogerCawse(Chair)AlanFleming(untilJune2018)Adrian Rees

TheFinanceCommittee’sfullTermsofReferenceareavailabletoviewontheSociety’swebsite.AfullreviewoftheTermsofReferencewascarriedoutduring2018.TheChiefExecutiveandFinanceDirectornormallyattendcommitteemeetings.TheChiefActuaryfromMillimanLLPisinvitedtoattendmeetings.TheCompanySecretaryactsassecretarytotheFinanceCommittee.

TheCommitteeisappointedbytheBoardontherecommendationoftheNominationsCommittee,inconsultationwiththeCommitteeChair.Asrecommended by the Code, all members of the CommitteeareindependentNon-ExecutiveDirectors.


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Performance and EvaluationOurBoardeffectivenessreviewin2017/18wasexternallyfacilitatedbyMazarsLLP.TheBoarddiscussed the results from the exercise and created an actionplanwhichtheyhavebegunworkingthrough.

TheSocietyhasaformalperformanceevaluationsystemforallmembersofstaffincludingExecutiveDirectors.TheChiefExecutiveappraisestheseniormanagementontheirperformance.TheChairundertakesareviewandevaluationoftheChiefExecutiveandtheNon-ExecutiveDirectors.

Board CommitteesEachcommitteeisprovidedwithsufficientresourcestoundertakeitsduties.Afulllistofdutiesandtheactivitiesundertakenduringtheyearcanbefoundonthefollowingpages.Thetermsofreferencefortheboardcommitteesarereviewedeachyearandpublishedonourwebsite.Atthestartof2018theBoardestablishedthefollowingstandingcommitteestooverseeanddebateimportantissuesofpolicyandoversightoutsidethemainBoardmeetings:• AuditCommittee• FinanceCommittee• NominationsCommittee• RemunerationCommittee• Risk,ComplianceandGovernanceCommitteeThroughouttheyearthechairofeachcommitteeprovidestheBoardwithasummaryofthekeyissuesconsideredatthemeetingsofthecommittees.ThecommitteesoperatewithindefinedtermsofreferenceapprovedbytheBoard,copiesofwhichcanbefoundonourwebsite.BoardcommitteesareauthorisedtoengagetheservicesofexternaladvisersattheSociety’sexpenseastheydeemnecessaryinthefurtheranceoftheirduties.

The Society carried out a tender for the actuarial functionandsubsequentlyappointedMillimanLLPin2018toadvisetheBoardanditscommitteesonactuarialmattersasrequired,withJoanneBucklebeingappointedastheSociety’sChiefActuary(SeniorInsuranceManagerFunction,SIMF20)inaccordancewiththeSolvencyIIregime.

Audit CommitteeMembershipduring2018:RogerCawse(Chair)AlanFleming(until30June2018)Alan PeddleAdrian Rees

TheAuditCommittee’sfullTermsofReferenceareavailabletoviewontheSociety’swebsite.AfullreviewoftheTermsofReferencewascarriedoutduring2018.TheChiefExecutiveandFinanceDirectornormallyattendcommitteemeetings.RepresentativesfromDeloitteLLP,theexternalauditors,alsoattendmeetings.TheCompanySecretaryactsassecretarytotheAuditCommittee.

TheCommitteeisappointedbytheBoardontherecommendationoftheNominationsCommittee,inconsultationwiththecommitteeChair.AsrecommendedbytheCode,allmembersoftheCommitteeareindependentNon-ExecutiveDirectorsandatleastonememberhasrecentandrelevantfinancialexperience.

TheCommitteemeetsatleasttwiceayearatappropriatetimeswithinthereportingandauditingcycle.Atleastannually,theSociety’sexternalauditorsmeetwiththeCommitteeforindependentdiscussion,withoutthepresenceoftheExecutive.

Responsibilities:TheAuditCommitteeisresponsiblefortheoversightof statements made to the Society’s members and regulators.TheCommitteereportstotheBoardontheSociety’sfinancialreportingprocess,externalauditandonrelatedpoliciesandpracticeoftheSociety.

TheCommitteeisresponsibleformonitoringtheintegrityofthefinancialstatementsoftheSociety(includingsummaryfinancialstatementsandreturnstothePrudentialRegulatoryAuthority)priortotheirapprovalbytheBoard;liaisingwiththeRisk,ComplianceandGovernanceCommitteeonthemonitoringandreviewoftheSociety’sinternalcontrols;reviewingtheexternalauditors’findings,reviewingandmonitoringtheexternalauditors’independence,objectivity,expertise,resourcesandeffectiveness,andensuringthatanappropriateauditplanisinplaceatthestartofeachannualauditcycle.TheCommitteeconsidersreportsfromtheFinanceDirector, the Chief Actuary and the external independent auditors on the outcome of their audits, and it assesses theeffectivenessoftheauditattheendoftheannualauditcycle.

Areas of focus during 2018:Attheendof2017theAuditCommitteeChairworkedwiththeRCGCChairontheinternalaudittenderprocessleadingtotheappointmentofMazarsLLPwitheffectfrom1January2018andtoagreetheinternalauditplanfor2018.TheCommitteeconsideredwhetheranappropriateexternalauditplanwasinplaceatthestart of the 2018 annual audit cycle and, in doing so, reviewedtheexternalauditors’proposedauditscopeandapproach.Followingtheaudit,theCommitteediscussedwiththeauditpartneranyauditissuesencounteredduringtheauditprocess.

TheCommitteemeetsatleastfourtimesayearand, at least annually, the Society’s Chief Actuary meets withtheCommitteeforindependentdiscussion,withoutthepresenceoftheExecutive.

Responsibilities:TheFinanceCommitteeisresponsibleforoversightof the business performance of the Society and for statements made to the Society’s members and regulators.TheFinanceCommitteereportstotheBoardontheSociety’sfinancialandbusinessperformance,onrelatedpoliciesandpracticeandontheinvestmentstrategyandmanagementoftheSociety’sassets.Toassistwithitsreview,theCommitteeconsidersreportsfromtheFinanceDirectorandexternalactuary.

Areas of focus during 2018:Asnotedabove,theCommitteereviewedandapproveditsTermsofReferencetoensuretheywereappropriate.

TheCommitteecarriedoutaperformancereviewoftheChiefActuary.InMarch2018atenderingprocesswasperformedfortheSociety’sactuarialadvisers,inordertoassessthecurrentprovider,identifyacost-effectiveflexiblesolutionforCSHealthcare’sactuarialservicesandachievemaximumflexibility.TheFinanceCommitteerecommendedtotheBoardthattheoperationalelementsofactuarialworkbebroughtinhouse(Reserving;Capital(SCRandMCR);Pricing;andReporting/Opinions),withthereviewandtechnicalelementstobeoutsourced(ChiefActuaryFunctionHolderandTechnicalProvisionValidation).Asaresultofthisexercise,MillimanLLPwasappointedasCSHealthcare’sactuarialadviserinJuly.

TheFinanceCommitteecarriedoutareviewoftheSociety’sexpenses.TheCommitteereviewedtherelevantOwnRiskandSolvencyAssessment(ORSA)policies.TheCommitteeapprovedthe2017SolvencyandFinancialConditionReport(SFCR).

Forthefirsthalfof2018theCommitteecontinuedtooverseetheSociety’srelationshipwith,andmonitortheperformanceof,theexternalinvestmentadvisers,againstagreedbenchmarks.TheFinanceDirectorpreparedandpresentedtotheCommitteefordiscussion,aninvestmentstrategywhichcreatedaframeworkoffundsagainsttheSociety’sinvestmentobjectives.Thisinvolvedconsiderationofasmallnumberofshort-terminvestmentoptionsthatincluded,butwasnotlimitedto,riskappetite,capitalmanagement,andcapitalefficiencytomeetCSHealthcare’sbenchmarksandreturnhurdles.TheCommitteeapprovedtheExecutive’srecommendationtobringtheinvestmentmanagementinhousewitheffectfromSeptember2018.

InNovembertheCommitteediscussedthebenefitsofinvestinginafloatingratenotefundandwithintherevisedTermsofReference,approvedfurtherinvestmentof£1.5m.

Inthesummerof2018theCommitteeChaircarriedoutanevaluationoftheFinanceCommitteebyitsmembers;theresultswerefedbacktotheBoardatitsSeptembermeeting.

TheCommitteeconductedtheannualreviewoftheSociety’spolicyonreinsurancein2018andafterdiscussionwiththeChiefActuary,concludedthatitremainedsuitableforCSHealthcareatthattime.

TheCommitteecarriedoutreviewsofthe2019budgetandassumptions.

InDecember2018theBoardapprovedacommitteestructurechangetomergethefinancialaspectsoftheFinanceCommitteewiththeAuditCommitteetocreateaFinanceandAuditCommittee(“FAC”)witheffectfrom1January2019.

Nominations CommitteeMembershipduring2018:AndrewJohnston(Chair)NigelFawcettGloria CraigAlanFleming(until30June2018)AdrianRees(from1July2018)JamesParker

TheNominationCommittee’sfulltermsofReferenceareavailabletoviewontheSociety’swebsite.AreviewoftheTermsofReferencewascarriedoutduring2018.

TheCommitteemeetsatleasttwiceayear.TheCommitteecomprisestheBoardChair,theVice-Chair,theSeniorIndependentDirector,oneNon-ExecutiveDirectorandtheChiefExecutive.TheBoardChairwasconsideredindependentuponappointmentin2013andthereforemeetsthecriteriaformembershipoftheNominationCommitteeasrecommendedbytheAnnotatedCode.TheCompanySecretaryactsassecretarytotheNominationsCommittee.

Responsibilities:TheNominationsCommitteeisresponsibleforreviewingthecompositionandstructureoftheBoardanditssubordinatecommitteesandformakingrecommendationstotheBoardonfutureappointmentsofExecutiveandNon-ExecutiveDirectors.

Areas of focus during 2018:Atthebeginningof2018theCommitteereviewed itsTermsofReferencetoensurethedocumentwas fitforpurpose.

BoardEffectivenessReview:TheBoardconductsanannualevaluationofitsperformanceeachyearandinaccordancewiththeAnnotatedCode,theSocietyorganisesexternalevaluationsatleasteverythreeyears.In2018MazarsLLP(Mazars)completedtheirexternalBoardEffectivenessReview.Mazarsisanindependentorganisationspecialisinginaudit,accountancy,tax,legalandadvisoryservices.MazarswasalsoappointedastheSociety’sinternalauditorwitheffectfrom1January2018.TheBoardiscomfortablethattheeffectivenessreviewwascarriedoutbyaseparateteamwithinMazars,thereforeprovidinganindependentreview.MazarshasnootherconnectionwiththeSociety.TheeffectivenessreviewincludedaquestionnaireandindividualinterviewwithBoardmembersandthosewhoworkcloselywiththeBoard,acasestudyandmeetingobservations.TheconclusionsandactionswereconsideredbytheCommitteeandtheBoardduringthefirsthalfof2018.FurtherinformationabouttheeffectivenessreviewcanbefoundintheReporttotheBoardonCorporateGovernance.TheCommitteewillcontinuetoreviewtheactionplandevelopedfromtherecommendationsofthe2018BoardEffectivenessReview.

TheNominationsCommitteecontinueditssuccessionplanningduring2018.ItconsideredwhethertheBoardrequiredadditionalskillsandexperiencetocomplementthoseofthecurrentmembersgiventheStrategyoftheSociety.Asuccessionplanforfuturepossiblenon-executivedirectorappointmentswasreviewedwithreferencetoanticipatedvacanciesincomingyears.InJuly2018,AlanFlemingretiredasaNon-ExecutiveDirector.AfterconsideringtheimportanceofbroadeningtheskillsanddiversityoftheBoardand refreshing its thinking the Board of Directors, on therecommendationoftheCommittee,decidedtorecruittwoNon-ExecutiveDirectors.TheCommitteedevelopedaDirectorProfileandrecruitmentconsultantsWarrenPartnerswereappointedtousetheirsectorknowledgetoidentifysuitablecandidates.AstrongshortlistofcandidateswasinterviewedbyapanelofDirectors.FionaMcAnenaandNicolaBrucewereappointedasNon-ExecutiveDirectorsinSeptemberandOctober2018,respectivelyandbroughtawealthofexperienceandcomplementaryskillsinsupportoftheSociety’sStrategy.TheCommitteeapprovedthetailoredinductionprogrammecreatedbytheCompanySecretaryforthetwonewNon-ExecutiveDirectors,tohelpthemtobetterunderstandtheorganisationanditsculture,andtheenvironment

inwhichitoperates.FionaMcAnenatenderedherresignationfromtheBoardon25March2019forpersonalreasons.

TheCommitteealsoreviewedthesuccessionplanpreparedbytheChiefExecutiveforfuturepossibleSeniorManagementTeamappointments,andapprovedtheredundancyoftheDeputyChiefExecutiverole.

During2018theCommittee,asrecommendedbytheBoardEffectivenessReview,reviewedthecompositionandstructureoftheBoardanditscommittees.TheBoardapproved,ontherecommendationoftheNominationsCommittee,andinconjunctionwiththeChairofbothCommittees,thatwitheffectfrom1January2019theFinanceCommitteeandAuditCommitteewouldbecomeonecommittee;theFinanceandAuditCommittee.ThemembershipoftheCommitteewouldincludeallcurrentmembersofbothcommittees.ThefullTermsofReferenceofthenewFinanceandAuditCommitteecanbefoundonourwebsite.

TheCompanySecretarywasaskedbytheNominationsCommitteetocreateaBoardBehaviourscharterforapprovalinearly2019,formalisingtheappropriateboardroombehaviourswhichtheSociety’sBoardconsiderstobeanessentialcomponentofbestpracticeincorporategovernance.

Risk, Compliance and Governance Committee (RCGC)Membershipduring2018:NigelFawcett(Chair)Gloria CraigAlan Peddle

TheRCGC’sfulltermsofReferenceareavailabletoviewontheSociety’swebsite.AfullreviewoftheTermsofReferencewascarriedoutduring2018.TheChiefExecutive,FinanceDirectorandChiefRiskOfficernormallyattendCommitteemeetings.TheCompanySecretaryactsassecretarytotheRCGC.

TheCommitteeisappointedbytheBoardontherecommendationoftheNominationsCommittee,inconsultationwiththeCommitteeChair.Asrecommended by the Code, all members of the CommitteeareindependentNon-ExecutiveDirectors.

TheCommitteemeetsatleastfourtimesayear.ArepresentativeoftheSociety’sinternalauditormeetswiththeCommitteeforindependentdiscussion,withoutthepresenceoftheExecutive.


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Responsibilities:TheRCGCreportstotheBoardontheeffectivenessand appropriateness of the Society’s risk management processes,complianceframework,operational(andfinancial)controlsandgovernancearrangements.

TheCommitteereceivesandconsidersreportsbytheSociety’sinternalandexternalauditors,whoeachhaveaccesstotheCommitteeforindependentdiscussion,withoutthepresenceofSocietymanagement.TheCommitteealsoreceivesandconsidersguidanceand rules from the Financial Conduct Authority and PrudentialRegulationAuthorityastheyaffecttheSociety’sbusiness.TheCommitteeconsidersregularreportsfromtheChiefRiskOfficerandreviewsthecorporategovernancesectionoftheAnnualReport.MembersoftheExecutiveandSeniorManagementTeamsareinvitedtotherelevantRCGCmeetingstoansweranyquestionsorchallengesposedbytheCommittee.TheCommitteewassatisfiedthattheExecutiveandtheSeniorManagementTeamscontinuedtomonitorthecontrolsfortheseprocessesduring2018.

The Society’s internal auditors monitor the systems of internal control, risk management controls and governanceprocesses,inaccordancewiththeagreedauditplan,andreporttheirfindingstotheCommittee.TheExecutiveisresponsiblefortheimplementationofagreedrecommendationsandtheinternalauditorsundertakeperiodicfollow-upreviewstomonitortherecommendationandimplementationofsuchprogress.CSHealthcareanditsauditorshavesafeguardsinplacetoavoidthepossibilitythatobjectivityandindependencecouldbecompromised.TheseincludeauditpartnerrotationandregularmeetingsbetweentheauditorsandtheNon-ExecutiveDirectorcommitteememberswithouttheExecutivespresent.

TheCommitteeadvisestheBoardontheappointmentof its internal and external auditors and their remunerationforbothauditandnon-auditwork.

Areas of focus during 2018:Attheendof2017theCommitteecarriedoutatenderprocessfortheinternalauditfunction,followingwhich,MazarsLLPwereappointedasinternalauditorswitheffectfrom1January2018.

OnepriorityfortheCommitteeisadherencebytheSocietytotheprinciplesofTreatingCustomersFairly(TCF),derivedfromtheFinancialConductAuthority’s(FCA)PrinciplesforBusinessHandbook,whichisprimarilybasedontheobligationfortheSocietytopaydue regard to the interests of its customers/members andtreatthemfairly.TheSocietymustdemonstratethatitisconsistentlydeliveringfairoutcomesforits

members.SeniormanagementtakesresponsibilityforensuringthattheSocietyandstaffatalllevelsadhereto TCF principles through establishing the appropriate organisationalcultureandpractice.

TheCommitteereviewedonanongoingbasistheinternalauditplanfortheyeartoensurethatitreflectedtheprioritiesoftheSociety’splansandriskprofile.TheCommitteealsoreviewedtheinternalauditreportsandsignificantfindingswerenotedandmonitored,toensuretheywereactionedbytheExecutive.

DuringtheyeartheCommitteereviewedtheAFMCorporateGovernanceQuestionnaire,AnnualReport,AnnualSolvencyReturnandSolvencyandFinancialConditionReport(SFCR).InNovembertheCommitteemembersapprovedtheSociety’sresponsetothe AFM’sConsultationontheUKCorporateGovernanceCode.CSHealthcarewassupportiveoftheAFM’sapproachtoretainaCodewhichisproportionate totheneedsofAFMmemberorganisationsand whichhelpsdirectorsmeettheirobligationsforeffectivecorporategovernance.

TheCommitteecontinuedtokeepanoversightoftheinvestmentinvariousupgradestotheSociety’sITsystemfortheimplementationofthenewGeneralDataProtectionRegime(GDPR)regulationsthatcameintoforceinMay2018.TheCommitteewaskeptuptodatewithchangesmadebytheSocietytocomplywiththeInsuranceDistributionDirective(IDD),whichappliedfromOctober2018,designedtoimproveandsupportacustomer’sdecision-making.TheCommitteereviewedthe maintenance of the Society’s risk register, reminding theriskownersnottolosesightofthecontrolsputinplacetomitigaterisks,andtheCommitteediscussedthecriteriaforwhichrisksshouldbe‘onalert’.TheCommitteediscussedcybersecurity,changemanagementandreversestress-testing,andreceivedreports on areas such as complaints, health and safety andmonitoringcarriedoutinternallyonthedifferentdepartmentswithintheSociety.

Remuneration CommitteeMembershipduring2018:GloriaCraig(Chair)NigelFawcettAndrewJohnstonAlanFleming(until31July2018)AdrianRees(from1August2018)

TheRemunerationCommittee’sfulltermsofReferenceareavailabletoviewontheSociety’swebsite.AreviewoftheTermsofReferencewascarriedoutduring2018.


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TheCommitteemeetsatleasttwiceayear.TheRemunerationCommitteecomprisesaminimumofthreeNon-ExecutiveDirectors,includingtheChairof the Board, Vice Chair of the Board and the Senior IndependentDirectorunlessthepositionsarevacant.TheChiefExecutiveattendstheCommitteemeetings.The Company Secretary acts as secretary to the RemunerationCommittee.

Responsibilities:TheRemunerationCommitteereportstotheBoardontheeffectivenessandappropriatenessoftheSociety’sremunerationpoliciesforBoardandStaff.RemunerationdetailsfortheDirectorsaresetoutintheannualfinancialreport.

Areas of focus during 2018:In2018theCommitteerevieweditsTermsofReference,recommendedtotheBoardtheapprovaloftheBoardremunerationpolicy,andapprovedtheSociety’sStaffremunerationpolicy.

TheCommitteereviewedandapprovedtheparametersandprinciplesappliedintheannualstaffpayreviewanddiscretionarybonusawards.TheCommitteereviewedandapprovedthesalaryanddiscretionaryannualbonusfortheChiefExecutive,theDeputyChiefExecutive,theFinanceDirectorandtheChiefRiskOfficer.TheCommitteereviewedandapprovedthefinancialparametersandfairnessoftheterminationarrangementswiththeDeputyChiefExecutive.TheCommitteealsoreviewedtheremunerationoftheNon-ExecutiveDirectors.

TheCommitteereviewedworkcarriedoutbytheSociety’s People and Culture Department on gender paygapreporting.CSHealthcareisnotrequiredtodisclosethegenderpaygapfiguressincestaffnumbersarebelowthethreshold,butworkwascarriedoutduringtheyearwiththeaimofimprovingthegenderpaygapforseniorpositionsintheSociety.

Financial ReportingTheresponsibilitiesoftheBoardinrelationtothepreparationoftheSociety’sReportandAccountsandastatement that the business is a going concern can be foundintheReportfromtheBoardofDirectors.

TheInternationalAccountingStandardsBoard(IASB)issuedIFRS17InsuranceContractsinMay2017.IFRS17outlinestherequirementsthataninsurershouldapplyinreportinginformationaboutinsurancecontractsitissuesandreinsurancecontractsitholds.Duringthefourthquarterof2018theIASBannouncedplanstodelaytheimplementationofIFRS17andIFRS9byoneyear,noweffectivefrom1January2022.Theimplementationdatemayseemalongwayoff,butthetimescalewillbechallengingduetothescaleofchange.Agroupof11insuranceassociationshavewrittentotheIASBreaffirmingtheneedforatwo-yeardelaytotheintroductionofIFRS17,raisingconcernsoverseriousoperationalchallenges.Themajorchangeprogrammerequiredwillextendbeyondthefinanceandactuarialteams.Theimpactofthischange,muchlikeSolvencyIIbeforeit,willbenewtotheentireinsurancemarketandwillneedtobecommunicatedtoabroadrangeofinternalandexternalstakeholders.InadditiontotheIFRS17standardchange,insurerswillneedtoconsiderthechangesbeingmadetoIFRS16Leaseswhichwillbeeffective1January2019.

TheSocietyreportsunderUKGAAP(FRS102andFRS103),andhenceisnotdirectlyimpactedbychangesunderIFRS,howeverIFRSinfluencesandmouldsUKGAAPdevelopments.TheFinancialReportingCouncil(FRC)haspreviouslysaidthatFRS103wouldbereviewedoncetheIASBhadcompletedIFRS17.TheFRCstillintendstoreviewFRS103atasuitabletime,butconsistentwiththeapproachtoothermajornewIFRS,thisislikelytotakeplaceoncemoreIFRSimplementationexperienceisavailable.

AtpresentnotargeteffectivedateforanychangestoFRS102orFRS103hasbeenset.TheSocietywillkeepmonitoringdevelopmentsinthisareatoensurewearewellpositionedtodealwithanychangesthatdevelop.

Internal ControlTheAnnotatedCoderequiresdirectorstoreviewandreportannuallytomembersontheeffectivenessoftheSociety’ssystemsofinternalcontrolwhichincludefinancial,operational,complianceandriskmanagement.

TheBoardhasoverallresponsibilityformaintainingthesystemsofinternalcontrolwithintheSocietyandformonitoringtheireffectiveness,whiletheirimplementationistheresponsibilityofmanagement.

The Society’s systems of internal control are designed to manage rather than eliminate the risk of failure toachievebusinessobjectivesandcanprovideonlyreasonable and not absolute assurance against material financialmisstatementorloss.Thesystemsaredesignedto:• safeguardassets;• maintainproperaccountingrecords;• providereliablefinancialinformation;• identifyandmanagebusinessrisks;• maintaincompliancewithappropriatelegislationandregulation;and

• identifyandadoptbestpractice.

TheprincipalfeaturesofthecontrolframeworkandthemethodsbywhichtheBoardsatisfiesitselfthatitisoperatingeffectivelyaredetailedbelow.

Control environmentTheSocietyhasanestablishedgovernanceframework.ThisframeworkhasbeenrecentlyupdatedtocomplywithFCAandPRAapplicationoftheSeniorManagersandCertificationRegime(SM&CR)todualregulatedinsurers,on10December2018.ThekeyfeaturesofourGovernanceframeworkin2018included:• terms of reference for the Board and each of its committees;

• aclearorganisationalstructure,withdocumenteddelegationofauthorityfromtheBoardtoexecutivemanagement;

• ResponsibilitiesMaptoidentifythoseconductingSeniorManagersFunctions(inaccordancewithSM&CR)andensurenogapsinBoardaccountability;

• definedproceduresfortheapprovalofmajortransactionsandcapitalallocation;and

• theRisk,ComplianceandGovernanceCommitteewhichwasresponsibleforreviewingtheSociety’sfinancialandnon-financialrisks.

TheSociety’sriskandgovernanceframeworkhasbeenstructuredinaccordancewiththePrudentialRegulationAuthority and Financial Conduct Authority’s risk-based frameworkforintegratingandembeddingriskandcapitalmanagement.


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AttendanceThefollowingtableshowstheattendanceofDirectorsatBoardandcommitteemeetingsin2018.AttendanceisexpressedasthenumberofmeetingsatwhichtheDirectorwaspresentandthenumberofmeetingsthattheDirectorwaseligibletoattend.

TheChairholdsmeetingswiththeNon-ExecutiveDirectorswithouttheExecutivespresent.LedbytheSeniorIndependentDirector,theNon-ExecutiveDirectorsmeetwithouttheChairannuallytoappraisethe Chair’s performance and on such other occasions asaredeemedappropriate.InadditiontotheBoardandcommitteemeetingslistedbelow,theDirectorsattendformaltrainingdaysandstrategydays.Memosare circulated by the Finance Director to all Board memberswhichreportthekeyoperationalelementsoftheSocietytotheBoardmonthlyin-betweenBoardmeetings,supplementedbyamonthlycall,throughwhichNon-ExecutiveDirectorsareabletoraisequestionand/orconcernsonatimelybasis.

RCGC: Risk,ComplianceandGovernanceCommitteeRem: RemunerationCommitteeNom: NominationsCommittee

ƚ BoardmeetingattendanceincludestheStrategyAwayDay.

* LefttheBoard30June2018** LefttheBoard30thNovember2018

# ExecutiveBoardmemberswerenotmembersoftheRCGC, Audit or Finance committeesbuttheyandseniorstaffmembersattendCommitteemeetingsasrequired

^ JoinedtheBoardon1September2018andresignedMarch2019

^^ JoinedtheBoardon1October2018

Board ƚ RCGC Finance Audit Rem Nom

Meetings held in 2018 10 4 5 3 2 3

Attendance

Andrew Johnston 10/10 2/2 3/3

Nicola Bruce^^ 2/2

Roger Cawse 10/10 5/5 3/3

Gloria Craig 10/10 4/4 2/2 3/3

Nigel Fawcett 10/10 4/4 2/2 3/3

Alan Fleming* 6/7 3/3 1/2 1/1 1/1

Fiona McAnena^ 3/3

Alan Peddle 10/10 4/4 3/3

Adrian Rees 10/10 5/5 2/3 0/1 1/2

James Parker# 10/10 4/4 5/5 3/3 2/2 3/3

Tom Gidaracos# 10/10 4/4 5/5 3/3

Russell Stephens#** 8/8 3/4

Key:


34 35


Relations with MembersTheSocietycontinuestoplaceconsiderableimportanceoncommunicationwithmembers.

During2018awiderangeofmatterswerecoveredinthethreeissuesofourmembermagazine“Care”,andgroupsofmemberswereaskedtotakepartinforumsandsurveys,includingthelaunchofTrustpilot.

ThroughouttheyearallmemberswereregularlyremindedthattheywereverywelcometoexpresstheirviewsonanymatterrelatingtotheSociety.

TheSocietywon,forthethirdtimeinarow,theawardforMostTrustedHealthInsuranceProvider2018byMoneywise.Wealsocontinuedtoissuemembersatisfactionsurveys,askedforfeedbackonTrustpilotandusedin-housesystemstorecordfeedbackreceivedfrommembersonallaspectsoftheSociety.

Eachyear,theSocietyundertakesareviewfocusingonthesixconsumeroutcomesidentifiedbytheFinancialConductAuthority,toensurethatTreatingCustomersFairly is at the heart of the Society and at the centre of everybusinessdecisionmade.

In2018theSocietyundertookasurveyandmemberforumontheeligibilityofmembership.Followingthe outcome of the forum, changes to the Society’s Memorandum and Rules for membership eligibility criteriathattheBoarddeemsappropriatewillbeproposedattheAGMin2019formemberapproval.

Annual General Meeting (AGM)EachyeartheSocietysendsindividualnoticestoallmembersasrequiredbyitsRules.Proxyvotingformsaremadeavailablesothatmemberswhoareunabletoattendthemeetingmaycasttheirvote.

AvoteistakeninrelationtoeachresolutionattheAGMandallproxyvotesareincluded.In2014,membersapprovedchangestotheSociety’sRulesallowingtheuseofelectroniccommunicationsforformalvotingprocedures.In2015,theSocietylaunchedonlineproxyvoting,makingiteasierforthosememberswhoareunabletoattendthemeetinginpersontohavetheirvotescounted.In2017themembersapprovedchangestotheRulestobringthewordinguptodate.

AllmembersoftheBoardattendtheAGMeachyear(unlesstheirabsenceisunavoidable)andallincludingtheChairoftheBoard,theChiefExecutiveandcommitteechairsareavailabletoanswerquestions.

Statement of Compliance with the Annotated UK Corporate Governance CodeThe Board considers that throughout the year ended 31December2018,theSocietyhasappliedtherelevantprinciplesandcompliedwiththerelevantprovisionsoftheAnnotatedCorporateGovernanceCodeforMutualInsurers.

Remuneration PolicyTheBoardrecognisestheneedtoattractandretainableexecutivesandmotivatethemtoprovidestrongbusinessperformanceandexcellentcustomerservice.

Thepolicyisintendedtodeliveracompetitivelevelandmixofremunerationcomparedwithcompaniesofasimilarscaleandcomplexity.

Basesalariesofemployeesarereviewedannually.In2014,theSocietyappointedremunerationspecialiststheHayGrouptoundertakeajobevaluationandremunerationbenchmarkingexercise.TheHayGroupisindependentfromCSHealthcare.

TheremunerationofseniorexecutivesisdeterminedbytheRemunerationCommittee,whichseeksindependentadvicefromspecialistremunerationconsultantsoncurrentmarketratesforequivalentpositionsinhealthcareandsimilarscaleorganisations.


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REPORT FROM THE BOARD ON REMUNERATION

TheBoardiscommittedtoachievingbestpracticeinthedeterminationandimplementationoftheSociety’sRemunerationPolicy.ThepurposeofthisreportistoprovideinformationonthepolicyandpracticesfollowedbytheBoardandtheRemunerationCommittee.ThecompositionandresponsibilitiesoftheSociety’sRemunerationCommitteearesetoutinthereportfromtheBoardonCorporateGovernance.

Report from the Board onRemuneration

Non-Executive Directors

Salary £000

Bonus £000

Pension Contributions

£000Benefits

£000Redundancy

£000

2018 Total £000

2017 Total £000

A Fleming ** 10 10 21

NFawcett 28 28 28

G Craig 24 1 25 25

A Rees 20 20 18

RCawse 26 26 26

AJohnston 35 35 35

A Peddle 18 18 18

F McAnena ** 7 7 0

N Bruce ** 5 5 0

ExecutivesR Stephens ** 96 0 14 7 30 147 103

HJones* 0 63

JParker 139 7 0 24 170 177

T Gidaracos 113 9 9 7 138 0

Total 521 16 23 39 30 629 514

*Notfullyearremunerationin2017

**Notfullyearremunerationin2018

IndependentAuditor’sReport to the members of theCivilServiceHealthcareSocietyLimitedReport on the audit of the financial statements

OpinionInouropinionthefinancialstatementsofCivilServiceHealthcareSocietyLimited(the‘society’):• giveatrueandfairviewofthestateofthesociety’saffairsasat31December2018andofitssurplusfortheyearthenended;

• havebeenproperlypreparedinaccordancewithUnitedKingdomGenerallyAcceptedAccountingPractice,includingFinancialReportingStandard102“TheFinancialReportingStandardapplicableintheUK”;andhavebeenpreparedinaccordancewiththeFriendlySocietiesAct1992.

Wehaveauditedthefinancialstatementswhichcomprise:•thestatementofincomeandexpenditure;•thestatementofcomprehensiveincome;•thestatementoffinancialposition;•thestatementofcashflows;and•therelatednotes1to24.

ThefinancialreportingframeworkthathasbeenappliedintheirpreparationisapplicablelawandUnitedKingdomAccountingStandards,includingFinancialReportingStandard102“TheFinancialReportingStandardapplicableintheUKandRepublicofIreland”(UnitedKingdomGenerallyAcceptedAccountingPractice).

Basis for opinionWeconductedourauditinaccordancewithInternationalStandardsonAuditing(UK)(ISAs(UK))andapplicablelaw.Ourresponsibilitiesunderthosestandardsarefurtherdescribedintheauditor’sresponsibilitiesfortheauditofthefinancialstatementssectionofourreport.

WeareindependentofthesocietyinaccordancewiththeethicalrequirementsthatarerelevanttoourauditofthefinancialstatementsintheUK,includingtheFinancialReportingCouncil’s(the‘FRC’s’)EthicalStandardasappliedtopublicinterestentities,andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeserequirements.Weconfirmthatthenon-auditservicesprohibitedbytheFRC’sEthicalStandardwerenotprovidedtothesociety.

Webelievethattheauditevidencewehave obtainedissufficientandappropriatetoprovidea basisforouropinion.

Summary of our audit approach

Key audit matters

Thekeyauditmattersthatweidentifiedinthecurrentyearwere:•Technicalreserving;and•Revenuerecognition

Materiality Thematerialitythatweusedinthecurrentyearwas£372k(2017:£386k)whichwasdeterminedonthebasisof1.4%ofgrosswrittenpremium.

Scoping Auditworktorespondtotherisksofmaterialmisstatementwasperformeddirectlybytheauditengagementteam.

Significant changes in our approach

Wehavenotreportedontheclaimsprocessinthecurrentyearasitisnolongernewandmanagementisresolvingthemattersidentifiedintheprioryear.

Conclusions relating to going concern, principal risks and viability statementGoing concernWehavereviewedthedirectors’statementonpage18tothefinancialstatementsaboutwhethertheyconsidered it appropriate to adopt the going concern basisofaccountinginpreparingthemandtheiridentificationofanymaterialuncertaintiestotheSociety’sabilitytocontinuetodosooveraperiodofatleasttwelvemonthsfromthedateofapprovalofthefinancialstatements.

We confirm that we have nothing material to report, add or draw attention to in respect of these matters.

Principal risks and viability statementBased solely on reading the directors’ statements and consideringwhethertheywereconsistentwiththeknowledgeweobtainedinthecourseoftheaudit,includingtheknowledgeobtainedintheevaluationof the directors’ assessment of the Society’s ability to continueasagoingconcern,wearerequiredtostatewhetherwehaveanythingmaterialtoaddordrawattentiontoinrelationto:• thedisclosuresonpages18-19thatdescribetheprincipalrisksandexplainhowtheyarebeingmanagedormitigated;

• thedirectors’confirmationonpages10-11thattheyhavecarriedoutarobustassessmentoftheprincipalrisksfacingtheSociety,includingthosethatwouldthreaten its business model, future performance, solvencyorliquidity;or

• thedirectors’explanationonpage11astohowtheyhaveassessedtheprospectsoftheSociety,overwhatperiodtheyhavedonesoandwhytheyconsider that period to be appropriate, and their statementastowhethertheyhaveareasonableexpectationthattheSocietywillbeabletocontinueinoperationandmeetitsliabilitiesastheyfalldueovertheperiodoftheirassessment,includinganyrelateddisclosuresdrawingattentiontoanynecessaryqualificationsorassumptions.

We confirm that we have nothing material to report, add or draw attention to in respect of these matters.


38 39

INDEPENDENT AUDITOR'S REPORT

39

Key audit mattersKeyauditmattersarethosemattersthat,inourprofessionaljudgement,wereofmostsignificanceinourauditofthefinancialstatementsofthecurrentperiodandincludethemostsignificantassessedrisksofmaterialmisstatement(whetherornotduetofraud)thatweidentified.Thesemattersincludedthosewhichhadthegreatesteffecton:theoverallauditstrategy,theallocationofresourcesintheaudit;anddirectingtheeffortsoftheengagementteam.

Thesematterswereaddressedinthecontextofourauditofthefinancialstatementsasawhole,andin

formingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.

WehaveidentifiedanewkeyauditmatterintheoutsourcedclaimsfunctiontoHealix.Howeverwealsonotethatvaluationofinvestments,whichwasidentifiedintheprioryearasasignificantriskareaisnolongerakeyauditmatter.ThisisonaccountofreducedvolatilityintheinvestmentmarketsposttheEUreferendum,comparedwith2016.

Technical Reserving

Key audit matter description

Technicalreservesatyearendstandat£3.5m(2017:£3.6m)asdisclosedinnote20.Furtherdetailsoftheaccountingpolicyisdisclosedinnote3andAuditCommittee’sdiscussiononpage26.Management’skeyestimatesandassumptionsaredisclosedinnote4.

Insurancereservingremainsthelargestsingleareawhichrequiressignificantmanagementjudgementontheassumptionsandthemethodsusedtocalculatethereserves.Weidentifiedakeyauditmatterinrelationtothemodelsandtheassumptionsappliedbymanagementinestimatingtechnicalreserves.Asmallchangeinkeyassumptionscouldresultinamaterialchangeinthefinancialstatements.

Incontrasttootherinsuranceproviders,theclaimsout-turnoftheentityisusuallyknownandpaidshortlyafterthelossactuallyoccurs.

Duringtheyear,managementworkedwithnewlyappointedactuarialadvisors,Milliman,toreassesstheestimationmethodology.AsaresultmanagementnowuseacombinationoftheLagDevelopmentmethodandtheProjectedUltimatemethodtoestimatetheirliability.Managementalsobroughttheoperationalelementsofactuarialworkin-housewithoversightreviewsperformedbyMilliman.

Duetothehighlevelofjudgementsinvolved,wehavedeterminedthattherewasapotentialforfraudthroughpossiblemanipulationofthisbalance.

How the scope of our audit

responded to the key audit matter

Duringthe2018auditwehavereviewedthereportprovidedbytheSocietyʼsactuarialadvisersandchallengedmanagement’sassumptionsbyperformingthefollowingprocedures:•Carriedouttestsofaccuracyandcompletenessofdataunderlyingthecalculationofthereservesbyreconcilingbacktodataauditedaspartofoursubstantiveprocedures;

•Evaluatedthedesignandimplementationofrelevantcontrolsaroundthecalculationoftechnicalreservesincludingthelevelofreviewperformedontheassumptionsappliedinthecalculationoftechnicalreservesaswellasthesuitabilityofthepersonsperformingthevariousreviews;

•Involvedourinternalactuarialspecialistsinchallengingthemethodologyappliedandkeyassumptions,includingimpactsofseasonalityonexpectedlossratios.Weexaminedchangesinthemodelandassumptionsemployedinthecalculationofreservestoassesswhethertheywerereasonable;

• challenged the suitability of the underlying historical data used in management’s model, consideringtheperiodofdatausedandtheprofileofclaimsout-turn;and

•Analysedtheactualclaimsout-turninFY18comparedtoreservesheldforFY17.

Key observations Ourauditproceduresindicatethatthelevelofreservingiswithinanacceptablerangeandfoundnomaterialmisstatement.

Revenue recognition

Key audit matter description

Premiumincomeisrecognisedoverthelifeoftherespectivepolicyonaccrualsbasis,withanunearnedpremiumprovisionpresentingtheportionofpremiumsrelatingtotheunexpiredtermofthepolicyinforceasattheyear-endperiod.Thegrosspremiumsearnedatyearendwas£26.5m(2017:£27.6m)asdisclosedinnote6tothefinancialstatements.

Wehavethereforeidentifiedakeyauditmatterinrelationtoinappropriateapportionmentofrevenueearnedduringthefinancialyearandtherelatedunearnedpremiumportion,whichcouldleadtoanunderstatementofunearnedpremiumprovision.

Duetothepotentialforinappropriatemanualmanipulationofthebalance,weidentifiedthisasapotentialareaforfraud.

Furtherdetailsoftheaccountingpolicyforpremiumincomeareinnote3.

How the scope of our audit

responded to the key audit matter

Inordertoaddressthiskeyauditmatter,weperformedthefollowing:•Evaluatedthedesignandimplementationofrelevantcontrolsaroundrevenuerecognitionandrelateddisclosures;

•Performedanalyticalreviewproceduresandcomparedthepremiumdataonamonthlybasisagainstprioryearstoidentifyunusualrevenuepatternsthatmeritedfurtherinvestigation.;and

•Forasampleofpolicies,wehaveagreedincomebacktothepolicydocumentationandrecalculatedtheearned/deferredelementstotestaccuracy.

•Thedeferredelementsinoursamplehavebeenrecalculatedandtiedbacktomovementintheprovisionforunearnedpremiumsfrom2017to2018.

Key observations Ourauditproceduresindicatethatrevenuerecognisedisappropriateandfoundnomaterialmisstatement.


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Our application of materialityWedefinematerialityasthemagnitudeofmisstatementinthefinancialstatementsthatmakesitprobablethattheeconomicdecisionsofareasonablyknowledgeablepersonwouldbechangedorinfluenced.Weusematerialitybothinplanningthescopeofourauditworkandinevaluatingtheresultsofourwork.

Basedonourprofessionaljudgement,wedeterminedmaterialityforthefinancialstatementsasawholeasfollows:

WeagreedwiththeAuditCommitteethatwewouldreporttotheCommitteeallauditdifferencesinexcessof£18.6k(2017:£20.6k),aswellasdifferencesbelowthatthresholdthat,inourview,warrantedreportingonqualitativegrounds.WealsoreporttotheAuditCommitteeondisclosuremattersthatweidentifiedwhenassessingtheoverallpresentationofthefinancialstatements.

An overview of the scope of our auditOurauditscoperemainsconsistentwithprioryearandhasbeenbasedonthematerialityofeachelementofthestatementofincomeandexpenditureandstatementoffinancialposition,takingintoaccountbothqualitative(includingtheuseofaserviceorganisation)andquantitativefactorsinourassessment.Auditworktorespondtotherisksofmaterialmisstatementwasperformeddirectlybytheauditengagementteam.

InadditiontoworkperformedattheSociety,astheSocietyoutsourcesclaimsadministration,wehavealsoevaluatedrelevantcontrolsatthisserviceorganisationaroundclaimsprocesses.

Materiality £372K(2017:£386K)Basis for determining materiality

1.4%ofgrosswrittenpremium(2017:1.4%ofgrosswrittenpremium)

Rationale for the benchmark applied

WeconsidergrosswrittenpremiumstobethemostappropriatebenchmarkasitisakeyperformanceindicatorusedbytheSocietyinassessingperformance,butisnotasvolatileasprofitandlossmeasures.

Other informationThedirectorsareresponsiblefortheotherinformation.Theotherinformationcomprisestheinformationincluded in the annual report including the strategic report,strategicobjectivesandperformanceoftheSocietyin2018otherthanthefinancialstatementsandourauditor’sreportthereon.

Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationand,excepttotheextentotherwiseexplicitlystatedinourreport,wedonotexpressanyformofassuranceconclusionthereon.

Inconnectionwithourauditofthefinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.

Ifweidentifysuchmaterialinconsistenciesorapparentmaterialmisstatements,wearerequiredtodeterminewhetherthereisamaterialmisstatementinthefinancialstatements or a material misstatement of the other information.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.

Inthiscontext,mattersthatwearespecificallyrequiredto report to you as uncorrected material misstatements oftheotherinformationincludewhereweconcludethat:• Fair, balanced and understandable–thestatementgivenbythedirectorsthattheyconsidertheannualreportandfinancialstatementstakenasawholeisfair,balancedandunderstandableandprovidestheinformationnecessaryformemberstoassessthesociety’spositionandperformance,businessmodelandstrategy,ismateriallyinconsistentwithourknowledgeobtainedintheaudit;or

• Audit committee reporting–thesectiondescribingtheworkoftheauditcommitteedoesnotappropriatelyaddressmatterscommunicatedbyustotheauditcommittee.

We have nothing to report in respect of these matters.

Responsibilities of directorsAsexplainedmorefullyinthedirectors’responsibilitiesstatement, the directors are responsible for the preparationofthefinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview,andforsuchinternal control as the directors determine is necessary toenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Inpreparingthefinancialstatements,thedirectorsare responsible for assessing the Society’s ability to continueasagoingconcern,disclosingasapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlessthedirectorseitherintendtoliquidatetheSocietyortoceaseoperations,orhavenorealisticalternativebuttodoso.

Auditor’s responsibilities for the audit of the financial statementsOurobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraud or error, and to issue an auditor’s report that includesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAs(UK)willalwaysdetectamaterialmisstatementwhenitexists.Misstatements can arise from fraud or error and are consideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomic decisions of users taken on the basis of these financialstatements.

Detailsoftheextenttowhichtheauditwasconsideredcapableofdetectingirregularities,includingfraudaresetoutbelow.

AfurtherdescriptionofourresponsibilitiesfortheauditofthefinancialstatementsislocatedontheFRC’swebsiteat:www.frc.org.uk/auditorsresponsibilities.Thisdescriptionformspartofourauditor’sreport.

Extent to which the audit was considered capable of detecting irregularities, including fraudWeidentifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherdue to fraud or error, and then design and perform auditproceduresresponsivetothoserisks,includingobtainingauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.

Identifying and assessing potential risks related to irregularitiesInidentifyingandassessingrisksofmaterialmisstatementinrespectofirregularities,includingfraudandnon-compliancewithlawsandregulations,ourproceduresincludedthefollowing:• enquiring of management, internal audit, and the auditcommittee,includingobtainingandreviewingsupportingdocumentation,concerningtheSociety’spoliciesandproceduresrelatingto:


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• identifying,evaluatingandcomplyingwithlawsandregulationsandwhethertheywereawareofanyinstancesofnon-compliance;

• detectingandrespondingtotherisksoffraudandwhethertheyhaveknowledgeofanyactual,suspectedorallegedfraud;

• theinternalcontrolsestablishedtomitigaterisksrelatedtofraudornon-compliancewithlawsandregulations;

• discussing among the engagement team and involvingrelevantinternalspecialists,includingactuarialexpertsandITregardinghowandwherefraudmightoccurinthefinancialstatementsandanypotentialindicatorsoffraud.Aspartofthisdiscussion,weidentifiedpotentialforfraudinrelationtotechnicalreservingandrevenuerecognition;and

• obtaining an understanding of the legal and regulatoryframeworksthattheSocietyoperatesin,focusingonthoselawsandregulationsthathadadirecteffectonthefinancialstatementsorthathadafundamentaleffectontheoperationsofthesociety.ThekeylawsandregulationsweconsideredinthiscontextincludedthelegislationimposedbytheFinancialConductAuthority(FCA),PrudentialRegulationauthority(PRA)andtaxlegislations.

Audit response to risks identifiedAsaresultofperformingtheabove,weidentifiedTechnicalreservingandRevenuerecognitionaskeyauditmatters.Thekeyauditmatterssectionofourreportexplainsthesemattersinmoredetailandalsodescribesthespecificproceduresweperformedinresponsetothosekeyauditmatters.

Inadditiontotheaboveourprocedurestorespondtorisksidentifiedincludedthefollowing:

• reviewingthefinancialstatementdisclosuresandtestingtosupportingdocumentationtoassesscompliancewithrelevantlawsandregulationsdiscussedabove;

• enquiring of management concerning actual and potentiallitigationandclaims;

• performinganalyticalprocedurestoidentifyanyunusualorunexpectedrelationshipsthatmayindicaterisksofmaterialmisstatementduetofraud;

• readingminutesofmeetingsofthosechargedwithgovernance,reviewinginternalauditreportsandreviewingcorrespondencewithrelevantregulators;and addressing the risk of fraud through management overrideofcontrols,testingtheappropriatenessofjournalentriesandotheradjustments;assessingwhetherthejudgementsmadeinmakingaccounting

estimatesareindicativeofapotentialbias;andevaluatingthebusinessrationaleofanysignificanttransactionsthatareunusualoroutsidethenormalcourseofbusiness.

Wealsocommunicatedrelevantidentifiedlawsandregulationsandpotentialfraudriskstoallengagementteam members including internal specialists and remained alerttoanyindicationsoffraudornon-compliancewithlawsandregulationsthroughouttheaudit.

Report on other legal and regulatory requirementsOpinions on other matters prescribed by the Friendly Societies Act 1992Inouropinion,basedontheworkundertakeninthecourseoftheaudit:• theinformationgiveninthestrategicreportandthedirectors’reportforthefinancialyearforwhichthefinancialstatementsarepreparedisconsistentwiththefinancialstatements;and

• thestrategicreportandthedirectors’reporthavebeenpreparedinaccordancewithapplicablelegalrequirements.

Inthelightoftheknowledgeandunderstandingofthesocietyanditsenvironmentobtainedinthecourseoftheaudit,wehavenotidentifiedanymaterialmisstatementsinthestrategicreportorthedirectors’report.

Matters on which we are required to report by exceptionAdequacy of explanations received and accounting recordsUndertheFriendlySocietiesAct1992wearerequiredtoreporttoyouif,inouropinion:• adequateaccountingrecordshavenotbeenkeptbytheSociety;or

• theSociety’sfinancialstatementsarenotinagreementwiththeaccountingrecords;or

• wehavenotreceivedalltheinformationandexplanationsandaccesstodocumentsthatwerequireforouraudit.

We have nothing to report in respect of these matters.

Other mattersAuditor tenureFollowingtherecommendationoftheauditcommittee,wewereappointedbytheBoardofDirectorson12October2015toauditthefinancialstatementsfortheyearending31December2015andsubsequentfinancialperiods.Theperiodoftotaluninterruptedengagement

David Rush, FCA (Senior statutory auditor)ForandonbehalfofDeloitteLLPStatutory AuditorLondon,UnitedKingdom11April2019

includingpreviousrenewalsandreappointmentsofthefirmis4years,coveringtheyearsending31December2015to31December2018.

Consistency of the audit report with the additional report to the audit committeeOurauditopinionisconsistentwiththeadditionalreporttotheauditcommitteewearerequiredtoprovideinaccordancewithISAs(UK).

Use of our reportThis report is made solely to the society’s members, as abody,inaccordancewithsection73oftheFriendlySocietiesAct1992.OurauditworkhasbeenundertakensothatwemightstatetotheSociety’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibility to anyone other than the Society and the Society’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.


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StatementofIncomeand ExpenditureFor the year ended 31 December 2018

Notes 2018 2017

Technical Account – General BusinessGeneral Fund £000 General Fund £000

Technical Income

Premiumincomereceivedfrommembers 26,543 27,574

Total Technical Income 6 26,543 27,574

Technical Charges

Gross claims incurred 7 (19,342) (21,565)

Netoperatingexpenses 8 (7,248) (6,622)

Total Technical Charges (26,590) (28,187)

Deficit of income over charges (47) (613)

Transfer to Non-Technical Account 47 613

Balance on the General Business Technical Account

– –

Non-Technical AccountIncomeInvestmentincome 9 239 87

Unrealisedgains/(losses)oninvestments 10 (150) 39

Other income 21 18

Total Income 110 144

ExpenditureInvestmentexpensesandcharges (40) (31)

Total Expenditure (40) (31)

Excess of income over expenditure 70 113

Balance transferred from Technical Acount (47) (613)

Surplus/(deficit) for the financial year 23 (500)

Transferred to fund balances 18 (23) 500

Balance on the Non-Technical Account – –

Statement of Other ComprehensiveIncomeFor the year ended 31 December 2018

Notes 2018 2017

Other comprehensive income:

General Fund £000

General Fund £000

Gainonrevaluationoflandandbuildingstofairvalue

18 0 200

Total other comprehensive income 0 200

Theaboveresultsrelatewhollytocontinuingactivities.Theaccompanyingnotesonpage50to60formanintegralpartofthesefinancialstatements.


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FINANCIAL STATEMENTS

Statement of FinancialPositionFor the year ended 31 December 2018

Notes 2018 2017

Assets £000 £000

Intangible assetsAssetsunderconstruction 13 0 20

Softwareandlicences 13 711 771

InvestmentsOtherfinancialinvestments 14 16,140 17,342

DebtorsDebtorsarisingoutofdirectinsuranceoperations 15 8,767 7,985

Other assetsTangible assets 16 1,045 1,041

Cash at bank and in hand 1,075 643

Prepayments and accrued incomeDeferredacquisitioncosts 17 993 886

Prepayments and accrued income 130 326

TOTAL ASSETS 28,861 29,014

Capital and reservesGeneral fund 18 12,885 12,862

Revaluationreserve 18 317 317

Liabilities

Technical provisionProvisionforunearnedpremiums 19 10,153 10,252

Claims outstanding 20 3,485 3,562

Creditors and accrualsOthercreditors(includingtaxandsocialsecurity) 21 1,790 1,700

Accruals 21 231 321

TOTAL LIABILITIES 28,861 29,014

Theaccompanyingnotesonpage50to60formanintegralpartofthesefinancialstatements.

ThefinancialstatementswereapprovedbytheBoardon11April2019andsignedonitsbehalfby:

Andrew JohnstonChair

James ParkerChiefExecutive

Philippa Greenstein Company Secretary

Statement of CashFlowsFor the year ended 31 December 2018

Notes 2018 2017

£000 £000

Net cash inflow from operating activities(Loss)/Profitfortheyear (47) (613)

Non-technical income 21 18

Adjustments for non-cash items:

Depreciationandamortisation 8 468 416

Changes in working capital and provisions:

Decrease/(increase)indebtors (782) (15)

Decrease/(increase)inprepaymentsandaccruedincome 88 (177)

(Decrease)/increaseinprovisionforunearnedpremiums (99) (319)

(Decrease)/increaseinprovisionforclaimsincurredbutnotreceived (77) 378

(Decrease)/increaseinothercreditorsandaccruals 0 (68)

Net cash (used in)/generated from operating activities (428) (380)

Cash flow from investing activitiesPurchases of intangible assets 13 (298) (509)

Purchases of tangible assets (101) (189)

Fundswithdrawnfrominvestmentfunds 9 0

Fundswithdrawn/(paidin)frominvestmentfunds 1,250 1,000

Net cash generated/(used in) from investing activities 860 302

(Decrease)/increase in cash and cash equivalents in the year 432 (78)

Cashandcashequivalentsatthebeginningoftheyear 643 721

Cash and cash equivalents at the end of the year 1,075 643

Theaccompanyingnotesonpage50to60formanintegralpartofthesefinancialstatements.


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Notes to the Financial StatementsFor the year ended 31 December 2018

1. General information CivilServiceHealthcareSocietyLimited(“theSociety”)isaspecialistproviderofcompetitively-pricedhealthinsurancetoallpartsofthecivilservice,publicsectorandnot-for-profitorganisations.Thesocietyisamutualsociety,runforthebenefitofourmembersandisincorporatedundertheFriendlySocietiesAct1992.ThesocietyisauthorisedbythePrudentialRegulationAuthority and regulated by the Financial Conduct AuthorityandthePrudentialRegulationAuthority.TheaddressofitsregisteredofficeisPrincessHouse,HoraceRoad,KingstonuponThames,SurreyKT12SLanditisincorporatedintheUnitedKingdom.

2. Statement of compliance ThefinancialstatementsofTheSocietyhavebeenpreparedincompliancewithTheFriendlySocieties(AccountsandRelatedProvisions)Regulations1994(“theregulations”)madeundertheFriendlySocietiesAct1992andwithUnitedKingdomAccountingStandards,includingFinancialReportingStandard102,“TheFinancialReportingStandardapplicableintheUnitedKingdom&Ireland”(”FRS102”)andFinancialReportingStandard103,“InsuranceContracts”(“FRS103”).

3. Accounting policies Theprincipalaccountingpoliciesappliedinthepreparationofthesefinancialstatementsaresetoutbelow.Thesepolicieshavebeenconsistentlyappliedtoalltheyearspresented,unlessotherwisestated.a. Basis of preparation Thesefinancialstatementsarepreparedonagoingconcernbasis,underthehistoricalcostconvention,asmodifiedbytherevaluationoflandandbuildingsandcertainfinancialassetsandliabilitiesmeasuredatfairvaluethroughprofitorloss.

ThepreparationoffinancialstatementsinconformitywiththeregulationsandFRS102andFRS103requirestheuseofcertaincriticalaccountingestimates.Italsorequiresmanagementto exercise its judgement in the process of applyingthecompany’saccountingpolicies.Theareasinvolvingahigherdegreeofjudgementorcomplexity,orareaswhereassumptionsandestimatesaresignificanttothefinancialstatementsaredisclosedinNote4.

b. Going concern ThefinancialstatementshavebeenpreparedonagoingconcernbasisastheBoardbelievestheentityhasadequateresourcestocontinueitsoperationalexistencefortheforeseeablefuture.

c. Premium income Premiumsarerecognisedasincomeoverthelifeofeachpolicyonanaccrualsbasis.AllcontributionsreceivedhavebeenallocatedtotheGeneralFundinaccordancewiththecurrentrules.

d. Claims incurred Claimsarerecognisedwhentheliabilityoccurs,irrespectiveofwhennotified,withestimatesforamountsnotyetnotified(seeNotes7and20).Claimsincurredarestatedexclusiveofclaimhandlingcosts.

e. Investment income Investmentincomeincludesdividendsandinterest.Dividendsaretakenintoaccountwhendeclared.Interestondepositsisrecognisedonanaccrualsbasis.Investmentincomeisrecognisedinthenon-technicalaccount.

f. Realised and unrealised gains and losses Unrealisedgainsandlossesrepresentthedifferencebetweenthemarketvalueofinvestmentsheldattheendoftheyearandtheirmarketvalueatthebeginningoftheyear,ortheircostwhenacquiredduringtheyear.

Realised gains and losses are calculated as the differencebetweenpurchasecostsandnetsalesproceeds.Anadjustmentismadetounrealisedgainsandlossespreviouslyrecognisedfortheimpactofanydisposalsintheyear.

Realised and unrealised gains and losses are recognisedinthenon-technicalaccount.

g. Acquisition costs Acquisitioncostsaredefinedasarisingfromtheconclusionofinsurancecontractsincluding:• Direct costs such as commission or the cost of drawinguptheinsurancedocumentorincludingtheinsurancecontractintheportfolio;

• Indirectcostssuchasmarketingcostsortheadministrativeexpensesconnectedwiththeprocessingofproposalsandtheissuingofpolicies;


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• Acquisitioncostsarisingfromtheobtainingandprocessingofpoliciesareamortisedovertheperiodinwhichtherelatedpremiumsareearned;

• Acquisitioncostsrelatingtoasubsequentperiodare recognised as an asset on the balance sheet asaprepayment(DeferredAcquisitioncosts);

• Acquisitioncostsaredeferredsubjecttorecoverabilityandamortisedoveranequivalentperiodtothatoverwhichtherelatedpremiumsareearned.Thebasisofamortisationreflectsthesamepatternutilisedtoearnthegrosspremiumstowhichtheacquisitioncostsrelate.

h. Intangible assets Softwareandlicensesarestatedatcostlessaccumulatedamortisationandanyimpairmentlosses.Softwareandlicensesareamortisedovertheirestimatedusefullifeof4yearsonastraightlinebasis.Theassetsarereviewedforimpairmentifthereareanyfactorsindicatingthatthecarryingamountmaybeimpaired.

Assetsunderconstructionarestatedatcostuntiltheyareavailableforuseandthenwillbeamortisedovertheirestimatedusefullifeonastraightlinebasis.

i. Financial investments Otherfinancialinvestmentsarerecognisedattheiryear-endmid-marketvaluesatreportingdateunlessotherwisestated.InvestmentsaremeasuredatfairvalueandchangesinfairvaluearerecognisedintheStatementofIncomeandExpenditure.

j. Debtors Anyoutstandingamountswhichtheentityiscontractuallyentitledtoaretreatedasadebtor.Debtorsrepresentamountsreceivablefromdirectinsuranceoperations.

k. Tangible assets All property is occupied by the Society at the balancesheetdate.Landandbuildingsareformallyre-valuedbyanindependentvaluereverytwoyearsandincludedintheaccountsatvaluation.Anybuildingimprovementsmadeduringtheyearareincludedintheaccountsatcostwithanysurplusordeficitonrevaluationbeingtransferredtoarevaluationreserve.

Depreciationisprovidedtowriteoffthecost,lessestimatedresidualvalue,oftangibleassetsbyequalinstalmentsovertheirestimatedusefuleconomiclivesasfollows:

• IThardware3years• Officeequipment4years• Fixturesandfittings5years

Landandbuildingsarenotdepreciated.

TheSociety’spolicyistorevisittheestimatedusefuleconomiclivesandestimatedresidualvaluesattheendofeachfinancialyear.

l. Cash and cash equivalents Cashandcashequivalentsrepresentcashbalancesheldbytheentityatthereportingdate.

m. Provision for unearned premiums AprovisionforunearnedpremiumshasbeenincludedintheAccounts,whichrepresentinsurancepremiumswrittenduringthecurrentfinancialyearbytheSocietywhicharenotyetearned.

n. Provision for claims outstanding Theprovisionforclaimsoutstandingrepresentstheestimatedliabilityarisingfromproceduresincurrentandprecedingfinancialyears,whichhavenotbeenpaidbytheSociety.Theprovisionincludesanallowanceforclaimsmanagementandhandlingexpenses.Anyoverorunderprovisionisadjustedaspartofclaimsincurredinthefollowingyear.

o. Creditors Anyoutstandingamounts,whichtheentityisrequiredtopay,aretreatedasacreditor.Creditorsrepresent insurance premium tax due on the unearnedpremiumandPAYEandNIliabilities. Allamountsfallduewithinoneyear.

p. Asset and Liability Valuation TheSocietyconsidersthelikelihoodandseverityofanyrisksthatcouldoccurinthenextreportingperiodanddisclosesthepossibleeffectthiscouldhaveonassetandliabilityvaluation.

Managementhavenotidentifiedanymaterialrisksrelatingtothecomingyearthatcouldaffectassetorliabilityvaluation.

4. Critical accounting judgements and estimation uncertainty

ThepreparationoffinancialstatementsinconformitywithFRS102andFRS103requirestheuseofcertainaccountingestimatesandassumptionsthataffectthereportedassets,liabilities,incomeandexpenses.Italsorequiresmanagement to exercise judgement in applying theSociety’saccountingpolicies.Themainareainvolvingahigherdegreeofjudgementorcomplexity,andwhereassumptionsorestimatesaresignificanttothefinancialstatements,issetoutbelow:

Valuation of outstanding claims liabilities Estimatesaremadefortheexpectedultimatecost

of claims reported as at the year-end date and the costofclaimsincurredbutnotyetreported(IBNR)totheSociety.Itcantakemanymonthsbeforetheultimatecostofclaimscanbeestablishedwithcertainty,andthefinaloutcomemaybebetterorworsethanprovided.Standardactuarial


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claimsprojectiontechniquesareusedtoestimateoutstandingclaims.Thesetechniquesusepastpatternsofdelaybetweenclaimsbeingincurredandsettled,andcombinethemwithestimatesofultimatelossratios.ThereservingprocessisperformedbyCSHealthcarestaffwithoversightfromexternaloutsourcedactuaries.Severalassumptionsarealsoinherentintheestimationtechniquesincludingassumptionsrelatingtoclaimscostsinflationandmedicaltrends.ChangesintheoutstandingclaimsprovisionarecreditedorchargedtogrossclaimswithintheStatementofIncomeandExpenditure.

5. Management of insurance & financial risk The Society issues contracts that transfer insurance risk.Allpoliciessharesimilarcharacteristicsandassuchareexposedtothesameinsurancerisks.TheSocietyisexposedtoawiderrangeoffinancialrisksthroughitsfinancialassets,financialliabilities,andpolicyholderliabilities.ThefollowingsectiondescribestheserisksandthewayinwhichtheSocietymanagesthem.

a) Insurance risk Frequency and severity of claims Insuranceriskisacombinationofreserveriskandpremiumrisk.Reserveriskistheuncertaintysurrounding the cost and frequency of claims across TheSociety.Premiumriskistheriskthatpremiumsaresetataninsufficientleveltocoverfutureclaimsandbusinessexpenses.TheSocietyisamono-lineinsurerwritingrelativelyshort-tailedhealthinsurancebusinessintheUK,whichmakesitmorestraightforwardtomanagetheinsurancerisk.

The Society manages insurance risk by pre-authorisationofclaimsbyadedicatedinternalclaimsmanagementteam,certainpolicybenefitlimitswrittenintothetermsandconditions,theuseofanoutsourcingpartnerwithagreednetworksofhospitalsandfeeschedules,adetailedunderwritingstrategyandproactiveclaimshandling.

InsurancecontractsalsoentitletheSocietytopursuethirdpartiesforpaymentofsomeorallcosts(forexample,subrogation).TheSocietyregularlyreviewsitsreinsurancestrategyinordertoensurethatitisinlinewiththeriskexposure,marketdevelopments,andclaimsexperience.

Externalfactorssuchasdevelopmentofdrugs/treatmentsandmedicalinflationcanaffectboththefrequencyandseverityofclaims.

Sourcesofuncertaintyandestimation(Reserving)

Thesourcesofestimationuncertaintyinestablishingtheultimateliabilityarisingfrom

claimsmadeunderinsurancecontracts.

Reservingriskistheriskthatprovisionsmadeforclaimsatapointintimeendupbeinginsufficientinlightoffuturedevelopmentsandclaimsexperience.DuetotheSocietyonlywritinghealthinsurance,whichisshorttailinnature(fastclaimsdevelopment)thereisarelativelylowexposuretoreservingriskinrelationtounderwritingriskoverall.

The short-term nature of the Society’s insurance businessmeansthatchangesinclaimsdevelopmentassumptionsaregenerallynotmaterial.Theclaimssettlementpatternsarekeptunderconstantreviewtomaintainthevalidityoftheassumptionsandhence,thevalidityoftheestimationofrecognisedgeneralinsuranceliabilities.

Theestimationofincurredbutnotreported(IBNR)claims is generally subject to a greater degree ofuncertaintythantheestimationofthecostofsettlingclaimsalreadynotifiedtotheSociety,whereinformationabouttheclaimisavailable.

Thesensitivityanalysisforreserveriskillustrateshowchangestotheoutstandingclaimsreservewouldimpactthefinancialstatements.Anincrease/decrease in the outstanding claims reserveof5%equatestoanincrease/decreaseinliabilitiesof£174k.Thiswoulddirectlyincrease/decreasetheprofit/lossby£174k.

b) Financial risk Interest Rate Risk Interestrateriskarisesprimarilyfrominvestmentsinfixedinterestsecurities.TheSociety’sportfoliois extremely liquid in nature so that it can match theshort-tailedinsuranceriskitisexposedto.

Anygapbetweenthedurationoftheassetsandtheestimateddurationoftheliabilitiesismonitored by The Society and any mismatches in durationarereviewedandaddressedaccordingly.

Thesensitivityanalysisforinterestrateriskillustrateshowchangesinthefairvalueorfuturecashflowsofafinancialinstrumentwillfluctuatebecause of changes in market interest rates at the reportingdate.Anincreaseof100basispointsininterestyieldswouldresultinadditional(loss)/profitfortheyearand(decrease)/increaseinequityof£(0.06)m(2017:£(0.05)m)assumingallotherassumptionsremainunchanged.Adecreasein100basispointsininterestyieldswouldresultinanadditionalprofit/(loss)fortheyearandincrease/(decrease)inequityof£0.08m(2017:£0.07m)assumingallotherassumptionsremainunchanged.

TheconcentrationofcreditriskisalteredcomparedtoprioryearbecauseofinvestmentintotheM&GEuropeanLoanFund.TheM&Gfundcarriesalowercreditratingthantheotherinvestmentfunds.However,nocreditlimitswereexceededduringtheyear.Nofinancialassetsarepastdueorimpairedatthereportingdateandmanagementexpectsnosignificantlossesfromnon-performancebyanycounterparties.

Liquidity RiskLiquidityriskistheriskthatcashisnotavailable,orobtainableatareasonablecost,topayobligationsiftheyfalldue.TheprimaryliquidityriskoftheSocietyistheobligationtopayclaimstopolicyholdersastheyfalldue.

ThetablebelowanalysesthematurityofTheSociety’sfinancialliabilitiesandoutstandingclaims.Allliabilitiesarepresentedonacontractualcashflowbasisexceptfortheinsuranceliabilities,whicharepresentedonanexpectedcashflowsbasis.

Credit RiskCreditriskistheriskthatacounterpartywillbeunabletopayamountsinfullandwhendue.TheSocietycontrolsitscreditriskbyassessingthecreditworthinessofcounterpartiesthroughreviewingcreditratingsandotherfinancialinformationthatispubliclyavailable.Concentrationofexposurestocounterpartiesisalsomonitoredtolimitsensuringthatthereisnosignificantexposuretoanysinglecounterparty.

KeyareaswheretheSocietyisexposedtocreditriskareoutlinedinthetablebelow:

2018 £000

2017 £’000

Financialinvestments 16,140 17,342

Receivables 8,767 7,985

Cash at bank and in hand 1,075 643

Total assets bearing credit risk 25,982 25,970

2018 £’000

2017 £’000

AAA 7,631 10,543

AA 743 844

A 2,972 2,943

BBB or unrated 14,636 11,640

Total assets bearing credit risk 25,982 25,970

Financial liabilities and outstanding claims 2018

No contractual maturity date

£’000

<1 year or on demand £’000

Between 1 year and 5

years £’000

> 5 years Total £’000

Creditors 231 1,790 – – 2,021

Claims Outstanding

– 3,485 – – 3,485


54 55


Financial Assets 2018

No contractual maturity date

£’000

<1 year or on demand £’000

Between 1 year and 5

years £’000

> 5 years £’000

Total £’000

Cash 1,075 – – – 1,075

Financial Investments

– 5,904 10,236 – 16,140

Receivables – 8,767 – – 8,767

Thematurityprofileoffinancialassetsasat31December2018,whichareavailabletofundtherepaymentofliabilitiesastheybecomedue,isasfollows:

Currency RiskThesocietyhasafunctionalcurrencyofGBP,andcurrentlyholdsnoforeigncurrencyassetorliabilitypositions.TheSocietydoesnotintendtotransactinanyforeigncurrency,norexposeitselftocurrencyriskinthenearterm.

c) Capital Management CSHealthcaremaintainsanefficientcapitalstructurefromacombinationofthegeneralfundandrevaluationreserve,consistentwiththeSociety’sstructureasamutual,itsriskprofileandtheregulatoryandmarketrequirements.

TheSociety’sobjectivesinmanagingitscapitalare:• Tomatchtheprofileofitsassetsandliabilities,takingaccountoftherisksinherentinthebusiness;

• Tomaintainfinancialstrengthtosupportnewbusinessgrowth;• Tosatisfytherequirementsofitspolicyholders,regulatorsandratingagencies;• Toretainfinancialflexibilitybymaintainingstrongliquidity;• Toallocatecapitalefficientlytosupportgrowth;and• Toavoidexposurestomovementinexchangerates.

CSHealthcareisregulatedbythePrudentialRegulationAuthorityandissubjecttoSolvencyIIregulations,whichspecifytheminimumamountandtypeofcapitalthatmustbeheldinadditiontotheinsuranceliabilities.TheSocietyisrequiredtomeetaSolvencyCapitalRequirement(SCR),whichiscalibratedtoensurea99.5%confidenceoftheabilitytomeetobligationsinthefollowing12months.TheSocietycalculatesitsSCRinaccordancewiththestandardformula,whichisconsideredappropriateforitssizeandriskprofile.

Thetreatmentofcapitalhasnotchangedduringthereportingperiod.

d) Fair Value EstimationThetablebelowanalysesfinancialinstrumentscarriedatfairvalue,byvaluationmethod.Thedifferentlevelshavebeendefinedasfollows:•Quotedpricesinanactivemarket(Level1).•Recenttransactionsinanidenticalassetifthereisunavailabilityofquotedprices(Level2).•Useofavaluationtechniqueifthereisnoactivemarketorothertransactions,whichareagoodestimateoffairvalue(Level3).

ThefollowingtablepresentstheSociety’sassetsmeasuredatfairvalueat31December2018andat31December2017.Noliabilitiesweremeasuredatfairvalueat31December2018or31December2017.

2018 Assets Level 1 £’000 Level 2 £’000 Level 3 £’000 Total Balance £’000

Other Financial Investments

16,140 – – 16,140

Land &Buildings

– – 850 850

Total 16,140 – 850 16,990

2017 Assets Level 1 £’000 Level 2 £’000 Level 3 £’000 Total Balance £’000

Other Financial Investments

17,342 – – 17,342

Land&Buildings – – 850 850

Total 17,342 – 850 18,192

2018 £000

2017 £000

Premiumsreceivedduringtheyear 26,444 27,788

Changeintheprovisionforpremiumsreceivedinadvance(seenote19) 99 (214)

26,543 27,574

2018 £000

2017 £000

Claimspaidexcl.claimshandlingcosts 19,427 21,279

Changeintheprovisionforclaimsoutstandingexcl.handlingprovisions(seenote20) (85) 286

Gross claims incurred 19,342 21,565

6. Technical income

7. Claims incurred

Theprovisionforclaimsoutstandingattheendof2017was£3,562k.Duringthecurrentperiod£3,079kofclaimswerepaidfortreatmentthatoccurredpriortotheperiod.


56 57


2018 £000

2017 £000

Incomefrominvestmentsatfairvaluethroughincome:

Dividendincome 238 87

Interestincome 1 –

Totalinvestmentincome 239 87

2018 £000

2017 £000

Investmentsatfairvaluethroughincome: Unrealisedgains/(losses)onyear-endrevaluationtomarketvalue (150) 39

2018 No.

2017 No.

Administration 78 77

Businessdevelopment 3 4

81 81

Staffcostsfortheabovepositionswere:

2018£000

2017£000

Wagesandsalaries 2,985 2,977

Social Security costs 320 315

Pension costs 173 118

3,478 3,410

2018 £000

2017 £000

Acquisitioncosts–Commissiontobrokers 528 522

Acquisitioncosts–Indirectexpenses(excl.commissions) 1,340 1,004

Administrativeexpenses 5,380 5,096

7,248 6,622

Administrativeexpensesinclude:

Depreciationandamortisation 468 416

Externalauditfees–YearEndAudit 81 66

Externalauditfees–SolvencyIIAudit – 28

External actuary fees 207 184

Otherprofessionalservices 204 283

Aggregate amount of directors’ emoluments* 629 514

9. Investment income

10. Unrealised gains on investments

11. Employee information

8. Net operating expenses

*Includessalaries,fees,bonus,benefitsinkindandemployer’spensioncontributions

TheaveragenumberofstaffemployedbytheSociety(excludingnon-executivemembersoftheboard)inthefinancialyearwas:

2018 No.

2017 No.

Executive

£0–£49,999 – 1

£50,000–£99,999 1

£100,000–£149,999 2 1

£150,000–£199,999 1 1

Total 3 4

Non-Executive£0–£49,999 9 7

£50,000–£99,999 – –

£100,000–£149,999 – –

Total 9 7

Assets under construction

£000

Software & licences

£000

Total £000

Cost:

At1January2018 20 3,448 3,468

Additions – 298 298

Disposals/Write-Downs (8) – (8)

Transfers (12) 12 –

At31December2018 – 3,758 3,758

Accumulated amortisation:At1January2018 – 2,677 2,677

Amortisationfortheyear – 370 370

Disposals/Write-Downs – – –

At31December2018 – 3,047 3,047

Net Book Value:At31December2018 – 711 711

At31December2017 20 771 791

12. Directorsʼ emoluments

13. Intangible assets

Directorsʼemoluments,includingpensioncontributions,fellwithinthefollowingranges:

TherearenokeymanagementpersonnelotherthanExecutiveandNon-ExecutiveDirectors. Fulldetailsofdirectors’emolumentsarecontainedintheDirectorsRemunerationreportonpages36and37.


58 59


2018 £000

2017 £000

Valuation:at1January 17,342 18,247

Fundspaidin/(withdrawn) (1,250) (1,000)

Dividendsandinterestreinvested 238 87

Management fees and charges (40) (31)

Unrealisedgainsonyear-endrevaluation(seenote10) (150) 39

Valuation:at31December 16,140 17,342

Comprising:RoyalLondonShortDated 7,743 7,742

M&GFund 2,493 –

Federated Sterling Prime Fund 923 1,700

Federated Sterling Cash Plus Fund 4,981 7,900

16,140 17,342

2018 £000

2017 £000

Arrears of members or policy holders 181 24

Unpaid premiums due on insurance contracts 8,586 7,961

8,767 7,985

Land & buildings £000

IT & office equipment

£000

Furniture & fixtures £000 Total

£000Cost or Valuation:At1January2018 850 621 402 1,873

Additions - 58 43 101

Revaluation - - - -

Transfers - - - -

At31December2018 850 679 445 1,974

Accumulated depreciation:At1January2018 - 460 372 832

Depreciationfortheyear - 76 21 97

Disposals - - - -

At31December2018 - 536 393 929

Net Book Value:At31December2018 850 143 52 1,045

At31December2017 850 161 30 1,041

14. Other financial investments

15. Debtors arising out of direct insurance operations

16. Tangible assets

Inorderfortheseaccountstoshowatrueandfairviewitisappropriatenottoprovidefordepreciationonlandandbuildingsasitisconsideredthattheirusefuleconomiclivesandresidualvaluesaresuchthattheirdepreciationisimmaterial.

ThelastLand&BuildingrevaluationtookplaceinMarch2017.Thisrevaluationwasconductedbyanexternalimpartialthirdparty.UnderthecostmodeltheLand&Buildingswouldbevaluedattheoriginalpurchasepriceof£304k.

2018 £000

2017 £000

Acquisitioncosts–Directcosts-Commissions 245 235

Acquisitioncosts–IndirectExpenses 748 651

TotalDeferredAcquisitionCosts 993 886

2018 £000

2017 £000

Premiumsreceivedinadvance * 2,486 3,144

Provisionforunpaidpremiums 7,667 7,108

Total unearned premium 10,153 10,252

2018 £000

2017 £000

Revaluation reserveAt1January 317 117

Revaluationgains 0 200

At31December 317 317

2018 £000

2017 £000

General Fund ReserveAt1January 12,862 13,362

Profitfortheyearallocatedtothegeneralfund 23 (500)

At31December 12,885 12,862

17. Deferred acquisition costs

19. Provision for unearned premiums

18. Capital and reserves

Theproportionofthepremiumswrittenduringtheyear,relatingtotheunexpiredperiodofthesepolicieshasbeencarriedforwardasunearnedpremiumsprovisionsasatthebalancesheetdate.TheseareshownnetofInsurancePremiumTax.

* Thisrelatestotheproportionofpremiumsreceivedinadvancewhichisdeferredtothenextaccountingperiod.

2018 £000

2017 £000

Claims outstanding 3,240 3,325

Associated claims handling costs 245 237

Totalprovisionforclaimsoutstanding 3,485 3,562

20. Claims outstanding

Claimsoutstandingincludesaprovisionforclaimsproceduresthathaveoccurred,buthavenotyetbeenreportedtoCSHealthcareattheyearend,plusaprovisionforclaimsthathavebeenreceivedbuthavenotyetbeenprocessedforpayment.Theliabilityforclaimsoutstandingiscalculatedonthebasisofrecognisedactuarialmethodshavingdueregardtoactuarialprinciplesandbestpractice–seeNote4.


60 61


2018 £000

2017 £000

TheSocietyhadthefollowingminimumleasepaymentsundernon-cancellableoperatingleasesforeachofthefollowingperiods:

Payments due

Withinoneyear 115 113

Betweentwoandfiveyears 111 211

Laterthanfiveyears – –

226 324

2018 £000

2017 £000

InsurancePremiumTax(IPT) 1,645 1,557

PAYE&NILiability 145 143

Total creditors 1,790 1,700

Accruals 231 321

Total Creditors and accruals 2,021 2,021

21. Creditors & accruals

22. Pensions

23. Commitments

ThecostofSocietycontributionstothedefinedcontributionschemeduringtheyearwas£173k(2017:£118k).Therewerenooutstandingcontributionsatyearend(2017:£11k).

Costsassociatedtoleasespaidduringthereportingperiodwere£113k(2017:£77k)TheSocietyhadnootheroff-balancesheetarrangements.

24. Events after the reporting period TheSocietycanconfirmthattherewerenoadjusting,nornon-adjustingeventsthatcametolightaftertheendofthereportingperiod.


Amutual,notforprofit,healthinsurerspecialisinginthecivilandpublicservicesChair:AndrewJohnstonChiefExecutive:JamesParkerCivilServiceHealthcareSocietyLimitedisincorporatedundertheFriendlySocietiesAct1992,Registernumber463F.RegisteredOffice:PrincessHouse,HoraceRoad,KingstonuponThames,SurreyKT12SL.CivilServiceHealthcareSocietyisauthorisedbythePrudentialRegulationAuthorityandregulatedbytheFinancialConductAuthorityandthePrudentialRegulationAuthority–FinancialServicesRegisternumber205346.OurproductsarecoveredbytheFinancialServicesCompensationScheme(FSCS).*CallstoCSHealthcarewillberecordedandmaybemonitoredfortraining,qualityassurancepurposesand/orpreventionanddetectionofcrime.

External AuditorsDeloitteLLPAbbotsHouse,AbbeyStreetReadingRG13BDwww.deloitte.com/uk

Actuarial AdviserMillimanLLP11OldJewryLondonEC2R 8DUuk.milliman.com

BankersLloydsTSB83ClarenceStreetKingston upon Thames KT1 1REwww.lloydsbank.com

Internal AuditorsMazarsLLPTowerBridgeHouseStKatharine’sWayLondonE1W1DDwww.mazars.co.uk

Investment ManagersFederatedInvestors(UK)LLP5thFloor,1NewChangeLondonECYM9AFwww.federatedinvestors.co.uk

RoyalLondonAssetManagement55 Gracechurch StreetLondonEC3V0RLwww.rlam.co.uk

MandGInvestmentManagementLimitedLaurencePountneyHillLondonEC4R0HHwww.mandg.co.uk

Advisers

Contact usCS HealthcarePrincessHouseHoraceRoadKingston upon ThamesSurreyKT12SLwww.cshealthcare.co.uk

Telephone Membership020 8410 0400*

Claims020 8410 0440*

annual report and financial statements · financial performance.a modest surplus for 2018 followed...

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