TIDMTAW
RNS Number : 9391Z
Tawa PLC
23 March 2012
PRESS RELEASE 23 MARCH 2012
FOR IMMEDIATE RELEASE
PRELIMINARY RESULTS ANNOUNCEMENT
Tawa plc
Preliminary results for the year ended 31 December 2011
2011 has been focused on transforming and investing. 2012 is to
be focused on operational optimisation and profitability
Tawa plc ("Tawa" or "the Company" and its subsidiaries together
"the Group") today announces preliminary results for the year ended
31 December 2011.
Financial highlights
-- Loss after tax for the period attributable to shareholders of
$21.6 million (2010: profit $1.8 million);
-- Net assets attributable to shareholders of $197.2 million (2010: $226.3 million);
-- Capital extraction of $22.8 million was made from PXRE
Reinsurance Company ("PXRE") during the period which was used to
repay Group debt;
-- Net assets per share in sterling from GBP1.13 (2010:
GBP1.26); net assets per share in US dollars of $1.75 (2010: $2.00
at a constant exchange rate);
-- No dividend planned for 2011.
General activities during 2011
-- Oslo Reinsurance Company (UK) Limited acquired;
-- QX Reinsurance Company Limited ("QX") established;
-- LGIC Holdings, LLC ("LGIC"), 51% owned by the Group, acquired
a majority of Walshire General Assurance Company, the sole
shareholder of Lincoln General Insurance Company (Pennsylvania,
USA);
-- Two new "incubation" projects funded: Q360 Limited ("Q360"),
a London-based broker, and Lodestar Marine Limited ("Lodestar") a
UK managing general agency (MGA);
-- Whittington Insurance Markets Limited ("Whittington"),
acquired by a consortium comprising Tawa, Skuld, and the Paraline
Group, Ltd. Following regulatory approval, the transaction
completed on 25 January 2012;
-- Hamburger Internationale Ruckversicherung ("HIR") acquisition
signed. HIR is the holding company for the Chiltington group of
companies. This transaction is subject to regulatory approval.
Gilles Erulin, Chief Executive Officer of Tawa plc,
commented:
"Over the last two years, we have moved from being a pure
run-off risk carrier towards being a multi-segment player in the
insurance market. 2011 was a key year in this transformational
shift as Tawa significantly expanded into the service segment of
the international insurance industry.
"2011 has been focused on transforming and investing. 2012 is to
be focused on operational optimization and profitability.
"In 2011 we delivered our strategic goals as to the expansion of
our scale and scope. For 2012 our number one priority is to
re-establish our earnings momentum and cash flow generation".
-END-
Enquiries:
Gilles Erulin, Chief Executive, Tawa plc 020 7068 8000
Victoria Sisson or Alexandra Thompson, FWD 020 7623 2368
James Britton, or Guy Wiehahn, Peel Hunt (Nominated
Adviser and Broker) 020 7418 8900
Notes for Editors:
Tawa plc was formed in 2001 and is a specialised investor in the
insurance industry. It invests in acquiring run-off portfolios
("Portfolios", "Risk Carriers") and in servicing business. The
Group also operates as an incubator for new projects and recently
invested alongside professional teams to create two new businesses,
Q360 and Lodestar in addition to developing its own products to
serve the insurance market as a whole such as STRIPE(R) .
Since its formation, Tawa has acquired CX Reinsurance Company
Limited, KX Reinsurance Company Limited, LGIC Holdings, LLC, PXRE
Reinsurance Company, Island Capital Limited, Oslo Reinsurance (UK)
Company Limited and the Pro group of companies. As part of a
consortium it has acquired a 33% share in Whittington Insurance
Markets Limited and set up QX Reinsurance Company Limited, a
Bermudian special purpose insurer, to write reinsurance
business.
Tawa has entered into a share purchase agreement to acquire
Hamburger Internationale Ruckversicherung, German risk-carrier in
run-off and the holding company for the Chiltington group of
companies. The transaction is subject to regulatory approval.
The Group's combined team of 300 professionals service a number
of the largest insurance businesses in the UK and Europe and
deliver a market-wide third-party servicing capability and cover
London's company and Lloyd's markets as well as Europe, Bermuda and
the USA.
In July 2007 Tawa plc was floated on the AIM market.
Further information can be found on the Company's website:
www.tawaplc.co.uk.
Joint statement of the Chairman and Chief Executive Officer
To our Shareholders,
2011 has been a year of evolution and also challenges for
Tawa.
Over the last two years, Tawa has moved from being a pure
run-off risk carrier towards being a multi-segment player in the
insurance market. 2011 marked a key stage in this transformational
move by significant expansion into the service segment of that
market.
Tawa continues to be a specialised investor in the insurance
industry. It invests in run-off portfolios and in insurance
services. The Group also operates as an incubator for new projects
in the sector and recently invested alongside professional teams to
create two new businesses: Q360, a London wholesale broker, and
Lodestar Marine, a managing general agency (MGA).
In 2011 Tawa acquired for a nominal sum 51% of LGIC Holdings,
LLC and its subsidiary Lincoln General Insurance Company ("LG"), a
Pennsylvania (US) run-off company, with $303 million in gross
liabilities and $2.9 million of US statutory capital. Tawa also set
up a Bermudian special purpose reinsurer, QX Re, to provide $100
million reinsurance for a book of US lead paint exposure.
On the servicing front, 2011's goals for Tawa were firstly to
move up the food chain towards providing more high end, value-added
consulting and secondly to increase its service offering both
geographically and into the Lloyd's market. All of these were
delivered and we fully expect these new businesses to be accretive
in the short run.
During the year Tawa announced the acquisition of 33% of
Whittington, the leading turnkey agency management services company
in Lloyd's, through a newly created consortium. In North America,
the Lincoln General transaction brought some 60 professional staff
to the Group, providing a solid platform to support Pro's local
offering. Finally, the Group announced the acquisition of
Chiltington, awaiting regulatory approval in Germany, which will
provide the Group with a German risk-carrier in run-off and a well
regarded continental consulting platform, a South American
stronghold and expanded resources in the UK and the US.
Accounts and dividends
On the accounting front, Tawa reported a full year loss of $21.9
million, bringing the net assets per share at 31 December 2011 to
$1.75 per share (GBP1.13 per share) compared with 31 December 2010
of $2.00 per share (GBP1.26 per share) and a share price of 47p at
the end of 2011.
These results stem mainly from adverse reserve development in
some of our run-off insurance carriers. In particular QX Re, the
Bermudian regulated special purpose insurer formed in March 2011 to
provide reinsurance for a book of US lead paint exposure, has
suffered a material change in claims volumes over the last few
months which have been taken into account by increasing the
reserves.
Tawa's ongoing investment in insurance services resulted in
solid performance at Pro with a pre-tax profit of $5.8 million and
net result of $4.3million.
Also in 2011, Tawa invested approximately $7 million in setting
up Lodestar Marine, Q360 and developing STRIPE(R) , an internet
claims management system. We expect these investments to provide
superior Group earnings in the future and new strategic platforms
for growth.
In light of these results, Tawa will not distribute any dividend
in 2012 relating to the results for 2011.
2012 Prospects
2011 has been focused on transforming and investing. 2012 is to
be focused on operational optimization and profitability.
Volatility reduction, portfolio downscaling and potential sales
of some assets are at the centre of this year's run-off portfolio
strategy. As to the service business, challenging revenue and
earnings targets have been set. Management expects the incubator
businesses to be cash generative in the shortest possible time.
Finally, your management team has engaged in a hunt for significant
cost savings across the organisation.
Service business
Tawa's main service subsidiary, Pro - with 300 professionals -
provides underwriting support, claims management, broking and
consulting services to a broad array of international clients. 2011
has marked a rebalancing of Pro's business streams from legacy
business into the active market.
Also, prior to hosting Tawa's incubator businesses, Pro
established an innovative platform to provide turnkey services to
new insurance ventures broadly, such as broking or MGAs.
In order to deliver the 2012 profit targets, Pro is focussing
its capacity and efforts to increase:
-- added value (high margin) consulting;
-- new outsourcing from active underwriting clients;
-- intermediary work (supporting our incubators and other
start-up brokers and MGA); and
-- mutually beneficial interaction with Whittington and Chiltington.
Pro is concentrating its in-house skills towards these
increasingly higher value segments of our business. As the
businesses grow, however, it is highly unlikely that internal
resources alone will satisfy the staffing needs, so recruitment and
skill sourcing are some of Pro's challenges and constraints for
2012.
When Tawa acquired Pro, the management team knew that there
would be a significant reduction of revenues over time from
existing clients. Pro has been successful in retaining more
business for a longer period than had been expected, as well as
replacing much of the business lost with new clients and new
revenues. Nevertheless, the staffing needs have shifted and reduced
as a result of the changing revenues and business mix. Whilst we
were able to redeploy significant numbers of employees to new
roles, we did have to let others go. We want to take this
opportunity to thank each and every one of them for their dedicated
efforts for the company and to wish them well for the future.
Risk management and compliance
The current regulatory environment is bringing new challenges to
the insurance industry. The Group is committed to maintaining
appropriate regulatory standards and is therefore allocating
increased resources in the areas of risk management programs,
compliance and internal audit.
Pro has been granted a broker and an MGA licence. We are using
these licences as "umbrellas" for Q360 and for Lodestar, and will
use them for our other intermediary turnkey clients. It is
therefore paramount that we maintain a solid compliance framework
for those teams.
In conclusion, we would like to thank each of our shareholders
for their strong support during 2011. Just like prior years it has
been a challenging but interesting year, one where your company has
laid the foundations of a larger up-market, stand-alone service
unit and built the momentum for a stronger and more profitable
group.
One year ago we had set ourselves to create "...a radically
different organisation, one we would not have recognised in our
earlier years, an organisation which has more depth and breadth to
the services it offers, the companies it owns and the geographies
it works within." It is your management's belief that we succeeded
in delivering those strategic goals.
Enhanced earnings and cash flow are our Group priorities for
2012. For this purpose, your company will rely on what makes us
different from other places, namely our people: people with high
expertise, skills and integrity, working together to achieve our
common purpose in a challenging but supportive work environment. On
your behalf, we would like to thank each of them their continuing
contribution to the Group.
Finally, thanks also go to our Board for their active
contribution and support.
Financial review
Introduction to the Group's business
Tawa plc ("Tawa"), formed in 2001, is a specialised investor in
the insurance industry. It invests in acquiring run-off portfolios
("Portfolios", "Risk Carriers") and in servicing businesses. The
Group also operates as an incubator for new projects and recently
invested alongside professional teams to create two new businesses.
Tawa operates mainly in the UK, US, continental Europe and
Bermuda.
On the Portfolio front, Tawa has acquired since its formation
four insurance entities in run-off. As an alternative technique to
acquiring Portfolios, Tawa has established for the first time in
2011 QX Re, a dedicated reinsurance vehicle in Bermuda to reinsure
a book of US lead paint exposures. Run-off acquisitions form the
bulk of Tawa's balance sheet and remain a key area of expertise for
the Company.
In 2009 Tawa diversified its portfolio and acquired Pro, a
leading insurance service provider, thereby enabling us to provide
services which are value creative to our clients' businesses. Pro
provides consultancy to live and run-off insurance carriers across
the market in areas such as claims management, audits and
litigation, solvent schemes, finance management and post-event
accounting. Tawa currently services a number of significant
insurance clients. Our aim is to continue developing this platform
and in 2011 significant investments were allocated towards that
goal. The development of our service business is, and remains, a
key focus of the Group and it has changed the Group's metrics from
being only a balance sheet cash extraction-driven business to a
more balanced mix between recurring cash flows matched with spot
releases of significant amounts of excess regulatory capital from
the Portfolios.
In addition, as of 2011, the Group now operates as an incubator
for new and innovative products and projects in the insurance
market. Tawa is investing significant financial and operating
resources in this area as a means to diversify into the live
insurance market and thereby provide the Group with enhanced
business opportunities. Tawa has developed a web-based platform
allowing principal to principal processing of claims and
post-placement transactions which is branded as the STRIPE(R)
system. In addition, in 2011 Pro expanded its intermediary
management capacity to support brokers and MGA's turnkeys. Tawa
funded two new "incubation projects", namely Q360, a London-based
broker, and Lodestar, a managing general agency ("MGA").
Tawa's business is organised in three divisions:
-- risk carriers/insurance which holds acquired insurance
entities in run-off (our risk carriers). Profitability is achieved
by effectively managing these assets and liabilities;
-- service providers which comprise a platform that generates
income from both consulting and outsourcing. Consulting typically
includes work provided directly for our clients and the outsourcing
division includes work it does on behalf of clients on our
platform; and
-- corporate which incorporates incubators, all group overheads,
corporate costs, acquisition activities and financing.
Summary of 2011 financial results
31 Dec 2011 $m 31 Dec 2010 $m
--------------- ---------------
External revenue 35.4 42.2
(Loss)/profit for the year (21.9) 1.8
Group surplus 198.2 226.3
-- Loss for the period attributable to shareholders was $21.6
million (2010: profit $1.8 million);
-- The Group's net assets have decreased by $28.1 million to
$198.2 million as at 31 December 2011;
-- Net assets per share in sterling decreased from GBP1.26 to
GBP1.13; net assets per share in US dollars decreased from $2.00 to
$1.75;
-- The Group's net tangible assets are $173.8 million (2010: $201.9 million);
-- In line with the Group's dividend policy an interim dividend
for the year ended 31 December 2010 of 2 cents (1.25 pence) per
share was paid on 1 June 2011, with a final dividend for the same
amount paid on 2 December 2011;
-- A capital extraction of $22.8 million was made from PXRE
during the period which was used to repay Group debt;
-- The Group acquired 100% of the ordinary shares of Oslo
Reinsurance Company (UK) Limited on 10 March 2011;
-- On 31 March 2011 Tawa set up QX Reinsurance Company Limited;
-- On 17 October 2011, Tawa plc acquired for a nominal sum, a
51% stake in a newly formed US holding company, LGIC Holdings, LLC
("LGIC"). LGIC acquired a majority of Walshire General Assurance
Company, the sole shareholder of Lincoln General Insurance
Company;
-- A consortium comprising Tawa, Skuld, and the Paraline Group,
Ltd announced a definitive agreement to acquire Whittington
Insurance Markets Limited in 2011. Following regulatory approval,
the transaction completed on 25 January 2012; and
-- Tawa has entered into a share purchase agreement in 2011 to
acquire Hamburger Internationale Ruckversicherung, the holding
company for the Chiltington group of companies. The transaction is
subject to regulatory approval.
Acquisitions
Tawa is in the business of acquiring and, if appropriate,
divesting assets. On the Portfolio front, Tawa continues to pursue
a strategy of not participating actively in the auction
environment. Rather Tawa is sourcing acquisition targets through
its servicing business clients and also special situations where
the skill sets and expertise of our staff create a unique selling
point for Tawa. While maintaining this disciplined approach, Tawa
has seen an increase in the number of interesting opportunities in
the market and is reviewing a number of them. On the servicing
front the 2011 goal for Tawa was first to move our internal
resources towards providing more high end, value-added consulting.
Second, investing to increase its offering both geographically and
into the Lloyd's market. Those strategies remain unchanged and will
be pursued by the Group as it creates the investment capacity from
internally generated funds. Also, new investment capacity could be
raised with new equity from Tawa's existing shareholders or new
investors.
Details of our acquisitions for the year are below:
On 10 March 2011, the Group completed the transaction to acquire
Oslo Reinsurance Company (UK) Limited, a small London market
company which has been in run-off since 1994. Most of the business
has been removed by schemes and commutations. The company has been
renamed OX Reinsurance Company Limited.
Book value Fair value adjustments Fair value on acquisition
$m $m $m
-------------------------------------------------- ------------ ----------------------- ---------------------------
Assets
Cash and cash equivalents 8.9 - 8.9
Reinsurers' share of technical provisions 4.2 - 4.2
Liabilities
Technical provisions (4.4) - (4.4)
Other liabilities (0.2) - (0.2)
--------------------------------------------------
8.5 - 8.5
Consideration paid in cash 6.5
-------------------------------------------------- ------------ -----------------------
Consideration paid net of cash and cash
equivalents (2.4)
-------------------------------------------------- ------------ ----------------------- ---------------------------
Negative goodwill on acquisition (2.0)
-------------------------------------------------- ------------ ----------------------- ---------------------------
On 31 March 2011 Tawa set up QX Reinsurance Company Limited ("QX
Re"), a Bermudian regulated special purpose insurer which provides
reinsurance coverage for a book of lead paint exposure that is
underwritten by Penn National. The company operates as a
reinsurance vehicle and is an innovative way for us to assume
future discontinued portfolios when a company transfer is not a
viable option. On commencement QX Re received $56.9 million in
reinsurance premium and booked an initial claims provision of $35.9
million. There were $1.3 million of costs associated with the
deal.
On 7 April 2011 Tawa announced that it had entered into a
definitive agreement to acquire for $5.10 a 51% stake in a newly
formed US holding company, LGIC Holdings, LLC ("LGIC"). LGIC
acquired a majority of Walshire General Assurance Company, the sole
shareholder of Lincoln General Insurance Company ("LG"). The other
investor in LGIC is Kingsway Financial Services Inc, the former
indirect owner of Walshire General Assurance Company.
Pennsylvania-based LG previously wrote a broad book of
predominantly commercial and personal lines insurance. LG had total
US statutory capital of $3.4 million as at 31 December 2010 and a
resulting Mandatory Control Level 5 within the scope of
Pennsylvania's risk based capital requirements, and so has been, de
facto, under the Pennsylvania Insurance Department's supervision.
As a result of the regulatory restrictions, management's view is
that Tawa does not control LG and hence does not consolidate
LG.
A consortium comprising Tawa, Skuld, and Paraline Group, Ltd
("the Consortium") announced a definitive agreement to acquire
Whittington Insurance Markets Limited ("Whittington"), the
London-market operations of Whittington Group and the leading
provider of full, turnkey agency management services in Lloyd's.
The transaction completed on 25 January 2012 and is therefore not
included within the results of the Group. The acquisition provides
us with a sister company to expand our range of services to the
Lloyd's market. Whittington is a leading franchise in the Lloyd's
agency management market and provides us with real scale as a
provider of live insurance services. This is highly complementary
with the range of consulting and outsourcing services currently
provided through our subsidiaries, and the management look forward
to developing these businesses in tandem with one another.
Tawa has entered into a share purchase agreement to acquire
Hamburger Internationale Ruckversicherung ("HIR"), the holding
company for the Chiltington group of companies ("Chiltington").
Chiltington provides consultancy and outsource services to the
international (re)insurance industry and specialises in compliance,
audit and investigation work, litigation support, restructuring
services, claims management and commutations. While strengthening
our UK and US units, this transaction provides a strong footprint
in Continental Europe and a unique platform of insurance consulting
in South America. The transaction is expected to close in April
2012 subject to regulatory approvalsand is therefore not included
within the results of the Group.
Results for the year summarised by division are:
Insurance risk carriers
--------------------------------------
Reconciliation to
Service financial
Group Associate CX Re providers Corporate statements Totals
Segmental extract $m $m $m $m $m $m
------------------- ----------------- ------------------ --------------- ---------------------- ------------------ --------
External revenue - - 35.4 - - 35.4
Segment (loss)/ Profit
for the year (1.3) (14.3) * 4.3 (10.6) - (21.9)
Group surplus 166.1 39.1 8.0 23.1 (38.1) 198.2
* CX Re loss of $1.8 million as an associate and $12.5 million
through deferred consideration
Risk carriers/insurance division
Tawa generates value from run-offs in a variety of ways,
depending on the nature of each run-off entity in question. These
strategies include:
-- Buying net assets at a significant discount to economic value
and accelerating capital extraction; and
-- Buying volatile books of business and applying our management
techniques to reduce volatility and create value.
This division comprises the following run-off companies, in
which Tawa had the following interests at the reporting date:
Place of incorporation (or registration) Portion of ownership interest
Name of subsidiary and operation
------------------------------------------ ------------------------------------------ ------------------------------
KX Reinsurance Company Limited ("KX Re") Great Britain 100%
PXRE Reinsurance Company ("PXRE") United States Connecticut 100%
Island Capital Ltd ("ICL") Bermuda 94.30%
Island Capital (Europe) Ltd ("ICE") Great Britain 94.30%
OX Reinsurance Company (Limited ("OX Re") Great Britain 100%
QX Reinsurance Company Limited ("QX Re") Bermuda 100%
Name of associate
------------------------------------------ ------------------------------------------ ------------------------------
CX Reinsurance Company Limited ("CX Re") Great Britain 12.65%
CX Re was initially a subsidiary of the Group but on 21 March
2006 Tawa disposed of 87.35% of its shareholding. In accordance
with IFRS, the retained shareholding of 12.65% has been accounted
for as an associate since that date. Although the Company disposed
of 87.35% of CX Re the deferred consideration receivable on the
sale is impacted by the current net asset value of CX Re. As at 31
December 2011, the total deferred consideration was $53.8 million
(2010: $66.5 million).
During the course of a run-off, the Group is exposed to a range
of risks that need to be identified and managed. These risks
include adverse loss development (insurance risk), liquidity,
operational risks, fluctuating foreign exchange rates, interest
rates and credit risk both in respect of investments and reinsurer
solvency. Our focus is to manage and mitigate these risks.
The liabilities of the run-off companies typically comprise
claims outstanding, being the estimated cost of settling all claims
incurred but not paid, whether reported or not, together with
provisions for future costs related to the management of the
run-off. The claims' outstanding reserves are estimated by the
Group's actuaries.
The assets of a run-off company typically comprise cash,
investments, subrogation recoveries and reinsurance recoverables.
From these assets, and any associated investment income, the Group
must meet the cost of administering and paying all claims that
arise on policies issued prior to the run-off. The residual
balance, if any, will be returned to shareholders once all
liabilities have been repaid or when the relevant regulator is
satisfied, inter alia, that the volatility is reduced to a level
where capital can be released. This is based on estimates of the
appropriate level of reserves and capital that the business
requires to settle all valid claims.
The Group's net technical provisions (claims outstanding less
reinsurance recoveries) will be paid over a period of many years
dependent upon the nature of the underlying risk, the claims
outstanding and the related reinsurance recoveries. The Group's
policy is, where appropriate to discount the technical provisions
at the risk-free rate applicable to the relevant currency at the
duration of the liabilities where these have a mean term in excess
of 4 years. Currencies held in the Group are US dollar, sterling
and euro.
The Group's strategic principles for its asset and liability
management ("ALM") in the insurance entities are to:
-- Provide liquid funds to finance liability and capital management;
-- Mitigate exposure to changes in interest and foreign exchange rates;
-- Assume measured credit risk in line with agreed guidelines; and
-- Invest the Group's surplus in line with agreed guidelines.
The ALM return represents the change in value to the Group
statement of financial position from investment activities after
taking into account the unwinding of the discount and fees. The
discount is unwound over the lives of the portfolios, which
represents a charge to the income statement and actual investment
income is measured against this to ensure that it remains
appropriate to continue to discount at the chosen rate.
The risk carriers' net loss of $11.1 million, excluding
intergroup fees which are eliminated on consolidation, is
summarised below:
Risk carriers Associate
-------------------------------------------------------- -----------
KX Re PXRE ICG OX Re QX Re Total Group CX Re Total
31 Dec 2011 $m $m $m $m $m $m $m $m
-------------------------------------- ------- ------- ------ ------- ------- ------------ ----------- -------
Results
ALM results 0.9 (1.0) 0.7 0.1 (0.5) 0.2 (1.5) (1.3)
Premium and other income 3.4 - 1.2 - 20.9 25.5 - 25.5
Liability management - (2.3) (7.9) - (12.2) (22.4) (10.1) (32.5)
Other (0.6) (1.7) 0.7 (0.6) (0.4) (2.6) (0.2) (2.8)
------- ------- ------ ------- ------- ------------ ----------- -------
Profit/(loss) for the year 3.7 (5.0) (5.3) (0.5) 7.8 0.7 (11.8) (11.1)
Intergroup fees eliminated on
consolidation (2.0) - - - - (2.0) (2.5) (4.5)
------- ------- ------ ------- ------- ------------ ----------- -------
Segmental profit/(loss) for the year 1.7 (5.0) (5.3) (0.5) 7.8 (1.3) (14.3) (15.6)
Capital extracted - (22.8) - - - (22.8) - (22.8)
This division has experienced losses of $11.1 million during the
year due mainly to volatility on liability management. A capital
extraction of $22.8 million was made from our Connecticut domiciled
subsidiary PXRE during the period. This represents the extraction
of regulatory capital which is a primary operating goal of
Tawa.
The table below illustrates the risk carriers' assets and
liabilities:
Risk carriers Associate
------------------------------------------------------------------------------------------------------- --------------
Total
KX Re PXRE ICG OX Re QX Re Group CX Re
31 Dec 2011 $m $m $m $m $m $m $m
-------------- ------------------ --------------- --------------- ---------------- --------------- -------------- --------------
Cash and
investments 66.3 122.2 29.5 8.1 78.7 304.8 178.0
Average mean
term 10.3 8.5 < 4 8.5
of portfolio years years < 4 years < 4 years years years
Average
effective
rate of
investment Not
return 2.10% 1.91% Not discounted Not discounted discounted 1.97%
Net insurance
liabilities
undiscounted (48.4) (43.1) (11.6) (0.3) (38.7) (142.1) (123.4)
Net insurance
liabilities
discounted (39.0) (36.7) (11.6) (0.3) (38.4) (126.0) (104.5)
Cumulative
dividends
paid to
holding
company (75.0) (34.8) - - - (109.8) -
31 Dec 2010 $m $m $m $m $m $m $m
-------------- ------------------ --------------- --------------- ---------------- --------------- -------------- --------------
Cash and
investments 68.6 149.6 30.4 n/a n/a 248.6 201.4
Average mean
term 10.7 6.2 8.5
of portfolio years years < 4 years n/a n/a years
Average
effective
rate of
investment
return 3.10% 2.52% Not discounted n/a n/a 2.86%
Net insurance
liabilities
undiscounted (54.9) (46.7) (6.3) n/a n/a (107.9) (153.0)
Net insurance
liabilities
discounted (39.9) (40.4) (6.3) n/a n/a (86.6) (121.1)
Cumulative
dividends
paid to
holding
company (75.0) (12.0) - n/a n/a (87.0) -
The business of KX Re comprises a collection of mature
portfolios of long-tail liabilities, including exposure to
asbestos, environmental and other latent claims. The Group's
objective for KX Re is to reduce the company's liabilities by
accelerating the natural run-off of the portfolio to enable the
extraction of capital with regulatory approval. Since acquisition
Tawa has extracted capital of $75 million from KX Re by way of
dividends to the holding company. In 2011 the investment return for
KX Re, which includes the return on the surplus, was $0.9 million
more than the discount unwind (2010: $0.9 million more than the
discount unwind). KX Re's contribution to the Group's results was a
profit of $1.7 million (2010: profit $2.9 million). This profit was
primarily due to debt purchase income of $3.3 million and
favourable ALM returns of $0.9 million, as discussed above, less
expenses of $0.7 million.
PXRE is mainly comprised of catastrophe exposures. In 2011 the
investment return for PXRE was $1.0 million less than the discount
unwind due to the impact of changes in yield curves on the
portfolios of investments and liabilities (2010: $0.5 million less
than the discount unwind). A capital extraction of $22.8 million
was made during the year. Since acquisition Tawa has extracted
$34.8 million from PXRE by way of dividends to the holding company.
This reflects the significant progress made in reducing the
volatility, achieved by de-scaling the liability portfolios in this
risk carrier. The $22.8 million extracted in 2011 were used to
repay debt. During the year PXRE made a loss of $5.0 million (2010:
loss $1.7 million). This loss was due to unfavourable ALM results
of $1.0 million, as discussed above, expenses and an increase in
the provision for run-off costs of $4.9 million, partially offset
by favourable movements on discounted net claims reserves of $0.8
million.
Island Capital Group ("ICG"), which comprises ICL and ICE is an
insurance group with a specialist underwriting portfolio of trade
credit and political risk insurance business, which went into
run-off in November 2008 following the sale of its trade credit and
political risk insurance underwriting platform. ICG made a loss of
$5.3 million during the year. This loss was due to deterioration in
net claims of $7.9 million, partly offset by an increase in
estimated subrogation recoveries of $2.1 million and favourable ALM
results of $0.7 million.
OX Re is a small London market company which has been in run-off
since 1994, which Tawa acquired in 2011 for strategic reasons.
Since acquisition it has made a loss of $0.5 million due to
expenses and foreign exchange losses.
QX Re is a Bermudian regulated special purpose insurer which
Tawa set up during the year. The company provides reinsurance
coverage for a book of lead paint exposure underwritten by Penn
National and is now relatively short tail. QX Re has contributed
profits of $7.8 million despite experiencing substantial claims
deterioration in the latter half of the year - there has been a
large upswing in the number of new claimants. The estimated
deterioration is $12.2 million, or 30% of the original take on
reserves of $39.9 million.
The Group's associate CX Re has a book of reinsurance contracts
written prior to August 2001, when the company ceased underwriting
new business. The company has consistently maintained a portfolio
of highly rated, readily realisable assets which broadly matches
the duration and currency of the liabilities, plus a substantial
tax asset, the recovery of which depends on the satisfactory
resolution of pending litigation with HMRC. In 2011 the investment
return for CX Re was $1.0 million less than the discount unwind due
to the marked flattening of yield curves and under-performance of
corporate bonds (2010: $0.9 million more than the discount unwind).
CX Re has made losses of $14.3 million in the year (2010: loss of
$7.8 million), which were principally due to deterioration in net
discounted claims reserves of $3.1 million, adjustment expenses
relating to an arbitration of $2.9 million, management fees and an
increase in the provision for run-off costs of $4.5 million. CX Re
had an unfavourable ALM result of $1.5 million which comprises the
$1.0 million loss due to the investment shortfall, discussed above,
and $0.5 million loss due to changes in exchange rates.
Service providers
Today, our servicing platform comprises income from both
consulting and outsourcing. Consulting typically refers to work
provided directly for our clients and the outsourcing division
refers to work Tawa does on behalf of clients on our operating
platform.
This segment comprises the results of the Pro group of companies
("Pro") namely Pro Insurance Solutions Limited, Pro IS, Inc and
Tawa Consulting Limited.
During the year Pro earned revenue on third party external
consultancy of $28.4 million (2010: $35.1 million) and internal
group consultancy of $23.3 million (2010: $17.1 million) resulting
in a net profit of $4.3 million for the year (2010: $3.3 million),
making a major contribution to the Group's financial performance.
Pro has continued the expansion of its core outsource and
consultancy services to the (re)insurance industry and also seeks
to develop these businesses both in the UK and overseas, as well as
building on its successful purchased insurance debt business in
partnership with KX Re.
In accordance with the terms of the Pro sale and purchase
agreement, from 1 January 2010 the Group shares this segment's
after tax profits with Swiss Re on a 50/50 basis over the five
financial years to 31 December 2014, subject to an overall cap of
GBP12 million.
Corporate division
This division incorporates the corporate costs and Group
overheads, incubator costs, acquisition activities and financing
resulting in a loss of $10.6 million.
31 Dec 2011
$m
--------------------------------------------- -------------------
Corporate costs
Tawa plc (5.2)
Variable pay (0.7)
Share based payment accrual (0.4)
Holding company costs (2.3)
Other 1.4
Group tax relief 1.7
-------------------
Total corporate costs (5.5)
Incubator costs (7.5)
Acquisition related costs
Acquisition related costs (1.5)
Negative goodwill 1.5
Finance costs (2.1)
-------------------
Group loss for the year (15.1)
Intergroup fees eliminated on consolidation 4.5
-------------------
Segmental loss for the year (10.6)
-------------------
Corporate
Corporate costs, excluding the investment in incubators, are
$5.5 million for the year.
Tawa's investment in incubators
Tawa incubates new projects the Group is developing by providing
capital to carefully selected projects, while Pro provides the
operating platform: reporting, compliance and other support to
develop these projects until they can operate as independent,
profitable businesses. Current incubation projects are:
-- The STRIPE(R) system, a proprietary web-based platform that
was launched in September 2010, allowing principal to principal
processing of claims and other post placement transactions between
ceding company and reinsurer;
-- Q360, a new London-based broking operation; which was
launched in February 2012 with Tawa providing the capital backing.
Q360 will initially operate within the business sectors of onshore
energy, property, binding authorities, professional indemnity and
non-recourse finance construction. Central to the company's
operational platform is the technology used, using innovative
processing software, as well as web-based products giving a
uniquely efficient binding authority facility. Tawa's subsidiary,
Pro, has been retained to provide Q360's post-placement services;
and
-- Lodestar, an MGA set up by Tawa in 2011 to write marine
protection and indemnity insurance for vessels of a defined
tonnage. Lodestar will commence business in late April 2012.
A significant investment of $7.5 million has been made in the
incubators during the current year. These costs are more than
originally budgeted due primarily to Lodestar incurring significant
legal costs. Q360 costs are $1.4 million, Lodestar costs are $4.5
million and STRIPE(R) costs are $1.6 million. As this segment is
for the development of unique projects it is expected that the
generation of positive cash flows will take varying amounts of
time.
Acquired company
Tawa's 2011 acquisitions have resulted in an immediate gain in
the income statement of $1.5 million in 2011. The acquisition of OX
Re produced a gain on acquisition of $2.0 million, which was offset
by a deferred consideration adjustment on the ICG acquisition of
$0.5 million.
Goodwill shown in the Statement of Financial Position, being the
excess of the cost of an acquisition over the fair value of the
assets and liabilities acquired, as at 31 December 2011 was $23.4
million (2010: $23.1 million). This goodwill has been allocated to
Tawa Management Limited, the incubators, and the Pro group of
companies. Goodwill is tested annually for impairment and no
impairment losses have been recognised in the current year (2010:
$nil).
Acquisition related costs for the year were $1.5 million.
Financing
The corporate division also contains the Group's financing
arrangements.
At the beginning of the year, the Group had an outstanding
balance of $22.5 million on a loan facility with Natixis Bank that
had been set up for the purchase of its insurance subsidiary PXRE.
In March 2011, this facility was restructured to provide a $50
million facility to finance the creation of QX Re. There was a $0.5
million facilitation fee associated with this transaction. In April
2011, $22.8 million was repaid with the capital extracted from
PXRE.
As part of the acquisition of ICG in 2010, the Group took on $10
million of that company's debentures repayable in 2035 with an
interest rate of LIBOR +3.75%.
The total Group debt at 31 December 2011 is $36.6 million (2010:
$32.2 million) which represents 18.4% of shareholders' funds.
The finance costs in relation to these loans in 2011 were $2.1
million (2010: $4 million).
Tawa's overall result and prospects
2011 has been focused on transforming and investing. 2012 is to
be focussed on optimisation and profitability delivery.
Volatility reduction, portfolio downscaling and even possible
sales of some assets will be at the centre of this year's run-off
portfolio strategy. Meanwhile the Group will remain open to new
acquisition opportunities where Tawa can provide maximum value
creation to the acquisition target.
As to the service business, management have set themselves very
challenging earnings targets and operating goals, including:
-- growing (high margin) value-added consulting;
-- improving the mix of active underwriting client targeting against run-off or legacy work;
-- intermediary clients (supporting our incubators, other start-up brokers and MGAs); and
-- operating and revenue synergies with Whittington and Chiltington (subject to closing).
Tawa are moving in-house skills and resources towards these
increasingly higher value segments of our business, although
internal resources alone will not satisfy our staffing needs.
Recruitment and skill sourcing are some of the key group challenges
for 2012. At the same time, Tawa has engaged in a hunt for
significant cost savings. Management is focussed on getting each of
the incubator businesses to be cash generative in the shortest
possible time.
Consolidated income statement For the year ended 31 December
2011
Unaudited Audited
31 Dec 2011 31 Dec 2010
$m $m
------------------------------------------------------------------------- ------------- ----------------------
Income from continuing operations
Insurance premium revenue 58.6 (1.3)
Insurance premium ceded to reinsurers (0.4) 0.3
------------------------------------------------------------------------- ------------- ----------------------
Net earned premium revenue 58.2 (1.0)
Revenue from consultancy, insurance and run-off services 35.4 42.2
Investment return 11.0 7.7
Other income 5.6 9.4
------------------------------------------------------------------------- ------------- ----------------------
Income 52.0 59.3
Total income 110.2 58.3
------------------------------------------------------------------------- ------------- ----------------------
Insurance claims and loss adjustment expenses (84.6) (5.3)
Insurance claims and loss adjustment expenses recovered from reinsurers 21.6 2.4
------------------------------------------------------------------------- ------------- ----------------------
Net insurance claims (63.0) (2.9)
------------------------------------------------------------------------- ------------- ----------------------
Total expenses (53.3) (46.8)
------------------------------------------------------------------------- ------------- ----------------------
Results of operating activities before negative goodwill recognised (6.1) 8.6
Negative goodwill recognised 1.5 4.9
------------------------------------------------------------------------- ------------- ----------------------
Results of operating activities (4.6) 13.5
Share of results of associate (1.8) (0.9)
Finance costs (4.0) (4.0)
------------------------------------------------------------------------- ------------- ----------------------
(Loss)/profit before taxation (10.4) 8.6
Taxation 1.0 -
------------------------------------------------------------------------- ------------- ----------------------
(Loss)/profit for the year from continuing operations (9.4) 8.6
Loss for the year from discontinued operations (12.5) (6.8)
------------- ----------------------
(Loss)/profit) for the year (21.9) 1.8
------------------------------------------------------------------------- ------------- ----------------------
Attributable to:
Owners of the Company (21.6) 1.8
Non-controlling interests (0.3) -
------------- ----------------------
(21.9) 1.8
------------------------------------------------------------------------- ------------- ----------------------
Earnings per share
From continuing and discontinued operations
Basic: Ordinary shares (cents per share) (19.83) 1.60
Diluted: Ordinary shares (cents per share) (19.83) 1.60
------------------------------------------------------------------------- ------------- ----------------------
From continuing operations
Basic: Ordinary shares (cents per share) (8.51) 7.65
Diluted: Ordinary shares (cents per share) (8.51) 7.65
------------------------------------------------------------------------- ------------- ----------------------
Company statement of comprehensive income For the year ended 31
December 2011
Unaudited Audited
31 Dec 2011 31 Dec 2010
$m $m
-------------------------------------------------- ------------- ----------------------
(Loss)/profit for the year (21.9) 1.8
Other comprehensive losses
Currency translation differences (0.8) (0.7)
Total comprehensive (losses)/income for the year (22.7) 1.1
-------------------------------------------------- ------------- ----------------------
Attributable to:
Owners of the Company (22.4) 1.1
Non-controlling interests (0.3) -
--------------------------------------------------
(22.7) 1.1
-------------------------------------------------- ------------- ----------------------
Consolidated statement of financial position As at 31 December
2011
Unaudited Audited
31 Dec 2011 31 Dec 2010
$m $m
------------------------------------------------------- ------------- -------------
Assets
Cash and cash equivalents 44.7 48.5
Financial assets - investments 267.1 229.6
Loans and receivables including insurance receivables 56.5 73.9
Reinsurers' share of technical provisions 46.3 29.7
Property, plant and equipment 2.1 1.7
Deferred assets 53.8 66.5
Interest in associate 4.9 6.8
Other intangible assets 1.3 2.3
Goodwill 23.4 23.1
Total assets 500.1 482.1
------------------------------------------------------- ------------- -------------
Equity
Share capital 22.2 22.2
Share premium 111.4 111.4
Other reserves (0.2) 1.6
Retained earnings 63.8 89.8
------------------------------------------------------- ------------- -------------
Equity attributable to owners of the Company 197.2 225.0
Non-controlling interests 1.0 1.3
Total equity 198.2 226.3
------------------------------------------------------- ------------- -------------
Liabilities
Creditors arising out of insurance operations 58.9 68.1
Other liabilities 29.4 33.9
Financial liabilities - borrowings 36.6 32.2
Technical provisions 177.0 121.6
Total liabilities 301.9 255.8
------------------------------------------------------- ------------- -------------
Total liabilities and equity 500.1 482.1
------------------------------------------------------- ------------- -------------
Consolidated statement of changes in equity As at 31 December
2011
Share based
Share premium payments Own shares Translation Retained Non-controlling Total
Share capital reserve reserve reserve reserve earnings Total interests equity
$m $m $m $m $m $m $m $m $m
------------------ --------------- ---------------- ---------------- ------------- ------------------- ---------------- -------------- ----------------- --------
Balance at 1
January 2010
- as previously
stated 22.2 111.4 2.5 - - 92.3 228.4 - 228.4
-
reclassification - - - - 0.2 (0.2) - - -
--------------- ---------------- ---------------- ------------- ------------------- ---------------- -------------- ----------------- --------
- as restated 22.2 111.4 2.5 - 0.2 92.1 228.4 - 228.4
Comprehensive
income
Profit for the
year - - - - - 1.8 1.8 - 1.8
Other comprehensive income
Currency
translation
differences - - - - (0.7) - (0.7) - (0.7)
Total
comprehensive
income for the
year - - - - (0.7) 1.8 1.1 - 1.1
------------------ --------------- ---------------- ---------------- ------------- ------------------- ---------------- -------------- ----------------- --------
Transactions with
owners
Share based
payments - - 0.7 - - - 0.7 - 0.7
Dividends paid - - - - - (4.1) (4.1) - (4.1)
Own shares
acquired in the
period - - - (1.1) - - (1.1) - (1.1)
Minority interest
at acquisition - - - - - - - 1.3 1.3
Total
transactions
with owners - - 0.7 (1.1) - (4.1) (4.5) 1.3 (3.2)
------------------ --------------- ---------------- ---------------- ------------- ------------------- ---------------- -------------- ----------------- --------
Balance at 31
December 2010
(Audited) 22.2 111.4 3.2 (1.1) (0.5) 89.8 225.0 1.3 226.3
------------------ --------------- ---------------- ---------------- ------------- ------------------- ---------------- -------------- ----------------- --------
Balance at 1
January 2011 22.2 111.4 3.2 (1.1) (0.5) 89.8 225.0 1.3 226.3
Comprehensive
income
Loss for the year - - - - - (21.6) (21.6) (0.3) (21.9)
Other comprehensive income
Currency
translation
differences - - - - (0.8) - (0.8) - (0.8)
Total
comprehensive
loss for the
year - - - - (0.8) (21.6) (22.4) (0.3) (22.7)
------------------ --------------- ---------------- ---------------- ------------- ------------------- ---------------- -------------- ----------------- --------
Transactions with
owners
Share based
payments - - 0.5 - - 0.5 - 0.5
Dividends paid - - - - - (4.4) (4.4) - (4.4)
Own shares
acquired in the
period - - - (1.5) - - (1.5) - (1.5)
Total
transactions
with owners - - 0.5 (1.5) - (4.4) (5.4) - (5.4)
------------------ --------------- ---------------- ---------------- ------------- ------------------- ---------------- -------------- ----------------- --------
Balance at 31
December 2011
(Unaudited) 22.2 111.4 3.7 (2.6) (1.3) 63.8 197.2 1.0 198.2
------------------ --------------- ---------------- ---------------- ------------- ------------------- ---------------- -------------- ----------------- --------
Consolidated statement of cash flows For the year ended 31
December 2011
Unaudited Audited
31 Dec 2011 31 Dec 2010
Notes $m $m
---------------------------------------------------------------------- ------- ------------- ----------------------
Net cash generated by/(used in) operations 37 25.9 (17.1)
---------------------------------------------------------------------- ------- ------------- ----------------------
Investing activities
Cash payments to acquire debt securities (1,144.8) (1,021.4)
Cash receipts from sale or maturity of debt securities 1,113.1 1,047.6
Cash transferred from investing activities (3.7) (1.4)
Cash receipts from interest 6.8 6.2
Purchases of property, plant and equipment (1.0) (0.8)
Acquisition of subsidiary net of cash and cash equivalents 40 2.4 23.0
---------------------------------------------------------------------- -------
Cash (used in)/generated by investing activities (27.2) 53.2
---------------------------------------------------------------------- ------- ------------- ----------------------
Financing activities
Dividends paid (4.4) (4.1)
Own shares purchased (1.5) (1.1)
Proceeds from financial borrowings 27.6 -
Repayments of financial borrowings (24.1) (12.7)
---------------------------------------------------------------------- -------
Cash flows generated by/(used in) financing activities (2.4) (17.9)
---------------------------------------------------------------------- ------- ------------- ----------------------
Net (decrease)/increase in cash and cash equivalents (3.7) 18.3
Cash and cash equivalents at beginning of year 48.5 30.9
Effects of exchange rate changes on the balance of cash held in
foreign currencies (0.1) (0.7)
Cash and cash equivalents at end of year 44.7 48.5
---------------------------------------------------------------------- ------- ------------- ----------------------
Note to the consolidated financial statements For the year ended
31 December 2011
General information
The financial information set out in the announcement does not
constitute the company's statutory accounts for the years ended 31
December 2011 or 2010. The financial information for the year ended
31 December 2010 is derived from the statutory accounts for that
year which have been delivered to the Registrar of Companies. The
auditors reported on those accounts; their report was unqualified,
did not draw attention to any matters by way of emphasis without
qualifying their report and did not contain a statement under
s498(2) or (3) Companies Act 2006. The audit of the statutory
accounts for the year ended 31 December 2011 is not yet complete.
These accounts will be finalised on the basis of the financial
information presented by the directors in this preliminary
announcement and will be delivered to the Registrar of Companies
following the company's annual general meeting.
As at 31 December 2011, cumulative exchange differences have
been presented in a separate translation reserve and the prior year
reserves restated accordingly. IAS 1 requires a third Statement of
Financial Position when a restatement is made. However, since the
effect of the restatement is clearly presented in the Statement of
Changes in Equity, no additional Statement of Financial Position
has been disclosed.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR JJMBTMBTTMLT
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