RNS Number:3226J
PRI Group PLC
28 March 2003
28 March 2003
PRI GROUP PLC
PRELIMINARY RESULTS
FOR THE PERIOD ENDED 31 DECEMBER 2002
PRI Group plc ("PRI", "the Group" or "the Company"), the newly
formed enterprise specialising in the professional liability
sector of the UK insurance industry, announces maiden results
for the period ended 31 December 2002 following the successful
completion of the Group's #130 million initial public offering
on the Alternative Investment Market ("AIM") in June 2002.
Highlights
- Commenced underwriting on 1 September 2002
- Recruited leading teams of underwriters
- Secured an AM Best rating of A- (Excellent)
- Pre-tax loss of #1.45 million
- #18.5 million of gross premium underwritten in first four
months of trading
Andreas Loucaides, Chief Executive commented: "I believe we
have delivered a set of creditable results from our maiden
trading period. Our operational infrastructure is now fully
functional and we have recruited an exceptionally talented
team of underwriters which continues to focus on our selected
lines of insurance. Our business is underpinned by several
key underwriting and financial disciplines. We are highly
selective in the risks we underwrite to ensure that we are
profitable.
"We have made a strong start to the year as premium rates,
terms and conditions in our chosen lines of business continue
to strengthen and we are well placed to take advantage of
these conditions in 2003. As such, we face the future with
confidence."
- Ends -
For further information, please contact:
PRI Group plc On 28 March: 020 7067 0700
James Nelson, Chairman Thereafter: 020 7090 1200
Lexicon Partners 020 7743 6330
Angus Winther
Weber Shandwick Square Mile 020 7067 0700
Susan Ellis
PRI GROUP PLC
PRELIMINARY RESULTS
FOR THE PERIOD ENDED 31 DECEMBER 2002
PRI Group plc ("PRI", "the Group" or "the Company"), the newly
formed enterprise specialising in the professional liability
sector of the UK insurance industry, announces maiden results
for the period ended 31 December 2002 following the successful
completion of the Group's #130 million initial public offering
on the Alternative Investment Market ("AIM") in June 2002.
CHAIRMAN'S STATEMENT
I am delighted to welcome shareholders and to report on PRI's
first trading period.
This initial period has been momentous in many ways,
particularly as PRI was a start-up insurance company. From
developing a concept, the challenge was to convert that
concept into a business plan, bring together a management
team, put in place the operational structure, raise the
necessary capital and obtain regulatory clearance. The
objective was to be able to start trading on 1 September 2002.
I am happy to report that management rose to that challenge
and PRI started trading on that date.
I would like to thank everyone who shared in our belief and
made it possible; our shareholders, advisors, market
practitioners and many more besides. Everyone at PRI looks
forward to delivering upon the PRI proposition, described more
fully elsewhere in this announcement.
Trading
PRI's trading result, a loss before tax of #1.45 million, is
in line with the illustrative financial projections included
in the Admission document for our AIM listing. A loss in the
first period of trading was anticipated, as expenses during
the start-up phase were likely to be incurred in advance of
premium income. As stated in the Admission document, a
dividend will not be declared.
Premium income, before and after associated acquisition
expenses, was less than anticipated but still a creditable
#18.5 million and #15.6 million, respectively. The shortfall
was principally due to a delay in the flotation process with
the result that key members of staff did not join as quickly
as anticipated and the desire not to compromise underwriting
standards. We seek to be selective in the risks we underwrite
to ensure that PRI is profitable as we believe it important to
set high standards that can be delivered upon over an
underwriting cycle.
People
PRI could not have made the progress it has without the
efforts of our staff. I believe we have recruited a very
talented team, where we have been able to select those with
the best skills, experience and expertise in our chosen
markets and business. The team has worked tirelessly to
develop an infrastructure and operating environment that
enables us to take advantage of the opportunities that are
available.
I would like to thank all of the staff and my fellow Board
members who have been most supportive, both during the process
of the AIM listing and this initial period of trading.
Outlook
The insurance sector has incurred substantial losses over the
last few years and its capital base has been materially
eroded. The combination of these factors has contributed to
the favourable market that we are now enjoying. The trading
conditions within the UK professional liability market are
strong, with increased rates and strengthening terms and
conditions. PRI envisages that these conditions will remain
in the foreseeable future.
Good relationships have been established with the underwriting
and broking community; our management team is complete and our
operational infrastructure is now in place. PRI is well
positioned to meet the needs of its market.
Approach from Brit Insurance Holdings PLC ("Brit")
The Board of PRI announced on 26 March 2003 that it had
received an approach from Brit regarding a potential all share
offer. PRI has appointed Lexicon Partners Limited as financial
advisers. The Board is discussing the approach from Brit with
its advisers and will communicate further with shareholders in
due course. In the meantime shareholders are advised to take no
action.
James Nelson
Chairman
BUSINESS REVIEW
2002 has been an exciting initial period of trading. PRI
listed on the Alternative Investment Market of the London
Stock Exchange at the end of June 2002, raising #124 million
net of expenses. The task we set ourselves was to establish
PRI as a leading niche professional liability insurer,
initially in the UK and later elsewhere in Europe. The focus
is to be primarily on small to mid-range professional
practices and medium to large commercial enterprises within
the SME sector.
PRI commenced underwriting on 1 September 2002 and I believe
we have made significant progress towards achieving our
objectives.
To date, we have:
- commenced underwriting on 1 September 2002 within
eight weeks of raising funds;
- recruited leading teams of underwriters;
- secured an AM Best rating of A- (Excellent); and
- underwritten #18.5 million of gross premium in 2002.
Our strategy is to:
- harness the experience and expertise of our underwriting team;
- focus on specific lines of business;
- target selected market sectors;
- adopt a conservative approach to managing the business;and
- develop distribution channels.
Harnessing the Experience and Expertise of our Underwriting
Team
At 31 December 2002, we had a staff of 40, 21 of whom were
underwriters. The underwriters were recruited for their
proven experience, expertise and position in the market,
together with their profitable track records and confirmed
abilities to develop business relationships, particularly with
insurance brokers in PRI's chosen target sectors.
Due to the delay of our IPO, the recruitment process took
longer than originally envisaged as key employees resigned
from their positions later than anticipated. Critically, this
meant that part of our professional indemnity team joined in
late September, missing, to a large extent, the solicitors'
renewal season. Furthermore, recruitment of the Directors'
and Officers' team proved more problematic than planned, with
the result that that team remained under-resourced for most of
this initial trading period.
Throughout, we have sought to recruit the finest, most
productive and commercial candidates, and to ensure we develop
our own culture utilising the best attributes of the London
market. To that end, I believe we have been successful. We
will consider further recruitment opportunities where
underwriters, with proven track records and leading expertise
in our chosen market areas, complement and strengthen our
existing teams.
A priority for PRI is to provide a top quality claims service.
We have set out to work with our brokers and policyholders to
manage and settle claims, adopting a professional approach to
claims management. PRI's ability to provide a competent and
specialised claims handling service is an essential aspect of
meeting clients' needs. We have assembled a team of leading
claims professionals and we are developing key relationships
with leading legal practices to offer this service on a cost
effective basis.
Focusing on Specific Lines of Business
PRI's proposition entails focusing upon seven specific lines
of business within the Professional Liability market, namely:
Professional Indemnity, Directors' and Officers' Liability,
Warranty and Indemnity, General and Employers' Liability,
Legal Expenses, Medical Malpractice and Crime and Financial
Institutions. We believe that these key segments are
complementary and provide a balanced range of liability
products. We are committed to underwriting business in the UK
and elsewhere in Europe but not to underwrite any business
directly in the USA.
Professional Indemnity ("PI")
The PI team is the heart of our business. We currently have
six underwriters and we plan to build this team further. The
PI team has forged strong relationships with the leading
brokers and is seeing a broad range of business that fits
PRI's niche. PRI is planning to develop regional
representation in 2003 to offer its products and services to
the provincial markets. We are pleased with the amount and
quality of premium income written in 2002 and to date in the
current year.
Directors' and Officers' Liability ("D&O")
PRI has made strong progress in this sector and expects to
expand the team during 2003 to take advantage of present
market conditions. The collapse of Enron has had a knock on
effect upon the D&O market in the UK and Europe. The recently
published Higgs Report, recommending that directors in the UK
have D&O cover, should reinforce this trend. We believe the
D&O sector will remain a growth area in 2003. PRI remains
committed to its underwriting stance that it will not
underwrite any US domiciled business irrespective of the
underwriting conditions within that sector.
Warranty and Indemnity ("W&I")
PRI has recruited a team of leading W&I experts which has
excellent relationships with leading producers of this line of
business. The W&I sector is dependent upon general merger and
acquisition activity, which to date has been relatively
subdued. However, PRI should benefit from any upturn.
General and Employers' Liability
This liability team had an encouraging start, enjoyed good
broker support and saw an excellent flow of quality business
from a sector that witnessed a material hardening of premiums.
PRI is well positioned to take advantage of the shortage of
capacity and the attendant increases in premium rates and
improving terms and conditions. The outlook for this sector in
2003 remains positive.
Legal Expenses
The Legal Expenses team experienced strong initial trading.
The team joined earlier than had been envisaged and PRI is
confident that it will develop a significant presence in this
sector.
Medical Malpractice
There are exciting opportunities for the medical malpractice
account in 2003. This team saw a steady start to trading and
it envisages significant growth in the coming months. The
Medical Malpractice team has forged strong relationships with
brokers to generate premium flow. The team has a high degree
of technical excellence which will enable it to maximise the
profit potential of the line.
Crime and Financial Institutions
PRI offers complementary products covering commercial crime
risks, typically written in conjunction with other lines as
well as stand-alone policies. PRI also offers professional
liability and D&O cover for selected financial institutions.
PRI has enjoyed excellent broker support in this line in 2002.
Controlled growth in this line is envisaged for 2003.
Targeting Selected Market Sectors
In June 2002, we identified three main sectors:
- small to mid-size professional practices;
- the middle to upper end of the SME market; and
- where appropriate, larger corporates with annual turnover
of between #15 million and #100 million.
These sectors were our priority in 2002 and remain so for
2003.
We have set out to offer a first class service to our brokers
specialising in professional liability business. We believe we
have made good progress with our service levels and we intend
to improve upon them in 2003.
Adopting a Conservative Approach
As PRI was a start up insurance company, we deliberately set
out to adopt a conservative approach to managing the business.
We have chosen to outsource as many non-core activities as
possible to enable us to control our cost base and to benefit
from outsourcers' economies of scale. This applies to two
areas in particular, back office functions and investment:
- Xchanging provides PRI with back office support covering six
principal services: Network support; Disaster recovery; Bureau
services - premium and claim processing; Credit control;
Property services; and HR administration. Outsourcing has
given the Group full back office resources and staffing levels
from the start and the flexibility to respond to market
changes. To date, the programme has delivered as anticipated.
- PRI has appointed two investment managers, Alliance
Capital, which runs the capital portfolio, and The Royal
Bank of Scotland, which manages working capital and
premium funds. The appointment of two managers ensures
that PRI obtains a cross-section of views from the
investment community and is able to measure performance
more easily. Both managers have exceeded their benchmarks
in 2002.
Another important element is our conservative approach to reserving.
To this end, PRI has recruited a qualified in-house actuary whose
primary focus is to determine pricing and evaluation of products
and reserving of risk. In addition, PRI has appointed an independent
actuary to review the actuarial processes within PRI and the bases
for its reserving policy.
Prior to commencing trading in 2002, we concluded our
reinsurance programme to provide cover until the end of 2003.
Generally, reinsurers have increased their rates, tightened
terms and conditions and increased retention levels for those
other insurers that they are continuing to support. Also, the
withdrawal and downgrading of reinsurers has resulted in a
narrowing range of reinsurers from whom insurers can seek
protection.
Develop Distribution Channels
Our principal product distribution strategy is to use the
insurance brokers who typically place in excess of 85 per cent
of business in the professional liability market. Completing
the development of our IT systems will permit us to better
serve our existing distribution channels. This, together with
our marketing strategy, should increase future business flows.
PRI is committed to reviewing and, if the opportunity arises,
developing a non-underwriting fee earning business in 2003.
This will be complementary to our existing legal expenses
business. PRI believes that integral to legal expenses
underwriting is the provision of legal advice and other
advisory services which, either as part of the legal expenses
insurance or as stand-alone fee generation services, have
experienced significant growth in recent years. While its
scale will be modest at the outset, it will form a key
component in PRI's overall broker support and product
distribution plans.
MARKET CONDITIONS
Insurers continued to realign their positions in 2002,
reflecting the impact of 2001 losses. Many insurers shifted
their focus away from what they considered to be non-core
business and have withdrawn from our chosen sectors of the
market. Combined with the lack of capacity coming into the
market and the demise of Independent Insurance and HIH in
2001, this has resulted in the improvement in terms and
conditions as well as premium rate rises across our selected
business areas.
Recent announcements of new entrants to our sector indicate
that the market sees the profit potential within the
professional liability market. PRI's timing and impact has
enabled it to gain a strong footing in the sector.
Although terms have hardened, brokers, as we anticipated, have
been placing business with existing renewal markets. We have
therefore concentrated on honing our service and performance
standards to divert business to PRI away from existing
insurers.
Premium rate increases in the UK liability market have been
most pronounced in the General Liability sector. We believe,
however, that the experience of our underwriting team, coupled
with our prudent risk underwriting policy, will enable us to
fully exploit the significant opportunities for profit within
the areas we have identified. Market conditions for PRI's
lines of business are extremely strong and we envisage a
continuing strengthening of rates, terms and conditions in
2003. These conditions are entirely consistent with those
anticipated at the time of our AIM listing. However, the
general socio-economic conditions and legislative environment
continue to change. PRI monitors these factors and is well
placed to adapt accordingly.
PRI BRAND
We recognise the importance of establishing a strong, dynamic
sector brand which is easily recognisable by PRI's target
distribution channels, our brokers and ultimately our
policyholders.
An extensive marketing programme was started in 2002 and is
continuing this year, with interviews, press briefings,
lectures and speaking at conferences. This should enable us to
continue to deliver our message and vision to the insurance
community. Evidence of the success of this activity to date
may be seen in the strength of support that PRI has enjoyed
since we started trading. We plan to build on this success and
reinforce our message. Our concentration will be on our major
producing markets.
THE FUTURE
In 2003, we will maintain our clear focus on our target
sectors and seek to develop and strengthen our market
position. PRI will adhere to the underwriting and financial
disciplines that underpin its business proposition.
The current financial year has started well and given the
excellent market conditions and the reception we have received
from the market, we face the future with confidence.
Andreas Loucaides
Chief Executive
FINANCIAL REVIEW
RESULT FOR THE PERIOD
The Group is reporting a loss before tax for the period of
#1.45 million. This is consistent with the illustrative
financial projections in the Admission document.
For the period under review, we achieved a premium income of
#18.51 million gross of acquisition costs. This represented
four month's trading from 1 September to 31 December 2002 and
is a creditable performance for our formative trading period.
PRI entered into insurance contracts during 2002 where the
ultimate premium is likely to be to the value of #31.40
million. However, certain contracts worth #12.90 million will
generate business that incepts throughout 2003 and as such are
not reflected in the 2002 accounts.
Our gross premium income was slightly lower than we had
anticipated in our Admission document for two principal
reasons. Firstly, the delay in the recruitment of the
professional indemnity team impacted the amount of business
that could be written for 2002. Secondly, pricing levels for
solicitors' professional indemnity insurance which renewed on
1 September 2002 were not in line with PRI's original
expectations. The Group was keen to ensure that it did not
compromise its stated underwriting standards, and this
resulted in a shortfall in projected revenue.
Premium income of #2.61 million was earned in 2002. This was
lower than the budget of #3.70 million largely due to a delay
in the timing of acceptance of risk and as such a material
percentage of the shortfall will be accounted for in 2003.
Within the technical trading account, PRI made a pure
underwriting profit of #501,000 (being net premium less net
claims less acquisition costs), which was offset by expenses
of #5.01 million. Investment income totalled #2.80 million in
the period.
EXPENSES
The total expenditure for 2002 was #12.04 million and comprised:
- listing costs and associated share issue costs, #7.03 million;
- business infrastructure costs incurred prior to the
commencement of underwriting, #1.70 million; and
- operating spend, #3.31 million.
All costs are inclusive of VAT, since PRI currently has a zero
recovery rate. The listing costs were #7.03 million compared
to the budgeted expenditure of #5.80 million in the Admission
document. The major variances occurred in higher than
envisaged advisors' fees and general flotation expenses.
These listing costs have now been charged to the Share Premium
account.
Business infrastructure costs of #1.70 million comprise the
expenditures on software development and establishing an
immediate presence within the insurance market, both in terms
of marketing and product development.
We have undertaken to develop, in conjunction with Xchanging,
a fully integrated underwriting and claims system. Such
technology is not generally available to the specifications
PRI requires so we are developing systems to meet our specific
needs. Originally it was proposed that these amounts would be
capitalised, but the Board has determined that it is more
prudent to write off the costs of development as they are
incurred. Approximately #600,000 of development costs were
incurred in 2002 and a further #600,000 is budgeted to bring
this to completion in 2003. This amount of expenditure
compares favourably with the cost of proprietary packages.
The operating expenditure was #3.31 million. The relationship
with Xchanging has given us considerable benefit during the
start-up phase; in offering a scaleable business solution, it
has allowed us to utilise the resources of a larger
organisation as and when the need has arisen.
COMBINED RATIO
PRI's combined ratio as a percentage of gross written premium
was 95.4%. This is consistent with our original expectations.
Our operating expenses (excluding business infrastructure
costs incurred prior to the commencement of underwriting)
account for 17.9% of this amount which are higher than the
future expense ratios planned for the business.
A major aspect which impacted on this expense ratio is that,
in general terms, it is more expensive to underwrite new
business than renewal business. We are constantly working with
brokers to channel suitable business in the most cost
effective way. This, compounded with the fact that PRI only
traded for four months in its initial reporting period, has
resulted in an expense ratio higher than projected for PRI in
the short term.
INVESTMENTS
We stated in our Admission document that we would invest PRI's
asset base in gilts, certificates of deposit and corporate
bonds. The projected yields were based on realistic levels in
early summer 2002 and were as follows:
2002 4.00% p.a.
2003 - 2005 4.75% p.a.
We achieved an annualised yield of 4.06% for 2002, despite a
climate of falling interest rates. Our investment strategy was
one of remaining relatively short with a view to avoiding any
year end market diminution in value, although it has made PRI
vulnerable to short-term interest rate fluctuations. This
policy has been retained into 2003 but is under constant
review in these uncertain times.
We will be reviewing our investment strategy for the medium- to
long-term in the second quarter of 2003. We are considering
investing the premium funds over a period more in line with
the life expectancy of a claim. PRI has determined that the
average professional liability claim settles approximately
four to five years after inception of the risk. We are
implementing management tools to monitor these parameters to
ensure that the appropriate claims profile is established.
Premium receipts are currently low given the start-up nature
of the business. However, they will become a material asset
as they grow in line with premium income.
Cashflow modelling is more complex in a start up vehicle than
an existing carrier with a large renewal book. It is probable
that PRI will only be able to maximise the yield on its
premium flow once the business starts a year with a completed
full renewal cycle, when cashflow predictions will be more
certain.
In light of the prevailing economic uncertainty and a general
consensus that interest rates will remain low (in historic
terms) for the foreseeable future, PRI has established that
the long-term interest rate will be 4.5% p.a. Interest rates
are presently below the long-term average. However, we
consider that this 4.5% p.a. long-term rate is reasonable.
PROFITABILITY
We have retained the reserving approach outlined in the
Admission document. We believe that this is reasonable at such
an early stage in PRI's development, with very limited
historical reserving patterns, to ensure that the company is
adequately reserved. It should be noted that the spread of
risk within the current portfolio is limited, given that we
have traded for only a short period of time. Losses and
projections will be continually analysed and reassessed
throughout 2003.
BALANCE SHEET
The net assets of the business total #123 million, of which
#119 million is held on the balance sheet of Professional
Risks Insurance Limited ("PRIL"). PRIL is the Group's major
trading subsidiary, being the FSA licensed insurance carrier.
LICENCES
PRI Group purchased Sirius (UK) Insurance Limited ("Sirius") on
completion of the fundraising. Sirius was a dormant
subsidiary of Sirius International, a Swedish-based insurer.
Sirius had effected a Schedule 2c transfer of its existing
insurance liabilities in 1999 transferring all residual
liability from the subsidiary to the parent. PRI had
essentially purchased a licensed, dormant insurance company
with no historical reserving liability. Sirius was licensed
to underwrite insurance business in all the key classes
required by PRI for its business with the exception of legal
expenses, a licence for which was gained from the FSA
following a submission in late August. The licences of
#752,000 represent the only intangible asset on the balance
sheet arising from this purchase. PRI will write off this
asset over a twenty year period and incurred an amortisation
charge of #19,000 in 2002.
During the Autumn months, PRI pursued a policy of seeking
licences to underwrite locally admitted insurance business in
all EEA territories. These licences were obtained in October.
SUMMARY
The financial focus for PRI in 2003 will be centred on the
continued development of analytical and management tools to
assist in the pricing of risk and the management of expense.
PRI's business premise is one of strict adherence to gross
underwriting profitability, conservative reserving, the
management and monitoring of acquisition costs and the driving
down of transactional costs. PRI will see the benefits of
these initiatives towards the end of 2003 and I believe that
this will be evidenced through 2004 and beyond.
Michael Walton
Finance Director
CONSOLIDATED PROFIT AND LOSS ACCOUNT - TECHNICAL ACCOUNT
For the period ended 31 December 2002
TECHNICAL ACCOUNT - GENERAL BUSINESS
2002
Audited
#'000
__________________________________________________________________
Gross premiums written 18,507
Outward reinsurance premiums (2,895)
__________________________________________________________________
Net premiums written 15,612
__________________________________________________________________
Change in gross provision for unearned premiums (15,425)
Change in the provision for unearned
premium, reinsurers' share 2,425
__________________________________________________________________
Change in the net provision for unearned premiums (13,000)
__________________________________________________________________
Earned premiums, net of reinsurance 2,612
Allocated investment return transferred from
the non-technical account 12
Claims paid - gross amount -
- reinsurers' share -
- net of reinsurance -
__________________________________________________________________
Change in the provision for claims
- gross amount (1,969)
- reinsurers' share 224
__________________________________________________________________
- net of reinsurance (1,745)
__________________________________________________________________
Claims incurred, net of reinsurance (1,745)
Net operating expenses (4,735)
__________________________________________________________________
Balance on technical account for general business (3,856)
__________________________________________________________________
All income and expenditure relates to continuing operations.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the period ended 31 December 2002
NON-TECHNICAL ACCOUNT 2002
Audited
#'000
__________________________________________________________________
Balance on technical account for general business (3,856)
Investment income 2,954
Investment expenses and charges (98)
Unrealised losses on investments (159)
Allocated investment return transferred to
the general business technical account (12)
Other charges (279)
__________________________________________________________________
________
Operating loss based on longer term investment return (1,115)
Short term fluctuations in investment returns (335)
________
Loss on ordinary activities before tax (1,450)
Tax on loss on ordinary activities 435
__________________________________________________________________
Loss for the financial period attributable to
shareholders (1,015)
Dividends -
__________________________________________________________________
Retained loss for the financial period (1,015)
__________________________________________________________________
Loss per share - Basic (1.1p)
Loss per share - Diluted (1.1p)
__________________________________________________________________
The inclusion of unrealised gains and losses in the profit and
loss account to reflect the marking to market of investments
in the balance sheet is deemed not to be a departure from the
unmodified historical cost basis of accounting. Accordingly a
separate note of historical cost profits and losses is not
given.
There are no recognised gains or losses other than the retained
profit or loss for the period.
CONSOLIDATED BALANCE SHEET
At 31 December 2002
2002
Audited
#'000
__________________________________________________________________
ASSETS
Intangible assets
Licences 752
Investments
Other financial investments 61,162
Reinsurers' share of technical provisions
Provision for unearned premiums 2,425
Claims outstanding 224
__________________________________________________________________
2,649
__________________________________________________________________
Debtors
Debtors arising out of direct insurance operations 8,863
Deferred taxation 435
Other debtors 14
__________________________________________________________________
9,312
__________________________________________________________________
Other assets
Tangible assets 1,345
Cash at bank and in hand 63,551
__________________________________________________________________
64,896
__________________________________________________________________
Prepayments and accrued income
Accrued interest and rent 2,395
Deferred acquisition costs 2,195
Other prepayments and accrued income 2,541
__________________________________________________________________
7,131
__________________________________________________________________
Total assets 145,902
__________________________________________________________________
LIABILITIES
__________________________________________________________________
Capital and reserves
Called up share capital 6,500
Share premium account 117,974
Profit and loss account (1,015)
__________________________________________________________________
Shareholders' funds attributable to equity interest 123,459
__________________________________________________________________
Technical provisions
Provision for unearned premiums 15,425
Claims outstanding 1,969
__________________________________________________________________
17,394
__________________________________________________________________
Creditors
Creditors arising out of direct insurance operations 2,875
Other creditors including taxation and social security 1,717
__________________________________________________________________
4,592
__________________________________________________________________
Accruals and deferred income 457
__________________________________________________________________
Total liabilities 145,902
__________________________________________________________________
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period ended 31 December 2002
2002
Audited
#'000
_________________________________________________________________
Net cash inflow from operating activities 2,640
Taxation
Corporation tax paid -
Capital expenditure
Purchase of tangible assets (1,471)
Acquisitions and disposals
Purchase of subsidiary undertaking (10,213)
Net cash acquired with subsidiary undertaking 9,442
_________________________________________________________________
(771)
_________________________________________________________________
Financing
Issue of ordinary share capital 131,504
Expenses paid in connection with share issues (7,030)
_________________________________________________________________
124,474
_________________________________________________________________
_________________________________________________________________
124,872
_________________________________________________________________
Cash flows were invested as follows:
Increase in cash holdings 63,551
Net portfolio investments
Debt securities and other fixed income securities 61,321
_________________________________________________________________
Net investment of cash flows 124,872
_________________________________________________________________
NOTES TO THE ACCOUNTS
At 31 December 2002
BASIS OF PREPARATION
The group accounts are prepared on the basis of the accounting
policies set out below and comply with the special provisions
relating to insurance companies in section 255 of, and
Schedule 9A to, the Companies Act 1985. The recommendations of
the Statement of Recommended Practice on Accounting for
Insurance Business issued by the Association of British
Insurers in December 1998 (the "ABI SORP") have been adopted.
The parent company accounts are prepared in accordance with
Schedule 4 to the Companies Act 1985 and under the historical
cost convention.
The accounts are prepared in accordance with applicable
accounting standards.
BASIS OF CONSOLIDATION
The consolidated accounts comprise the accounts of PRI Group
plc and its subsidiaries prepared to 31 December each year.
Subsidiaries are consolidated from the date on which control
is transferred to the group and cease to be consolidated from
the date on which control is transferred out of the group.
BASIS OF ACCOUNTING
The annual basis of accounting has been applied to all classes
of business.
PREMIUMS
Written premiums comprise the total premiums receivable for
the whole period of cover under contracts incepting during the
financial year, together with adjustments arising in the
financial year to premiums receivable in respect of business
written in previous financial years.
All premiums are shown gross of commission payable to
intermediaries and are exclusive of taxes and duties levied
thereon.
Outwards reinsurance premiums are accounted for in the same
accounting period as the premiums for the related direct
business being insured.
UNEARNED PREMIUMS PROVISION
Written premiums are recognised as earned income over the
period of the policy on a time apportionment basis, having
regard, where appropriate, to the incidence of risk. The
provision for unearned premiums is calculated on a daily pro
rata basis.
CLAIMS
Claims incurred comprise the estimated cost of all claims
occurring during the year, whether reported or not, including
related direct and indirect claims handling costs and
adjustments to claims outstanding from previous years.
The provision for claims outstanding is made on an individual
case basis and is based on the estimated ultimate cost of all
claims notified but not settled by the balance sheet date,
together with the provision for related claims handling costs.
The provision also includes the estimated cost of claims
incurred but not reported at the balance sheet date based on
statistical methods.
The provision for claims outstanding is based on information
available at the balance sheet date. Subsequent information
and events may result in the ultimate liability being less
than, or greater than, the amount provided. Any differences
between provisions and subsequent settlements are dealt with
in the technical account - general business of later years.
The level of provision for claims outstanding has been set
such that no adverse run-off deviation is envisaged. However,
given the uncertainty in establishing the provision, it is
likely that the final outcome will prove to be different from
the original liability established.
There is no discounting of claims estimates.
DEFERRED ACQUISITION COSTS
Acquisition costs, related to the acquisition of new insurance
contracts, are deferred to the extent that they are
attributable to premiums unearned at the balance sheet date.
UNEXPIRED RISKS
Provision is made where the cost of claims and expenses
arising after the end of the financial year from contracts
concluded before that date is expected to exceed the provision
for unearned premiums of claims, net of deferred acquisition
costs, and premiums receivable. The assessment of whether a
provision is necessary is made by considering separately each
category of business accounted for on an annual basis of
accounting on the basis of information available as at the
balance sheet date, after offsetting surpluses and deficits
arising on products which are managed together. Investment
income is taken into account in calculating the provision.
INVESTMENT INCOME AND EXPENSES
Investment return, comprising investment income and realised
and unrealised investment gains and losses, and investment
expenses are included initially within the non-technical
account.
Realised investment gains and losses are calculated as the
difference between net proceeds on disposal and their purchase
price.
Interest income is recognised on an accruals basis , as are
investment expenses.
Investment return is allocated from the non-technical account
to the technical account - general business so as to reflect
the longer term investment return on investments attributable
to the general insurance business in the technical account
-general business. The allocation is based on the longer term
rate of investment return on investments supporting the
technical provisions and all the relevant shareholders' funds.
OPERATING EXPENSES
Operating expenses are charged in the year in which they are
incurred. Administrative expenses are allocated between the
technical account and non- technical account based on what is
attributable to the insurance business including all support
and administrative functions.
INVESTMENTS
Investments are stated at their current values at the end of
the year.
Unrealised investment gains and losses are calculated as the
difference between the valuation at the balance sheet date and
their valuation at the last balance sheet date or purchase
price, if acquired during the year. Unrealised investment
gains and losses include adjustments in respect of unrealised
gains and losses recorded in prior years which have been
realised during the year and are reported as realised gains
and losses in the current profit and loss account.
TAXATION
The taxation in the non-technical account is based on taxable
(loss)/profit for the period.
Deferred taxation is recognised in respect of all timing
differences that have originated but not reversed at the
balance sheet date where transactions or events have occurred
at that date that will result in an obligation to pay more, or
a right to pay less or to receive more, tax, with the
following exceptions:
- Provision is made for tax on gains arising from the
revaluation (and similar fair value adjustments) of tangible
fixed assets, and gains on disposal of fixed assets that have
been rolled over into replacement assets, only to the extent
that, at the balance sheet date, there is a binding agreement
to dispose of the assets, concerned. However, no provision is
made where, on the basis of all available evidence at the
balance sheet date, it is more likely than not that the
taxable gain will be rolled over into replacement assets and
charged to tax only where the replacement assets are sold;
- Deferred tax assets are recognised only to the extent
that the directors consider that it is more likely than not
that there will be suitable taxable profits from which the
future reversal of the underlying timing differences can be
deducted.
Deferred tax is measured on an undiscounted basis at the tax
rates that are expected to apply in the periods in which
timing differences reverse, based on tax rates and laws
enacted or substantively enacted at the balance sheet date.
TANGIBLE ASSETS
Expenditure on computer equipment and fixtures, fittings and
office equipment is capitalised and depreciated over the
estimated useful economic lives of the assets on a straight
line basis.
The periods used are as follows:
Computer equipment 3 years
Furniture and fittings (including refurbishment costs) 6 to 7 years
Office equipment 3 years
LICENCES
Licences represent the excess of the cost of the acquisition
over the fair value of identifiable net assets of a subsidiary
at the date of acquisition. Licences are amortised on a
straight-line basis over its useful economic life up to a
maximum of 20 years. The asset is reviewed for impairment when
events or changes in circumstances indicate that the carrying
value may not be recoverable. Licences are stated at cost less
accumulated amortisation and any impairment in value.
PENSION COSTS
The company operates a defined contribution pension scheme.
Contributions are charged to the profit and loss account as
they become payable in accordance with the rules of the
scheme.
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded at the rate
ruling at the date of the transaction or at the contracted
rate if the transaction is covered by a forward exchange
contract. Monetary assets and liabilities denominated in
foreign currencies are re translated at the rate of exchange
ruling at the balance sheet date. Exchange differences arising
from transactions are taken to the profit and loss account.
1 SEGMENTAL REPORTING
2002 Audited
Professional Other Total
Indemnity
#'000 #'000 #'000
_____________________________________________________________________
Gross premiums written
- risks located in UK 11,450 7,057 18,507
Gross premium earned 2,270 812 3,082
Gross claims incurred (1,507) (462) (1,969)
Gross operating expenses (2,929) (1,806) (4,735)
_____________________________________________________________________
Gross technical result (2,166) (1,456) (3,622)
Reinsurance balance (175) (71) (246)
_____________________________________________________________________
Net technical result (2,341) (1,527) (3,868)
_____________________________________________________________________
Allocated investment return 8 4 12
_____________________________________________________________________
Balance on technical account (2,333) (1,523) (3,856)
_____________________________________________________________________
Net technical provisions 9,100 5,645 14,745
_____________________________________________________________________
All income and expenditure relates to continuing operations.
2 INVESTMENT RETURN
2002 Audited
#'000
Investment Income
Income from other investments 3,162
Loss on the realisation of investments (208)
_____________________________________________________________________
2,954
_____________________________________________________________________
Unrealised investment gains/(losses)
On investments held at 31 December (159)
_____________________________________________________________________
2,795
_____________________________________________________________________
Investment expenses
Investment management expenses 98
_____________________________________________________________________
3 ALLOCATED INVESTMENT RETURN
The allocation of investment return is based on the longer
term return on investments.
(a) Assumptions
The longer term return is estimated with regard to current
inflation expectation adjusted for consensus economic and
investment market forecasts of investment return.
The principal assumptions underlying the calculation of the
longer term investment return are as follows:
Fixed Income
2002 Audited
%
UK - longer term return 4.5
The directors are of the opinion that these rates of return
are prudent and have been selected with a view to ensuring
that returns credited to operating results are not
inconsistent with the actual returns which will be earned over
the longer term.
(b) Comparison of longer term investment return with actual
return
The actual return on investments attributable to general
business and shareholders in the period from 21 February 2002
to 31 December 2002 is compared below with the aggregate
longer term return which would have been recognised in the
balance on the technical account - general business over the
same period using the longer term rate of return described
above:
2002
#'000
Actual investment return attributable to technical
funds dealt with in profit on ordinary activities
in the non-technical account 11
Longer term investment return attributable to
technical funds credited to operating profit and to
the technical account - general business 12
_______________________________________________________________
Excess of long term return over actual return 1
_______________________________________________________________
4 TAXATION
(a) Analysis of tax credit
2002 Audited
#'000
_______________________________________________________________
Deferred taxation 435
_______________________________________________________________
The deferred taxation balance shown above arises from
origination of timing differences.
(b) Factors affecting tax credit for period
2002
Audited
#'000
Loss on ordinary activities before tax 1,450
Loss on ordinary activities multiplied by standard
rate of corporation tax in the UK of 30% 435
Effects of:
Tax losses carried forward (435)
________________________________________________________________
Current tax charge for the period -
________________________________________________________________
(c) Factors affecting future tax charges
There are no material factors that PRI believes will affect
future tax charges
5 EARNINGS PER ORDINARY SHARE
Earnings per share is calculated by dividing the net loss for
the period attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during
the period.
2002 Audited
#'000
Net loss attributable to ordinary shareholders 1,015,060
Weighted average number of ordinary shares 95,111,821
_________________________________________________________________
Loss per share (1.1p)
_________________________________________________________________
There are no dilutive circumstances attributable to the
shareholder base under the terms of Financial Reporting
Standard 14 - Earnings per share.
6 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
(a) Reconciliation of operating loss to net cash inflow from
operating activities
2002 Audited
#'000
Loss on ordinary activities before tax (1,450)
Depreciation of tangible assets 126
Amortisation of licences 19
Unrealised investment gains 159
Change in technical provisions 14,745
Movement in other debtors (16,008)
Movement in other creditors 5,049
________________________________________________________________
Net cash inflow from operating activities 2,640
________________________________________________________________
(b) Movement in opening and closing portfolio investments net
of financing
2002 Audited
#'000
Net cash inflow/ (outflow) for the period 63,551
Cash flow - portfolio investments 61,321
________________________________________________________________
Movement arising from cash flows 124,872
Changes in market value (159)
________________________________________________________________
Total movement in portfolio investments net
of financing 124,713
________________________________________________________________
Portfolio at 21 February -
Portfolio at 31 December 124,713
(c) Movement in cash and portfolio investments
2002 Audited
Cash Flow
At 21 Realised Other Cash Changes At 31
February gains on Flows to Maket December
2002 investments value 2002
_____________________________________________________________________________________
#'000 #'000 #'000 #'000 #'000
Cash at bank and in hand - 63,551 - 63,551
Debt securities and other
fixed income securities - 208 61,113 (159) 61,162
_____________________________________________________________________________________
Total - 208 124,664 (159) 124,713
_____________________________________________________________________________________
Cash at bank and in hand includes amounts invested in Certificates of Deposit of
#53.1 million.
(d) Net cash outflow on portfolio investments
2002 Audited
Purchases Sales Net cash
flow
#'000 #'000 #'000
_____________________________________________________________________________________
Debt securities and other fixed income securities 85,783 24,462 61,321
_____________________________________________________________________________________
Net cash outflow on portfolio investments 85,783 24,462 61,321
_____________________________________________________________________________________
The above financial information does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985.
The financial information has been extracted from the
statutory accounts in which the auditors have issued an
unqualified audit report. Statutory accounts for the year end
31 December 2002 will be delivered to the Registrar of
Companies.
This information is provided by RNS
The company news service from the London Stock Exchange
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