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<br /> 2019/20<br /> SOLVENCY<br /> AND FINANCIAL<br /> CONDITION<br /> REPORT 2020<br /> <br /> CONTENTS<br /> EXECUTIVE SUMMARY 4<br /> DIRECTORS' RESPONSIBILITY STATEMENT 7<br /> INDEPENDENT AUDITOR'S OPINION 8<br /> A. BUSINESS AND PERFORMANCE 10<br /> A.1 Business 11<br /> A.2 Underwriting performance 13<br /> A.3 Investment Performance 14<br /> A.4 Performance of other activities 15<br /> A.5 Any other information 15<br /> B. SYSTEM OF GOVERNANCE 17<br /> B.1 General information on the system of<br /> governance 18<br /> B.2 Fit and proper requirements 21<br /> B.3 Ris<a title="Solvency and Financial Condition Report 2020 page 1" href="http://viewer.zmags.com/publication/9059a03c?page=1"> 2019/20 SOLVENCY AND FINANCIAL CONDITION REPORT</a> <a title="Solvency and Financial Condition Report 2020 page 2" href="http://viewer.zmags.com/publication/9059a03c?page=2"> </a> <a title="Solvency and Financial Condition Report 2020 page 3" href="http://viewer.zmags.com/publication/9059a03c?page=3"> CONTENTS EXECUTIVE SUMMARY </a> <a title="Solvency and Financial Condition Report 2020 page 4" href="http://viewer.zmags.com/publication/9059a03c?page=4"> 4 EXECUTIVE SUMMARY This is the Solvency </a> <a title="Solvency and Financial Condition Report 2020 page 5" href="http://viewer.zmags.com/publication/9059a03c?page=5"> £m </a> <a title="Solvency and Financial Condition Report 2020 page 6" href="http://viewer.zmags.com/publication/9059a03c?page=6"> 6</a> <a title="Solvency and Financial Condition Report 2020 page 7" href="http://viewer.zmags.com/publication/9059a03c?page=7"> 7 DIRECTORS' RESPONSIBILITY STATEMENT We a</a> <a title="Solvency and Financial Condition Report 2020 page 8" href="http://viewer.zmags.com/publication/9059a03c?page=8"> 8 INDEPENDENT AUDITOR'S OPINION Report of t</a> <a title="Solvency and Financial Condition Report 2020 page 9" href="http://viewer.zmags.com/publication/9059a03c?page=9"> cover the Other Information and, we do not expres</a> <a title="Solvency and Financial Condition Report 2020 page 10" href="http://viewer.zmags.com/publication/9059a03c?page=10"> 10 A. BUSINESS AND PERFORMANCE A.1 Busi</a> <a title="Solvency and Financial Condition Report 2020 page 11" href="http://viewer.zmags.com/publication/9059a03c?page=11"> 11 A. BUSINESS AND PERFORMANCE This sectio</a> <a title="Solvency and Financial Condition Report 2020 page 12" href="http://viewer.zmags.com/publication/9059a03c?page=12"> NHBC'S ACTIVITIES NHBC's activities consist of t</a> <a title="Solvency and Financial Condition Report 2020 page 13" href="http://viewer.zmags.com/publication/9059a03c?page=13"> claims experience which may result from a UK rece</a> <a title="Solvency and Financial Condition Report 2020 page 14" href="http://viewer.zmags.com/publication/9059a03c?page=14"> 14 A.2.1 UNDERWRITING PERFORMANCE BY SOLV</a> <a title="Solvency and Financial Condition Report 2020 page 15" href="http://viewer.zmags.com/publication/9059a03c?page=15"> OTHER INVESTMENT INFORMATION NHBC holds investme</a> <a title="Solvency and Financial Condition Report 2020 page 16" href="http://viewer.zmags.com/publication/9059a03c?page=16"> 16</a> <a title="Solvency and Financial Condition Report 2020 page 17" href="http://viewer.zmags.com/publication/9059a03c?page=17"> 17 B. SYSTEM OF GOVERNANCE B.1 General</a> <a title="Solvency and Financial Condition Report 2020 page 18" href="http://viewer.zmags.com/publication/9059a03c?page=18"> 18 B. SYSTEM OF GOVERNANCE This section se</a> <a title="Solvency and Financial Condition Report 2020 page 19" href="http://viewer.zmags.com/publication/9059a03c?page=19"> BOARD COMMITTEES The Board has various committee</a> <a title="Solvency and Financial Condition Report 2020 page 20" href="http://viewer.zmags.com/publication/9059a03c?page=20"> MATERIAL CHANGES IN THE SYSTEM OF GOVERNANCE DURI</a> <a title="Solvency and Financial Condition Report 2020 page 21" href="http://viewer.zmags.com/publication/9059a03c?page=21"> B.2 FIT AND PROPER REQUIREMENTS NHBC carries out</a> <a title="Solvency and Financial Condition Report 2020 page 22" href="http://viewer.zmags.com/publication/9059a03c?page=22"> 22 OVERVIEW The Risk Management Framew</a> <a title="Solvency and Financial Condition Report 2020 page 23" href="http://viewer.zmags.com/publication/9059a03c?page=23"> NHBC'S RISK MANAGEMENT FRAMEWORK AND RECOGNISED I</a> <a title="Solvency and Financial Condition Report 2020 page 24" href="http://viewer.zmags.com/publication/9059a03c?page=24"> B.4 INTERNAL CONTROL SYSTEM To promote understan</a> <a title="Solvency and Financial Condition Report 2020 page 25" href="http://viewer.zmags.com/publication/9059a03c?page=25"> B.6 ACTUARIAL FUNCTION Within NHBC, the activiti</a> <a title="Solvency and Financial Condition Report 2020 page 26" href="http://viewer.zmags.com/publication/9059a03c?page=26"> B.7 OUTSOURCING NHBC has a documented procuremen</a> <a title="Solvency and Financial Condition Report 2020 page 27" href="http://viewer.zmags.com/publication/9059a03c?page=27"> 27</a> <a title="Solvency and Financial Condition Report 2020 page 28" href="http://viewer.zmags.com/publication/9059a03c?page=28"> 28 C. SYSTEM OF GOVERNANCE C.1 Underwr</a> <a title="Solvency and Financial Condition Report 2020 page 29" href="http://viewer.zmags.com/publication/9059a03c?page=29"> 29 C. RISK PROFILE OVERVIEW NHBC's risk </a> <a title="Solvency and Financial Condition Report 2020 page 30" href="http://viewer.zmags.com/publication/9059a03c?page=30"> NHBC limits its market risk exposures to modest l</a> <a title="Solvency and Financial Condition Report 2020 page 31" href="http://viewer.zmags.com/publication/9059a03c?page=31"> C.2 MARKET RISK Market risk refers to changes in</a> <a title="Solvency and Financial Condition Report 2020 page 32" href="http://viewer.zmags.com/publication/9059a03c?page=32"> NHBC anticipates around £1.4m (2019: £2.3m) in ex</a> <a title="Solvency and Financial Condition Report 2020 page 33" href="http://viewer.zmags.com/publication/9059a03c?page=33"> arrangements. NHBC had to navigate through operat</a> <a title="Solvency and Financial Condition Report 2020 page 34" href="http://viewer.zmags.com/publication/9059a03c?page=34"> 34</a> <a title="Solvency and Financial Condition Report 2020 page 35" href="http://viewer.zmags.com/publication/9059a03c?page=35"> 35 D. VALUATION FOR SOLVENCY PURPOSES D.1</a> <a title="Solvency and Financial Condition Report 2020 page 36" href="http://viewer.zmags.com/publication/9059a03c?page=36"> 36 D. VALUATION FOR SOLVENCY PURPOSES This s</a> <a title="Solvency and Financial Condition Report 2020 page 37" href="http://viewer.zmags.com/publication/9059a03c?page=37"> MATERIAL CLASSES OF ASSETS LAND AND BUILDINGS IN</a> <a title="Solvency and Financial Condition Report 2020 page 38" href="http://viewer.zmags.com/publication/9059a03c?page=38"> 38 RECONCILIATION OF UK GAAP AND SOLVEN</a> <a title="Solvency and Financial Condition Report 2020 page 39" href="http://viewer.zmags.com/publication/9059a03c?page=39"> 39 D.2 TECHNICAL PROVISIONS The following </a> <a title="Solvency and Financial Condition Report 2020 page 40" href="http://viewer.zmags.com/publication/9059a03c?page=40"> STOCHASTIC RESERVING Certain elements of the pro</a> <a title="Solvency and Financial Condition Report 2020 page 41" href="http://viewer.zmags.com/publication/9059a03c?page=41"> 41 Data relating to what are potentia</a> <a title="Solvency and Financial Condition Report 2020 page 42" href="http://viewer.zmags.com/publication/9059a03c?page=42"> D.3 OTHER LIABILITIES NHBC's Solvency II liabili</a> <a title="Solvency and Financial Condition Report 2020 page 43" href="http://viewer.zmags.com/publication/9059a03c?page=43"> 43 Under UK GAAP debt instruments are</a> <a title="Solvency and Financial Condition Report 2020 page 44" href="http://viewer.zmags.com/publication/9059a03c?page=44"> 44</a> <a title="Solvency and Financial Condition Report 2020 page 45" href="http://viewer.zmags.com/publication/9059a03c?page=45"> 45 E. CAPITAL MANAGEMENT E.1 Own funds</a> <a title="Solvency and Financial Condition Report 2020 page 46" href="http://viewer.zmags.com/publication/9059a03c?page=46"> 46 E. CAPITAL MANAGEMENT This section of t</a> <a title="Solvency and Financial Condition Report 2020 page 47" href="http://viewer.zmags.com/publication/9059a03c?page=47"> Please refer to sections D1 and D3 of this report</a> <a title="Solvency and Financial Condition Report 2020 page 48" href="http://viewer.zmags.com/publication/9059a03c?page=48"> 48 E.3 USE OF THE DURATION-BASED EQUITY RIS</a> <a title="Solvency and Financial Condition Report 2020 page 49" href="http://viewer.zmags.com/publication/9059a03c?page=49"> 49 F. QUANTITATIVE REPORTING TEMPLATES The </a> <a title="Solvency and Financial Condition Report 2020 page 50" href="http://viewer.zmags.com/publication/9059a03c?page=50"> 50 S.02.01.02 Balance sheet Solvency II </a> <a title="Solvency and Financial Condition Report 2020 page 51" href="http://viewer.zmags.com/publication/9059a03c?page=51"> 51 S.02.01.02 Balance sheet Solvency II v</a> <a title="Solvency and Financial Condition Report 2020 page 52" href="http://viewer.zmags.com/publication/9059a03c?page=52"> S.05.01.02 Premiums, claims and expenses by line </a> <a title="Solvency and Financial Condition Report 2020 page 53" href="http://viewer.zmags.com/publication/9059a03c?page=53"> 53 S.05.02.01 Premiums, claims and expense</a> <a title="Solvency and Financial Condition Report 2020 page 54" href="http://viewer.zmags.com/publication/9059a03c?page=54"> 54 S.17.01.02 Non-Life Technical </a> <a title="Solvency and Financial Condition Report 2020 page 55" href="http://viewer.zmags.com/publication/9059a03c?page=55"> 55 Z0020 Z0020 Z0020 R0100 R</a> <a title="Solvency and Financial Condition Report 2020 page 56" href="http://viewer.zmags.com/publication/9059a03c?page=56"> S.23.01.01 S.23.01.01 Own Funds Own Fu</a> <a title="Solvency and Financial Condition Report 2020 page 57" href="http://viewer.zmags.com/publication/9059a03c?page=57"> S.25.01.21 Solvency Capital Requirement - for und</a> <a title="Solvency and Financial Condition Report 2020 page 58" href="http://viewer.zmags.com/publication/9059a03c?page=58"> 58 S.28.01.01 Minimum Capital Req</a> <a title="Solvency and Financial Condition Report 2020 page 59" href="http://viewer.zmags.com/publication/9059a03c?page=59"> NHBC, NHBC House, Davy Avenue, Knowlhill, Milton </a>