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<br /> NHBC Solvency and Financial<br /> Condition Report 2019<br /> Contents<br /> Executive summary............................................................................................................... 4<br /> Directors' responsibility statement......................................................................................... 7<br /> Independent auditor's opinion ............................................................................................... 8<br /> A. Business and Performance ............................................................................................. 11<br /> A.1 Business ................................................................................................................... 11<br /> A.2 Underwriting performance ......................................................................................... 13<br /> A.3 Investment Performance ....................................<a title="Solvency and Financial Condition Report 2018/2019 page 1" href="http://viewer.zmags.com/publication/a53cdf2e?page=1"> NHBC Solvency and Financial Condition Report 2019</a> <a title="Solvency and Financial Condition Report 2018/2019 page 2" href="http://viewer.zmags.com/publication/a53cdf2e?page=2"> Contents Executive summary.......................</a> <a title="Solvency and Financial Condition Report 2018/2019 page 3" href="http://viewer.zmags.com/publication/a53cdf2e?page=3"> E.3 Use of the duration-based equity risk sub-</a> <a title="Solvency and Financial Condition Report 2018/2019 page 4" href="http://viewer.zmags.com/publication/a53cdf2e?page=4"> Executive summary This is the Solvency and Financ</a> <a title="Solvency and Financial Condition Report 2018/2019 page 5" href="http://viewer.zmags.com/publication/a53cdf2e?page=5"> System of governance NHBC's Board recognises the </a> <a title="Solvency and Financial Condition Report 2018/2019 page 6" href="http://viewer.zmags.com/publication/a53cdf2e?page=6"> Valuation for solvency purposes Solvency II requi</a> <a title="Solvency and Financial Condition Report 2018/2019 page 7" href="http://viewer.zmags.com/publication/a53cdf2e?page=7"> Directors' responsibility statement We acknowledg</a> <a title="Solvency and Financial Condition Report 2018/2019 page 8" href="http://viewer.zmags.com/publication/a53cdf2e?page=8"> Independent auditor's opinion Report of the ex</a> <a title="Solvency and Financial Condition Report 2018/2019 page 9" href="http://viewer.zmags.com/publication/a53cdf2e?page=9"> reporting provisions of the PRA Rules and </a> <a title="Solvency and Financial Condition Report 2018/2019 page 10" href="http://viewer.zmags.com/publication/a53cdf2e?page=10"> assurance, but it is not a guarantee that an audi</a> <a title="Solvency and Financial Condition Report 2018/2019 page 11" href="http://viewer.zmags.com/publication/a53cdf2e?page=11"> A. Business and Performance This section of the r</a> <a title="Solvency and Financial Condition Report 2018/2019 page 12" href="http://viewer.zmags.com/publication/a53cdf2e?page=12"> NHBC's activities NHBC's activities consist of tw</a> <a title="Solvency and Financial Condition Report 2018/2019 page 13" href="http://viewer.zmags.com/publication/a53cdf2e?page=13"> Road & Sewer Bonds NHBC offers a service to act a</a> <a title="Solvency and Financial Condition Report 2018/2019 page 14" href="http://viewer.zmags.com/publication/a53cdf2e?page=14"> premiums and road and sewer bond product income.</a> <a title="Solvency and Financial Condition Report 2018/2019 page 15" href="http://viewer.zmags.com/publication/a53cdf2e?page=15"> Credit & suretyship NHBC has been successful in g</a> <a title="Solvency and Financial Condition Report 2018/2019 page 16" href="http://viewer.zmags.com/publication/a53cdf2e?page=16"> Total operating expenditure fell by 2.5% (2018: </a> <a title="Solvency and Financial Condition Report 2018/2019 page 17" href="http://viewer.zmags.com/publication/a53cdf2e?page=17"> B. System of Governance This section sets out inf</a> <a title="Solvency and Financial Condition Report 2018/2019 page 18" href="http://viewer.zmags.com/publication/a53cdf2e?page=18"> Board committees The Board has various committees</a> <a title="Solvency and Financial Condition Report 2018/2019 page 19" href="http://viewer.zmags.com/publication/a53cdf2e?page=19"> changes, review and approve investment manager gu</a> <a title="Solvency and Financial Condition Report 2018/2019 page 20" href="http://viewer.zmags.com/publication/a53cdf2e?page=20"> · due regard to all relevant regulatory guid</a> <a title="Solvency and Financial Condition Report 2018/2019 page 21" href="http://viewer.zmags.com/publication/a53cdf2e?page=21"> B.2 Fit and proper requirements NHBC carries out </a> <a title="Solvency and Financial Condition Report 2018/2019 page 22" href="http://viewer.zmags.com/publication/a53cdf2e?page=22"> Entities outside the scope of the Risk Management</a> <a title="Solvency and Financial Condition Report 2018/2019 page 23" href="http://viewer.zmags.com/publication/a53cdf2e?page=23"> The following table provides a brief description </a> <a title="Solvency and Financial Condition Report 2018/2019 page 24" href="http://viewer.zmags.com/publication/a53cdf2e?page=24"> the model to remediate issues and limitations ide</a> <a title="Solvency and Financial Condition Report 2018/2019 page 25" href="http://viewer.zmags.com/publication/a53cdf2e?page=25"> First line: Business units and operations Operati</a> <a title="Solvency and Financial Condition Report 2018/2019 page 26" href="http://viewer.zmags.com/publication/a53cdf2e?page=26"> · Co-ordination with other control and mon</a> <a title="Solvency and Financial Condition Report 2018/2019 page 27" href="http://viewer.zmags.com/publication/a53cdf2e?page=27"> insurance side has become much more sophisticated</a> <a title="Solvency and Financial Condition Report 2018/2019 page 28" href="http://viewer.zmags.com/publication/a53cdf2e?page=28"> C. Risk Profile Overview NHBC's risk profile is a</a> <a title="Solvency and Financial Condition Report 2018/2019 page 29" href="http://viewer.zmags.com/publication/a53cdf2e?page=29"> mandates. Listed equity futures and options are a</a> <a title="Solvency and Financial Condition Report 2018/2019 page 30" href="http://viewer.zmags.com/publication/a53cdf2e?page=30"> C.1 Underwriting risk Underwriting risk refers to</a> <a title="Solvency and Financial Condition Report 2018/2019 page 31" href="http://viewer.zmags.com/publication/a53cdf2e?page=31"> and all derivative exposures are held for risk re</a> <a title="Solvency and Financial Condition Report 2018/2019 page 32" href="http://viewer.zmags.com/publication/a53cdf2e?page=32"> The nature of the insurance business underwritten</a> <a title="Solvency and Financial Condition Report 2018/2019 page 33" href="http://viewer.zmags.com/publication/a53cdf2e?page=33"> Longevity risk refers to the risk of losses arisi</a> <a title="Solvency and Financial Condition Report 2018/2019 page 34" href="http://viewer.zmags.com/publication/a53cdf2e?page=34"> D. Valuation for Solvency Purposes This section </a> <a title="Solvency and Financial Condition Report 2018/2019 page 35" href="http://viewer.zmags.com/publication/a53cdf2e?page=35"> Following the hierarchy of valuation methods in a</a> <a title="Solvency and Financial Condition Report 2018/2019 page 36" href="http://viewer.zmags.com/publication/a53cdf2e?page=36"> Other assets NHBC has operating leases for one pr</a> <a title="Solvency and Financial Condition Report 2018/2019 page 37" href="http://viewer.zmags.com/publication/a53cdf2e?page=37"> Receivables (trade, not 3.9 -</a> <a title="Solvency and Financial Condition Report 2018/2019 page 38" href="http://viewer.zmags.com/publication/a53cdf2e?page=38"> The Solvency II Technical Provisions are calculat</a> <a title="Solvency and Financial Condition Report 2018/2019 page 39" href="http://viewer.zmags.com/publication/a53cdf2e?page=39"> The reinsurance recoveries are estimated stochast</a> <a title="Solvency and Financial Condition Report 2018/2019 page 40" href="http://viewer.zmags.com/publication/a53cdf2e?page=40"> · Investment Management Expenses are thos</a> <a title="Solvency and Financial Condition Report 2018/2019 page 41" href="http://viewer.zmags.com/publication/a53cdf2e?page=41"> The UK GAAP margin is selected by Management and </a> <a title="Solvency and Financial Condition Report 2018/2019 page 42" href="http://viewer.zmags.com/publication/a53cdf2e?page=42"> Material classes of liability Technical provision</a> <a title="Solvency and Financial Condition Report 2018/2019 page 43" href="http://viewer.zmags.com/publication/a53cdf2e?page=43"> As such there are no differences between measurem</a> <a title="Solvency and Financial Condition Report 2018/2019 page 44" href="http://viewer.zmags.com/publication/a53cdf2e?page=44"> D.5 Other information The information presented i</a> <a title="Solvency and Financial Condition Report 2018/2019 page 45" href="http://viewer.zmags.com/publication/a53cdf2e?page=45"> E. Capital Management This section of the report </a> <a title="Solvency and Financial Condition Report 2018/2019 page 46" href="http://viewer.zmags.com/publication/a53cdf2e?page=46"> Table below presents how funds are allocated to s</a> <a title="Solvency and Financial Condition Report 2018/2019 page 47" href="http://viewer.zmags.com/publication/a53cdf2e?page=47"> The £33.5m increase in own funds is driven by the</a> <a title="Solvency and Financial Condition Report 2018/2019 page 48" href="http://viewer.zmags.com/publication/a53cdf2e?page=48"> The MCR is based on applying the appropriate fact</a> <a title="Solvency and Financial Condition Report 2018/2019 page 49" href="http://viewer.zmags.com/publication/a53cdf2e?page=49"> F. Quantitative reporting templates The following</a> <a title="Solvency and Financial Condition Report 2018/2019 page 50" href="http://viewer.zmags.com/publication/a53cdf2e?page=50"> S.02.01.02 Balance sheet Solvency II value Assets</a> <a title="Solvency and Financial Condition Report 2018/2019 page 51" href="http://viewer.zmags.com/publication/a53cdf2e?page=51"> S.02.01.02 Balance sheet Solvency II value Liabil</a> <a title="Solvency and Financial Condition Report 2018/2019 page 52" href="http://viewer.zmags.com/publication/a53cdf2e?page=52"> S.05.01.02 Premiums, claims and expenses by line </a> <a title="Solvency and Financial Condition Report 2018/2019 page 53" href="http://viewer.zmags.com/publication/a53cdf2e?page=53"> S.05.02.01 Premiums, claims and expenses by count</a> <a title="Solvency and Financial Condition Report 2018/2019 page 54" href="http://viewer.zmags.com/publication/a53cdf2e?page=54"> S.17.01.02 Non-Life Technical Provisions Dire</a> <a title="Solvency and Financial Condition Report 2018/2019 page 55" href="http://viewer.zmags.com/publication/a53cdf2e?page=55"> S.19.01.21 Non-Life insurance claims Total Non-l</a> <a title="Solvency and Financial Condition Report 2018/2019 page 56" href="http://viewer.zmags.com/publication/a53cdf2e?page=56"> S.23.01.01 Own Funds Basic own funds before de</a> <a title="Solvency and Financial Condition Report 2018/2019 page 57" href="http://viewer.zmags.com/publication/a53cdf2e?page=57"> S.25.01.21 Solvency Capital Requirement - for und</a> <a title="Solvency and Financial Condition Report 2018/2019 page 58" href="http://viewer.zmags.com/publication/a53cdf2e?page=58"> S.28.01.01 Minimum Capital Requirement - Only lif</a>