Notes to the Consolidated Financial Statements

1              General information

The principal activities of Personal Group Holdings Plc ('the Company') and subsidiaries (together 'the Group') include transacting short-term accident and health insurance and providing employee services in the UK.

The Company is a limited liability company incorporated and domiciled in England. The address of its registered office is John Ormond House, 899 Silbury Boulevard, Milton Keynes, MK9 3XL.

The Company is listed on the Alternative Investment Market of the London Stock Exchange.

The condensed consolidated financial statements do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2022.

The financial information for the year ended 31 December 2022 set out in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The statutory financial statements for the year ended 31 December 2022 have been filed with the Registrar of Companies.  The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

These interim financial statements are unaudited and have not been reviewed by the auditors under International Standard on Review Engagements (UK and Ireland) 2410.

These consolidated interim financial statements have been approved for issue by the board of directors on 29 September 2023.

2              Accounting policies

These June 2023 interim consolidated financial statements of Personal Group Holdings Plc are for the six months ended 30 June 2023.  These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as endorsed for use in the UK.

They do not include all the information required for a complete set of IFRS financial statements.  However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2022.

These financial statements have been prepared in accordance with IFRS standards and IFRIC interpretations as adopted by the UK, issued and effective as at 30 June 2023.

Changes in accounting policies and new standards

Personal Group has initially applied IFRS 17 including any consequential amendments to other standards, from 1 January 2023. There are no other new or amended IFRS standards, that have a material effect, that have become effective during the period ended 30 June 2023.

IFRS 17 has had a significant impact on accounting for insurance contracts. As a result, Personal Group has re-stated certain comparative amounts particularly in the presentation of its Income Statement. Personal Group's updated accounting policies for reinsurance contracts are set out below. Disclosures relating to the transition to IFRS 17 have been set out in note 12.

Insurance contracts

IFRS 17 sets out the classification, measurement and presentation and disclosure requirements for insurance contracts. It requires insurance contracts to be measured using current estimates and assumptions that reflect the timing of cash flows and recognition of profits as insurance services are delivered. The standard provides two main measurement models which are the General Measurement Model ("GMM") and the Premium Allocation Approach ("PAA").

The PAA simplifies the measurement of insurance contracts for remaining coverage in comparison to the GMM. The PAA is very similar to Personal Group's previous accounting policies under IFRS 4 for calculating revenue, however there are some presentation changes.

The GMM is used for the measurement of the liability for incurred claims.

Notes to the Consolidated Financial Statements

PAA eligibility

Under IFRS 17, Personal Group's insurance contracts issued and are all eligible to be measured by applying the PAA, due to meeting the following criteria:

·           Insurance contracts with coverage period of one year or less are automatically eligible. This covers all hospital, convalescence, and death benefit insurance contracts.

·           Modelling of contracts with a coverage period greater than one year (employee default policies) produces a measurement for the group of reinsurance contracts that does not differ materially from that which would be produced applying the GMM.

Level of aggregation

Personal Group manages all insurance contracts as one portfolio within the insurance operating segment as they are subject to similar risks.

Onerous contracts

Under the PAA, it is assumed there are no contracts in the portfolio that are onerous at initial recognition, unless there are facts and circumstances that may indicate otherwise. Given the short-tailed nature of policies issued be Personal Group, management do not consider there to be any material circumstance under which policies in issue would be onerous.

Modification and derecognition

Personal Group derecognises insurance contracts when the rights and obligations relating to the contract are extinguished (meaning discharged, cancelled, or expired) or the contract is modified such that the modification results in a change in the measurement model or the applicable standard for measuring the contract.

Contract boundaries

The measurement of insurance contracts includes all future cash flows expected to arise within the boundary of each contract. Cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist during the reporting period in which Personal Group can compel the policyholder to pay premiums or in which it has a substantive obligation to provide the policyholder with services.

Personal Group assesses the contract boundary at initial recognition and at each subsequent reporting date to include the effects of changes in circumstances on the Group's substantive rights and obligations. The assessment of the contract boundary, which defines the future cash flows that are included in the measurement of the contract, requires judgement and consideration.

Personal Group primarily issues insurance contracts which provide coverage to policyholders in the event of hospitalisation, convalescence, or death. While the contracts are typically weekly or monthly in their term length, the contract boundary is assessed with consideration of the delayed timing around claims of this nature and the timing of expected future claims payments with reference to the covered loss event.

Measurement - Liability for remaining coverage

On initial recognition of insurance contract, the carrying amount of the liability for remaining coverage is measured as the premiums received on initial recognition, if any, minus any reinsurance acquisition expense cash flows allocated to the contracts and any amounts arising from the derecognition of the prepaid reinsurance acquisition expense cash flows asset. Personal Group has chosen not to expense insurance acquisition expense cash flows as incurred on its contracts as they have coverage of less than one year.

Subsequently, at the end of each reporting period, the liability for remaining coverage is increased by any additional premiums received in the period and decreased for the amounts of expected premium cash flows recognised as reinsurance revenue for the services provided in the period.

Personal Group has elected not to adjust the liability for remaining coverage for the time value of money as its insurance contracts do not contain a significant financing component.

Notes to the Consolidated Financial Statements

Measurement - Liability for incurred claims

The liability for incurred claims represents the estimated ultimate cost of settling all insurance claims arising from events that have occurred up to the end of the reporting period, including the operating costs that are expected to be incurred in the course of settling such claims. The liability for claims is derived from the estimated fulfilment cash flows relating to expected claims. The fulfilment cash flows incorporate, in an unbiased way, all reasonable and supportable information available, without undue cost of effort, about the amount, timing and uncertainty of those future cash flows. They also include an explicit risk adjustment. Estimates of future cash flows for incurred claims are not discounted on initial recognition due to the immateriality of the impact of the time value of money as discussed in Note 12.

3              Segment analysis

The segments used by management to review the operations of the business are disclosed below.

1)            Affordable Insurance

Personal Assurance Plc (PA), a subsidiary within the Group, is a PRA regulated general insurance Company and is authorised to transact accident and sickness insurance. It was established in 1984 and has been underwriting business since 1985. In 1997 Personal Group Holdings Plc (PGH) was created and became the ultimate parent undertaking of the Group.

Personal Assurance (Guernsey) Limited (PAGL), a subsidiary within the Group, is regulated by the Guernsey Financial Services Commission and has been underwriting death benefit policies since March 2015.

This operating segment derives the majority of its revenue from the underwriting by PA and PAGL of insurance policies that have been bought by employees of host companies via bespoke benefit programmes. During 2020 PAGL began underwriting employee default insurance for a proportion of LC customers.

2)            Other Owned Benefits

This segment constitutes any goods or services in the benefits platform supply chain which are owned by the Group. At present this is made up of a technology salary sacrifice business trading as PG Let's Connect, purchased by the Group in 2014.

3)            Benefits Platform

Revenue in this segment relates to the annual subscription income and other related income arising from the licensing of Hapi, the Group's employee benefit platform. This includes sales to both the large corporate and SME sectors.

4)            Pay and Reward

Pay and Reward refers to the trade of the Group's pay and reward consultancy Company Innecto, purchased in 2019, and QCG, purchased in 2022. Revenue in this segment relates to consultancy, surveys, and licence income derived from selling digital platform subscriptions.

5)            Other

The other operating segment includes revenue generated from the resale of vouchers. This segment also consists of revenue generated by Berkeley Morgan Group (BMG) and its subsidiary undertakings along with any investment and rental income obtained by the Group.

Notes to the Consolidated Financial Statements

The revenue and net result generated by each of the Group's operating segments are summarised as follows,

All income was derived from customers that are based in the UK.

4              Insurance service expenses

Notes to the Consolidated Financial Statements

5              Taxation

The tax expense recognised is based on the weighted average annual tax rate expected for the full financial year multiplied by management's best estimate of the taxable profit of the interim reporting period.

The Group's consolidated effective tax rate in respect of continuing operations for the six-month period ended 30 June 2023 was 13.6% (six-month period ended 30 June 2022: 15.9% credit). The tax charge recognised in the period continues to benefit from the application of the super-deduction capital allowances tax relief, eligible until 31 March 2023.

6              Earnings per share and dividends

The weighted average numbers of outstanding shares used for basic and diluted earnings per share are as follows:

During the first six months of 2023 Personal Group Holdings Plc paid dividends of £1,654,000 to its equity shareholders (2022: £1,592,000). This represents a payment of 5.30p per share (2022: 5.10p).           

7         Goodwill

Notes to the Consolidated Financial Statements

8        Intangible assets

9              Property, plant and equipment

Notes to the Consolidated Financial Statements

10   Financial Investments

IFRS 13 Fair Value Measurement establishes a fair value hierarchy that categorises into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs)

·              Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

·              Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

·              Level 3: inputs for the asset or liability that are not based on observable market data (unobservable

             input).

Bank deposits, held at amortised cost, are due within 6 months and the amortised cost is a reasonable approximation of the fair value. These would be included within Level 2 of the fair value hierarchy.

Equity Investments are held at fair value and are considered Level 1 financial assets.

11         Long Term Incentive Plan (LTIP)

During the period, the Remuneration Committee approved a third tranche of share awards under the existing LTIP approved on 6 April 2021. Further details of the award can be found in the RNS announcement from 21 June 2023.

Under the scheme share options of Personal Group Holdings Plc are granted to senior executives with an Exercise Price of 5p (nominal value of the shares). The share options have various market and non-market performance conditions which are required to be achieved for the options to vest. The options also contain service conditions that require option holders to remain in employment of the Group. The market and non-market performance conditions are set out below.

Total Shareholder Return (Market condition)

42.5% of the awards vest under this condition. Subject to Compound Annual Growth Rate (CAGR) of the Total Shareholder Return (TSR) over the Performance Period.

EBITDA Targets (Non-market condition)

42.5% of the awards vest under this condition. Subject to cumulative EBITDA over the Performance Period.

Environmental, social and governance targets ("ESG") Targets (Non-market condition)

Up to 15% of the awards vest under this condition. The awards shall vest upon the Remuneration Committee determining that all ESG targets have been met.

The fair value of the of the share options is estimated at the grant date using a Monte-Carlo binomial option pricing model for the market conditions, and a Black-Scholes pricing model for non-market conditions.

Notes to the Consolidated Financial Statements

However, the above performance condition is only considered in determining the number of instruments that will ultimately vest.

There are no cash settlements alternatives. The Group does not have a past practice of cash settlement for these share options. The Group accounts for the LTIP as an equity-settled plan.

In total, £118,000 of employee share-based compensation has been included in the consolidated income statement to 30 June 2023 (2022: £142,000). The corresponding credit is taken to equity. No liabilities were recognised from share-based transactions. The remaining £10,000 (2022: £10,000) of share-based compensation expense relates to the Company Share Option Plan (CSOP).

12           Transition to IFRS 17

IFRS 17, Insurance Contracts

IFRS 17 replaces IFRS 4 Insurance Contracts for annual periods on or after 1 January 2023. In addition to the

updated accounting policies discussed in Note 2, some of the key differences between IFRS 17 and the accounting policies previously adopted by Personal Group under IFRS 4 are outlined below.

Changes to classification and measurement

The adoption of IFRS 17 did not change the classification of Personal Group's insurance contracts issued. Under IFRS 17, Personal Group's insurance contracts are all eligible to be measured by applying the Premium Allocation Approach ("PAA").

The measurement principles of the PAA are very similar to accounting policies previously applied under IFRS 4 but are different in the following key areas:

·       Under IFRS 4 gross premiums written were recognised at the top of the consolidated income statement with an adjustment for the change in unearned premium liability and outward reinsurance premiums. IFRS 17 defines insurance revenue as the expected premium cash flows net of any deductions that are paid to reinsurance providers, excluding any investment components. As such, the new Income Statements consolidates those previous balances into one insurance income figure for the period.

·       If contracts are assessed as being onerous, a loss component is recognised. Previously these may have formed an unexpired risk reserve provision determine through the liability adequacy test. No onerous contracts have been identified and, as a result, there has been no transition adjustment for this.

·       Under IFRS 4, contract specific acquisition cash flows were deferred and amortised. Under IFRS 17, the recognition of insurance acquisition expense cash flows includes an allocation of acquisition-related operating expenses incurred in the period. The deferral and amortisation of these expenses, under both IFRS 4 and IFRS 17, is spread over the life of insurance contracts. As the vast majority of Personal Group's insurance contracts are weekly or monthly in length, there is no deferral and amortisation of acquisition costs performed.

·       In the measurement of the insurance contract liability, under IFRS 4, losses and loss adjustment expenses were required to be undiscounted without an explicit need for an adjustment for non-financial risk. Under IFRS 17, the liability for incurred claims is typically determined on a discounted expected value basis and includes an explicit risk adjustment for non-financial risk. Personal Group has assessed the impact of discounting of expected future insurance losses and, due to the majority of losses being paid in the first 12 months following a loss event, this impact was insignificant. In addition to this, Personal Group has always included a risk adjustment into its chain-ladder method for calculating its insurance contract liability. As a result, there has been no change in calculation method on transition to IFRS 17.

Changes to presentation and disclosure

Under IFRS 4, separate assets and liabilities were recognised for premium receivables, deferred acquisition costs, unearned premiums, and loss and loss adjustment reserves. These assets and liabilities were shown aggregated for all insurance contracts. While IFRS 17 groups the insurance assets and liabilities by portfolio, as defined by Personal Group's level of aggregation accounting policy (see Note 2), all insurance contracts are treated as one aggregate class so there has been no impact of the change on transition.

The Group Income Statement has also changed in its presentation. Previously, Personal Group reported items such as gross premiums written, movement in unearned provisions and the reinsurer's share of these. Under IFRS 17, the standard defines and requires distinct presentation of insurance revenue and insurance service expenses.

Transition to IFRS 17

Changes in accounting policies resulting from the adoption of IFRS 17 have been applied using a full retrospective approach. Under the full retrospective approach, as at 1 January 2022 Personal Group identified, recognised, and measured each group of reinsurance contracts as if IFRS 17 had always applied.

Were they to have arisen, Personal Group would have derecognised any existing balances that would not exist had IFRS 17 always applied and recognised any resulting net difference in equity. There were adjustments to the calculations on the balance sheet recognised on the transition to IFRS 17.

13           Post balance sheet events

There have been no post balance sheet events.

14           Financial calendar for the year ending 31 December 2023

The Company announces the following dates in its financial calendar for the year ending 31 December 2022:

·      Preliminary results for the year ending 31 December 2023                               -               March 2024

·      Publication of Report and Accounts for 2023                                                        -               March 2024

·      AGM                                                                                                                              -               April/May 2024