2007

Annual Report
and Accounts
2007

Exeter Friendly Society

Annual Report and Accounts 2007
Board of Directors

Chairman G A L Cruwys, LLB (Exon)

Deputy Chairman A J Martin, JP, FCA

Senior Independent Director P R Easton, FCIB

Non-executive P D Egan, FCA

C W Moore, MSc

Dr W T Hamilton, MD, BSc, FRCP, FRCGP

A D S Chapman, ACII, APFS (to 15th November 2007)

Chief Executive R B Cawse, JP, MA (Exon), DMS, FCIB

Executive M H Dunford, MA, FIA

J P Edwards, BSc, ACIS

N J McLeod, BA, FCA

M J Moreland, BSc, MBA, MBCS, CITP

Audit and Risk Committee

Chairman A J Martin, JP, FCA

P D Egan, FCA

C W Moore, MSc

Remuneration Committee

Chairman P R Easton, FCIB

G A L Cruwys, LLB (Exon)

A D S Chapman, ACII, APFS (to 15th November 2007)

Nomination Committee

Chairman P R Easton, FCIB

G A L Cruwys, LLB (Exon)

A D S Chapman, ACII, APFS (to 15th November 2007)

Professional Advisors

Auditors KPMG Audit Plc

Internal Audit Function PricewaterhouseCoopers LLP

Bankers Lloyds TSB Group Plc

Investment Advisors Citi Quilter

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Table of Contents

Chairman’s Statement 1

Board of Directors 4

Report of the Directors 6

Report of the Directors on Corporate Governance 9

Statement of Directors’ Responsibilities 15

Independent Auditor’s Report to the Members of Exeter Friendly Society Ltd 16

Consolidated Income and Expenditure Account 18

Consolidated Balance Sheet 19

Parent Company Balance Sheet 20

Consolidated Cash Flow Statement 21

Consolidated Statement of Total Recognised Gains and Losses 22

Notes to the Financial Statements 23

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Chairman’s Statement

On behalf of the Board of Directors, I have pleasure in presenting my Financial results

report for the financial year ended 31 December 2007. Earned premiums from the Society’s insurance operations rose

by 3.4% to £42.65 million as new business written and premium

Proposed Transfer of Engagements
increases more than offset the effects of the falling membership
Firstly, I should like to update members on the Society’s plans to take a
base. Claims incurred rose by 1.6% to £38.46 million, reflecting an
Transfer of Engagements from Pioneer Friendly Society Limited, which
increase in both claim frequency and in average claim cost. Whilst the
is a specialist provider of income protection products. I am pleased
Society has enjoyed success in containing the charges levied by the
to advise that, at the Special General Meetings held on 28th February
main treatment providers both in the UK and overseas, advancement
2008, the members of both Societies gave their required approval and
in medical science and the development of ever more sophisticated
the Transfer is due to be completed on 31st March 2008, subject to the
treatments continue to have an impact on claim costs.
necessary regulatory clearances being received. The Society is excited

by the opportunities afforded by the combination of the two businesses

Costs at the operating level increased by 5.1% to £4.79 million,
and is looking forward to using the skills of both organisations to
although this figure includes £0.22 million of one-off costs arising
develop a range of healthcare products for the benefit of our existing
from the proposed Transfer of Engagements from Pioneer Friendly
and future members.
Society, referred to above. The Society’s underlying expense ratio of

11.2% still compares very favourably with other UK medical insurers.

Membership
By keeping a tight rein on these costs the Society is able to maintain
The number of policies registered with the Society recorded a fall of
a claims-to-income ratio significantly higher than most other medical
4.9% during the year, ending the period at 29,770 and representing a
insurers, in keeping with its Friendly Society status.
total membership of 42,249 persons covered.

After other income is taken into account, the technical account shows
Whilst there were encouraging signs of an improvement in activity
a deficit of £0.44 million. This deficit was not unexpected as the Board
both in the UK and in our key overseas markets during the final quarter
had agreed to allocate a modest amount of the investment return
of the year, this was not enough to offset a generally disappointing
earned on reserves in order to allow premium rates to be set at lower
year for new business.
levels than would otherwise have been required.

Sales in the UK remained subdued for a large part of 2007 as a result

The overall financial position was enhanced by another solid
of reduced demand for individually-purchased private medical
performance from the Society’s investment portfolio, which produced
insurance within our target age group, but also because of increased
a net positive contribution of £4.77 million. After other net costs of
competition from the larger commercial insurers. Overseas, demand
£0.37 million a total surplus of £3.96 million is reported, which has
for our products held up well despite an initial fall in sales resulting
been transferred to reserves.
from the closure of the branch of our insurance broking subsidiary in

Spain.
The Society has thus maintained substantial and adequate reserves

which enable it to manage the higher claims to income ratio referred to

The Society continues to take steps to reverse the negative trend on
above. Such reserves also provide for the future liabilities arising from
membership levels, further details of which are provided later in this
those policies that benefit from premium levels calculated according
report.
to the age of the insured when they join rather than at renewal.

1
Other developments Board of directors
Early in the year, the Society took the strategic decision to terminate In order to ensure that the enlarged Society is in a position to meet the

the activities of the Spanish branch of its wholly-owned subsidiary, Go challenges ahead, a number of changes are planned at Board level,

Private Limited, which operated as a general insurance broker under subject of course to the regulatory approval already referred to. I will

the trading name of Go Insure It. Whilst the sales emanating from the be stepping down as your Chairman, but will remain on the Board

branch were significant, these fell short of the targets set when the as non-executive Deputy-Chairman. On a personal note, I should

branch was created and, consequently, it was no longer considered a like to take this opportunity to thank members for all their support

viable long-term proposition. In the period leading up to the branch and feedback during my 14-year tenure as Chairman. I am sure all

closure, the Society worked quickly to identify a more cost-effective members will join me in wishing my successor, Christopher Ide, who

model for maintaining new business levels in the Iberian Peninsula, was previously Chairman of Pioneer Friendly Society and who has a

and I am pleased to advise that this is already beginning to bear fruit. wealth of experience in the financial services industry, all the very best

in his new role.

The Society regularly reviews its product range to ensure that it

meets the needs of the changing marketplace; and a number of Three non-executive directors of the Society, Messrs Egan, Martin and

other initiatives for both the UK and overseas are currently in various Moore, will also be retiring from the Board after combined service

stages of development. We have also negotiated a number of new totalling more than fifty years. We are indebted to them for the expert

affinity arrangements, through which we can market our products, guidance and loyal support they have provided throughout their long

where research has shown that the membership profile of the affinity association with the Society, and we wish them well for the future.

organisation is similar to our own.

In accordance with the Society’s rules, the directors appointed

Last year I made reference to the new Individual Capital Adequacy subsequent to the completion of the Transfer of Engagements will be

Standards that had been introduced to ensure that the capital resources seeking election at the forthcoming Annual General Meeting. A notice

held by insurers are adequate to meet their liabilities as and when of this meeting will be issued in due course.

they fall due. During the year the Society continued to develop its
Charitable donations
own risk mitigation framework in order to be able to identify, measure
The Board approved donations totalling £10,000 (2006 - £9,000)
and report risks and ensure that, on an ongoing basis, the capital held
to hospice care and other charitable organisations during 2007, in
by the Group is adequate in relation to the overall risk profile of the
appreciation of the invaluable service they provide to members. In
business and the environment in which it operates. I am pleased to
addition to this figure, an amount of £4,000 (2006 - £4,250) was
report that the Group reserves comfortably exceed the amount of risk-
paid in respect of policies covered by schemes that include a hospice
based capital that result from this assessment.
donation as a benefit. A further amount totalling £16,380 was paid in

donations to the chosen charities of the 3,276 members who completed

During the year we undertook our largest ever survey of members to
and returned the Society’s customer satisfaction questionnaire.
gauge levels of satisfaction with the service that is provided to them

by their Society. I am delighted to report that the results of this survey

Complaints and disputes
were extremely positive. Nevertheless, we are always looking to
Whilst the Society prides itself on the high levels of customer service
improve and so we will be maintaining our efforts in the coming year
that it delivers, the increasing complexity of medical insurance means
in those areas where members have expressed that their expectations
that there are inevitably occasions when members’ expectations are
on service have not been met.
not met.

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In acknowledging the benefits to both the Society and members

alike of a consistent approach to complaints handling, the Society

prominently displays its service standards and complaints procedure

in its documentation and promotional literature. Feedback from

members is also actively encouraged. In addition, the Board of

Directors regularly reviews reports on all complaints received in order

that, where necessary, improvements can be made to products and

systems. A long-term commitment to staff development is viewed as a

key element in maintaining service standards throughout the Society,

as evidenced by its Investors in People accreditation.

The Society is a member of the Financial Ombudsman Service to

which any unresolved complaints are referred if all other avenues

fail to bring about a satisfactory conclusion. No cases have had to be

resolved in this way during 2007, which is testimony to the integrity

and quality of the staff and work processes within the Society.

Thanks and acknowledgements

We recognise that, as a member based organisation, our success is

dependent upon the support of members and the dedication of our

staff. I would like to thank them all for the part they have played

during the year. Their contribution to the Society’s continued strength

is valued greatly by the Board.

G A L Cruwys, LLB (Exon), Chairman

13 March 2008

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Board of Directors - As at 31 December 2007

Guy Cruwys (61)

Chairman
Guy Cruwys joined the Board on the Society’s incorporation in 1994. He is a partner in private practice with a large West Country firm of solicitors and

works in mid-Devon. He specialises in private client work having obtained his Law Degree at Exeter University and trained in London. He is currently

Chairman of the Board and serves on the Remuneration and Nomination Committees.

Anthony Martin (66)

Deputy Chairman
Anthony Martin joined the Board on the Society’s incorporation in 1994. He enjoyed wide-ranging business experience for over 30 years as a Director

and subsequently Chairman of his well-established family company in the West Country leisure industry. He is a Chartered Accountant and was a sole

practitioner for 38 years until 2006. He is currently Deputy Chairman of the Board and Chairman of the Audit and Risk Committee.

Peter Easton (61)

Non-executive Director
Peter Easton joined the Board in 2003.  He was Deputy Chairman of the Committee of Management of the Royal Bank of Scotland Staff Healthcare

Friendly Society and has a wealth of experience from a long career in the financial services industry, including senior management positions with

NatWest Bank plc and Coutts & Co.   He is currently the Senior Independent Director of the Board and also the Chairman of the Remuneration and

Nomination Committees.

Patrick Egan (57)

Non-executive Director
Patrick Egan is a partner with a large independent firm of Chartered Accountants based in the West Country. His particular areas of expertise include

private client services, capital taxation, trusts and financial services. He joined the Board on the Society’s incorporation in 1994 and also currently

serves on the Audit and Risk Committee.

William Hamilton (49)

Non-executive Director
William Hamilton qualified in medicine in 1982 from Bristol, and now combines a research career into the early diagnosis of cancer with clinical

general practice. He has been an insurance medical officer for 15 years and joined the Board in 2005.

Colin Moore (70)

Non-executive Director
Colin Moore joined the Board on the Society’s incorporation in 1994. He also serves on the Audit and Risk Committee. He has extensive experience in

senior management, social policies and institutions. Formerly a senior police officer in the UK he has also had extensive overseas experience with the

FBI in Quantico, the Czech and Slovakian governments (advising them on their transition to a pluralist democracy) and the Royal Oman Police. More

recently he was an assessor with the National Lottery Charities Board. He has also served on a number of Devon charitable committees including its

Community Council, Jubilee and the Prince’s Trust.

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Roger Cawse (57)
Chief Executive
Roger Cawse joined the Society as Chief Executive in November 1991. Prior to his appointment he held various positions in TSB Group at branch,

regional and head office levels as well as spending a prolonged period at the Group’s Staff College. He was formerly a Director of Housing 21 where

he also chaired the Finance Committee.

Michael Dunford (34)

Actuary
Michael Dunford joined the Society in 2002 and was appointed to the Board in December 2003.  He is a Fellow of the Institute of Actuaries with over

twelve years’ experience in the insurance industry.  Before joining the Society, he spent seven years as an actuary working on life and health protection

insurance at Liverpool Victoria Friendly Society.

John Edwards (49)

Group Compliance Director
John Edwards joined the Society in 1982 and was appointed to the Board in 2001. He has held a number of senior positions during his time with

the Society including responsibility for the Society’s operational systems and more latterly regulatory compliance. Having qualified as a Chartered

Secretary in 1991 he also performs the company secretarial function for the Group and its subsidiary companies.

Neil McLeod (45)

Group Finance Director
Neil McLeod joined the Society as Finance Director in 2001. He is a Fellow of the Institute of Chartered Accountants with over twelve years’

experience at board level. After qualifying with Touche Ross (now Deloitte) in 1988 he obtained sector experience in financial services (as a financial

controller at Legal & General), IT services (ECsoft plc, a pan-European software house and GADC, a venture capital backed IT network company) and

manufacturing where he spent 5 years as Finance Director of a subsidiary of Rexam plc.

Mark Moreland (40)

Group Operations Director
Mark Moreland joined the Society in 2002 and was appointed to the Board in 2003. As Operations Director Mark has executive responsibility for the

Claims Processing and I.T. functions.  He has an MBA awarded by University of Plymouth with modules studied at ESC Toulouse and Arizona State

University.  Previous experience includes senior I.T. roles in companies such as Brittany Ferries and senior general management positions in a local

authority (Avon County Council) and companies including Guy Salmon.

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Report of the Directors

The Board of Directors is pleased to submit its report together with the audited financial statements for the year ended 31 December 2007.

Members of the Board of Directors

The names of the members of the Board of Directors and the Chief Executive of the Society who served during the year were as follows:

Chairman G A L Cruwys, LLB (Exon)

Deputy Chairman A J Martin, JP, FCA

Senior Independent Director P R Easton, FCIB

Non-executive: P D Egan, FCA C W Moore, MSc

Dr W T Hamilton, MD, BSc, FRCP, FRCGP A D S Chapman, ACII, APFS

(to 15th November 2007)
Chief Executive R B Cawse, JP, MA (Exon), DMS, FCIB

Executive: M H Dunford, MA, FIA J P Edwards, BSc, ACIS

N J McLeod, BA, FCA M J Moreland, BSc, MBA, MBCS, CITP

Principal activity
The principal activity of the Society during the year was the provision of private medical insurance to individuals.

Financial results and business review

• The Consolidated Income and Expenditure Account for the year, which appears on page 18 shows a surplus for the year amounting to £3.96
million which has been transferred to reserves.

• During the year the Society took the strategic decision to terminate the activities of the Spanish branch of its wholly-owned subsidiary, Go
Private Limited, which operated as a general insurance broker under the trading name of Go Insure It. The loss attributable to Go Private
Limited during 2007 was £0.36 million.

• Since the year end, the proposed Transfer of Engagements from Pioneer Friendly Society Limited to Exeter Friendly Society Limited has been
approved by the members of both Societies, and the Transfer is expected to be effective from 31st March 2008, subject to the necessary
regulatory approval being received.

• A review of the year is covered in the Chairman’s Statement. Also included therein are details of membership numbers, charitable donations
and the Society’s complaints procedure.

Risk management and control

The Society seeks to actively manage all the risks that arise from its activities. The principal risks inherent within the business are insurance risk,

operational risk, liquidity risk, market risk and credit risk.

Insurance risk arises from uncertainties in predicting future claims experience and unforeseen eventualities such as large claims or catastrophes. The

Society uses stress testing models to ensure that its premiums and reserves are sufficient to mitigate the impact of such scenarios.

Operational risk is the risk of loss arising from inadequate or failed internal processes or systems, human error or external events. For the purpose

of managing operational risk, the Society divides it into a number of discrete areas, and then puts in place appropriate controls or other mitigation

6
actions.

Liquidity risk is the risk that the Society, although solvent, either does not have available sufficient financial resources to enable it to meet its obligations

as they fall due, or can secure such resources only at excessive cost. The Society manages this risk by ensuring that its liabilities are matched by

appropriate assets at all times, and by using cash flow projections to manage day-to-day fluctuations in liquidity.

Market risk comprises the risks that arise from fluctuations in values of, or income from, assets or in interest or exchange rates. The Society manages

this risk by ensuring that its asset mix is appropriate for the liabilities arising from the business and by factoring fluctuations in rates and values into

its modelling.

Credit risk is the risk of loss arising due to another party not being able to meet its financial obligations as they become due. The exposure to credit

risk from policyholders is not considered to be significant, as it is the Society’s policy not to pay claims on any policies where the premium account

is in arrears. Any credit risk arising from the potential failure of the issuer of any of the Society’s investments is mitigated by having strict guidelines

on asset allocation and credit-ratings. There is no credit risk arising from reinsurance counterparties because the Society does not reinsure any of its

business.

The Society has a formal structure for identifying risks, determining an acceptable level of risk, and managing those risks with appropriate controls.

The Board has ultimate responsibility for overseeing risk management, although the detailed task has been delegated to the Audit and Risk Committee.

Risks are controlled by grading and reporting exposure and focusing review procedures, either internal or external, on key areas. Control policies and

procedures are clearly set out and regularly updated and circulated throughout the Society.

Creditor payment policy

The Society’s policy is, where possible, to agree the terms of payment with suppliers at the start of trading, ensure that suppliers are aware of the

terms of payment and pay in accordance with it’s contractual and other legal obligations. The Society’s policy is to settle the supplier’s invoice for

the complete provision of goods and services (unless there is an express provision for stage payments), when in full conformity with the terms and

conditions of the purchase, within the agreed payment terms. The Society’s creditor days were 19 days at 31 December 2007 (2006 - 25 days).

Directors & officers liability insurance

The Society has purchased and maintains an indemnity insurance policy to cover errors and omissions made by its directors and managers.

Fixed assets
Full details of movements in tangible assets are shown in Note 11, of the financial statements.

Solvency
Throughout the year the Society maintained capital reserves in excess of those required by Section 2 of the Financial Services Authority’s General

Prudential Sourcebook.

7
Auditors
Each person who is a director at the date of approval of this report confirms that so far as the director is aware, there is no relevant audit information

of which the Society’s auditor is unaware; and the director has taken all the steps that he or she ought to have taken as a director in order to make

himself or herself aware of any relevant audit information and to establish that the Society’s auditor is aware of that information.

On behalf of the Board of Directors

• G A L Cruwys, LLB (Exon), Chairman

• R B Cawse, JP, MA (Exon), DMS, FCIB, Chief Executive

• N J McLeod, BA, FCA, Finance Director

13 March 2008

8
Report of the Directors on Corporate Governance
for the year ended 31 December 2007
The Board of Directors is committed to best practice in corporate
governance. The Annotated Combined Code on Corporate Governance
for Mutual Insurers was published in July 2005 and, whilst recognising
that the Code was designed for life insurers, the Board has decided
that this would be a good benchmark with which to compare its own
practices. This Report explains how the Society applies or intends to
apply the Code as well as meeting guidance for Friendly Societies
issued by the Financial Services Authority (FSA). The Board considers
that the Society already complies with the Code provisions unless the
contrary is stated.
Directors
The Board
Code Principle: Every company should be headed by an effective
Board, which is collectively responsible for the success of the
company.
Board Comment: The Board’s principal functions are to determine the
strategy and policies of the Society, to set out the guidelines within
which the business is managed and to review business performance.
The Board sets the Society’s strategic aims, and believes that it has
ensured that the necessary financial and human resources are in place
in order for the Society to meet its objectives. Performance is reviewed
on a monthly basis by comparing periodic results with those set out in
a budget previously approved by the Board, which includes a number
of Key Performance Indicators that are also measured and compared
to target. The Society’s values and standards are set out in the Business
Plan, which is approved by the Board, and the Board can demonstrate
that its obligations to members are understood and met, as noted
elsewhere within the Annual Report and Accounts.
The Board has a general duty to ensure that the Group operates within
the Society’s rules and relevant legislation and regulation and that
proper accounting records and effective systems of business control are
established, maintained, documented and audited. The Board’s terms of
reference, which are available on request from the Secretary, include a list
of specific matters reserved for the Board and the structure of delegation
of authority by the Board to management is clearly documented.
The Board had three main committees during 2007; the Audit and
Risk Committee, the Remuneration Committee and the Nomination
Committee. The terms of reference of each Committee are available
on request from the Secretary. Each Committee comprises only
non-executive Directors, although they may request the attendance
of executive Directors and representatives from the Society’s auditors
and other professional advisers, for all or part of their meetings as
necessary. Where any Directors have concerns about the running
of the Society or a proposed action, which cannot be resolved, they
will ensure that their concerns are recorded in the Board minutes.
Likewise, upon resignation or removal from office, procedures exist
for a non-executive Director to provide a written statement to the
Chairman for circulation to the Board if he or she has any concerns.
The Board meets as often as necessary, and there are usually at
least eleven formal Board meetings each year. In addition, the
non-executive Directors meet without executive Directors present at
least once a year. The non-executive Directors hold a meeting without
the Chairman once a year. The Chairman, Deputy Chairman, Chief
Executive and members of the Board and Committees are identified on
page i at the front of the Annual Report and Accounts. The attendance
record during the year of members at formal meetings of the Board
and its Committees is shown on page 14.
All Board members have the benefit of appropriate directors’ and
officers’ liability insurance at the Society’s expense.
Chairman and Chief Executive
Code Principle: There should be a clear division of responsibilities at
the head of the company between the running of the Board and the
executive responsibility for the running of the company’s business. No
one individual should have unfettered powers of decision.
Board Comment: The offices of Chairman and Chief Executive are
distinct and held by different persons. The Chairman of the Board
is responsible for leading the Board and communicating with the
Society’s members on behalf of the Board. The Chief Executive is
responsible for managing the Society’s business within the parameters
set by the Board. The Board has resolved that, as has been the practice
throughout the Society’s history, no Chief Executive will go on to
become Chairman of the Society.
9
Board balance and independence cannot be dealt with through the normal channels of Chairman, Chief

Code Principle: The Board should include a balance of executive and Executive or Finance Director. Nevertheless, in the past, members have

non-executive Directors (and in particular independent non-executive been actively encouraged to provide feedback through its complaints

Directors) such that no individual or small group of individuals can process that operates outside the direct influence of the Directors.

dominate the Board’s decision taking.

Appointments to the Board
Code Principle: There should be a formal, rigorous and transparent
Board Comment: There is a strong presence on the Board of both
procedure for the appointment of new Directors to the Board.
executive and non-executive Directors. It has been a long held

principle within the Society that non-executive Directors should

Board Comment: Appointments to the Board are made on merit and
make up at least half the Board. The Board currently comprises the
against objective criteria. During 2008 the Nomination Committee
Chairman (non-executive), five other non-executive Directors and five
will evaluate the balance of skills, knowledge and experience on the
executive Directors. With the exception of Dr Hamilton, who works
Board and, in the light of this evaluation, will prepare a description of
on a part-time consultancy basis for the Society, and for whom the
the role and capabilities required for any identified new appointments.
test of independence is considered inappropriate, all non-executive
Candidates for non-executive Directorship may be identified in
Directors are considered by the Board to be independent in character
a variety of ways, including the use of external consultants, and in
and judgement and to be free of any relationship or circumstances
addition members of the Society have the right under the Society’s
which could materially interfere with the exercise of their judgement.
Rules to nominate candidates for election to the Board.

It is recognised that one of the recommendations of the Code is that

All non-executive Directors are required to confirm on an ongoing basis
non-executive Directors may not be considered independent if they
that they are able to make the necessary time and other commitments
have served for more than nine years from the date of their first election.
that their role dictates. All Directors must meet the tests of fitness and
At the year end the Chairman and three other non-executive Directors
propriety laid down by the Financial Services Authority (FSA) and all
of the Society had served longer than this. The three non-executive
Directors are required to be registered with the FSA as an Approved
directors concerned, Messrs Egan, Martin and Moore are due to resign
Person in order to fulfil their Controlled Function as a Director.
from the Board, if the proposed Transfer of Engagements from Pioneer

Friendly Society Limited to Exeter Friendly Society Limited is given the

The service contracts of executive Directors and non-executive
necessary regulatory approval. For reasons of continuity, the Chairman
Directors are available for inspection on request from the Secretary.
will continue as a non-executive member of the Board, but will step

down as Chairman. In addition, with the exception of Dr Hamilton,

Information and professional development
all the non-executives satisfy the other ‘tests’ of independence set out
Code Principle: The Board should be supplied in a timely manner
in the Code, in that they have not been an employee of the Society in
with information in a form and of a quality appropriate to enable it to
the last five years, have not had a material business relationship with
discharge its duties. All Directors should receive induction on joining
the Society either directly or indirectly in the past three years, have
the Board and should regularly update and refresh their skills and
not been paid by the Society apart from receiving a Director’s fee, and
knowledge.
none have any close ties or significant links with any of the company’s

advisers, Directors or senior employees.

Board Comment: The Chairman ensures that the Board receives

information sufficient to enable it to fulfil its responsibilities. The

The Board has appointed Mr Peter Easton as Senior Independent
Society provides whatever resources are required for developing its
Director, and members can raise concerns directly with him, if these
Directors’ knowledge and capabilities usually through continued

10
membership of professional bodies and encouragement to widen effect that any new appointments of non-executive Directors will be

their knowledge and skills by continued personal development. All limited to three full three-year terms.

new executive Directors undergo formal induction and any training

or development needs are identified during this process and in the Remuneration
course of subsequent annual evaluations of their performance. This

will be extended to non-executive Directors as a result of its review of The level and make-up of remuneration

performance evaluation methodology referred to below. There is also Code Principle: Levels of remuneration should be sufficient to

a formal procedure for Directors to obtain independent professional attract, retain and motivate Directors of the quality required to run

advice should this be necessary in the furtherance of their duties. the company successfully, but a company should avoid paying more

than is necessary for this purpose. A significant proportion of executive

Performance evaluation Directors’ remuneration should be structured so as to link rewards to

Code Principle: The Board should undertake a formal and rigorous corporate and individual performance.

annual evaluation of its own performance and that of its committees

and individual Directors. Board Comment: The Board is committed to having high calibre staff at

all levels and believes that remuneration paid to both non-executive and

Board Comment: For many years executive Directors have been executive Directors reflects this desire. The Remuneration Committee,

evaluated within the performance appraisal framework for employees which is made up of only non-executive Directors, recognises the need

generally and by the Remuneration Committee in the context of their to take into account market rates when setting remuneration levels.

remuneration. In 2008 it is proposed to evaluate the performance Basic salaries, therefore, are normally reviewed annually by reference

of the Board, its principal Committees and the performance and to jobs carrying similar responsibilities in comparable organisations and

commitment of each Director. The Chairman will act on the results in the light of market conditions generally. A significant proportion of

of such evaluation and take steps to address any weaknesses so executive Directors’ remuneration is linked to corporate and individual

identified. performance. Levels of remuneration for non-executive Directors have

been set at levels that reflect the time commitment and responsibilities
Re-election
required. There are no bonus schemes for the Chairman and other
Code Principle: All Directors should be submitted for re-election
non-executive Directors and the only benefit other than fees paid to
at regular intervals, subject to continued satisfactory performance.
non-executive Directors is their subsidised private medical insurance
The Board should ensure planned and progressive refreshing of the
cover with the Society, as detailed within Note 20 of the Financial
Board.
Statements on page 34. The distribution of Directors’ emoluments is

detailed in Note 5 of the Financial Statements on page 26.

Board Comment: The Society’s Rules require that all Directors are

submitted for re-election at the Annual General Meeting (AGM) Procedure

following their first appointment to the Board, and all Directors are Code Principle: There should be a formal and transparent procedure

required to seek re-election every three years after being elected. for developing policy on executive remuneration and for fixing the

remuneration packages of individual Directors. No Director should be

The Nomination Committee will consider and recommend to the involved in deciding his or her own remuneration.

Board whether a non-executive Director should be submitted for

re-election. Any term lasting beyond nine years will be subject to Board Comment: For many years this has been in the remit of the

particularly rigorous review and will only be approved on the basis of Remuneration Committee. The terms of reference of the Committee

annual re-election. The Board has recently amended its policy to the are available on request from the Secretary. The Chairman and

11
members of the Committee receive supplementary fees in recognition
of their additional responsibilities. The Committee is responsible for
the Society’s policy on the remuneration of Directors and no Director
is involved in deciding his or her own remuneration. Where necessary,
the Committee may seek professional advice from external consultants
in setting remuneration policy. Minutes of the Committee’s meetings
are routinely distributed to all Board members and where required
the Chairman of the Committee reports at the next Board Meeting
following a meeting of the Committee.
The procedures for setting remuneration are to be reviewed in 2008
and it is the intention to follow best practice in ensuring that the
remuneration of non-executive Directors is set by a panel separate
from the Remuneration Committee members.
Accountability and audit
Financial Reporting
Code Principle: The Board should present a balanced and
understandable assessment of the company’s position and prospects.
Board Comment: The responsibilities of the Directors in relation to the
preparation of the Society’s accounts and a statement that the business
is a going concern can be found on page 15.
Internal control
Code Principle: The Board should maintain a sound system of internal
control to safeguard members’ investment and the company’s assets.
Board Comment: The Board is responsible for determining strategies for
risk management and control. Executive Directors and managers are
responsible for designing, operating and monitoring risk management
and control processes, and the Audit and Risk Committee, on behalf of
the Board, is responsible for reviewing the adequacy of these processes.
The system of internal control is designed to enable the Society to
achieve its corporate objectives within a managed risk profile, not to
eliminate risk. The Operational Risk team ensures that appropriate risk
management systems exist across the Society’s operations, and that,
in particular, there is an ongoing process for identifying, evaluating
and managing significant risks faced by the Society. This process has
12
operated throughout the year and the process is regularly reviewed at
Audit and Risk Committee and Board level.
The Board has appointed the firm of PricewaterhouseCoopers LLP,
which has no other material business relationship with the Society
or its Directors, as its internal auditors and to provide independent
and objective advice as to whether the Society’s risk management and
control processes are appropriate and effectively applied.
The Board has ultimate responsibility for ensuring the maintenance of
sound systems of risk management and internal control, and following
review by the Audit and Risk Committee it is satisfied that the Society’s
systems are appropriate and meet the requirements of the Code and
supplementary guidance.
Audit Committee and Auditors
Code Principle: The Board should establish formal and transparent
arrangements for considering how they should apply the financial
reporting and internal control principles and for maintaining an
appropriate relationship with the company’s auditors.
Board Comment: The Board has an Audit and Risk Committee that
comprises three non-executive Directors including and chaired by the
Deputy Chairman. The Board is satisfied that at least one member of the
Committee has relevant financial experience as recommended within
the Code. The terms of reference of the Audit and Risk Committee are
available on request from the Secretary. The Chairman and members
of the Committee receive supplementary fees in recognition of their
additional responsibilities.
The role of the Committee is to review the integrity of the financial
statements, to review the effectiveness of internal controls and risk
management systems, to monitor and review the effectiveness of the
internal audit programme, to consider and recommend to the Board
(for approval by members) the appointment or re-appointment of the
external auditors and to oversee the relationship with the external
auditors, including the policy on the engagement of the external
auditors for non-audit services. This policy allows for the engagement
of external auditors for non-audit work only in relation to advice
on taxation matters and the Committee is unlikely to sanction any
engagement of the auditors for such matters where the aggregate fees Constructive use of the AGM
are significant in relation to fees paid for audit services. Code Principle: The Board should use the AGM to communicate with

investors and to encourage their participation.

The Committee is also responsible for ensuring that there are effective

arrangements to enable employees to raise, in confidence, any Board Comment: Each year the Society advertises details of its AGM

concerns about possible improprieties in matters of financial reporting in the national media and on its website, and sends individual notices

or other matters and effective arrangements for investigation of any where required by its Rules. Proxy voting forms are made available

such concerns raised. so that members who are unable to attend the meeting may cast their

vote. A poll is called in relation to each resolution at the AGM and

The Audit and Risk Committee generally meets four times a year. The all proxy votes are included. All members of the Board are available

Committee meets with only the external auditors present at least once at the AGM each year (unless their absence is unavoidable) and the

a year. By invitation of the Committee, executives and others regularly Chairman of the Board and Committees are therefore available to

attend part of its meetings including, the Chief Executive, the Finance answer questions.

Director, the Compliance Director, the Actuary and representatives of

the external and internal auditors. Minutes of the Committee’s meetings Institutional shareholders
are routinely distributed to all Board members, and the Chairman of The Code contains a number of provisions relating to the manner in

the Committee reports to the Board at each regular meeting of the which companies act in their role as institutional investors in their

Board following a meeting of the Committee. own right, including principles relating to entering into dialogue

with companies about their own governance procedures and using

The Audit and Risk Committee annually reviews its own performance votes constructively. As an institutional shareholder Exeter Friendly

and effectiveness and its compliance with the requirements of the Society is not of sufficient size to make these principles a high priority.

Code and supplementary guidance. Nevertheless, the Board has approved an Investment Policy, which

includes provisions relating to ethical and governance issues, and has

Relations with members appointed external investment managers, who are required to adhere

to this Policy and present a report to the Board at least four times a
Dialogue with members year.
Code Principle: There should be a dialogue with members based on

the mutual understanding of objectives. The Board as a whole has

responsibility for ensuring that a satisfactory dialogue with shareholders

takes place.

Board Comment: As a Mutual organisation the Society has a

membership entirely made up of individuals all of whom are the

Society’s customers. The Society proactively seeks the views of

members in a variety of ways including customer satisfaction surveys,

focus groups and in-house systems for recording feedback received

from members on all aspects of its business.

13
Board and Committee Membership Attendance Record
Against each Director’s name is shown the number of meetings of the Board and its Committees at which the Director was present as a member during

2007 and in brackets under the headings, the number of such meetings that were held.

Audit & Risk Remuneration Nomination

Director Board
Committee Committee Committee
(12) (4) (4) (1)
Non-executives
G A L Cruwys 11 - 4 1
Chairman of Board
P R Easton 12 - 4 1
Chairman of Remuneration Committee
and Senior Independent Director
P D Egan 11 4 - -
Dr W T Hamilton 10 - - -
A J Martin 11 4
Deputy Chairman of Board and
Chairman of Audit & Risk Committee
C W Moore 12 4 - -
A D S Chapman * 10 3 1
Executives
R B Cawse 12 - - -
Chief Executive
M H Dunford 11 - - -
J P Edwards 12 - - -
N J McLeod 10 - - -
M J Moreland 11 - - -
* Mr Chapman attended all the meetings he was eligible to attend up until the time he left the board in November.

14
Statement of Directors’ responsibilities in respect of the Report of the Directors and the
Financial Statements
The Directors are responsible for preparing the Annual Report, the Report of the Directors and the financial statements in accordance with applicable

law and regulations.

Friendly Society law requires the Directors to prepare Group and Society financial statements for each financial year. Under that law they have elected

to prepare the Group and Society financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted

Accounting Practice).

The Group and Society financial statements are required by law to give a true and fair view of the state of affairs of the Group and the Society as at

the end of the financial year and of the income and expenditure of the Group and of the Society for the financial year.

In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and 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 Group and the Society will
continue in business.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the

Group and Society and enable them to ensure that its financial statements comply with the Friendly Societies Act 1992 and the regulations made

under it.

The Directors are also responsible for preparing a Report of the Directors in accordance with the Friendly Societies Act 1992 and the regulations

made under it.

The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and

detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Society’s website. Legislation

in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

15
Independent Auditor’s Report to the Members of Exeter Friendly Society Ltd

We have audited the Group and Society financial statements of Exeter Friendly Society Limited for the year ended 31 December 2007 which comprise

the Group Income and Expenditure Account, the Group Statement of Total Recognised Gains and Losses, the Group and Society Balance Sheet, the

Group Cash Flow Statement and the related notes. These financial statements have been prepared under the accounting policies set out therein. We

are also required to report on the Report of the Directors for the year ended 31 December 2007.

This report is made solely to the Society’s members, as a body, in accordance with section 73 of the Friendly Societies Act 1992. Our audit work has

been undertaken so that we might state to the Society’s members those matters we are required to state to them in an auditors’ report and for no other

purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Society and the Society’s members

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

Respective responsibilities of the Board of Directors and Auditors

The Directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and UK accounting

standards (UK Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities on page 15.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on

Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Friendly

Societies Act 1992 and the regulations made under it. In addition we report to you if, in our opinion, the Society has not kept proper accounting

records, or if we have not received all the information, explanations and access to documents that we require for our audit.

We also report to you our opinion as to whether the Report of the Directors has been prepared in accordance with the Friendly Societies Act 1992 and

the regulations made under it, and as to whether the information given therein is consistent with the financial statements.

We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. We consider

the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our

responsibilities do not extend to any other information.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit

includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment

of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies

are appropriate to the Group’s and Society’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with

sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other

irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

16
Opinion
In our opinion:
• the financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of affairs of
the Group and of the Society as at 31 December 2007 and of the income and expenditure of the Group and of the Society for the year then
ended, and have been properly prepared in accordance with the Friendly Societies Act 1992 and the regulations made under it; and

• the Report of the Directors has been prepared in accordance with the Friendly Societies Act 1992 and the regulations made under it and the
information given therein is consistent with the financial statements for the financial year.

KPMG Audit Plc

Chartered Accountants
Registered Auditor
100 Temple Street
Bristol BS1 6AG

13 March 2008

17
Consolidated Income and Expenditure Account
for the year ended 31 December 2007

Note 2007 2006

Technical account - general business £000 £000
Gross earned premiums 2 42,654 41,256
Other technical income 146 149
Gross claims incurred 4 (38,457) (37,841)
4,343 3,564
Net operating expenses 5 (4,787) (4,554)
Balance on technical account – general business (444) (990)

Non-technical account
Balance on technical account – general business (444) (990)
Investment income 3 3,884 7,303
Unrealised gains / (losses) on investments 1,125 (2,310)
Investment expenses and charges 7 (239) (225)
Other income 10 30
Other charges (381) (781)
Surplus for the financial year 3,955 3,027

All income and expenditure relates to continuing operations.

The notes on pages 23 to 34 form part of these financial statements.

18
Consolidated Balance Sheet
as at 31 December 2007

Note 2007 2006

£000 £000 £000 £000
Assets
Investments
Land and buildings 8 2,555 2,500
Other financial investments 10 55,502 52,304
58,057 54,804

Debtors

Debtors arising out of direct insurance 9,234 8,875

Other debtors 116 83
9,350 8,958
Other assets
Tangible assets 11 823 910
Cash at bank and in hand 17 19,083 18,382

19,906 19,292

Prepayments and accrued income

Accrued interest 362 241
Deferred acquisition costs 645 660
Other prepayments and accrued income 124 115

1,131 1,016
88,444 84,070

Liabilities
Reserves 12 62,848 59,043
Revaluation Reserve 12 581 481
Technical provisions
Provision for unearned income 18,045 17,186
Claims outstanding 13 4,398 4,990

22,443 22,176

Creditors

Creditors arising out of direct insurance operations 22 115

Other creditors including tax and social security 14 1,446 1,387

1,468 1,502
Accruals 725 309

88,065 83,511

Pension scheme liability 15 379 559

88,444 84,070

These financial statements were approved by the Board of Directors on 13 March 2008 and were signed on its behalf by:

G A L Cruwys, LLB (Exon), Chairman • R B Cawse, JP, MA (Exon), DMS, FCIB, Chief Executive • N J McLeod, BA, FCA, Finance Director

The notes on pages 23 to 34 form part of these financial statements.

19
Parent Company Balance Sheet
as at 31 December 2007

Note 2007 2006

£000 £000 £000 £000

Assets
Investments
Land and buildings 8 2,555 2,500
Investments in group undertakings 9 24 382
Other financial investments 10 55,502 52,304

58,081 55,186
Debtors
Debtors arising out of direct insurance 9,234 8,875
Other debtors 116 69
Amounts due from subsidiary undertaking - 59
9,350 9,003
Other assets
Tangible assets 11 823 909
Cash at bank and in hand 17 19,077 17,924
19,900 18,833
Prepayments and accrued income
Accrued interest 362 241
Deferred acquisition costs 645 535
Other prepayments and accrued income 124 107
1,131 883

88,462 83,905

Liabilities
Reserves 12 62,843 58,913
Revaluation Reserve 12 581 481
Technical provisions
Provision for unearned income 18,045 17,186
Claims outstanding 13 4,398 4,990
22,443 22,176
Creditors
Creditors arising out of direct insurance operations 22 115
Other creditors including tax and social security 14 1,446 1,367
Amounts due to subsidiary undertakings 23 5
1,491 1,487
Accruals 725 289
88,083 83,346

Pension scheme liability 15 379 559

88,462 83,905

These financial statements were approved by the Board of Directors on 13 March 2008 and were signed on its behalf by:
G A L Cruwys, LLB (Exon), Chairman • R B Cawse, JP, MA (Exon), DMS, FCIB, Chief Executive • N J McLeod, BA, FCA, Finance Director

The notes on pages 23 to 34 form part of these financial statements.

20
Consolidated Cash Flow Statement
for the year ended 31 December 2007

Note 2007 2006

£000 £000 £000 £000

Cash flow from operating activities 16 (382) (1,503)

Returns on investments
Investment expenses (239) (225)
Dividends received 846 601
Interest received 1,360 1,440
1,967 1,816
Capital expenditure
Purchase of tangible assets (423) (405)
Sale of tangible assets 55 0
(368) (405)

Portfolio Investments

Purchase of financial investments (14,857) (24,445)

Sale of financial investments 14,341 34,362

(516) 9,917

Increase in cash in the year 701 9,825

The notes on pages 23 to 34 form part of these financial statements.

21
Consolidated Statement of Total Recognised Gains and Losses
for the year ended 31 December 2007

2007 2006

£000 £000

Group surplus for the financial year 3,955 3,027

Unrealised surplus on revaluation of properties 100 188

Actuarial gain/(loss) on defined benefit pension scheme (150) 55

Total recognised gains and losses relating to the year 3,905 3,270

The notes on pages 23 to 34 form part of these financial statements.

22
Notes to the Financial Statements
for the year ended 31 December 2007

1. Accounting policies
Basis of preparation
The financial statements have been prepared in accordance with the Friendly Societies (Accounts and Related Provisions) Regulations 1994 and

applicable accounting standards. They have also been prepared under the historical cost accounting rules, modified to include the revaluation of

investments and property, and comply with the Statement of Recommended Practice (SORP) issued by the Association of British Insurers in December

2005 (as amended in December 2006).

Premiums
Written premiums are accounted for in the period in which contracts are entered into. Premiums are recognised as earned over the period of the

policy, premiums applicable to periods after the balance sheet date being carried forward to the following year.

Other technical income

Other technical income represents premiums received for deferred members of the RBS Scheme.

Gross claims incurred

Claims are approved benefit claims and related claims handling expenses incurred in the year, together with changes in the provision for outstanding

claims at the year end. Claims incurred but not reported (IBNR) are projected using a triangulation method together with estimated loss ratios. The date

at which a claim is deemed to be incurred is the date at which the corresponding medical treatment begins. The IBNR provision is then calculated as

the ultimate projected cost of claims less cumulative claims incurred to date.

Acquisition costs
Acquisition costs represent commission payable and other related expenses of acquiring insurance policies written during the financial year. Acquisition

costs which relate to a subsequent period are deferred and charged to the accounting periods in which the related premiums are earned.

Investments
The land and buildings are formally valued every year with any surplus being transferred to a revaluation reserve. Depreciation is calculated on the

building element of the opening carrying value, with an estimated useful economic life of 50 years.

Tangible assets
Depreciation is provided to write off the cost, less estimated residual value, of tangible assets by equal instalments over their estimated useful
economic lives as follows:
Motor vehicles 18 - 36 months
Building fit-out costs 3-10 years
Equipment, fixtures and fittings 3-10 years
Computer equipment and software 2-5 years
Our policy is to revisit the estimated useful economic lives, and estimated residual values at the end of each financial year.

23
Notes to the Financial Statements
for the year ended 31 December 2007

Investment income
Dividends on equity investments are included in the non-technical account on an accruals (ex-dividend) basis. Other investment income is recognised

on an accruals basis. Realised and unrealised gains and losses on investments are taken to the non-technical account. Unrealised gains and losses

on investments represent the difference between the valuation of investments at the balance sheet date and their original cost, or if they have been

previously valued, that valuation at the last balance sheet date. The movement in unrealised gains and losses recognised in the period includes the

reversal of unrealised gains and losses recognised in earlier accounting periods in respect of investment disposals in the current period. Realised gains

and losses on investments are calculated as the difference between the net sale proceeds and original cost.

Pension costs
The Society operates two pension schemes - a defined benefit scheme and a defined contribution scheme. Contributions to the schemes are charged

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

The assets of the defined benefit scheme are measured at fair value. The scheme’s liabilities are measured on an actuarial basis using the projected

unit method and are discounted to reflect the time value of money and the characteristics of the liabilities. The resulting deficit in the defined benefit

scheme is recognised as a liability. Current service charges are recognised in the technical account. Interest on pension scheme liabilities and

expected returns on pension scheme assets are charged on the non-technical account. Actuarial gains and losses are disclosed in the statement of

total recognised gains and losses.

Foreign currencies
Assets and liabilities denominated in foreign currencies are expressed in sterling at the rates of exchange ruling at the balance sheet date. Activities

during the year are converted at an average rate of exchange.

Unexpired risk
No provision is made for unexpired risks as the expected claims, related expenses and deferred acquisition costs are not expected to exceed unearned

premiums after taking account of future investment income on the unearned premium provision.

Other Income / Charges

Other income and charges relate to the discontinued operations for commission income received and operating expenses paid in relation to Go

Private Ltd, our wholly owned subsidiary, which arises on the preparation of consolidated financial statements.

2. Gross earned premiums 2007 2006

£000 £000
Gross premiums written 43,513 41,688
Change in gross provision for unearned premiums (859) (432)
Gross earned premiums 42,654 41,256

Segmentation analysis 2007 2006

The gross earned premiums can be analysed as follows: £000 £000
UK 36,896 35,876
Other EU member states 4,221 3,850
Non EU countries 1,537 1,530
42,654 41,256

24
Notes to the Financial Statements
for the year ended 31 December 2007

3. Investment income
2007 2006
£000 £000
Income from other investments 2,322 1,891
Expected return on pension scheme assets 235 193
Interest on post retirement liabilities (230) (202)
Realised gains on investments 1,557 5,421
3,884 7,303
Income from other investments:
UK fixed interest securities 533 577
UK equity stocks 827 582
Foreign equity stocks and securities 12 7
Bank interest - current account 832 725
Bank interest - term deposit 118 -
2,322 1,891

Income from listed investments amounted to £1,372,000 (2006: £1,166,000)

4. Gross claims incurred 2007 2006

£000 £000
Claims paid 39,049 38,056
Movement in claims invoices received but not paid (781) (231)
Change in claims reserve-incurred but not reported 189 16
38,457 37,841

5. Net operating expenses

2007 2006
£000 £000
Acquisition costs 1,558 1,415
Administrative expenses 3,229 3,139
4,787 4,554
Acquisition costs include:
Commission payable 505 485
Changes in deferred acquisition costs 15 51

Administrative costs include:

Depreciation 494 605
Amounts payable, including expenses, by the
Society to the Auditor and its associates were:
Statutory accounts 40 39
Regulatory returns 10 10
Other services (it is the Society’s policy to limit this to taxation services) 80 26
Other professional services 54 64
External actuaries fees 19 42
Aggregate amount of directors’ emoluments
(salaries, bonus, benefits in kind, and employers pension contribution). 1,070 957

25
Notes to the Financial Statements
for the year ended 31 December 2007

Directors’ emoluments, including pension contributions, fell within the following ranges:
Executive 2007 2006
Number Number
£50,000 - £55,000 0 1
£105,000 - £110,000 0 1
£110,000 - £115,000 0 1
£115,000 - £120,000 0 1
£120,000 - £125,000 0 1
£135,000 - £140,000 2 0
£140,000 - £145,000 1 0
£150,000 - £155,000 1 0
£250,000 - £255,000 0 1
£295,000 - £300,000 1 0
5 6
Non-Executive 2007 2006
Number Number
£15,000 - £20,000 0 1
£20,000 - £25,000 2 2
£25,000 - £30,000 2 2
£30,000 - £35,000 1 1
£35,000 - £40,000 1 1
£40,000 - £45,000 1 0
7 7

£000 £000

Highest paid director 298 253

Chairman 42 40
During 2006 one director left the Society and received aggregate emoluments of £98,000 as compensation for loss of office.

Pension benefits were accruing to five executive directors as at 31 December 2007.

The aggregate amount of pension contributions made by the Society to the executive directors was £117,728 (2006: £117,200).

A pension payment of £24,050 (2006 : £22,297) was made to one former member of the Board.

6. Employee information 2007 2006

Number Number
The average number of persons (full-time equivalents) including executive
directors employed by the Society and subsidiary in the year was:
Administration 56 64
Business development 13 14
69 78

2007 2006
£000 £000

Staff costs for the above persons were:

Wages and salaries 2,240 2,090

Social security costs 257 273
Other pension costs 277 303
2,774 2,666

26
Notes to the Financial Statements
for the year ended 31 December 2007

7. Investment expenses and charges 2007 2006

£000 £000
Investment management expenses 239 225

8. Land and buildings 2007 2006

Group and Company £000 £000
Value: – Lakeside House, Emperor Way, Exeter 2,555 2,500

The Society’s premises at Emperor Way were valued as at 31 December 2007 by Stratton Creber, Chartered Surveyors, External Valuers, on the basis of

open market vacant possession value in accordance with the Practice Statement in the Royal Institute of Chartered Surveyors’ Appraisal and Valuation

manual.
2007 2006
£000 £000
Opening carrying value at 1 January 2007 2,500 2,355
Depreciation over 50 years on building element (£2,280,000) (45) (43)
2,455 2,312
Revaluation upwards (see note 12) 100 188
Valuation at 31 December 2007 2,555 2,500

9. Investment in subsidiary undertakings

The subsidiary undertakings shown below are wholly owned, incorporated in the United Kingdom, registered in England and owned directly by the Society.
• Go Private Limited - medical and insurance services intermediary - ceased trading with effect from 21 September 2007
• Exeter Friendly Members Club Limited - general insurance intermediary - ceased trading with effect from 31 December 2001; dormant
with effect from 31 December 2002

2007 2006
£ £
Cost of investment in Go Private Limited 2,350,000 2,350,000
Provision against cost of investment in Go Private Limited (2,325,571) (1,967,730)
24,429 382,270
Cost of investment in Exeter Friendly Members Club Limited 2 2
24,431 382,272
Go Private Limited incurred a loss of £357,842 in 2007 (2006:£723,554 loss). The accumulated reserves of Go Private Limited at 31 December 2007
were £2,325,571 deficit (2006:£1,967,730 deficit).
A provision has been set up against the cost of investment such that the net carrying value of Go Private is equal to the net assets of the company.

27
Notes to the Financial Statements
for the year ended 31 December 2007

10. Other financial investments 2007 2006

Group and Company £000 £000

Market value:

Shares and other variable yield securities and unit trusts 39,249 36,864
Debt securities and other fixed income securities 16,253 15,440
55,502 52,304

Cost:

Shares and other variable yield securities and unit trusts 31,962 30,508
Debt securities and other fixed income securities 15,853 15,234
47,815 45,742
Listed investments at valuation amounted to £55,502,000 (2006: £52,304,000)

28
Notes to the Financial Statements
for the year ended 31 December 2007

11. Tangible assets

Equipment Computer
Building Motor
Group fit-out costs vehicles
fixtures & equipment Total
fittings & software
£000 £000 £000 £000 £000
Cost
At 1 January 2007 598 185 302 2,140 3,225
Additions - 144 37 242 423
Disposals - (116) (12) (82) (210)
At 31 December 2007 598 213 327 2,300 3,438

Depreciation

At 1 January 2007 342 109 232 1,632 2,315

Provision for the year 55 28 26 340 449
Disposals - (65) (12) (72) (149)
At 31 December 2007 397 72 246 1,900 2,615

Net book value

At 31 December 2007 201 141 81 400 823

At 31 December 2006 256 76 70 508 910

Equipment Computer
Building Motor
Company fit-out costs vehicles
fixtures & equipment Total
fittings & software
£000 £000 £000 £000 £000
Cost
At 1 January 2007 598 185 290 2,110 3,183
Additions - 144 37 242 423
Disposals - (116) - (52) (168)
At 31 December 2007 598 213 327 2,300 3,438

Depreciation

At 1 January 2007 342 109 220 1,603 2,274

Provision for the year 55 28 26 339 448
Disposals - (65) - (42) (107)
At 31 December 2007 397 72 246 1,900 2,615

Net book value

At 31 December 2007 201 141 81 400 823

At 31 December 2006 256 76 70 507 909

29
Notes to the Financial Statements
for the year ended 31 December 2007

12. Reserves
General Revaluation Pension
Group RBS PMBF Total
Reserve Reserve Reserve

£000 £000 £000 £000 £000 £000

At 1 January 2007 48,817 481 (559) 10,554 231 59,524
Property revaluation - 100 - - - 100
Actuarial loss on defined benefit pension scheme - - (150) - - (150)
Surplus for the financial year 1,894 - 330 1,738 (7) 3,955
At 31 December 2007 50,711 581 (379) 12,292 224 63,429

General Revaluation Pension

Company RBS PMBF Total
Reserve Reserve Reserve
£000 £000 £000 £000 £000 £000
At 1 January 2007 48,687 481 (559) 10,554 231 59,394
Property revaluation - 100 - - - 100
Actuarial loss on defined benefit pension scheme - - (150) - - (150)
Surplus for the financial year 2,019 - 330 1,738 (7) 4,080
At 31 December 2007 50,706 581 (379) 12,292 224 63,424

Prudential Medical Benefits Fund (PMBF)

The PMBF reserve is held in respect of the assets and liabilities of the Prudential Medical Benefits Fund.

Royal Bank of Scotland (RBS) Scheme

The RBS reserve is held in respect of the assets and liabilities of the RBS Scheme and will be maintained in a ring fenced account. This ring fenced

reserve is available only to the members of the transferred in RBS Scheme. However, this reserve will be merged with that of the general reserve of the

Exeter Friendly Society, if for a continuous six month period, either the reserves fall below £2 million, or the number of members in the RBS Scheme

falls and remains below 2,000. The number of members at 31 December 2007 was 9,563 (31 December 2006:10,357).

13. Claims outstanding

2007 2006
£000 £000
Claims invoices received but not paid 1,942 2,723
Claims reserve-incurred but not reported 2,456 2,267
4,398 4,990

All claims outstanding relate to the Society and the Group.

The IBNR provision as at 31 December 2006 was £2,267,000. During the year the total claims reported in relation to prior years was £2,305,000.
Therefore there was an under provision of £38,000.

30
Notes to the Financial Statements
for the year ended 31 December 2007

14. Other creditors including tax and social security

2007 2006 2007 2006

Group Group Company Company
£000 £000 £000 £000
Trade creditors 191 166 191 166
Tax and social security 1,189 1,154 1,189 1,134
Pension Creditors 15 12 15 12
Other creditors 51 55 51 55
1,446 1,387 1,446 1,367
15. Pensions

a) Defined Benefit Scheme

The Society operates a defined benefit pension scheme, the Exeter Friendly Society Retirement Benefits Scheme (the ‘Scheme’) which is closed to

new members. The scheme funds are administered by trustees and are independent of the Society’s finances. Contributions are paid to the scheme in

accordance with the recommendations of an independent actuarial advisor. Independent actuarial valuations are carried out triennially for funding

purposes, the most recent being dated 1 January 2006.

Details in respect of the scheme are provided below in accordance with FRS17.

The actuarial valuation as at 1 January 2006 was updated to 31 December 2007 by an independent qualified actuary in accordance with FRS17. As

required by FRS17, the value of the defined benefit liabilities have been measured using the projected unit method and both the assets and liabilities

include the value of those pensions in payment which are secured with insured annuities.

The following table sets out the key FRS17 assumptions used for the scheme.

Assumptions 2007 2006 2005

Price inflation (RPI) 3.3% pa 2.9% pa 2.9% pa

Discount rate 5.6% pa 5.1% pa 4.7% pa
Pension increases (in deferment and in payment) 3.3% pa 2.9% pa 2.9% pa
Salary growth 4.3% pa 3.9% pa 4.4% pa

On the basis of the assumptions used for life expectancy, a male person aged 65 at the 31 December 2007 would be expected to live a further 21
years. As for last year, we have adopted the PA92 tables for mortality after retirement.
The following table sets out, as at the accounting dates, the fair value of assets, a breakdown of the assets into the main asset classes, the present
value of the FRS17 liabilities and the deficit of assets below the FRS17 liabilities (which equals the gross pension liability).

Asset distribution and expected return

2007 2007 2006 2006 2005 2005
Expected Expected Expected
Components Fair value Fair value Fair value
Return Return Return
£000 £000 £000
• Equities 7.6% pa 1,737 7.5% pa 1,260 7.3% pa 1,165
• Bonds 4.4% pa 1,841 4.5% pa 1,728 4.1% pa 1,336
• Annuities 5.6% pa 435 5.1% pa 462 4.7% pa 490
• Other 5.7% pa 559 6.0% pa 532 5.4% pa 348
4,572 3,982 3,339

31
Notes to the Financial Statements
for the year ended 31 December 2007

2007 2006 2005

Balance sheet £000 £000 £000
Total fair value of assets 4,572 3,982 3,339
Present value of liabilities (4,951) (4,541) (4,258)
Gross pension (liability) (379) (559) (919)

Over the year to 31 December 2007, contributions by the Society of £502,000 (2006:£510,000) were made to the scheme, plus the
Society paid a Pension Protection Fund Levy of £2,000. The Society has agreed to pay annual contributions of 31% pa of total pensionable
salaries in respect of accruing benefits and £303,600 to repair the deficit in accordance with the recovery plan dated 15 March 2007.

The post retirement deficit under FRS17 moved as follows during the year to 31 December 2007:
2007 2006
£000 £000
Post retirement (deficit) at 31 December 2006 (559) (919)
Current service cost (employee and employer) (212) (223)
Contributions (employee and employer) 537 537
Other net finance income/(charge) 5 (9)
Actuarial (loss)/gain (150) 55
Post retirement (deficit) at 31 December 2007 (379) (559)

The following amounts have been included within net operating expenses under FRS17:
2007 2006
£000 £000
Current service costs (employer’s part only) 180 196
Total operating charge 180 196

The scheme is closed to new entrants and, under the method used to calculate pension costs in accordance with FRS17, the service cost as a
percentage of pensionable payroll will tend to increase as the average age of the membership increases.

The following amounts have been included as net finance income/(charge) under FRS17:
2007 2006
£000 £000
Expected return on pension scheme assets 235 193
Interest on post retirement liabilities (230) (202)
Net return to credit/(charge) to finance income 5 (9)

The following amounts have been recognised within the statement of total recognised gains and losses (STRGL):
2007 2006
£000 £000
Actual return less expected return on scheme assets 112 35
Experience (losses) arising on liabilities (363) (328)
Gain due to changes in assumptions
underlying the present value of scheme liabilities 101 348
Actuarial (loss)/gain recognised in the STRGL (150) 55

32
Notes to the Financial Statements
for the year ended 31 December 2007

The history of experience gains and losses is:

Year to Year to Year to Year to Year to
31st Dec 2007 31st Dec 2006 31st Dec 2005 31st Dec 2004 31st Dec 2003
Actual return less expected 112 35 186 66 (173)
return on scheme assets (£000)
Percentage of scheme’s assets 2% 1% 6% 2% (6%)
Experience (losses) arising on
scheme’s liabilities (£000) (363) (328) (27) (23) 120
Percentage of the present value
of scheme’s liabilities (7%) (7%) (1%) (1%) 4%
Total amount recognised
in the STRGL (£000) (150) 55 (263) (206) (309)
Percentage of the present value
value of scheme’s liabilities (3%) 1% (6%) (6%) (10%)

b) Defined Contribution Scheme

The cost of Society contributions for the year ending 31 December 2007 was £99,546 (2006:£101,697) and there were outstanding contributions of
£9,137 (2006:£7,458) at the balance sheet date.

16. Reconciliation of technical account balance

to net cash flow from operating activities
2007 2006
£000 £000
Balance on technical account for the financial year (444) (990)
Other non-technical income and costs (371) (751)
Reserve movement - FRS17 pension (150) 55
Depreciation charge 494 605
Decrease/(Increase) in debtors and prepayments (386) (141)
Increase in creditors and accruals 469 (303)
(Profit)/Loss on disposal of fixed assets 6 22
Net cash inflow from operating activities (382) (1,503)

17. Analysis of net funds 2007 2006

£000 £000

Group

Cash at bank brought forward 18,382 8,557

Increase in cash in the year (see page 21) 701 9,825
Cash at bank carried forward 19,083 18,382

Company

Cash at bank 19,077 17,924

18. Capital commitments

The capital commitments as at 31 December 2007 which were authorised and contracted and not provided for above were nil (2006: £117,000).

33
19. Post balance sheet events
Since the year end, the proposed Transfer of engagements from Pioneer Friendly Society Limited (a specialist provider of income protection products)

to Exeter Friendly Society Limited has been approved by the members of both Societies, and the transfer is expected to be effective from 31 March

2008, subject to the necessary regulatory approval being received.

20. Related party transactions

The related party transactions of the Group have been presented in accordance with FRS 8, Related party disclosures.

• In reference to note 19, ADS Chapman was a non executive director of Exeter Friendly Society Limited during the year up to his resignation
on 15 November 2007 whilst throughout the year ending 31 December 2007 holding the position of Chief Executive Officer for Pioneer
Friendly Society Limited

• CareBridges is an international alliance of health insurers which allows member companies access to the services and local expertise of
members in other countries of which Exeter Friendly Society are the UK member insurer. RB Cawse, Chief Executive of Exeter Friendly
Society Limited was elected Vice President of CareBridges on 21 November 2007; no remuneration is received from this post.

• In 2007 as in previous years, the non-executive members of the Board of Directors were entitled to receive a discount of 90% against normal
premium rates for the Society’s private medical insurance. The Chief Executive and four other executive members of the Board of Directors
received free private medical insurance.

2007 2006
£000 £000
Medical advice from Dr W.T. Hamilton 28 30
Included in creditors - amount owing to Dr W.T. Hamilton 2 5

Foreign translation services provided by R Moreland (wife of MJ Moreland) to CareBridges 2 2

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35
 Exeter Friendly Society Limited, Lakeside House, Emperor Way, Exeter. EX1 3FD
Telephone +44 1392 35 35 00 Fax +44 1392 35 35 90 Website: www.exeterfriendly.co.uk
Telephone calls may be recorded and monitored for quality assurance and training purposes.

Exeter Friendly Society Ltd is incorporated in England under the Friendly Societies Act 1992,registered number 91F, registered address as above.
Authorised and regulated by the Financial Services Authority, registered number 205309.

AR&A2007(PV1)