RNS Number:1512D
Alea Group Holdings(Bermuda) Ltd
21 September 2004
21 September 2004
ALEA GROUP HOLDINGS (BERMUDA) LTD
Interim Results for the six months ended 30 June 2004
Underwriting profit more than doubled amid strong growth outlook
* Underwriting profit before allocated investment return increased 108%
to US $23.1 million (6 months to 30 June 2003: $11.1 million) reflecting
growth in earned premiums
* Operating profit1 increased 74% to $61.4 million (2003: $35.3 million)
* Net unearned premium reserve increased 34% to $872 million (2003:
$651million) representing tangible future income
* Profit before tax of $24.2 million (2003: $41.4 million), including
unrealised investment losses of $29.2 million (2003: $1.0 million)
* Gross investment income up 32% to $36.2 million (2003: $27.4 million)
* Combined ratio2 of 95.7% (2003: 97.1%), demonstrating sound
underwriting discipline and expense control
* Fully diluted operating EPS $0.26 (2003: $0.26); fully diluted EPS
$0.09 (2003: $0.32)
* First interim dividend of $0.03 per share
* 99% of $1,859 million invested assets (2003: $1,335 million) rated AA
or higher
* Net asset value of $4.20 per share (#2.34)
* Annualised operating return on equity of 12.7%3
Commenting Mark Ricciardelli, Chief Executive, said:
"Alea has delivered what it said it would. We have grown operating profits
significantly while maintaining underwriting discipline and managing costs
effectively. There is substantial written premium captured at attractive terms
under a rigorous control system to be earned in the second half of this year and
beyond."
"We have built a strong platform with a strategy focused on low-risk, small to
mid-market insurance and reinsurance clients in North America, Europe and the
United Kingdom. We continue to see opportunities to generate sustainable returns
in our chosen markets."
For further information:
Alea Group Tel: 020 7621 3383
Mark Ricciardelli, Chief Executive
Amanda Atkins, Finance Director
Peter Brown, Investor Relations Manager
Financial Dynamics Tel: 020 7269 7229
Robert Bailhache / Charles Armitstead
Mark Ricciardelli and Amanda Atkins will be briefing analysts at 10am today at
the London Underwriting Centre. The presentation will be available by webcast at
www.aleagroup.com.
Notes
1: Operating profit is underwriting profit after allocated investment return,
before claims equalisation provision but after debt interest
2: Combined ratio is the total of expense and loss ratio. Expense ratio is the
total of acquisition and administrative expenses and includes other technical
charges net of reinsurance, less technical income divided by net earned
premiums. The Loss ratio is also calculated on a net earned basis.
3: RoE is operating profit after tax as a percentage of average equity
shareholders' funds.
Summarised Profit and Loss Account
Six months ended Year ended
30 Jun 04 30 Jun 03 31 Dec 03
$'000 $'000 $'000
Unaudited Restated Audited
Gross premiums written 993,171 771,828 1,300,182
_____ _____ _____
Net premiums written 863,111 644,484 1,028,711
_____ _____ _____
Earned premiums, net of reinsurance 539,146 377,532 858,481
_____ _____ _____
Underwriting result before longer term rate of return 23,057 11,053 27,692
Longer term rate of return allocated to the technical 40,531 26,727 57,811
account
_____ _____ _____
Underwriting result 63,588 37,780 85,503
Movement in claims equalisation provision (2,135) (1,782) (3,771)
_____ _____ _____
Balance on the technical account - general business 61,453 35,998 81,732
Gross investment income 36,191 27,396 56,337
Net realised gains on investments 1,133 10,115 12,146
Net unrealised losses on investments (29,155) (984) (29,173)
Other investment expenses (2,785) (1,983) (3,975)
_____ _____ _____
Actual investment return 5,384 34,544 35,335
Allocated investment return transferred to the technical (40,531) (26,727) (57,811)
account - general business
Debt interest (2,154) (2,456) (4,718)
_____ _____ _____
Profit on ordinary activities before tax 24,152 41,359 54,538
_____ _____ _____
Comprising:
Operating profit 61,434 35,324 80,785
Short-term fluctuations in investment return (35,147) 7,817 (22,476)
Movement in claims equalisation provision (2,135) (1,782) (3,771)
_____ _____ _____
24,152 41,359 54,538
_____ _____ _____
Tax charge on profit on ordinary activities (7,716) (6,724) (13,528)
_____ _____ _____
Profit on ordinary activities after tax 16,436 34,635 41,010
Minority interest - gain on subordinated preferred shares - - 7,500
issued by subsidiaries
Interim dividend payable (3 cents per share (2003: (5,238) - -
Nil) _____ _____ _____
Retained profit for the period 11,198 34,635 48,510
_____ _____ _____
OPERATING REVIEW
The Group has seen strong growth across all significant underwriting performance
measures demonstrating the success of its strategy of underwriting for profit on
small to mid market insurance and reinsurance clients in North America, Europe
and the United Kingdom ("UK"). We believe this discipline will become
increasingly important as we enter a market where pricing conditions are
expected to change.
Our portfolio is managed by local teams who understand the market and,
therefore, are able to select, and accurately price, the best risks to write.
This is supplemented by our strong control infrastructure and risk management
processes which we ensure are in place before entering new markets or write new
business lines.
We have limited exposure to pre-1999 casualty business. Before 1999 the majority
of our growth was in Europe where, since 1987, casualty has not accounted for
more than 28% of total gross premiums written in any year. In 1999 we started
writing North American casualty business, with approximately $55 million of
premiums being written in that year. This later book did not begin to grow
substantially until 2002, when terms and conditions across the industry began to
improve significantly after the tragic events of September 11, 2001. Reserves in
the first half of 2004 developed in line with expectations.
The last 5-6 weeks have been one of the most active hurricane periods on record.
Hurricanes Charley, Frances and Ivan, have all contributed to create the second
costliest hurricane season to date after Hurricane Andrew in 1992. Despite this
Alea is satisfied that its losses, which will of course impair second half
performance, will be contained within its reinsurance programme. It is too early
to determine the final net financial impact on the Group. We believe the recent
hurricanes will have a positive impact on rates in 2005.
Performance of operations
As an increasingly global insurer and reinsurer we have been able to develop a
strong and diversified business, by geography and product line. We are able to
respond quickly to underlying market trends and use our Bermuda holding company
to reallocate capacity accordingly.
Over the last few years we have significantly grown our insurance portfolio. In
the first half of 2004 insurance represented 34% of total gross premiums written
(excluding Bristol West) up from 11% in 2001. We write reinsurance through Alea
Europe and Alea North America, and insurance through our specialist North
American programme insurance operation, Alea Alternative Risk. Alea London
writes both insurance and reinsurance.
Alea London - Insurance and reinsurance
Alea London is our non-syndicated London market operation, managing an
international book of business sourced through the London broker market.
Insurance business represented 41% of total gross premiums written (excluding
Bristol West) in the first half of 2004 compared with 47% for the whole of 2003.
We tend to write more insurance business in the second half of the year.
In the first half of 2004 both the insurance (excluding Bristol West) and
reinsurance portfolios were approximately 60% casualty and 40% property,
including the Group's property catastrophe portfolio. We write a range of
insurance business including general liability, property and motor. A typical
risk is self-employed plumbers or landscape gardeners.
A significant proportion of Alea London's activity is excess and surplus lines
business which is showing strong growth. In line with previously announced
plans, Alea London has begun to expand its non-US book and has entered strategic
partnerships with Endsleigh & Kinetic to write specialist UK motor insurance.
These contracts contributed gross premiums written of $6.1 million and are
expected to deliver $14 million in the second half of the year and $30 million
in total over the life of the contract. These arrangements are forecast to be
earnings enhancing during these and future periods.
Six months ended
30 June 04 30 June 03 Change
$m $m
Gross premiums written1 349.0 379.4 (8%)
Net premiums earned 234.1 174.0 35%
Underwriting result after allocated investment return 31.6 26.1 21%
Loss ratio 57.8% 53.3% -
Combined ratio 90.5% 88.5% -
1 Including Bristol West
Gross premiums written in Alea London in the first half of 2004 (excluding
Bristol West) grew by 10% to $232.1 million (2003: $211.7 million). This
reflects the deepening of existing relationships with $24 million of business
relating to extensions of existing contracts and a renewal retention ratio of
81%.
The gross premiums written through the Bristol West contract were $116.9
million, 30% lower than the comparable period in 2003 ($167.7 million). This
contract, which is not expected to renew in 2005, generated $2.1 million of
underwriting profit in the first half of 2004 and $1.6 million for the
equivalent period in 2003.
Casualty classes are seeing rate increases in our target markets. Although
property rates have come under pressure we continue to see discipline in the
market. In general property and casualty both continue to be attractive and
should continue to be so through 2005.
Alea Europe - Reinsurance
Alea Europe reinsures property and casualty treaty business. Key markets remain
Germany, France and Spain, where we have an established market presence. This is
permitting a slow shift towards a lead position on many contracts thus providing
greater control over terms and conditions together with a deeper understanding
of the customer base. Property and casualty represent 91% of total gross
premiums written in the first half of 2004 up from 66% in the whole of 2001.
Typical customers are mutual insurance companies with less than $500 million of
capital.
Six months ended
30 June 04 30 June 03 Change
$m $m
Gross premiums written 222.3 170.6 30%
Net premiums earned 103.5 81.3 27%
Underwriting result after allocated investment return (1.3) 4.1 -
Loss ratio 74.5% 66.0% -
Combined ratio 110.8% 101.9% -
The increase in gross premiums written is primarily due to strong business
retention, as a result of excellent client relationships, and a significant
amount of new business. The majority of Alea Europe's business renews in the
first quarter so second half growth is expected to be lower. The first half
renewal retention ratio was 73%.
Current year underwriting performance in Alea Europe is relatively strong.
However, the introduction of an improved underlying currency allocation process
has resulted in a one-off charge of $4 million against prior year earned
premiums. In addition our rigorous reserving process has given rise to a reserve
strengthening primarily for credit proportional business written in 2000 and
earlier years. Alea Europe exited this business in 2002.
Alea Europe comprises 19% of the Group's net earned premiums, but has the
largest prior year claims reserves portfolio. Thus small changes in ultimate
loss projections can have a relatively large impact on the combined ratio,
especially at the interim stage. The adjustments increased Alea Europe's loss
ratio by approximately ten points and the Group's loss ratio by two points.
Rates across all European countries and all lines are flat, or have slightly
improved.
Alea North America ('ANA') - Reinsurance
ANA is our main access point to the North American reinsurance treaty market,
focusing on traditional reinsurance solutions for small and mid-market insurance
companies and specialty insurers. ANA's business is split between motor, workers
compensation, and general and professional liability. Earnings volatility is
reduced by focusing on working-layer business. A typical risk would be
professional cover for suburban book-keepers, or general cover for family-owned
construction companies that build less than five properties a year.
ANA differentiates itself by focusing on service. A recent independent survey
ranked ANA as first amongst its target brokers for strength of underwriting
relationships, responsive service and timely claims payments. ANA's renewal
retention ratio in the first half of 2004 was 95%.
Six months ended
30 June 04 30 June 03 Change
$m $m
Gross premiums written 213.7 147.0 45%
Net premiums earned 101.8 92.5 10%
Underwriting result after allocated investment return 18.2 4.5 306%
Loss ratio 58.7% 75.8% -
Combined ratio 95.7% 109.2% -
The growth in gross premiums written was due to very strong retention renewal
rates, substantial volumes of new business, and continued strong growth in
primary rates in the core casualty portfolio. The growth was funded by the
additional capital allocated to ANA following the IPO. The relatively low growth
in net premiums earned compared with gross premiums written reflects the
relatively small element of the portfolio that renews in January and the
significant amount of business written in the second half of 2003.
Underwriting conditions in US casualty business remain strong, although some
rate flattening is occurring after four years of sustained increases. Primary
insurance rate momentum on ANA's target specialty accounts has remained
positive. Reinsurance treaty conditions remain tight in most areas with trends
in terms and conditions mostly flat.
Alea Alternative Risk ('AAR') - Insurance
Our specialty North American insurance programme operation AAR writes unbundled
products with partners who are prepared to share insurance risk, and who
consequently actively monitor claims activity. A typical risk would be a
regional retail operation.
AAR's distribution is through traditional Managing General Agents (MGA) who
participate in the financial risk, frequently by way of captive or
rent-a-captive structures, thereby ensuring shared interest in the underwriting
result. AAR's growth has been achieved through its relationships with a core set
of MGAs and third party administrators. AAR monitors all its partners very
closely, conducting 134 compliance, finance, claims and underwriting audits in
the year to date. AAR's underwriting team has an average 20 years experience in
this market.
Six months ended
30 June 04 30 June 03 Change
$m $m
Gross premiums written 208.2 74.8 178%
Net premiums earned 99.7 29.8 235%
Underwriting result after allocated investment return 15.1 3.1 386%
Loss ratio 61.7% 56.8% -
Combined ratio 92.4% 96.1% -
AAR's gross premiums written growth is in line with internal plans and primarily
reflects the increased number of opportunities in this sector. Growth in net
premiums earned is due to the flow through of the increased premiums written in
2003, particularly during the second half, coupled with strong renewals in the
first half of 2004. AAR had a 92% renewal retention ratio in the first half of
2004. The ratio of net earned to gross earned premiums is 55% (2003: 45%) as
substantial premium volumes are shared with the partner via captive or other
risk-sharing arrangements.
In the second quarter of 2004 rates in small to mid market accounts were
trending down by between 1% and 5%. Some pressure on terms and conditions are
also beginning to emerge. AAR believes that although the specialist insurance
market will not grow as rapidly as it has over the last few years, substantial
profitable opportunities remain.
FINANCIAL REVIEW
Combined ratio
The combined ratio in the first half of 2004, calculated on a net earned basis,
was 95.7% (2003: 97.1%). This improvement is primarily in the expense ratio
which fell to 33.8% (2003: 35.3%). The improvement reflects our continued
investment in infrastructure development and risk management, which we believe
is essential to achieve controlled growth and a stable loss ratio. Our loss
ratio in the first half of 2004 was 61.9% (2003: 61.8%).
We continue to review our cost base with a goal of improving efficiency and
productivity. Although it is too early to determine the impact on the expense
ratio we have identified some savings including the closure of our Manhattan
office which will shut in the first quarter of 2005. Other scale efficiencies
will emerge as the book develops.
Gross and net earned premiums
Gross premiums written increased 29% to $993.2 million reflecting growth in all
operations. The level of net earned premiums increased by 43% to $539.1 million
(2003: $377.5 million). Going forward we are expecting strong growth
opportunities across all our operations. Of course given the increased size of
the premium base, we do not expect the growth rate to be as high as in the
recent past.
Our net unearned premium reserve has increased 34% to $872 million (2003: $651
million). Premiums written generally take three years to earn through the profit
and loss account. These patterns differ by business class and operational unit.
Overall, they currently approximate to 40% in the first year, 50% in the second
and 10% in the third. The strong underwriting conditions in the first half of
2004 will be recognised in the 2004, 2005 and 2006 profit and loss accounts.
Underwriting profit
Underwriting profit before allocated investment return increased by 108% to
$23.1 million in the first half of 2004 (2003: $11.1 million). This reflects
growth in earned premiums and the relative lack of significant legacy issues
especially the Group's lack of significant exposure to US casualty business
before 2001.
Underwriting profit after allocated investment return of $63.6 million was 68%
higher than the first half of 2003. Allocated investment return was $40.5
million (2003: $26.7 million). The Group has complied with the ABI SORP for UK
listed companies to allocate investment return to the technical account based on
the longer-term rate of return, which the Group has calculated as 4.5%. The
longer-term rate of return is an estimate of long-term investment performance.
Operating profit
Operating profit, defined as underwriting profit after allocated investment
return and debt interest but before changes to the claims equalisation provision
('CEP'), increased by 74% to $61.4 million for the first half of 2004 (2003:
$35.3 million) due to the reasons detailed above.
The CEP has been established in accordance with the Interim Prudential
Sourcebook for UK Insurers for the purposes of mitigating exceptionally high
loss ratios in future years. The amounts provided are not liabilities as they
are in addition to the provisions required to meet the anticipated ultimate cost
of settlement of outstanding claims at the balance sheet date. The movement in
the provision in the first half of 2004 was $2.1 million (2003: $1.8 million).
Profit before tax
Profit before tax for the first half of 2004 was $24.2 million (2003: $41.4
million). The reduction reflects a reduction of $29.1 million in the actual
investment return to $5.4 million. The actual investment return includes gross
investment income, net realised gains and losses and unrealised gains and losses
as well as investment expenses. Gross investment income in the first half of
2004 grew by 32% to $36.1 million (2003: $27.4 million) reflecting the Group's
strong positive cash flows.
The reduction in the actual investment return reflected increases in net
unrealised losses to $29.2 (2003: $1.0 million) and reductions in net realised
gains to $1.1 million ($10.1 million) more than offsetting the increase in gross
investment income. These movements reflect the increase in bond yields
experienced in the first half of the year.
Unrealised investment gains and losses represent the difference between the
mark-to-market valuation of the investment assets at the balance sheet date and
their purchase price. The movement in unrealised gains and losses comprises the
net increase or decrease in the period in the value of investments held at the
balance sheet date together with the reversal of previously recognised
unrealised gains and losses on investments sold during the period. All
unrealised gains and losses are included in the profit and loss account.
Over the duration of the portfolio investment income will increase to offset
losses recorded from movement in yields. The Group is strongly cash flow
positive and thus overall increases in interest rates will have a positive
impact on the income statement in due course. There were no investment
write-downs during 2003 or 2004. Excluding unrealised losses profit before tax
would be $53.4 million, 26% higher than first half of 2003.
Taxation
The effective tax rate is 31.9% compared to 24.8% recorded for the full year
2003 reflecting the geographic incidence of the underwriting result, investment
income and unrealised losses.
The Group's tax, regulatory and investment strategies are designed to maximise
investors' long term return. This is enhanced by accumulating assets in Bermuda
and by utilising Bermudan capacity to support our other insurance entities. The
tax charge in any one period is dependent upon the geographic incidence of
profits in the Group's operations. We expect the full year tax rate to be
lower.
Earnings per share
Fully diluted operating EPS was $0.26 per share in the first half of 2003 and
2004. Fully diluted EPS was $0.09 for the first half of 2004 (2003:$0.32)
reflecting the unrealised losses in the investment portfolio.
Financing
The Group has negotiated a new $250 million revolver/term loan facility. This
facility, which does not include operating subsidiary guarantees, is expected to
close on 28 September 2004 and will be used primarily to refinance the existing
secured bank agreements, under which a total of $176.9 million was outstanding
as at 30 June 2004. The new non-amortising loan facility includes certain
covenants and will mature after three years. It is intended to draw down $200
million initially primarily to replace the existing facility. The balance of
this facility will be used for general corporate purposes in due course.
The more favourable terms of this new facility are expected to result in annual
interest savings of $1.5 million based on the existing amount borrowed. However,
the replacement of the old facility will crystallise a one-off release of
capitalised expenses of approximately $2 million which will be taken as a charge
in the second half of 2004. The interest margin under the new facility is tied
to a credit ratings grid, but will remain at a minimum level of 90 basis points
over LIBOR until 1 June 2005 and to a minimum of 57.5 basis points over LIBOR
thereafter.
Dividend
An interim dividend of $0.03 per share is payable on 19 November 2004. The
interim dividend is payable to those shareholders on the share register on 22
October 2004. Shareholders will have the option to receive their dividends in US
Dollars, British Pounds or Swiss Francs. If no election is made, shareholders
will receive US Dollars. Shareholders may make currency elections by returning a
currency election form to the paying agent, Capita IRG plc, by 22 October 2004.
A currency election form can be obtained from Capita IRG plc. The British Pound
or Swiss Franc equivalent of the interim dividend will be calculated by
reference to the rate prevailing on 29 October 2004.
Total assets
Total assets increased by 21% to $3,911 million from $3,224 million at 30 June
2003 and by 13% from $3,477 million at 31 December 2003 reflecting continued
strong growth in all operating units.
Invested assets
Invested assets at 30 June 2004 were $1,859 million compared with $1,335 million
a year earlier. The increase primarily reflects positive operating cash flow of
$197.6 million, which has increased by 49% from $133.0 million for the first
half of 2003. Alea has not held any equities since 2000 but may invest in the
future in additional asset classes on a modest basis as part of our continuing
conservative investment strategy.
Average duration of the investment portfolio as at 30 June 2004 was 3.7 years.
Based on invested assets at 30 June 2004 a 100 basis point decrease or increase
in interest rates across the yield curve would result in an approximate $60
million unrealised profit or loss respectively.
The average annualised investment return was 0.6% compared with 5.5% in the
first half of 2003. The impact on investment return resulting from movements in
realised and unrealised gains and losses has been to decrease the return for the
first 6 months of 2004 by 3.1% compared with an increase in return for the same
period in 2003 of 1.4%. Investment performance is in line with benchmarks.
Of total invested assets $1,634 million is managed by third-party fund managers
with the asset mix shown below. The remaining invested assets consist of
deposits with credit institutions, deposits with ceding undertakings and mutual
funds invested in fixed income securities.
Asset class 30 June 2004 30 June 2003
US government 36% 34%
US mortgage 25% 22%
US corporate 11% 10%
EU & Switzerland government and corporate 13% 16%
Asset backed securities 5% 7%
Canadian government and provinces 4% 5%
US municipalities 2% 2%
Cash and other 4% 4%
As at 30 June 2004 87% of the portfolio was rated AAA (2003: 87%), and 99% was
rated AA or higher (2003: 99%).
Approved by the Board of Directors
20 September 2004
Notes for Editors
1. Cautionary statements
Certain statements in this announcement are or may constitute forward-looking
statements. Because such statements are inherently subject to risks and
uncertainties, actual results may differ significantly from those expressed or
implied by such forward-looking statements. We caution you not to place undue
reliance on such forward-looking statements. We do not undertake any obligation
(except reporting obligations imposed on us in relation to our listing on the
London Stock Exchange) to update such forward-looking statements to reflect
events or circumstances occurring after the date hereof.
2. Alea history
Alea is a global reinsurance and specialty insurance Group focused on
underwriting for profit and sustainable return on equity. It has expertise in a
wide range of property and casualty reinsurance, insurance, alternative risk and
finite risk products and maintains a significant presence in major insurance and
reinsurance markets worldwide.
Alea is headquartered in Hamilton, Bermuda and has ongoing operations in the
United Kingdom, the United States, Bermuda, Switzerland, Australia and Jersey.
At 30 June 2004, it had 390 employees.
Alea has its origins in an investment thesis developed in 1997 by KKR 1996 Fund
(Overseas) Limited Partnership, its major shareholder: to create a new global
reinsurer focused on generating sustainable profitability and growth over the
longer term.
The core of this thesis was that underwriting discipline, strong controls, broad
capabilities in both reinsurance and select insurance markets, a focus on less
volatile lines of business and long-term relationships with small to
medium-sized clients would result in sustainable profitability in any market
environment.
Alea has acquired or built the talent, local infrastructure, licenses and client
relationships to be able to react quickly to attractive return opportunities in
the major markets worldwide. It has leveraged this platform to develop a
sizeable book of business diversified by class and geography.
3. Listing
Alea is publicly traded on the London Stock Exchange under the ticker "ALEA".
For more information on Alea, see www.aleagroup.com.
4. Financial Calendar 2004
20 October 2004 Ex dividend date for interim ordinary dividend for 2004
22 October 2004 Record date for interim ordinary dividend for 2004
19 November 2004 Payment of interim ordinary dividend for 2004
15 March 2005* Preliminary announcement of full year 2004 results
* Provisional
5. Rate of exchange
The rate of exchange at 30 June 2004 was:
#1 = US $1.81 (balance sheet)
#1 = US $1.82 (profit and loss account)
SUMMARISED CONSOLIDATED PROFIT AND LOSS ACCOUNT: TECHNICAL ACCOUNT- GENERAL
BUSINESS
Six months Six months Year to
to 30 June to 30 June 31 December
Notes 2004 2003 2003
unaudited restated audited
(note 8)
$'000 $'000 $'000
Gross premiums written 993,171 771,828 1,300,182
Outward reinsurance premium (130,060) (127,344) (271,471)
_____ _____ _____
Net premiums written 863,111 644,484 1,028,711
_____ _____ _____
Change in provision for unearned premiums (320,252) (278,505) (185,907)
Change in provision for unearned premiums- reinsurers' (3,713) 11,553 15,677
share
_____ _____ _____
Change in the net provision for unearned premiums (323,965) (266,952) (170,230)
_____ _____ _____
Net earned premiums 539,146 377,532 858,481
Allocated investment return transferred from the 40,531 26,727 57,811
non-technical account
Other technical income, net of reinsurance 1,451 1,401 2,364
_____ _____ _____
Total technical income 581,128 405,660 918,656
_____ _____ _____
Claims incurred, net of reinsurance 333,731 233,304 528,650
Other technical charges, net of reinsurance 8,599 9,057 19,004
Net operating expenses 175,210 125,519 285,499
_____ _____ _____
Total technical charges 517,540 367,880 833,153
_____ _____ _____
Balance on the technical account for general business 2
before claims equalisation provision
63,588 37,780 85,503
Change in claims equalisation provision (2,135) (1,782) (3,771)
_____ _____ _____
Balance on the technical account for general business 61,453 35,998 81,732
_____ _____ _____
CONSOLIDATED PROFIT AND LOSS ACCOUNT: NON - TECHNICAL ACCOUNT
Six months Six months Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited restated audited
(note 8)
$'000 $'000 $'000
Balance on technical account-general business 61,453 35,998 81,732
Gross investment income 4 36,191 27,396 56,337
Net realised gains on investments 4 1,133 10,115 12,146
Net unrealised losses on investments 4 (29,155) (984) (29,173)
Other investment expenses 4 (2,785) (1,983) (3,975)
_____ _____ _____
Actual investment return 5,384 34,544 35,335
Allocated investment return transferred to the 4 (40,531) (26,727) (57,811)
technical account - general business
Debt interest (2,154) (2,456) (4,718)
_____ _____ _____
Profit on ordinary activities before tax 24,152 41,359 54,538
_____ _____ _____
Comprising:
Operating profit 61,434 35,324 80,785
Short-term fluctuations in investment return 4 (35,147) 7,817 (22,476)
Movement in claims equalisation provision (2,135) (1,782) (3,771)
_____ _____ _____
24,152 41,359 54,538
_____ _____ _____
Tax charge on profit on ordinary activities 5 (7,716) (6,724) (13,528)
_____ _____ _____
Profit on ordinary activities after tax 16,436 34,635 41,010
Minority interest - gain on subordinated preferred
shares issued by subsidiaries
- - 7,500
Dividends - interim payable (3 cents per share 9 (5,238) - -
(2003: Nil)
_____ _____ _____
Retained profit for the period 11,198 34,635 48,510
_____ _____ _____
EARNINGS PER SHARE ATTRIBUTABLE TO SHAREHOLDERS
Six months Six months Year to
to 30 June to 30 June 31 December
Notes 2004 2003 2003
unaudited restated audited
(note 8)
Earnings per share - basic ($) 3 $0.09 $0.32 $0.42
Earnings per share - fully diluted ($) 3 $0.09 $0.32 $0.42
Operating earnings per share - basic ($) 3 $0.26 $0.27 $0.55
Operating earnings per share - fully diluted ($) 3 $0.26 $0.26 $0.54
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Six months Six months Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited audited audited
$'000 $'000 $'000
Retained profit for the period 11,198 34,635 48,510
Exchange differences (1,895) (2,901) (1,893)
_____ _____ _____
Total profit recognised for the financial year 9,303 31,734 46,617
_____ _____ _____
SUMMARISED CONSOLIDATED BALANCE SHEET
As at As at As at
Notes 30 Jun 04 30 Jun 03 31 Dec 03
unaudited audited audited
$'000 $'000 $'000
ASSETS
Intangible assets
Licences 9,873 9,968 9,968
_____ _____ _____
9,873 9,968 9,968
Investments
Other financial investments 1,747,877 1,228,330 1,582,357
Deposits with ceding undertakings 110,925 107,152 105,513
_____ _____ _____
1,858,802 1,335,482 1,687,870
Reinsurers' share of technical provisions
Provision for unearned premiums 130,499 118,082 123,606
_____ _____ _____
Claims outstanding - Aggregate excess 451,321 428,663 473,569
reinsurance
Claims outstanding - Other reinsurance 256,067 258,113 252,992
_____ _____ _____
Claims outstanding 7 707,388 686,776 726,561
_____ _____ _____
837,887 804,858 850,167
Debtors
Debtors arising out of insurance operations 54,041 97,743 66,931
Debtors arising out of reinsurance operations 751,647 661,458 531,635
Amounts due from reinsurance operations not 33,876 35,475 44,385
transferring significant insurance risk
Other debtors 56,467 54,003 55,693
_____ _____ _____
896,031 848,679 698,644
Other assets
Tangible assets 11,962 13,090 12,212
Cash at bank and in hand 40,257 38,913 44,307
_____ _____ _____
52,219 52,003 56,519
Prepayments and accrued income
Accrued interest and rent 16,352 11,522 14,968
Deferred acquisition costs 236,186 157,952 153,243
Other prepayments and accrued income 3,924 3,274 5,680
_____ _____ _____
256,462 172,748 173,891
_____ _____ _____
TOTAL ASSETS 3,911,274 3,223,738 3,477,059
_____ _____ _____
As at As at As at
Notes 30 Jun 04 30 Jun 03 31 Dec 03
unaudited audited audited
$'000 $'000 $'000
LIABILITIES
Capital and reserves
Called up share capital 6 1,746 53 1,747
Share premium account 6 632,524 345,432 633,053
Profit and loss account 6 24,261 75 14,958
Capital reserve 6 75,381 99,367 75,644
_____ _____ _____
Shareholders' funds attributable to equity interests 733,912 444,927 725,402
Minority interests
Subordinated preferred shares issued by subsidiaries 6 - 50,000 -
_____ _____ _____
TOTAL CAPITAL EMPLOYED 733,912 494,927 725,402
Technical provisions
Provision for unearned premiums 1,002,876 768,704 686,935
Claims outstanding 7 1,505,035 1,220,952 1,398,551
Claims equalisation provision 8,591 4,150 6,408
_____ _____ _____
2,516,502 1,993,806 2,091,894
Deposits received from reinsurers 161,860 217,347 199,903
Creditors
Creditors arising out of insurance and reinsurance 240,295 256,662 196,371
operations
Liabilities from reinsurance operations not 33,981 35,214 44,319
transferring significant insurance risk
Amounts owed to credit institutions 176,917 171,238 178,375
Other creditors including taxation and social security 11,626 6,096 2,995
_____ _____ _____
624,679 686,557 621,963
_____ _____ _____
Accruals and deferred income 36,181 48,448 37,800
_____ _____ _____
TOTAL LIABILITIES 3,911,274 3,223,738 3,477,059
_____ _____ _____
CONSOLIDATED CASH FLOW STATEMENT
Notes Six months Six months Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited audited audited
$'000 $'000 $'000
Net cash inflow from operating activities 11 197,609 132,977 250,977
Servicing of finance
Interest paid (2,154) (2,456) (4,718)
Net amounts outstanding for securities 15,043 - -
Taxation
Taxation paid (4,663) (843) (1,672)
Capital expenditure
Purchase of tangible assets (3,052) (2,573) (10,266)
Proceeds on disposal of tangible assets 525 - 5,977
Financing
Issue of common share capital (530) 2,653 291,968
Purchase of subordinated preferred shares issued by - - (42,500)
subsidiaries
Capital raising expenses (263) - (23,723)
_____ _____ _____
202,515 129,758 466,043
_____ _____ _____
Cash flows were invested as follows:
(Decrease)/ increase in cash holdings (3,754) 9,924 13,752
Net portfolio investments
Shares and other variable yield securities - (86) (331)
Debt securities - unit trusts - listed (66) 4,461 6,973
Debt securities and other fixed income securities 240,286 127,771 453,123
Deposits with credit institutions (33,951) (12,312) (7,474)
_____ _____ _____
206,269 119,834 452,291
_____ _____ _____
Net investment of cash flows 202,515 129,758 466,043
_____ _____ _____
NOTES TO THE INTERIM STATEMENT
1 Basis of preparation
The unaudited accounts for the six month period to 30 June 2004 have been
prepared in accordance with generally accepted accounting principles in the
United Kingdom ("UK GAAP") using the accounting policies set out in the Group's
Annual Report and Accounts for the year ended 31 December 2003.
The comparatives for the six months ended 30 June 2003 are audited numbers which
were presented in the Company's listing particulars dated 14 November 2003 with
the exception of the policy for allocating investment income to the technical
account based on the longer-term rate of return explained below. The financial
information included in this report for the year ended 31 December 2003 has been
extracted from the Group's financial statements for which an unqualified audit
opinion has been issued.
The Group complies with the ABI SORP's recommendation (Association of British
Insurers Statement of Recommended Practice on Accounting for Insurance Business)
for United Kingdom listed companies of allocating investment return to the
technical account based on the longer-term rate of return, which the Group has
selected as 4.5%. This is a change in accounting policy and has no impact on the
profit on ordinary activities after tax.
The Group has an accounting policy to discount claims reserves with a mean term
to ultimate claims settlement in excess of four years. It had previously
applied a discount rate to gross reserves of 5% for reserves attributable to 31
December 2001 and prior and 4% for subsequent periods.
In order to improve comparability, effective 1 January 2004, the estimation
technique used in this accounting policy has been to discount all gross reserves
at a rate of 4.5%. As at 30 June 2004 this increased the amount of discount by
$3m. Certain reserves arising from the provisions of the Inter-Ocean
reinsurance contracts will continue to be discounted at a rate of 6%.
The financial information contained in this interim report does not constitute
financial statements to be laid before the Company in general meeting for the
purposes of section 84 of the Bermuda Companies Act 1981.
The Company is a registered Bermuda company. As such it is obliged to prepare
its financial information in accordance with the Bermuda Companies Act 1981,
which permits the Company to apply UK GAAP. Accordingly, the financial
information has been prepared in accordance with Bermuda Law.
2 Segmental analysis
Underwriting results by operating segment before intra-group quota share
arrangements
The Group's business is composed of four underwriting segments, consisting of
London, Alternative Risk (AAR), North America (treaty reinsurance) and Europe.
The following tables summarise the underwriting results for the Group's business
segments for the six month periods ended 30 June 2004 and 30 June 2003 and the
year ended 31 December 2003. Net premiums written and net premiums earned and
the underwriting results are stated before quota share arrangements. The
aggregate impact of these quota share arrangements on these results is presented
separately.
Alea Alea Alea Alea
London AAR North America Europe Total
Six months ended 30 June 2004 $'000 $'000 $'000 $'000 $'000
(unaudited)
Gross Premiums Written 348,990 208,153 213,733 222,295 993,171
Outwards reinsurance premiums (25,115) (93,808) (1,038) (10,099) (130,060)
_____ _____ _____ _____ _____
Net premiums written 323,875 114,345 212,695 212,196 863,111
_____ _____ _____ _____ _____
Gross premiums earned 265,775 182,753 111,166 113,225 672,919
Net premiums earned 234,107 99,745 101,788 103,506 539,146
Allocated investment return 9,384 7,452 13,862 9,833 40,531
Claims incurred, net of reinsurance (135,392) (61,529) (59,712) (77,098) (333,731)
Total net expenses comprise :
Acquisition costs (56,183) (20,328) (26,888) (18,784) (122,183)
Administrative expenses (18,514) (10,431) (10,720) (13,362) (53,027)
Fee income 989 167 196 99 1,451
Other technical charges (2,801) (6) (304) (5,488) (8,599)
Total net expenses (76,509) (30,598) (37,716) (37,535) (182,358)
_____ _____ _____ _____ _____
Underwriting result (1) 31,590 15,070 18,222 (1,294) 63,588
_____ _____ _____ _____ _____
Alea Alea Alea Alea
London AAR North Europe Total
America
Six months ended 30 June 2003 $'000 $'000 $'000 $'000 $'000
(restated, note 8)
Gross Premiums Written 379,412 74,785 147,025 170,606 771,828
Outwards reinsurance premiums (41,502) (53,989) (8,816) (23,037) (127,344)
_____ _____ _____ _____ _____
Net premiums written 337,910 20,796 138,209 147,569 644,484
_____ _____ _____ _____ _____
Gross premiums earned 210,071 66,363 116,852 100,037 493,323
Net premiums earned 174,037 29,753 92,452 81,290 377,532
Allocated investment return 6,165 1,955 12,993 5,614 26,727
Claims incurred, net of reinsurance (92,681) (16,914) (70,080) (53,629) (233,304)
Total net expenses comprise :
Acquisition costs (42,226) (3,735) (25,934) (14,919) (86,814)
Administrative expenses (16,401) (8,670) (4,703) (8,931) (38,705)
Fee income 396 801 28 176 1,401
Other technical charges (3,188) (86) (268) (5,515) (9,057)
Total net expenses (61,419) (11,690) (30,877) (29,189) (133,175)
_____ _____ _____ _____ _____
Underwriting result (1) 26,102 3,104 4,488 4,086 37,780
_____ _____ _____ _____ _____
Alea Alea Alea Alea
London AAR North Europe Total
America
Year ended 31 December 2003 (audited) $'000 $'000 $'000 $'000 $'000
Gross Premiums Written 566,042 261,141 282,921 190,078 1,300,182
Outwards reinsurance premiums (78,198) (129,172) (33,222) (30,879) (271,471)
_____ _____ _____ _____ _____
Net premiums written 487,844 131,969 249,699 159,199 1,028,711
_____ _____ _____ _____ _____
Gross premiums earned 482,701 205,062 228,361 198,151 1,114,275
Net premiums earned 407,656 97,856 189,324 163,645 858,481
Allocated investment return 13,995 12,681 19,022 12,113 57,811
Claims incurred, net of reinsurance (224,988) (70,556) (130,024) (103,082) (528,650)
Total net expenses comprise :
Acquisition costs (92,521) (19,654) (55,268) (27,958) (195,401)
Administrative expenses (32,122) (15,880) (20,984) (21,112) (90,098)
Fee income 1,654 - 545 165 2,364
Other technical charges (5,611) (24) (700) (12,669) (19,004)
Total net expenses (128,600) (35,558) (76,407) (61,574) (302,139)
_____ _____ _____ _____ _____
Underwriting result (1) 68,063 4,423 1,915 11,102 85,503
_____ _____ _____ _____ _____
(1) Balance on the technical account for general business before claims
equalisation provisions
Intra-group quota share arrangements
For the six month periods ended 30 June 2004 and 30 June 2003 and the year ended
31 December 2003 intra-group quota share arrangements comprise of the following:
a 35% quota share of Alea London business to Alea Europe, a 50% quota share of
certain 2000 and prior underwriting year business from Alea Europe to Alea
Bermuda, a 70% quota share of Alea North America to Alea Bermuda and an
intra-group aggregate excess contract from Alea Europe to Alea Bermuda. The
aggregate effect of all of these arrangements are detailed below:
Alea Alea Alea Alea
London Bermuda US Europe Total
Six months ended 30 June 2004 $'000 $'000 $'000 $'000 $'000
(unaudited)
Net premiums earned 234,107 (2,090) 203,623 103,506 539,146
Intercompany reinsurance (81,033) 141,739 (142,126) 81,420 -
_____ _____ _____ _____ _____
Net premiums earned after intercompany 153,074 139,649 61,497 184,926 539,146
reinsurance
_____ _____ _____ _____ _____
Underwriting result
Before intercompany reinsurance 31,590 7,745 25,547 (1,294) 63,588
After intercompany reinsurance 19,935 11,178 18,493 13,982 63,588
_____ _____ _____ _____ _____
Alea Alea Alea Alea
London Bermuda US Europe Total
Six months ended 30 June 2003 (restated, $'000 $'000 $'000 $'000 $'000
note 8)
Net premiums earned 174,037 (5,260) 127,465 81,290 377,532
Intercompany reinsurance (60,672) 89,488 (85,945) 57,129 -
_____ _____ _____ _____ _____
Net premiums earned after intercompany 113,365 84,228 41,520 138,419 377,532
reinsurance
_____ _____ _____ _____ _____
Underwriting result
Before intercompany reinsurance 26,102 (7,789) 15,381 4,086 37,780
After intercompany reinsurance 17,998 (6,502) 9,016 17,268 37,780
_____ _____ _____ _____ _____
Alea Alea Alea Alea
London Bermuda US Europe Total
Year ended 31 December 2003 (audited) $'000 $'000 $'000 $'000 $'000
Net premiums earned 407,656 2,520 284,660 163,645 858,481
Intercompany reinsurance (142,397) 203,005 (197,151) 136,543 -
_____ _____ _____ _____ _____
Net premiums earned after intercompany 265,259 205,525 87,509 300,188 858,481
reinsurance
_____ _____ _____ _____ _____
Underwriting result
Before intercompany reinsurance 68,063 (10,842) 17,180 11,102 85,503
After intercompany reinsurance 45,468 (5,046) (1,168) 46,249 85,503
_____ _____ _____ _____ _____
3 Earnings per ordinary share
Basic earnings per ordinary share is based on the profits after tax and the
weighted average ordinary shares in issue as follows :
Six months Six months Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited audited audited
Number Number Number
Weighted average ordinary shares in issue 174,693,306 106,389,763 114,269,807
Fully diluted number of shares 176,960,913 108,373,970 116,266,620
Operating earnings per ordinary share based on the longer-term investment return
are shown because it is considered to be a more appropriate measure of operating
performance than earnings per share including short term fluctuations in
investment return. Transfers to or from equalisation provisions are transfers
to or from a statutory reserve and not a deduction or credit in arriving at
operating profit. The gain on the purchase of subordinated preferred shares
issued by subsidiaries has also been excluded in calculating operating profit.
The reconciliation between earnings per ordinary share and operating earnings
per ordinary share is as follows:
Six months Six months Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited restated audited
(note 8)
$'000 $'000 $'000
Retained profit for the period 11,198 34,635 48,510
Add
Dividends payable 5,238 - -
Gain on purchase of subordinated preferred - - (7,500)
shares issued by subsidiaries
Short term fluctations in investment return 35,147 (7,817) 22,476
Movement in claims equalisation provision 2,135 1,782 3,771
_____ _____ _____
42,520 (6,035) 18,747
Tax thereon (7,491) (74) (4,250)
_____ _____ _____
35,029 (6,109) 14,497
_____ _____ _____
Operating profit after tax 46,227 28,526 63,007
_____ _____ _____
Earnings per share - basic ($) $0.09 $0.32 $0.42
Earnings per share - fully diluted ($) $0.09 $0.32 $0.42
Operating earnings per share - basic ($) $0.26 $0.27 $0.55
Operating earnings per share - fully diluted ($) $0.26 $0.26 $0.54
4 Investment return
Six months Six months Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited restated audited
(note 8)
$'000 $'000 $'000
Investment income
Income from other financial investments 36,191 27,396 56,337
Net gains on the realisation of investments 1,133 10,115 12,146
_____ _____ _____
37,324 37,511 68,483
Other investment expenses (2,785) (1,983) (3,975)
Unrealised investment losses
Movement during the year (29,155) (984) (29,173)
_____ _____ _____
Actual investment return 5,384 34,544 35,335
_____ _____ _____
Longer-term investment return
Longer-term investment return 40,531 26,727 57,811
Actual investment return excluding gain on (5,384) (34,544) (35,335)
subordinated preferreds
_____ _____ _____
Effect of short-term fluctuations over the period 35,147 (7,817) 22,476
_____ _____ _____
The longer-term investment return is calculated for each business segment and
based on the average invested assets and the expected longer-term rate of return
on those assets having regard to the relevant economic and market forecasts.
The Group has selected an overall rate of 4.5%.
5 Taxation
Six months Six months Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited restated audited
(note 8)
$'000 $'000 $'000
The credit/(charge) for taxation comprises:
Current taxation (3,854) (965) (1,890)
Deferred taxation (3,862) (5,759) (11,638)
_____ _____ _____
(7,716) (6,724) (13,528)
_____ _____ _____
The credit/(charge) for taxation can be analysed
as follows:
Tax on operating profit (15,207) (6,798) (17,778)
Tax on short-term fluctuations in investment 6,851 (461) 3,119
return
Tax on movement in claims equalisation provision 640 535 1,131
_____ _____ _____
(7,716) (6,724) (13,528)
_____ _____ _____
In accordance with the ASB statement "Interim Reports" the charge for taxation
is based on a calculation of the estimated annual effective tax rate.
The deferred tax asset/(provision) is included within other debtors, this
comprises:
As at As at As at
30 June 30 June 31 December
2004 2003 2003
unaudited audited audited
$'000 $'000 $'000
Tax losses and disclaimed technical reserves 34,132 41,552 29,152
Other timing differences (5,179) (1,491) 4,615
_____ _____ _____
Balance as at end of period 28,953 40,061 33,767
_____ _____ _____
As at As at As at
30 June 30 June 31 December
2004 2003 2003
unaudited audited audited
$'000 $'000 $'000
Balance as at beginning of period 33,767 46,657 46,657
Charge for the period (3,862) (5,759) (11,638)
Exchange movement (952) (837) (1,252)
_____ _____ _____
Balance as at end of period 28,953 40,061 33,767
_____ _____ _____
6 Movement in consolidated shareholders' funds
Share Share Capital Profit and Total
capital premium reserve loss account
Six months to 30 June 2004 (unaudited) $'000 $'000 $'000 $'000 $'000
As at 1 January 2004 1,747 633,053 75,644 14,958 725,402
Transfer from share premium account to profit and
loss account
- - - - -
Share issues - 66 - - 66
Capital raising expenses - - (263) - (263)
Share repurchase and cancellation (1) (595) - - (596)
Retained profit for the financial period - - - 11,198 11,198
Exchange differences - - - (1,895) (1,895)
_____ _____ _____ _____ _____
As at 30 June 2004 1,746 632,524 75,381 24,261 733,912
_____ _____ _____ _____ _____
Share Share Capital Profit and Total
capital premium reserve loss account
Six months to 30 June 2003 (audited) $'000 $'000 $'000 $'000 $'000
As at 1 January 2003 53 361,407 99,367 (50,287) 410,540
Transfer from share premium account to profit and
loss account
- (18,628) - 18,628 -
Share issues - 3,350 - - 3,350
Share repurchase and cancellation - (697) - - (697)
Retained profit for the financial period - - - 34,635 34,635
Exchange differences - - - (2,901) (2,901)
_____ _____ _____ _____ _____
As at 30 June 2003 53 345,432 99,367 75 444,927
_____ _____ _____ _____ _____
Share Share Capital Profit and Total
capital premium reserve loss account
Year to 31 December 2003 (audited) $'000 $'000 $'000 $'000 $'000
As at 1 January 2003 53 361,407 99,367 (50,287) 410,540
Transfer from share premium account to profit and
loss account - (18,628) - 18,628 -
Share issues 1,694 292,105 - - 293,799
Capital raising expenses - - (23,723) - (23,723)
Share repurchase and cancellation - (1,831) - - (1,831)
Retained profit for the financial period - - - 48,510 48,510
Exchange differences - - - (1,893) (1,893)
_____ _____ _____ _____ _____
As at 31 December 2003 1,747 633,053 75,644 14,958 725,402
_____ _____ _____ _____ _____
Minority interest (subordinated preferred equity)
As at 30 June 2004 As at 30 June 2003 As at 31 December 2003
unaudited audited audited
Number $'000 Number $'000 Number 000s $'000
000s 000s
Redeemable 6% preferred shares of USD 1
Authorised, issued and fully paid - - 30,000 30,000 - -
Redeemable 6% preferred shares of USD
0.01 par value;
Authorised, issued and fully paid -
purchase price of USD 100 - - 200 20,000 - -
- 50,000 -
7 Claims outstanding
As at As at As at
30 June 30 June 31 December
2004 2003 2003
unaudited audited audited
$'000 $'000 $'000
Gross
Provision for claims outstanding, reported and not 1,591,807 1,283,575 1,463,702
reported
Discount (104,305) (79,941) (80,020)
_____ _____ _____
1,487,502 1,203,634 1,383,682
Claims handling provisions 17,533 17,318 14,869
_____ _____ _____
1,505,035 1,220,952 1,398,551
Reinsurance
Provision for claims outstanding, reported and not (755,933) (743,120) (762,089)
reported
Discount 48,545 56,344 35,528
_____ _____ _____
(707,388) (686,776) (726,561)
_____ _____ _____
Claims outstanding net of reinsurance 797,647 534,176 671,990
_____ _____ _____
8 Prior year adjustments
Longer-term rate of return
The Group allocates investment income to the technical account from the
non-technical account using the longer-term rate of return as recommended for
listed companies per the ABI SORP. As this is a reallocation of the investment
return within the profit and loss account it has no impact on profit for the
financial period/year attributable to equity shareholders or the shareholders'
funds attributable to equity interests.
The impact of the change in accounting policy is as follows:
Six months Year to
to 30 June 31 December
2003 2003
$'000 $'000
Operating profit under the old policy 34,010 75,336
Short term fluctuations in investment return as previously stated 9,131 (17,027)
Movement in claims equalisation provision (1,782) (3,771)
_____ _____
Profit on ordinary activities before tax 41,359 54,538
_____ _____
Operating profit under the new policy 35,324 80,785
Short term fluctuations in investment return as restated 7,817 (22,476)
Movement in claims equalisation provision (1,782) (3,771)
_____ _____
Profit on ordinary activities before tax 41,359 54,538
_____ _____
The change also has an impact on the balance on the technical account for
general business as detailed in the table below:
Balance on the technical account - general business under the old policy 9,271 23,921
Allocated investment return transferred from the non-technical account 26,727 57,811
_____ _____
Balance on the technical account - general business as restated 35,998 81,732
_____ _____
9 Dividend
The ordinary dividends in the profit and loss account comprise
Six months Six months Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited audited audited
$'000 $'000 $'000
Ordinary dividend
Interim - $0.03 per share (2003: nil) 5,238 - -
Final - (2003: nil) - - -
5,238 - -
The Board has declared an interim dividend of three cents per Common Share
payable on 19 November 2004 to shareholders on the register of members at the
close of business on 22 October 2004.
Dividends are declared in U.S Dollars but may be paid in U.S. Dollars, British
Pounds or Swiss Francs. Shareholders may make an election to have their
dividends paid in British Pounds or Swiss Francs by completing a currency
election form and returning it to the paying agent Capita IRG plc by 22 October
2004. A currency election form can be obtained from Capita IRG plc. If no
election is made, shareholders will be paid their dividends in US Dollars. The
British Pound or Swiss Franc equivalent of the interim dividend will be
calculated by reference to a rate prevailing on 29 October 2004.
10 Related party transactions
Kohlberg Kravis Roberts & Co.
The Group pays annual advisory fees of $750,000 to Kohlberg Kravis Roberts &
Co., L.P., an affiliate of KKR 1996 Fund (Overseas) Limited Partnership, a
shareholder and KKR Partners (International), Limited Partnership, also a
shareholder and $350,000 to Fisher Capital Corp. L.L.C., also a shareholder. As
at 30 June 2004 Kohlberg Kravis Roberts & Co. and Fisher Capital Corp. L.L.C.
have received $375,000 and $175,000 respectively.
Loans to officers
Loans to officers are interest bearing and made on consistent terms as those to
other employees. As at 30 June 2004 the Group had loans to officers of $759,250
(30 June 2003: $969,211). The number of officers that had outstanding loans at
30 June 2004 was 8 (30 June 2003: 10).
Bristol West Insurance Group
During 2003 and 2004, Alea London Limited underwrote a 40% share of an inwards
reinsurance contract with Bristol West Insurance Group (Bristol West), a public
company traded on the New York Stock Exchange, in which a KKR fund other than
KKR 1996 Fund (Overseas), Limited Partnership, has a significant interest.
The contract was priced and terms and conditions established on an arm's length
basis by an unrelated lead underwriter and found to be acceptable by the Company
using the Company's normal actuarial practices.
Mr James R Fisher, a director of the Company, is Chairman of the Board and Chief
Executive Officer of Bristol West and as of 30 June 2004 may be deemed to have
beneficial interests in some or all of 988,736 shares or options to acquire
shares of Bristol West representing approximately 3.1% of the outstanding
shares.
Messrs. T Fisher, P Golkin and S Nuttall are also directors of Bristol West and
may be deemed to have beneficial interests in some or all of the shares in
Bristol West controlled by affiliates of Kohlberg Kravis Roberts & Co. These
interests represent 38.7% of the issued share capital at 30 June 2004.
The co-participating reinsurers on the contract are companies unrelated to
either the Company, Bristol West, KKR or Mr. J. Fisher. The contract had the
following impact on the profit and loss account, balance sheet and cash flows of
the Group:
Six months Six months Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited audited audited
$'000 $'000 $'000
General business technical account
Gross premiums written 116,904 167,740 158,500
Gross premiums earned 70,406 51,658 126,341
Incurred losses (56,325) (41,326) (101,072)
Acquisition expenses (11,971) (8,782) (21,479)
_____ _____ _____
Balance on technical account 2,110 1,550 3,790
_____ _____ _____
Cash flows
Premium received 182,651 63,329 121,277
Claims paid (109,605) (30,007) (65,813)
Balance sheet
Cash received 73,046 33,322 55,464
Reinsurance debtors 99,882 129,846 64,228
Deferred acquisition costs 17,277 23,639 9,372
Claims incurred (81,416) (44,943) (68,883)
Unearned premium reserves (101,628) (139,053) (55,130)
Retained profit 7,161 2,811 5,051
_____ _____ _____
No amounts have been written off in respect of debts due to or from Bristol West
11 Net cash flow from operating activities
Six months ended Year ended
30 Jun 04 30 Jun 03 31 Dec 03
unaudited audited audited
$'000 $'000 $'000
Profit on ordinary activities before tax 24,152 41,359 54,538
Depreciation of tangible assets 3,238 2,613 5,868
(Profit) on disposal of tangible assets (460) - (289)
Changes to market value and currencies on investments 41,045 (1,757) (24,893)
(Gains)/losses on foreign exchange (2,353) 638 9,095
Change in debtors arising out of re/insurance (207,122) (270,058) (109,423)
operations
Change in amounts due from reinsurance operations not 10,509 14,954 6,044
transferring significant insurance risk
Change in other assets (628) 7,890 (1,475)
Change in prepayments and accrued income 372 4,457 (1,395)
Change in technical provisions 422,425 385,586 481,416
Change in claims equalisation provision 2,135 1,782 3,771
Change in reinsurer's share of technical provisions (70,663) (125,249) (165,849)
Change in deposits with ceding undertakings (5,412) (15,046) (13,407)
Change in reinsurance deposits and creditors 5,881 90,095 12,360
Change in liabilities from reinsurance operations not (10,338) (17,915) (8,811)
transferring significant insurance risk
Change in other creditors (664) (919) (2,733)
Change in accruals and deferred income (16,662) 12,091 1,442
Debt interest expense 2,154 2,456 4,718
_____ _____ _____
Net cash inflow from operating activities 197,609 132,977 250,977
_____ _____ _____
INDEPENDENT REVIEW REPORT TO ALEA GROUP HOLDINGS (BERMUDA) LTD
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2004 which comprises the profit and loss account,
the balance sheet, the cash flow statement and related notes 1 to 11. We have
read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
polices and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2004.
Deloitte & Touche LLP
Chartered Accountants
London
20 September 2004
This information is provided by RNS
The company news service from the London Stock Exchange
END
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