Arag Plc - Limited company accounts 16.3

REGISTERED NUMBER: 02585818 (England and Wales)

ARAG PLC

Strategic Report, Report of the Directors and

Financial Statements for the Year Ended 31 December 2016

Page

Company Information

1

Strategic Report

2

Report of the Directors

5

Report of the Independent Auditors

7

Statement of Comprehensive Income

9

Balance Sheet

10

Statement of Changes in Equity

11

Cash Flow Statement

12

Notes to the Cash Flow Statement

13

Notes to the Financial Statements

14

DIRECTORS:

A J Buss

W Nicoll

P K Hurley

R H Dirksen

SECRETARY:

R Moreton

REGISTERED OFFICE:

9 Whiteladies Road

Clifton

Bristol

BS8 1NN

REGISTERED NUMBER:

02585818 (England and Wales)

AUDITORS:

Whitehead Accountants Limited

Statutory Auditor

Chartered Accountants

40 Lord Street

Stockport

Cheshire

SK1 3NA

The directors present their strategic report for the year ended 31 December 2016.

REVIEW OF BUSINESS

This has been another successful trading period for the Company, despite the many challenges that have occurred. The

Company has continued to extend its presence in the UK legal expenses and assistance insurance sector and has seen

further increases in the volume of business it transacts with key insurers, brokers and solicitors in the market. This

presence is firmly built on being regarded as the best in the market by being a quality, reliable and expert provider of

such insurances and this has been achieved by setting ourselves apart on key drivers such as flexibility and innovation.

The overall legal expenses insurance market still continues to experience changes in 2016 arising from the Legal Aid,

Sentencing and Punishment of Offenders Act (LASPOA) in 2013. Before the Event (BTE) business continues to develop

strongly but After the Event (ATE) business finds itself still subject to a mixed environment of pre and post LASPOA, as

earnings remain predominately generated by policies taken out before LASPOA whilst premium under management is

influenced by the more price-driven competitive situation after LASPOA. The Company has taken great care to focus on

each product type separately and now has a balanced book of both BTE and ATE business.

BTE business shows consistently strong growth, particularly for new accounts for Commercial and Family legal

expenses and Home Emergency assistance business. This growth is expected to continue despite the many challenges

being presented by possible future regulatory and legal reforms. The Company has matters in hand to develop smarter

methods of selling, conduct and servicing the customer in line with regulators objectives. However, these additional

costs from greater regulation continue to not only increase internal costs, but also discourage the transfer of accounts

from competitors. Notwithstanding this development, we continue to drive the business forward and our new London

based office is now operational and will support this move for more City based Commercial business from the London

market.

ATE business has had a mixed result. Pre-LASPOA performance continues to show a favourable run-off performance

with loss ratio's steadily improving, although additional premiums reduced significantly compared to 2015.

Post-LASPOA sales showed promising and moderate growth, which has been tempered by the realisation that the

expected number of winning cases is considerably below that experienced in the pre-LASPOA environment. Ultimate

premium projections have therefore been reduced to reflect this disappointing development.

In addition, post-LASPOA earnings continue to be frustrated by the ATE premium challenges being received from the

paying party, the National Health Service Litigation Authority on Clinical Negligence policies. Whilst these policies

have had successful outcomes with regard to the insurance risk, the Company is not been able to recognise this income

until each challenge has been resolved and the payment received. This situation is expected to be resolved during 2017.

Meanwhile the Company is prepared for any changes arising from the latest government consultations on arrangements

concerning personal injury claims and introducing fixed recoverable costs in lower value clinical negligence claims. The

Company remains confident that it can overcome a number of other challenges including the repeated increases in

Insurance Premium Tax and the general economic and regulatory uncertainty following Brexit.

Despite these challenging market conditions, the shareholders are satisfied the Company's performance has been

achieved without sacrificing underwriting discipline growing consolidated income from £11.1m to £12.2m and

increasing the net operating profit of the Company from £2.2m to £2.4m in 2016. Meanwhile, solvency remains very

adequately covered.

Expenditure continues to be closely controlled and has been maintained to be below the appropriate threshold levels to

support the growth of the Company. Emphasis continues to be placed on the fundamental importance of putting

customers first, so policies and procedures have been further improved with the aim of treating every customer fairly and

consistently.

The Company has a strong market presence and retained the best BTE Underwriting Service Award for the 4th

consecutive year and Managing General Agent Team of the Year Award for the 2nd consecutive year as voted by

industry experts. In addition, the Company was shortlisted for numerous awards and received "outstanding" status in the

Best Companies survey. All of this could not have been achieved without the dedication and commitment of the

Company's staff and the support and belief of all the Company's brokers, agents, insurers, solicitors and suppliers.

PRINCIPAL RISKS AND UNCERTAINTIES

The Company has established a risk management and governance framework that is designed to identify and mitigate

risk. Key policies and controls include;

* Biannual meetings of the Board of Directors, Compliance Committee and the Groups General Executive Council at

which key aspects of the Company's business are reviewed.

* Underwriting and Claims guidelines and controls are aligned with the Company's binding authorities and embedded

in the Company's operating systems and processes. Quarterly meetings of the Underwriting and Claims Committee

regularly review performance of BTE and ATE segments (ie: 8 meetings per annum)

* Quarterly reviews are undertaken with all insurers

* The Group Reserve Committee reviews biannually the adequacy of claims reserves

* The Company's risk register is reviewed monthly by the Senior Management and reported to the Group quarterly

* Insurers audit underwriting and claims processes annually

* Group internal audit carries out regular audits

* Human resources policies and guidelines designed to include that the operations are adequately resourced by

sufficiently skilled people

* Financial policies and controls that cover expense management, cash flow and other financial projections, credit

risk and debt collection

* Key performance indicators are monitored on a regular basis and form part of the monthly reporting cycle. These

include indicators on financial (gross written and net written premium, commission, fee income, EBITDA

performance and underwriting loss ratio's) and non-financial (customer outcomes and conduct risk) performance.

Legal and Regulatory Risk

The Company is exposed to potential claims and litigation arising out of the ordinary course of business relating to

errors and omissions, or non-compliance with laws and regulations. The Company is directly regulated by the Financial

Conduct Authority.

The directors are satisfied that the Company has in place appropriate arrangements to manage these risks including

engaging external consultants, compliance monitoring procedures and reporting to the Board. In addition, the Company

ensures that solvency is preserved at all times and carries appropriate insurance cover to meet any claims.

The directors consider the risk and uncertainty arising from the UK intending to leave the EU to be minimal. This risk

will continue to be monitored and assessed as the UK exit progresses over the next few years.

Financial Risk

The Company has put in place appropriate financial and cash flow management structures so that it able to anticipate

demand for cash and meet obligations as they arise. The controls in place ensure the Company has appropriate cash

resource to meet its obligations as they fall due.

The Company places excess funds on deposit and does not hold any investments where market values are impacted by

interest rate fluctuations.

The Company monitors its level of exposure to revenues not yet received on a regular basis in order to provide any

exposure which will not be collected. The Company regularly monitors its exposure to single and grouped counterparties

and ensures that its cash is kept with counterparties with appropriate credit ratings.

Operational Risk

The Company operates a framework of key risks and controls that includes internal controls, internal audit and

compliance checks. Other measures such as back-up procedures, disaster recovery and contingency planning supplement

this approach.

Market Risk

The key risks affecting the Company are;

* The uncertain legal landscape and economic climate that creates additional pressures on demand for the Company's

products, on pricing, claims frequencies and settlements and cash flow

* Regulatory changes that may impact on sales, internal expenses, claims frequencies and claims costs

* Failure to achieve planned income and consequent shortfall of revenue against expenses

* Failure to attract or retain high quality staff on which the Company's high service proposition is founded

* General uncertainty post-LASPOA on ATE including premium recoverability.

* Major changes in UK insurance distribution and selling methods that impact on the Company's business model.

ON BEHALF OF THE BOARD:

A J Buss - Director

2 June 2017

The directors present their report with the financial statements of the company for the year ended 31 December 2016.

PRINCIPAL ACTIVITY

The principal activity of the company in the year under review was that of the provision of a wide range of legal

expenses and assistance insurance, legal services and advice to individuals and businesses, sold through a select number

of insurance brokers, agents, insurers and solicitors.

The Company underwrites UK insurance under binding and delegated authorities granted by a number of UK authorised

insurers. Reinsurance is separately placed between these insurers and ARAG SE based in Germany.

DIVIDENDS

Based on the 2016 profits it is proposed that a dividend of £1,124,936 will be paid during 2017.

DIRECTORS

The directors shown below have held office during the whole of the period from 1 January 2016 to the date of this

report.

A J Buss

W Nicoll

P K Hurley

R H Dirksen

Other changes in directors holding office are as follows:

Dr J Kathan ceased to be a director after 31 December 2016 but prior to the date of this report.

POLITICAL DONATIONS AND EXPENDITURE

During the period the company made contributions to various charities totalling £1,847 (2015 £2,776).

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Strategic Report, the Report of the Directors and the financial statements

in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors

have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting

Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 102 'The

Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under company law the directors must not

approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the

company and of the profit or loss of the company for that period. In preparing these financial statements, the directors

are required to:

-	select suitable accounting policies and then apply them consistently;

-	make judgements and accounting estimates that are reasonable and prudent;

-	state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

-	prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the

company's transactions and disclose with reasonable accuracy at any time the financial position of the company and

enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for

safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud

and other irregularities.

STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS

So far as the directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies Act

2006) of which the company's auditors are unaware, and each director has taken all the steps that he ought to have taken

as a director in order to make himself aware of any relevant audit information and to establish that the company's

auditors are aware of that information.

AUDITORS

The auditors, Whitehead Accountants Limited, will be proposed for re-appointment at the forthcoming Annual General

Meeting.

ON BEHALF OF THE BOARD:

R Moreton - Secretary

2 June 2017

We have audited the financial statements of Arag Plc for the year ended 31 December 2016 on pages nine to twenty. The

financial reporting framework that has been applied in their preparation is applicable law and United Kingdom

Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting

Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'.

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the

Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those

matters we are required to state to them in a Report of the Auditors and for no other purpose. To the fullest extent

permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's

members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Statement of Directors' Responsibilities set out on page five, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give

reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.

This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and

have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by

the directors; and the overall presentation of the financial statements. In addition, we read all the financial and

non-financial information in the Strategic Report and the Report of the Directors to identify material inconsistencies with

the audited financial statements and to identify any information that is apparently materially incorrect based on, or

materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of

any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

-	give a true and fair view of the state of the company's affairs as at 31 December 2016 and of its profit for the year then ended;

-	have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'; and

-	have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Strategic Report and the Report of the Directors for the financial year for

which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you

if, in our opinion:

-	adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

-	the financial statements are not in agreement with the accounting records and returns; or

-	certain disclosures of directors' remuneration specified by law are not made; or

-	we have not received all the information and explanations we require for our audit.

Allan Whitehead FCA (Senior Statutory Auditor)

for and on behalf of Whitehead Accountants Limited

Statutory Auditor

Chartered Accountants

40 Lord Street

Stockport

Cheshire

SK1 3NA

2 June 2017

TURNOVER

12,158,961

11,145,017

Cost of sales

2,339,018

2,390,802

GROSS PROFIT

9,819,943

8,754,215

Administrative expenses

7,461,913

6,521,142

OPERATING PROFIT

4

2,358,030

2,233,073

Income from shares in group undertakings

5

-

446,501

Interest receivable and similar income

188

1,009

188

447,510

PROFIT BEFORE TAXATION

2,358,218

2,680,583

Tax on profit

6

483,325

460,841

PROFIT FOR THE FINANCIAL YEAR

1,874,893

2,219,742

OTHER COMPREHENSIVE INCOME

-

-

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

1,874,893

2,219,742

FIXED ASSETS

Tangible assets

8

455,305

460,832

Investments

9

-

-

455,305

460,832

CURRENT ASSETS

Debtors

10

27,372,311

28,490,657

Cash at bank and in hand

19,573,974

19,147,691

46,946,285

47,638,348

CREDITORS

Amounts falling due within one year

11

19,436,679

19,812,877

NET CURRENT ASSETS

27,509,606

27,825,471

TOTAL ASSETS LESS CURRENT LIABILITIES

27,964,911

28,286,303

CREDITORS

Amounts falling due after more than one year

12

(16,538,535

)

(17,396,700

)

PROVISIONS FOR LIABILITIES

14

(63,586

)

(69,861

)

NET ASSETS

11,362,790

10,819,742

CAPITAL AND RESERVES

Called up share capital

15

8,600,000

8,600,000

Retained earnings

16

2,762,790

2,219,742

SHAREHOLDERS' FUNDS

11,362,790

10,819,742

The financial statements were approved by the Board of Directors on 2 June 2017 and were signed on its behalf by:

W Nicoll - Director

Called up

share

Retained

Total

capital

earnings

equity

£

£

£

Balance at 1 January 2015

8,600,000

1,432,389

10,032,389

Changes in equity

Dividends

-

(1,432,389

)

(1,432,389

)

Total comprehensive income

-

2,219,742

2,219,742

Balance at 31 December 2015

8,600,000

2,219,742

10,819,742

Changes in equity

Dividends

-

(1,331,845

)

(1,331,845

)

Total comprehensive income

-

1,874,893

1,874,893

Balance at 31 December 2016

8,600,000

2,762,790

11,362,790

Cash flows from operating activities

Cash generated from operations

1

2,283,817

41,421

Tax paid

(337,268

)

(840,154

)

Net cash from operating activities

1,946,549

(798,733

)

Cash flows from investing activities

Purchase of tangible fixed assets

(188,609

)

(198,973

)

Interest received

188

1,009

Dividends received

-

446,501

Net cash from investing activities

(188,421

)

248,537

Cash flows from financing activities

Equity dividends paid

(1,331,845

)

(1,432,389

)

Net cash from financing activities

(1,331,845

)

(1,432,389

)

Increase/(decrease) in cash and cash equivalents

426,283

(1,982,585

)

Cash and cash equivalents at beginning of year

2

19,147,691

21,130,276

Cash and cash equivalents at end of year

2

19,573,974

19,147,691

1.	RECONCILIATION OF PROFIT BEFORE TAXATION TO CASH GENERATED FROM OPERATIONS

31.12.16

31.12.15

£

£

Profit before taxation

2,358,218

2,680,583

Depreciation charges

194,135

170,379

Finance income

(188

)

(447,510

)

2,552,165

2,403,452

Decrease/(increase) in trade and other debtors

1,123,952

(3,347,856

)

(Decrease)/increase in trade and other creditors

(1,392,300

)

985,825

Cash generated from operations

2,283,817

41,421

2.	CASH AND CASH EQUIVALENTS

The amounts disclosed on the Cash Flow Statement in respect of cash and cash equivalents are in respect of these

Balance Sheet amounts:

Year ended 31 December 2016

31/12/16

1/1/16

£

£

Cash and cash equivalents

19,573,974

19,147,691

Year ended 31 December 2015

31/12/15

1/1/15

£

£

Cash and cash equivalents

19,147,691

21,130,276

1.	STATUTORY INFORMATION

Arag Plc is a private company , registered in England and Wales. The company's registered number and

registered office address can be found on the Company Information page.

2.	ACCOUNTING POLICIES

Basis of preparing the financial statements

These financial statements have been prepared in accordance with Financial Reporting Standard 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and the Companies Act 2006. The financial statements have been prepared under the historical cost convention.

Preparation of consolidated financial statements

The financial statements contain information about Arag Plc as an individual company and do not contain

consolidated financial information as the parent of a group. The company is exempt under Section 400 of the

Companies Act 2006 from the requirements to prepare consolidated financial statements as it and its subsidiary

undertaking are included by full consolidation in the consolidated financial statements of its parent, ARAG SE, .

Turnover

Turnover represents brokerage and commissions earned as an insurance intermediary facilitating Legal Expenses

insurance services. Commissions are received on the placing of insurances through UK insurers and reinsurance

provided by the company's parent - ARAG SE.

Income is earned in full at inception on all risks except for After The Event risks where the premium is

contingent upon successful outcome of the case. In such circumstances the income is only earned at the

conclusion of a successful case. Unearned commissions are shown on the Balance Sheet as Deferred Income.

Tangible fixed assets

Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life.

Fixtures and fittings

-

33% on cost, 25% on cost and 20% on cost

Investments in subsidiaries

Investments in subsidiary undertakings are recognised at cost less any provision for impairment.

Financial instruments

The company only enters into basic financial instruments transactions that result in the recognition of financial

assets and liabilities such as trade and other accounts receivable and payable and loans from/to related parties.

Debt instruments, such as loans and other accounts receivable and payable, are initially measured at present

value of the future payments and subsequently at amortised cost using the effective interest method. Debt

instruments that are payable or receivable within one year are measured, initially and subsequently, at the

undiscounted amount of the cash or other consideration, expected to be paid or received.

Taxation

Taxation for the year comprises current and deferred tax. Tax is recognised in the Statement of Comprehensive

Income, except to the extent that it relates to items recognised in other comprehensive income or directly in

equity.

Current or deferred taxation assets and liabilities are not discounted.

Current tax is recognised at the amount of tax payable using the tax rates and laws that that have been enacted or

substantively enacted by the balance sheet date.

Deferred tax

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance

sheet date.

Timing differences arise from the inclusion of income and expenses in tax assessments in periods different from

those in which they are recognised in financial statements. Deferred tax is measured using tax rates and laws that

have been enacted or substantively enacted by the year end and that are expected to apply to the reversal of the

timing difference.

Unrelieved tax losses and other deferred tax assets are recognised only to the extent that it is probable that they

will be recovered against the reversal of deferred tax liabilities or other future taxable profits.

Foreign currencies

Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the

balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at

the date of transaction. Exchange differences are taken into account in arriving at the operating result.

Pension costs and other post-retirement benefits

The company operates a defined contribution pension scheme. Contributions payable to the company's pension

scheme are charged to profit or loss in the period to which they relate.

Clawback provision

The company provides a financial product upon which it receives commission on inception of the contract.If

these policies are cancelled, abandoned or the case is not won, some of the commission received is

repayable.The company has provided for this potential clawback of commission on the basis of the historical

success rate of completed cases is 70% so accordingly 30% of the policies will fail. The policy is under continual

review in order to reflect such liabilities as accurately as possible.

Holding provision

Certain introducers receive a fee on the conclusion of a successful case. The Holding provision represents 70%

of the advance commission received by the company referred to in the Clawback provision above that may be

paid to Introducers.

3.	EMPLOYEES AND DIRECTORS

31.12.16

31.12.15

£

£

Wages and salaries

4,480,823

3,873,052

Social security costs

496,376

431,844

Other pension costs

340,882

347,684

5,318,081

4,652,580

The average monthly number of employees during the year was as follows:

31.12.16

31.12.15

Administration

95

85

31.12.16

31.12.15

£

£

Directors' remuneration

723,473

637,734

Directors' pension contributions to money purchase schemes

(1,174

)

44,039

The number of directors to whom retirement benefits were accruing was as follows:

Money purchase schemes

-

1

Information regarding the highest paid director is as follows:

31.12.16

31.12.15

£

£

Emoluments etc

391,122

373,433

4.	OPERATING PROFIT

The operating profit is stated after charging/(crediting):

31.12.16

31.12.15

£

£

Depreciation - owned assets

194,136

170,379

Auditors' remuneration

30,520

31,971

Auditors' remuneration for non audit work

11,605

11,272

Foreign exchange differences

(18

)

222

5.

INCOME FROM SHARES IN GROUP UNDERTAKINGS

31.12.16

31.12.15

£

£

Shares in group undertakings

-

446,501

6.

TAXATION

Analysis of the tax charge

The tax charge on the profit for the year was as follows:

31.12.16

31.12.15

£

£

Current tax:

UK corporation tax

477,641

448,864

Deferred tax

5,684

11,977

Tax on profit

483,325

460,841

Reconciliation of total tax charge included in profit and loss

The tax assessed for the year is higher than the standard rate of corporation tax in the UK. The difference is

explained below:

31.12.16

31.12.15

£

£

Profit before tax

2,358,218

2,680,583

Profit multiplied by the standard rate of corporation tax in the UK of 20% (2015 - 20.247%)

471,644

542,738

Effects of:

Expenses not deductible for tax purposes

11,912

9,632

Income not taxable for tax purposes

-

(90,403

)

Capital allowances in excess of depreciation

(5,685

)

(14,172

)

Adjustments to tax charge in respect of previous periods

(230

)

1,069

Deferred tax charge

5,684

11,977

Total tax charge

483,325

460,841

7.

DIVIDENDS

31.12.16

31.12.15

£

£

Ordinary shares of £1 each

Final

1,331,845

1,432,389

8.	TANGIBLE FIXED ASSETS

Fixtures

and

fittings

£

COST

At 1 January 2016

1,168,783

Additions

188,609

Disposals

(14,845

)

At 31 December 2016

1,342,547

DEPRECIATION

At 1 January 2016

707,951

Charge for year

194,136

Eliminated on disposal

(14,845

)

At 31 December 2016

887,242

NET BOOK VALUE

At 31 December 2016

455,305

At 31 December 2015

460,832