Exeter Friendly Society Accounts 2007

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2007

Ann

ualReportand

Accounts20

07

Annual Report

and Accounts

2007

Exeter Friendly Society


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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)


Nomination Committee

Chairman P R Easton, FCIB

G A L Cruwys, LLB (Exon)


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

Chairmans 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 Auditors 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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Chairmans Statement

Financial results

Earned premiums from the Societys insurance operations rose

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

increases more than offset the effects of the falling membership

base. Claims incurred rose by 1.6% to 38.46 million, reflecting an

increase in both claim frequency and in average claim cost. Whilst the

Society has enjoyed success in containing the charges levied by the

main treatment providers both in the UK and overseas, advancement

in medical science and the development of ever more sophisticated

treatments continue to have an impact on claim costs.

Costs at the operating level increased by 5.1% to 4.79 million,

although this figure includes 0.22 million of one-off costs arising

from the proposed Transfer of Engagements from Pioneer Friendly

Society, referred to above. The Societys underlying expense ratio of

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

By keeping a tight rein on these costs the Society is able to maintain

a claims-to-income ratio significantly higher than most other medical

insurers, in keeping with its Friendly Society status.

After other income is taken into account, the technical account shows

a deficit of 0.44 million. This deficit was not unexpected as the Board

had agreed to allocate a modest amount of the investment return

earned on reserves in order to allow premium rates to be set at lower

levels than would otherwise have been required.

The overall financial position was enhanced by another solid

performance from the Societys investment portfolio, which produced

a net positive contribution of 4.77 million. After other net costs of

0.37 million a total surplus of 3.96 million is reported, which has

been transferred to reserves.

The Society has thus maintained substantial and adequate reserves

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

above. Such reserves also provide for the future liabilities arising from

those policies that benefit from premium levels calculated according

to the age of the insured when they join rather than at renewal.

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

report for the financial year ended 31 December 2007.

Proposed Transfer of Engagements

Firstly, I should like to update members on the Societys plans to take a

Transfer of Engagements from Pioneer Friendly Society Limited, which

is a specialist provider of income protection products. I am pleased

to advise that, at the Special General Meetings held on 28th February

2008, the members of both Societies gave their required approval and

the Transfer is due to be completed on 31st March 2008, subject to the

necessary regulatory clearances being received. The Society is excited

by the opportunities afforded by the combination of the two businesses

and is looking forward to using the skills of both organisations to

develop a range of healthcare products for the benefit of our existing

and future members.

Membership

The number of policies registered with the Society recorded a fall of

4.9% during the year, ending the period at 29,770 and representing a

total membership of 42,249 persons covered.

Whilst there were encouraging signs of an improvement in activity

both in the UK and in our key overseas markets during the final quarter

of the year, this was not enough to offset a generally disappointing

year for new business.

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

of reduced demand for individually-purchased private medical

insurance within our target age group, but also because of increased

competition from the larger commercial insurers. Overseas, demand

for our products held up well despite an initial fall in sales resulting

from the closure of the branch of our insurance broking subsidiary in

Spain.

The Society continues to take steps to reverse the negative trend on

membership levels, further details of which are provided later in this

report.


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Other developments

Early in 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. Whilst the sales emanating from the

branch were significant, these fell short of the targets set when the

branch was created and, consequently, it was no longer considered a

viable long-term proposition. In the period leading up to the branch

closure, the Society worked quickly to identify a more cost-effective

model for maintaining new business levels in the Iberian Peninsula,

and I am pleased to advise that this is already beginning to bear fruit.

The Society regularly reviews its product range to ensure that it

meets the needs of the changing marketplace; and a number of

other initiatives for both the UK and overseas are currently in various

stages of development. We have also negotiated a number of new

affinity arrangements, through which we can market our products,

where research has shown that the membership profile of the affinity

organisation is similar to our own.

Last year I made reference to the new Individual Capital Adequacy

Standards that had been introduced to ensure that the capital resources

held by insurers are adequate to meet their liabilities as and when

they fall due. During the year the Society continued to develop its

own risk mitigation framework in order to be able to identify, measure

and report risks and ensure that, on an ongoing basis, the capital held

by the Group is adequate in relation to the overall risk profile of the

business and the environment in which it operates. I am pleased to

report that the Group reserves comfortably exceed the amount of risk-

based capital that result from this assessment.

During the year we undertook our largest ever survey of members to

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

were extremely positive. Nevertheless, we are always looking to

improve and so we will be maintaining our efforts in the coming year

in those areas where members have expressed that their expectations

on service have not been met.

Board of directors

In order to ensure that the enlarged Society is in a position to meet the

challenges ahead, a number of changes are planned at Board level,

subject of course to the regulatory approval already referred to. I will

be stepping down as your Chairman, but will remain on the Board

as non-executive Deputy-Chairman. On a personal note, I should

like to take this opportunity to thank members for all their support

and feedback during my 14-year tenure as Chairman. I am sure all

members will join me in wishing my successor, Christopher Ide, who

was previously Chairman of Pioneer Friendly Society and who has a

wealth of experience in the financial services industry, all the very best

in his new role.

Three non-executive directors of the Society, Messrs Egan, Martin and

Moore, will also be retiring from the Board after combined service

totalling more than fifty years. We are indebted to them for the expert

guidance and loyal support they have provided throughout their long

association with the Society, and we wish them well for the future.

In accordance with the Societys rules, the directors appointed

subsequent to the completion of the Transfer of Engagements will be

seeking election at the forthcoming Annual General Meeting. A notice

of this meeting will be issued in due course.

Charitable donations

The Board approved donations totalling 10,000 (2006 - 9,000)

to hospice care and other charitable organisations during 2007, in

appreciation of the invaluable service they provide to members. In

addition to this figure, an amount of 4,000 (2006 - 4,250) was

paid in respect of policies covered by schemes that include a hospice

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

and returned the Societys customer satisfaction questionnaire.

Complaints and disputes

Whilst the Society prides itself on the high levels of customer service

that it delivers, the increasing complexity of medical insurance means

that there are inevitably occasions when members expectations are

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 Societys continued strength

is valued greatly by the Board.

G A L Cruwys, LLB (Exon), Chairman

13 March 2008


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Guy Cruwys (61)

Chairman

Guy Cruwys joined the Board on the Societys 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 Societys 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 Societys incorporation in 1994 and also currently

serves on the Audit and Risk Committee.

William Hamilton (49)


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)


Colin Moore joined the Board on the Societys 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 Princes Trust.

Board of Directors - As at 31 December 2007


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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 Groups 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 Societys 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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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 informationof which the Societys 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 Societys auditor is aware of that information.

On behalf of the Board of Directors

G A L Cruwys, LLB (Exon), ChairmanR B Cawse, JP, MA (Exon), DMS, FCIB, Chief ExecutiveN J McLeod, BA, FCA, Finance Director

13 March 2008


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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 Boards 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 Societys 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 Societys 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 Societys rules and relevant legislation and regulation and that

proper accounting records and effective systems of business control are

established, maintained, documented and audited. The Boards 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

Report of the Directors on Corporate Governance

for the year ended 31 December 2007

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 Societys 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 Societys 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 companys 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

Societys members on behalf of the Board. The Chief Executive is

responsible for managing the Societys business within the parameters

set by the Board. The Board has resolved that, as has been the practice

throughout the Societys history, no Chief Executive will go on to

become Chairman of the Society.


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Board balance and independence

Code Principle:The Board should include a balance of executive and

non-executive Directors (and in particular independent non-executive

Directors) such that no individual or small group of individuals can

dominate the Boards decision taking.

Board Comment: There is a strong presence on the Board of both

executive and non-executive Directors. It has been a long held

principle within the Society that non-executive Directors should

make up at least half the Board. The Board currently comprises the

Chairman (non-executive), five other non-executive Directors and five

executive Directors. With the exception of Dr Hamilton, who works

on a part-time consultancy basis for the Society, and for whom the

test of independence is considered inappropriate, all non-executive

Directors are considered by the Board to be independent in character

and judgement and to be free of any relationship or circumstances

which could materially interfere with the exercise of their judgement.

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

non-executive Directors may not be considered independent if they

have served for more than nine years from the date of their first election.

At the year end the Chairman and three other non-executive Directors

of the Society had served longer than this. The three non-executive

directors concerned, Messrs Egan, Martin and Moore are due to resign

from the Board, if the proposed Transfer of Engagements from Pioneer

Friendly Society Limited to Exeter Friendly Society Limited is given the

necessary regulatory approval. For reasons of continuity, the Chairman

will continue as a non-executive member of the Board, but will step

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

all the non-executives satisfy the other tests of independence set out

in the Code, in that they have not been an employee of the Society in

the last five years, have not had a material business relationship with

the Society either directly or indirectly in the past three years, have

not been paid by the Society apart from receiving a Directors fee, and

none have any close ties or significant links with any of the companys

advisers, Directors or senior employees.

The Board has appointed Mr Peter Easton as Senior Independent

Director, and members can raise concerns directly with him, if these

cannot be dealt with through the normal channels of Chairman, Chief

Executive or Finance Director. Nevertheless, in the past, members have

been actively encouraged to provide feedback through its complaints

process that operates outside the direct influence of the Directors.

Appointments to the Board

Code Principle: There should be a formal, rigorous and transparent

procedure for the appointment of new Directors to the Board.

Board Comment:Appointments to the Board are made on merit and

against objective criteria. During 2008 the Nomination Committee

will evaluate the balance of skills, knowledge and experience on the

Board and, in the light of this evaluation, will prepare a description of

the role and capabilities required for any identified new appointments.

Candidates for non-executive Directorship may be identified in

a variety of ways, including the use of external consultants, and in

addition members of the Society have the right under the Societys

Rules to nominate candidates for election to the Board.

All non-executive Directors are required to confirm on an ongoing basis

that they are able to make the necessary time and other commitments

that their role dictates. All Directors must meet the tests of fitness and

propriety laid down by the Financial Services Authority (FSA) and all

Directors are required to be registered with the FSA as an Approved

Person in order to fulfil their Controlled Function as a Director.

The service contracts of executive Directors and non-executive

Directors are available for inspection on request from the Secretary.

Information and professional development

Code Principle: The Board should be supplied in a timely manner

with information in a form and of a quality appropriate to enable it to

discharge its duties. All Directors should receive induction on joining

the Board and should regularly update and refresh their skills and

knowledge.

Board Comment: The Chairman ensures that the Board receives

information sufficient to enable it to fulfil its responsibilities. The

Society provides whatever resources are required for developing its

Directors knowledge and capabilities usually through continued


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membership of professional bodies and encouragement to widen

their knowledge and skills by continued personal development. All

new executive Directors undergo formal induction and any training

or development needs are identified during this process and in the

course of subsequent annual evaluations of their performance. This

will be extended to non-executive Directors as a result of its review of

performance evaluation methodology referred to below. There is also

a formal procedure for Directors to obtain independent professional

advice should this be necessary in the furtherance of their duties.

Performance evaluation

Code Principle:The Board should undertake a formal and rigorous

annual evaluation of its own performance and that of its committees

and individual Directors.

Board Comment: For many years executive Directors have been

evaluated within the performance appraisal framework for employees

generally and by the Remuneration Committee in the context of their

remuneration. In 2008 it is proposed to evaluate the performance

of the Board, its principal Committees and the performance and

commitment of each Director. The Chairman will act on the results

of such evaluation and take steps to address any weaknesses so

identified.

Re-election

Code Principle: All Directors should be submitted for re-election

at regular intervals, subject to continued satisfactory performance.

The Board should ensure planned and progressive refreshing of the

Board.

Board Comment: The Societys Rules require that all Directors are

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

following their first appointment to the Board, and all Directors are

required to seek re-election every three years after being elected.

The Nomination Committee will consider and recommend to the

Board whether a non-executive Director should be submitted for

re-election. Any term lasting beyond nine years will be subject toparticularly rigorous review and will only be approved on the basis of

annual re-election. The Board has recently amended its policy to the

effect that any new appointments of non-executive Directors will be

limited to three full three-year terms.

Remuneration

The level and make-up of remuneration

Code Principle: Levels of remuneration should be sufficient to

attract, retain and motivate Directors of the quality required to run

the company successfully, but a company should avoid paying more

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

Directors remuneration should be structured so as to link rewards to

corporate and individual performance.

Board Comment:The Board is committed to having high calibre staff at

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

executive Directors reflects this desire. The Remuneration Committee,

which is made up of only non-executive Directors, recognises the need

to take into account market rates when setting remuneration levels.

Basic salaries, therefore, are normally reviewed annually by reference

to jobs carrying similar responsibilities in comparable organisations and

in the light of market conditions generally. A significant proportion of

executive Directors remuneration is linked to corporate and individual

performance. Levels of remuneration for non-executive Directors have

been set at levels that reflect the time commitment and responsibilities

required. There are no bonus schemes for the Chairman and other

non-executive Directors and the only benefit other than fees paid to

non-executive Directors is their subsidised private medical insurance

cover with the Society, as detailed within Note 20 of the Financial

Statements on page 34. The distribution of Directors emoluments is

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

Procedure

Code Principle: There should be a formal and transparent procedure

for developing policy on executive remuneration and for fixing the

remuneration packages of individual Directors. No Director should be

involved in deciding his or her own remuneration.

Board Comment: For many years this has been in the remit of the

Remuneration Committee. The terms of reference of the Committee

are available on request from the Secretary. The Chairman and


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members of the Committee receive supplementary fees in recognition

of their additional responsibilities. The Committee is responsible for

the Societys 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 Committees 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 companys position and prospects.

Board Comment:The responsibilities of the Directors in relation to the

preparation of the Societys 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 companys 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 Societys operations, and that,

in particular, there is an ongoing process for identifying, evaluating

and managing significant risks faced by the Society. This process has

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 Societys 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 Societys

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 companys 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


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engagement of the auditors for such matters where the aggregate fees

are significant in relation to fees paid for audit services.

The Committee is also responsible for ensuring that there are effective

arrangements to enable employees to raise, in confidence, any

concerns about possible improprieties in matters of financial reporting

or other matters and effective arrangements for investigation of any

such concerns raised.

The Audit and Risk Committee generally meets four times a year. The

Committee meets with only the external auditors present at least once

a year. By invitation of the Committee, executives and others regularly

attend part of its meetings including, the Chief Executive, the Finance

Director, the Compliance Director, the Actuary and representatives of

the external and internal auditors. Minutes of the Committees meetings

are routinely distributed to all Board members, and the Chairman of

the Committee reports to the Board at each regular meeting of the

Board following a meeting of the Committee.

The Audit and Risk Committee annually reviews its own performance

and effectiveness and its compliance with the requirements of the

Code and supplementary guidance.

Relations with members

Dialogue with members

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

Societys 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.

Constructive use of the AGM

Code Principle: The Board should use the AGM to communicate with

investors and to encourage their participation.

Board Comment: Each year the Society advertises details of its AGM

in the national media and on its website, and sends individual notices

where required by its Rules. Proxy voting forms are made available

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

all proxy votes are included. All members of the Board are available

at the AGM each year (unless their absence is unavoidable) and the

Chairman of the Board and Committees are therefore available to

answer questions.

Institutional shareholders

The Code contains a number of provisions relating to the manner in

which companies act in their role as institutional investors in their

own right, including principles relating to entering into dialogue

with companies about their own governance procedures and using

votes constructively. As an institutional shareholder Exeter Friendly

Society is not of sufficient size to make these principles a high priority.Nevertheless, the Board has approved an Investment Policy, which

includes provisions relating to ethical and governance issues, and has

appointed external investment managers, who are required to adhere

to this Policy and present a report to the Board at least four times a

year.


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Director BoardAudit & RiskCommittee

RemunerationCommittee

NominationCommittee

(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 Committeeand Senior Independent Director

P D Egan 11 4 - -

Dr W T Hamilton 10 - - -

A J Martin 11 4

Deputy Chairman of Board andChairman 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.

Board and Committee Membership Attendance Record

Against each Directors 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.


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15

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 thefinancial statements;

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Society willcontinue 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 Societys website. Legislation

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

Statement of Directors responsibilities in respect of the Report of the Directors and the

Financial Statements


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Independent Auditors 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 Societys 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 Societys 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 Societys 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 Groups and Societys 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.


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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 ofthe 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 theinformation 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


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Consolidated Income and Expenditure Account


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 nancial 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.


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Consolidated Balance Sheet

as at 31 December 2007

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:

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

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



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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



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Consolidated Cash Flow Statement


Note 2007 2006

000 000 000 000

Cash ow 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



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Consolidated Statement of Total Recognised Gains and Losses


2007 2006

000 000

Group surplus for the f inancial 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



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Notes to the Financial Statements


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 usefuleconomic 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.


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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

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 schemes 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.


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3. Investment income2007 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 expenses2007 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 Societys 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


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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 1110,000 - 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 2006Number 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

6. Employee information 2007 2006

Number Number

The average number of persons (full-time equivalents) including executivedirectors 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

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.


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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

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

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.

The Societys 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.

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 2007Exeter Friendly Members Club Limited - general insurance intermediary - ceased trading with effect from 31 December 2001; dormant

with effect from 31 December 2002


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10. Other nancial 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)


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11. Tangible assets

GroupBuilding

t-out costsMotor

vehicles

Equipmentxtures &

ttings

Computerequipment& software

Total

000 000 000 000 000

CostAt 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

CompanyBuilding

t-out costsMotor

vehicles

Equipmentxtures &

ttings

Computerequipment& software

Total

000 000 000 000 000

Cost

At 1 January 2007 598 185 290 2,110 3,183Additions - 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


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12. Reserves

GroupGeneralReserve

RevaluationReserve

PensionReserve

RBS PMBF Total

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

CompanyGeneralReserve

RevaluationReserve

PensionReserve

RBS PMBF Total

000 000 000 000 000 000

At 1 January 2007 48,687 481 (559) 10,554 231 59,394

Property revaluation - 100 - - - 100Actuarial 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 Benets 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 repor ted in relation to prior years was 2,305,000.

Therefore there was an under provision of 38,000.


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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) Dened Benet 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 Societys 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

ComponentsExpected

ReturnFair value

ExpectedReturn

Fair valueExpected

ReturnFair value

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


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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 (employers 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


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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 schemes assets 2% 1% 6% 2% (6%)

Experience (losses) arising on

schemes liabilities (000) (363) (328) (27) (23) 120

Percentage of the present value

of schemes 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 schemes liabilities (3%) 1% (6%) (6%) (10%)

b) Dened Contribution Scheme

The cost of Society contributions for the year ending 31 December 2007 was 99,546 (2006:101,697) and there were outs tanding contributions of

9,137 (2006:7,458) at the balance sheet date.

16. Reconciliation of technical account balance

to net cash ow from operating activities2007 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).


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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 resignationon 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 ofmembers 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 normalpremium rates for the Societys 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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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.

Exeter Friendly Society Accounts 2007

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Transcript of Exeter Friendly Society Accounts 2007