TIDMGBGI
RNS Number : 1672X
GBGI Limited
22 November 2017
GBGI Limited
2017 Full Year Results
22 November 2017
GBGI Limited
("GBGI" or the "Company" and, together with its subsidiary
undertakings, the "Group")
2017 Full Year Results
GBGI Limited (AIM: GBGI), a leading integrated provider of
international benefits insurance, is pleased to announce its full
year results for the twelve months ended 30 June 2017.
Financial Highlights
-- Strong top line growth, with Gross Written Premiums ("GWP")
up 19.4% to $183.5 million (FY 2016: $153.6 million)
-- Track record of delivering superior underwriting performance
drives higher retention rate, leading to growth in Net Written
Premiums ("NWP") of 36.0% to $105.7 million (FY 2016: $77.7
million)
-- Total revenues up 24.1% to $134.3 million (FY 2016: $108.2 million)
-- Disciplined, consistent underwriting approach continues to be
primary driver of profitability; operating income was $13.0 million
in the period (FY 2016: $12.0 million). EBITDA was $13.6 million
during the period (FY 2016: $12.3 million)
-- Proven, profitable business model with profit before tax
growing 29.8% to $13.9 million (FY 2016: $10.7 million)
-- Strong balance sheet with solvency coverage of 150.4% at 30 June 2017
-- Clear benefits from the July 2017 outlook upgrade by A.M.
Best, with pathway to further positive changes
-- Final dividend proposed of $0.06 per share(1) , reflecting an
effective annualised pay-out ratio of 60% in line with the
Company's stated dividend policy
Business Highlights
-- Admission to AIM in February 2017, which generated gross
proceeds of GBP32 million for the Group, improved corporate
governance environment and overall transparency for commercial
benefit
-- Ongoing robust sales in the Latin American individual private
medical market, offering a strong platform to increase group
business and enter new countries in Latin America in FY 2018
-- The TieCare International business won its largest-ever group
medical insurance account, reinforcing its leading position in the
international educational employee benefits segment
-- The incorporation of GBG Assist and the acquisition of QHM
established new revenue streams for the Group in the international
customer service, claims processing and network provider
segments
-- In October 2017, Cathy Garner was appointed as Global Head of
GBGI's Life and Long-Term Disability business, with a remit to
drive sales and broaden distribution channels in this profitable
vertical product line
-- Reorganised management structure in GBGI's Chinese
operations; now better positioned to offer high quality product and
service offerings
Dividend
The dividend will be paid to shareholders on the register on the
record date of 1 December 2017. A copy of the Dividend Currency
Election form, which when completed should be sent to Link Asset
Services, The Registry, Beckenham Road, Beckenham, Kent, BR3 4TU,
can be found on the Company's website www.gbg.com/investors.
The shares will have an ex-dividend date of 30 November 2017 and
the dividend is scheduled to be paid on 22 December 2017. The
dividend is capable of being paid in sterling rather than US
dollars, provided that the relevant shareholder has registered to
receive their dividend in sterling under the Company's Dividend
Currency Election or registers to do so by the close of business on
1 December 2017.
Change of accounting reference date
GBGI's Board has taken the decision to change its accounting
reference date and financial year end from 30 June to 31 December
to align its accounting year with the insurance policy year,
thereby increasing reporting and management efficiencies. As a
result of this change, GBGI's next financial reporting events will
be as follows:
-- Audited results for the 12 months to 31 December 2017
-- Unaudited interim results for the 6 months to 30 June 2018
Thereafter, GBGI will report on a regular biannual reporting
calendar based on a 31 December financial year end.
GBGI's CEO, Bob Dubrish, commented:
"I am delighted to report an excellent performance for GBGI's
maiden set of annual results since listing on AIM in February this
year. We have delivered strong growth in gross written premiums of
19.4% to $183.5 million, whilst remaining focused on writing high
risk-adjusted return business and building on our core underwriting
heritage and competencies. We have delivered growth of 34% in
adjusted(2) profit after tax and have declared a final dividend of
$0.06 in line with our promises.
"Our ability to profitably grow our book of business is a
testament to our flexible, agile, international operating model,
which enables us to reach and serve large, underserved niche
markets without significant upfront investment. Our strategic
partnership with AXA has commenced well and we see this as a
positive driver of our new business performance going forward.
"Trading since the period end has continued to be encouraging
and in line with our expectations. We look forward with confidence
and into the medium term, given the strength of our franchise and
the scope we see for growth."
For further information please contact:
GBGI Limited
Bob Dubrish (CEO) +1 949 421 3180
Eric Dickelman (CFO) +1 949 421 3390
Canaccord Genuity (Nominated
Adviser and Broker) +44 (0)20 7523 8000
Sunil Duggal
Andrew Buchanan
Emma Gabriel
Instinctif Partners (Financial
PR)
Giles Stewart
Rui Videira
Lewis Hill +44 (0)20 7457 2020
Key:
(1) The dividend calculation is based on distributable profits
of $13.5 million; number of shares in issue of 86,964,195; a 60%
payout ratio; and a payment of two thirds as a final dividend.
(2) Based on a Profit after Tax of $13.5 million plus $0.4
million of direct IPO related expenses 2017.
Notes to Editors
GBGI is a leading integrated provider of international benefits
insurance, operating globally across over 120 jurisdictions.
Trading principally as "The Global Benefits Group" or "GBG", the
Group distributes and underwrites health, life and disability, and
travel insurance, with a client base that spans multinational
corporations, expatriates, local HNWIs, international schools,
non-profit organisations and international students. GBGI is a
fully integrated insurance group providing services from policy
sales to claims administration and servicing and is committed to
delivering high levels of customer service. GBGI is incorporated in
Guernsey.
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon the publication of this
announcement this inside information is now considered to be in the
public domain.
Chairman's statement
Overview
I am delighted to introduce the maiden Annual Report and
Accounts for GBGI for the year ending 30 June 2017. It has been a
landmark year for the Company, having achieved a successful AIM
listing in February 2017. This report covers the performance of the
Group's pre-listing parent Saxton Lane from 1 July 2016 to 21
February 2017 and GBGI Limited from 22 February 2017 to 30 June
2017. Building on our proven growth track record, the Group grew
gross written premiums to $183.5 million for the first time in its
history, with revenue for the year growing 24 percent.
This performance has been achieved against the demanding
backdrop of preparing the business for its admission to AIM and the
consequent transition of the business to comply with the
high-governance and ethical standards of the QCA Corporate
Governance Code for Small and Mid-Size Quoted Companies.
Over the past year we have delivered a strong financial
performance, further strengthening our balance sheet and declaring
a maiden dividend.
Progressive change
Reflecting on 2017 I am pleased with the significant strides
made by GBGI. We have delivered on our business plans and have
continued to distribute and underwrite medical, life and
disability, and travel insurance across over 120 jurisdictions
worldwide. The completion of our AIM listing earlier this year was
a landmark event for the business. The funds raised have improved
an already robust capital position, with our solvency coverage
ratio standing at 150.4 percent at 30 June 2017 and A.M. Best, the
ratings agency, upgrading its outlook on GBGI's Financial Strength
rating in July 2017. The positive reputational benefits from the
listing have already been felt in terms of commercial momentum.
Strategic and operational evolution
During the year we further diversified our business by risk,
product, distribution partner and geography. We expanded our
business into the Georgia region, via an investment with a local
operator, whilst strengthening origination relationships worldwide.
Our strategic reinsurance agreement with AXA, concluded in March
2017, offers both a fundamentally strong risk partner and a
commercial arrangement, which will allow us to open up material new
growth avenues. Good progress has already been made on this
front.
Operationally we have been focused on adapting our business for
current and future growth, investing in decentralising operations
and augmenting our IT infrastructure to enable operational
effectiveness.
Our aim is quite simply to offer the best possible levels of
customer service, enabling high retention levels and future
referrals from our distribution partners. Controlling our value
chain via integrated operations is key and we support our
policyholders via a global network of offices providing medically
trained 24/7 support.
The Board and governance
The corporate governance environment of the business has
undergone significant change during the year, in keeping with the
requirements of being public and recognising the size and scope of
the business today. In addition to my appointment as Non-Executive
Chairman the Group welcomed Anne Gunther, Murray Wood and David
Gibson as Non-Executive Directors effective from admission to AIM
in February 2017. In July 2017 the Board welcomed Doug Trussler as
a new Non-Executive Director and representative of our long term
shareholder, Bison Capital.
To better align with our business model, we also have changed
the Company's year-end date to 31 December from 30 June. That means
our next Annual Report will be due out early in the second quarter
of calendar year 2018.
Dividend
The profitability of our business combined with the strength of
our solvency position have allowed us to declare a maiden dividend,
in line with our stated policy. We have proposed a final dividend
of $0.06 for the year to 30 June 2017 and looking forward we intend
to adopt a progressive dividend policy.
Outlook
As I close my first financial year as Chairman we are pleased
with the significant progress we have made. We are well positioned
to build on our momentum as we look forward into 2018. We have a
proven business model, strong financial profile and a drive to
deliver sustainable growth that is underpinned by prudent
underwriting - which gives us confidence in our ability to deliver
enhanced shareholder returns for the future.
I would like to thank my fellow board members, the senior
leadership team and all colleagues across the business for their
contribution to a year of strategic evolution. It is their
knowledge, skills and professionalism that delivers for customers
and shareholders and it is my privilege as Chairman to work
alongside them.
Bill Ward
Non-Executive Chairman
Chief Executive Officer's statement
The year to 30 June 2017 was transformative for GBGI, with the
strategic progress made by the business over the years reflected in
a successful listing on AIM in February 2017.
The Group has successfully carved out a differentiated niche in
the global benefits market, offering the global reach of the
multinational insurers combined with the flexibility and customer
responsiveness of local brokers and managing agents. This
differentiated proposition, underpinned by our international
network of distribution partners, has propelled the ongoing growth
of the business. We are careful to ensure that the levels of
customer service exceed expectations and by operating across the
value chain we seek to maintain close control over the service.
Over the past year we have benefitted from our focus on niche
markets underserved by our competitors, and remain the only insurer
quoted on the London Stock Exchange that derives all of its
revenues from the international medical, life, disability and
travel insurance markets.
Strong financial performance
Gross written premiums ("GWP") grew 19.4 percent to $183.5
million, driven by moderate rate increases and growth in policy
count. An increase in the business we retain on balance sheet,
underpinned by our consistent loss ratio track record, drove higher
net earned premiums, up 29.3 percent to $91.4 million. Overall net
revenues grew 24.2 percent to $134.3 million.
Our commitment to delivering underwriting profit to our
reinsurers enabled by the quality of our underwriting operations
and data history, led to continued strong insurance profits for the
year. With the business growing rapidly we are focused on ensuring
the appropriate level of investment in the operational
infrastructure of the business. Investment in operations, including
in staffing levels and training, led to the expense ratio
increasing to 29.6 percent (FY 2016: 28.6 percent). This investment
in growth will enable our growth plans to be undertaken from a
position of platform strength. EBITDA in the year was $13.6
million, a growth of 10.6 percent during the year. Profit before
tax increased 29.8 percent to $13.9 million (FY 2016: $10.7
million). Profit attributable to the Group after tax increased 29.8
percent to $13.5 million (FY 2016: $10.4 million).
Our underlying basic EPS was $0.18. This is a strong performance
achieved against a backdrop of the successful IPO project. It is
pleasing to deliver good returns for our shareholders whilst
allowing for future investment and growth.
A more detailed commentary can be found in the Chief Financial
Officer's review on pages 07 to 09.
A landmark year
The year to 30 June 2017 marked a number of important strategic
milestones for the business. The Group was admitted to trading on
AIM in February 2017. We increased our global reach by adding
territories and deepening our operations in existing territories.
We built out our managed service offering, a new revenue stream for
us, and underpinned our risk profile via our strategic reinsurance
agreement with AXA.
Admission to AIM
Our admission to AIM was an important milestone for the
business. GBGI was originally founded in 1981. The Group has
evolved in this time, growing in a controlled manner and
establishing an international footprint without incurring a global
fixed cost base.
Obtaining a public listing was important for us on a number of
different levels, not least via the GBP32 million of capital raised
to support expansion opportunities, but more fundamentally, as
recognition that GBGI is a leader of standing and substance in the
international benefits market. The listing has improved our
corporate governance procedures and transparency of performance and
position, factors welcomed by our regulator, ratings agency and
commercial partners. Finally we were able to welcome new
shareholders onto the register and I look forward to maintaining a
close dialogue with our shareholders going forward.
Maximising our reach
In April 2017 we announced a new strategic partnership with a
new Georgia-based insurance company. This new business, JSC Risk
Management and Insurance Company, will target corporate insurance
sectors both in Georgia and across Central and Eastern Europe.
Whilst GBGI is already active in over 120 jurisdictions, we
continually assess and conduct due diligence in territories where
we are not currently active to determine if it is appropriate for
shareholders to allocate resources and capital. I am pleased with
the progress made in Georgia and it is a market demonstrating real
potential.
In addition to entering new regions we also seek, where
appropriate, to maximise opportunities in existing markets. The
Group reaffirmed its position in Latin America and the Caribbean as
a leader in the IPMI (International Private Medical Insurance)
market. In 2017, the Group experienced solid revenue growth and
profitability in the region, its largest geographical market.
Building upon our established brand and track record, GBGI has
expanded its product footprint, targeting the corporate market in
particular. We can clearly see the opportunities for further
product and territory penetration in Latin America and we will seek
to deliver on these opportunities whilst delivering a consistently
high level of service to customers.
New income streams
Extending the product offering also presents a strategic growth
opportunity and the Group acquired Quality Health Management (QHM),
a Florida-based third party administration (TPA) firm in January
2017, as a complement to its GBG Assist business. The latter was
launched in July 2016, providing worldwide customer support with
access to assistance on a wide range of medical services, from
basic enquiries to emergency medical situations, 24 hours a day and
in over 180 different languages. Whilst GBG Assist services Group
customers, it also offers its services to third parties under the
QHM brand. The business has performed very well in its first year
of operation and offers tangible growth opportunities, with low
capital input.
Strategic partnership with AXA
In Q4 2016 the business signed a strategic partnership agreement
with the global insurer, AXA. AXA is now the sole quota share
reinsurance provider for the business.
In addition to a fundamentally sound balance sheet position, AXA
also presents GBGI with a number of new business opportunities
notably by providing access to fronting arrangements, broadening
the Group's footprint.
I'm pleased to report that the partnership has started to yield
positive results and is testament to GBGI's standing in the
market.
TieCare International
The Group's educational division continued to perform well,
cementing its positioning as a market leader in its segment. In the
fiscal year, TieCare hit a new high in annual premium ($27.1
million) after completing its largest international school account
sale. The division currently works with more than 150 international
educational groups, a record for the Group. TieCare works primarily
with U.S.-centric international schools, and is planning to
redeploy marketing resources to move into additional educational
segments and offer a broader product portfolio in 2018.
Benefitting from underwriting excellence
Over recent periods the business has sought to leverage its
underwriting approach, agility and proven track record by retaining
more of the risk it writes on balance sheet.
In the year to 30 June 2017 we retained circa 84 percent of the
medical, life and disability business we wrote. Our underwriting
performance is such that this has been a significant driver of
profit growth, with our underwriting result contributing
significantly to our operating profit.
We are careful to maintain the diversified nature of the book by
both distributor and geography and we envisage a stable retention
level of 84 percent looking forward.
Commitment to our customers
The foundations of our business have been built on ensuring we
always deliver the highest levels of customer service. Our claims
services are often needed at times of stress and hardship, and we
remain committed to ensuring our customers are supported and cared
for wherever in the world they may be. The growth of our in-house
GBG Assist operations and our acquisition of QHM are testament to
our investment in and commitment to ensuring the best possible
outcomes for our customers.
Regulation and compliance
Our view is that the regulatory oversight across all our markets
will continue to evolve. We monitor and evolve our risk and
compliance activities to ensure we operate effectively and
correctly.
Our people
As GBGI has expanded we have welcomed many new colleagues. Our
aim is to attract and retain the best talent.
We now have some 302 colleagues and a culture that prioritises
diligent, results-driven and collegial working practices. I would
like to thank all our colleagues for their efforts during the year
and subsequently.
Outlook
As increased globalisation and migration foster the long-term
growth of the international benefits insurance sector, we have a
number of strategic initiatives in place to build on our position.
We see the opportunity to expand our Life and Disability business,
and have recently hired a new vertical leader for this product. We
continue our expansion plans in the student, travel and short-term
medical markets which demonstrate strong demand characteristics. We
are very well placed to leverage our flexible international
operating base and strong funding position to continue to write
profitable business. We approach 2018 and beyond with confidence in
our ability to continue to deliver for our shareholders.
Summary
We will continue to enhance our position as a leading provider
of global benefits insurance, globally. We start FY 2018 from a
position of strength. We have a proprietary network of multi-year
relationships with distributors worldwide, proven underwriting
capability and performance and the balance sheet strength to grow
the business whilst maintaining our dividend policy.
We are continuing to invest in the operations of the business to
ensure we can deliver on our growth aspirations in an efficient,
compliant manner. Our profitable, cash generative model continues
to deliver, giving us confidence in our ability to deliver on our
targets.
Bob Dubrish
Chief Executive Officer
Chief Financial Officer's review
Delivering financial performance
This is GBGI's maiden set of annual results since listing on AIM
in February this year, and I am delighted to report a strong
financial performance and robust financial position from which to
grow the business in 2018 and beyond. These results once again
demonstrate the excellent progress we have made in developing our
business over the years from an agency model through to a full
service, integrated insurer writing profitable insurance business
across 120 jurisdictions.
Gross written premiums ("GWP") increased 19.4 percent from
$153.6 million to $183.5 million, net revenues increased 24.2
percent from $108.2 million to $134.3 million, and our profit after
tax was $13.5 million (FY 2016: $10.4 million). We further
strengthened our balance sheet in the period, via ongoing
profitability and the equity capital raised at the time of our IPO.
This further strengthening was recognized by A.M. Best as it
upgraded its outlook on our Financial Strength rating to B++ (Good)
in July 2017. Our solvency position at 30 June 2017 stands at c.
150.4 percent*.
*Prescribed Capital Requirement using the solvency model
supplied by the Guernsey Financial Services Commission (GFSC).
Trading highlights
12 months 12 months
to 30 June to 30
$ million 2017 June 2016
----------------- --------------- -----------
Gross written
premiums 183.5 153.6
Total revenue 134.3 108.2
Total net claims
and other
Expenses 121.3 96.1
EBITDA 13.6 12.3
Operating income 13.0 12.0
Profit before
tax 13.9 10.7
EPS ($) 0.18 0.16
----------------- --------------- -----------
EBITDA
The Group's earnings before interest, depreciation and
amortisation (EBITDA) grew 10.6 percent for the year from $12.3
million in FY 2016 to $13.6 million in FY 2017. This increase is
reflective of the Group's continuing ability to deliver operating
income.
Year ended
30 June
$ million
------------------- --------------------
EBITDA calculation 2017 2016
------------------- --------- ---------
Operating income 13.0 12.0
Depreciation
and amortisation 0.6 0.3
------------------- --------- ---------
13.6 12.3
------------------- --------- ---------
Income statement
Gross written premiums ("GWP")
We delivered strong growth in GWP during the year. GWP for the
fiscal year to 30 June 2017 was $183.5 million, growth of 19.4
percent over the prior year period.
Medical remains the primary product line for the business,
representing some 86 percent of GWP in the year (Inclusive of
Travel). Performance in Travel, up 143.4 percent to $24.1 million
was very encouraging whilst our high return Life and Disability
continued to deliver profitable growth, increasing to $24.4
million.
Year ended 30
June $ million
-------------------- --------------------------------
Product 2017 2016
-------------------- ------------------------ ------
Medical 134.4 120.0
Life and disability 24.4 23.4
Travel 24.1 9.9
Specialty 0.6 0.3
-------------------- ------------------------ ------
Total GWP 183.5 153.6
-------------------- ------------------------ ------
Medical
Our medical insurance products include a variety of group and
individual plans with a range of benefits and levels of cover
including emergency evacuation, maternity cover, dental cover,
wellness programmes and pre-existing conditions.
Total Medical GWP grew 12 percent in the year ended 30 June 2017
to $134.4 million (FY 2016: $120.0 million) as a result of premium
growth across nearly all our geographic regions.
Life and disability
Our life insurance products are typically annually renewable
term life policies, although a small number of policies with
slightly longer terms (up to 18 months) may be written. Term life
benefits are set at either a fixed sum or as a multiple of the
insured's salary. We also write both long-term and short-term
disability products with benefits typically set as a proportion of
the insured's salary.
Total Life and Disability GWP grew 4 percent in the year ended
30 June 2017 to $24.4 million (FY 2016: $23.4 million).
Travel
We continued to experience strong growth in Travel, with growth
in the core business supplemented by the addition of student based
travel insurance products. Travel GWP was $24.1 million, a 143.4
percent increase over the prior year (FY 2016 $9.9 million).
Net written premiums ("NWP")
NWP grew 36.0 percent in the year ended 30 June 2017 to $105.7
million (FY 2016: $77.7 million). The growth in NWP reflects both
growth in GWP and higher risk retention. Higher retention levels
have been a contributing factor behind the growth in our
profitability and reflects the consistency of our underwriting
performance over a sustained period, the quality of our
underwriting process and our rich data histories. Looking forward
we expect retention levels to stabilise broadly around 60 percent
for the next two policy years.
Total revenue
Total revenues grew 24.1 percent to $134.3 million in the year
2017, reflecting the overall growth of GWP across the medical
products platform and the increased levels of retention of that
premium. Commission and Fees income grew 14.4 percent to $42.9
million, marginally lower than GWP growth, but in line with
expectations.
Expenses
Year ended 30
June
$ million
--------------- ------------------------
2017 2016
--------------- ------------------ ----
Net claims 47.3 37.5
Administrative
expenses 39.8 31.0
Commission
expense 34.2 27.7
--------------- ------------------ ----
Net claims were $47.3 million, a 26.0 percent increase over the
prior year but within the relevant range when compared against the
Group's increased level of retained risk premium.
In general, the Company's overall medical risk underwriting
results for policy year 2016 (the major policy year that impacts
the FY 2017 financial results) are producing profitability that is
in line with our expectations. Although still early in the
measurement period, the policy year 2017 medical underwriting
results show an improving trend compared with the previous policy
year. The underwriting results for life and disability continue to
deliver excellent profitability, in line with the results from
prior years.
Administrative expenses were $39.8 million, increasing 28.4
percent from $31.0 million in FY 2016. The increase in
administrative expenses was driven by the continued investment in
GBGI's operational platform and associated infrastructure, certain
one-off expenses and IPO related expenses. The expense increases
were offset to some degree by improved operational cost management
processes that were implemented in the first half of the fiscal
year.
Commission expenses increased 23.5 percent from $27.7 million to
$34.2 million, broadly in line with the growth in retained risk
premium, and in line with our expectations.
Profitability
Group operating income increased by 8.4 percent to $13.0 million
(FY 2016: $12.0 million), driven by growth in our insurance book,
increased risk retention levels, the excellent underwriting results
and the impact of the implementation of enhanced internal cost
management processes. Profit before tax increased 29.8 percent to
$13.9 million (FY 2016: $10.7 million). Profit attributable to the
Group increased 29.8 percent to $13.5 million (FY 2016; $10.4
million).
Earnings per share
Earnings per share (EPS) was $0.18, calculated with reference to
post tax profit of $13.5 million and weighted average number of
shares in issue of 73,643,652.
Dividend
In line with our stated policy, we have proposed a maiden final
dividend at 30 June 2017 of $0.06 per share.
Our stated dividend policy is that the annual dividend will be a
certain percentage of the distributable profit with one third paid
as an interim dividend and two thirds as a final dividend. Given
the timing of our listing in February 2017 GBGI did not pay an
interim dividend but instead will be paying a final dividend of two
thirds of 60 percent of the distributable profits for the financial
year ending 30 June 2017.
Balance sheet
Net assets and working capital
Net assets at 30 June 2017 were $58.4 million (30 June 2016:
$28.2 million), with growth driven by the combined effect of growth
in GWP, cash generation, IPO related restructuring and equity
raise.
Net cash
The Group's operating activities continue to be highly cash
generative and during FY 2017 cash inflow from operating activities
was $14.0 million. The business is prudently financed, in keeping
with the commercial demands of our business. Net cash at 30 June
2017 was $76.2 million reflecting the operating performance in
addition to the impact of the IPO proceeds.
Insurance liabilities and reserves
Total gross insurance liabilities as at 30 June 2017 of $118.9
million comprises $79.0 million of unearned premiums, which are
deferred to be recognised in subsequent periods (30 June 2016:
$65.1 million), and outstanding claims liabilities of $39.8 million
(30 June 2016: $40.7 million). Unearned premiums increased 21.4
percent from the prior period due to timing of booked premium and
the overall increase in GWP. Outstanding claim liabilities was
approximately even to the prior period reflecting timing and
overall improvements in the underwriting result.
The provisioning for outstanding claims liabilities is an area
of significant judgement as it estimates the cost required to
settle all unpaid claims, both reported and incurred but not
reported (IBNR), at the balance sheet date. The Group manages this
risk by applying a consistent reserving methodology to each of its
product areas and measuring actual loss amounts against the
reserves quarterly.
In addition, the Group engages an independent third party to
review the reserves and reserve methodologies annually.
Reinsurance contracts
The Group uses excess of loss and quota share reinsurance
arrangements to prudently manage its risk exposure, therefore
protecting its solvency and underwriting capability. Excess of loss
reinsurance is designed to prevent large claims from having a
material impact on performance whilst our quota share arrangements
allow us to benefit from our underwriting excellence without having
to fully allocate capital to back the policy underwritten.
In recent periods, we have actively sought to increase our risk
retention levels as our consistent underwriting performance gives
us confidence that we are able to generate excellent underwriting
returns. Overall, our proven approach to risk structuring is to
maximise return whilst reducing volatility risk caused by the
accumulation of losses and large individual claims.
Reinsurance assets, comprising reinsurers' share of outstanding
claims liabilities, decreased 5.4 percent year on year to $22.7
million at 30 June 2017 (30 June 2016: $24.0 million) due to the
Group's increased risk retention levels. Reinsurance assets have
been impacted by our strategic decision to retain more of the risk
across all of our product areas. However, we anticipate that we
will maintain our current risk retention levels into the near
future.
Solvency
The solvency position of the Group at 30 June 2017 was strong,
with solvency coverage of approximately 150.4 percent at 30 June
2017. This provides a strong capital position for the business
going forward and gives us confidence in our ability to meet our
stated dividend policy.
Eric Dickelman
Chief Financial Officer
GBGI Limited
Consolidated statement of comprehensive income
For the year ended 30 June 2017
2017 2016
Notes $000s $000s
---------------------------------------------------------------------------- ------ ---------- ------------------
Income
Gross premiums written 4 183,488 153,592
Outward reinsurance premiums 4 (77,787) (75,895)
---------------------------------------------------------------------------- ------ ---------- ------------------
Net premiums written 105,701 77,697
Change in the gross provision for unearned premiums 4 (12,723) (3,859)
Change in the provision for unearned premiums, reinsurers' share 4 (1,616) (3,161)
Change in net provision for unearned premiums (14,339) (7,020)
---------------------------------------------------------------------------- ------ ---------- ------------------
Earned premiums, net of reinsurance 91,362 70,677
Commission and fees 7 42,949 37,491
---------------------------------------------------------------------------- ------ ---------- ------------------
Total revenue 4 134,311 108,168
---------------------------------------------------------------------------- ------ ---------- ------------------
Claims incurred, net of reinsurance
Claims paid - gross amount (86,461) (71,303)
- reinsurers' share 39,655 42,320
---------------------------------------------------------------------------- ------ ---------- ------------------
Net claims paid (46,806) (28,983)
Change in the provision for outstanding claims
- gross amount 813 (4,614)
- reinsurers' share (1,292) (3,939)
---------------------------------------------------------------------------- ------ ---------- ------------------
Change in net provision for claims (479) (8,553)
---------------------------------------------------------------------------- ------ ---------- ------------------
Net claims 13 (47,285) (37,536)
Administrative expenses 12 (39,794) (30,958)
Commission expense 8 (34,233) (27,653)
---------------------------------------------------------------------------- ------ ---------- ------------------
Total net claims and other expenses (121,312) (96,147)
---------------------------------------------------------------------------- ------ ---------- ------------------
Operating income 12,999 12,021
Investment income 5 287 63
Other income / (expense) 6 1,076 (690)
Finance costs 9 (427) (660)
---------------------------------------------------------------------------- ------ ---------- ------------------
Profit before income tax 13,935 10,734
Income tax (expense) 15 (265) (317)
---------------------------------------------------------------------------- ------ ---------- ------------------
Profit after income tax 13,670 10,417
---------------------------------------------------------------------------- ------ ---------- ------------------
Total comprehensive income after tax 13,670 10,417
---------------------------------------------------------------------------- ------ ---------- ------------------
Profit and total comprehensive income after tax attributable to:
Owners of the Group 13,459 10,370
Non-controlling interests 211 47
---------------------------------------------------------------------------- ------ ---------- ------------------
Basic and diluted earnings per share for profit attributable to the equity
holders of the
Group during the year 16 0.18 0.16
---------------------------------------------------------------------------- ------ ---------- ------------------
The accompanying notes form an integral part of these
consolidated financial statements.
GBGI Limited
Consolidated statement of financial position
As at 30 June 2017
2017 2016
Notes $000s $000s
-------------------------------------------------- ------ -------- ---------
ASSETS
Intangible assets 17 8,644 5,946
Property, plant and equipment 18 867 1,074
Investments 10 249 -
Reinsurers share of technical provisions 23 50,582 50,258
Tax assets 15 90 267
Trade and other receivables 20 100,758 80,065
Deferred acquisition costs on unearned premium 8 15,099 14,847
Cash and cash equivalents 21 76,221 53,818
-------------------------------------------------- ------ -------- ---------
Total assets 252,510 206,275
-------------------------------------------------- ------ -------- ---------
LIABILITIES
Insurance liabilities 23 118,875 105,751
Other insurance liabilities 24 51,383 50,031
Borrowings:
- Redeemable Preferred Stock 26 250 250
Class D shares 26 - 5,500
Deferred tax liabilities 15 1,208 1,088
Trade and other payables 29 22,356 15,429
Tax liabilities 15 - -
Total liabilities 194,072 178,049
-------------------------------------------------- ------ -------- ---------
Net assets 58,438 28,226
-------------------------------------------------- ------ -------- ---------
EQUITY
Called up share capital 27 88 34
Share premium 44,580 22,105
Capital redemption reserve 28 (1,467) (11,993)
Retained earnings 14,800 17,854
-------------------------------------------------- ------ -------- ---------
Attributable to the equity holders of the parent 58,001 28,000
Non-controlling interests 437 226
Total equity 58,438 28,226
-------------------------------------------------- ------ -------- ---------
The accompanying notes form an integral part of this
consolidated financial information.
GBGI Limited
Consolidated statement of changes in equity
For the year ended 30 June 2017
Equity
attributable
Capital to equity
Called up share Redemption Retained Non-controlling holders of
capital Share Premium Reserve Earnings Total interests the entity
2017 $000s $000s $000s $000s $000s $000s $000s
---------------- ---------------- -------------- --------------- --------------- -------------- ----------------- --------------
At 30 June 2016 34 22,105 (11,993) 17,854 28,000 226 28,226
Distribution to
Class B and
Class C common
shareholders - - (16,513) (16,513) - (16,513)
Shares
exchanged and
converted to
ordinary
shares in
reorganisation 33 (12,026) 11,993 - - - -
Shares
repurchased
for repayment
of note
receivable - - (1,467) - (1,467) - (1,467)
Shares issued
in current
period 21 39,522 - - 39,543 - 39,543
Cost of
issuance of
equity shares - (5,151) - - (5,151) - (5,151)
Share-based
payments - 130 - - 130 - 130
Profit and
total
comprehensive
income - - 13,459 13,459 211 13,670
---------------- ---------------- -------------- --------------- --------------- -------------- ----------------- --------------
Total equity as
at 30 June
2017 88 44,580 (1,467) 14,800 58,001 437 58,438
---------------- ---------------- -------------- --------------- --------------- -------------- ----------------- --------------
Equity
attributable
Capital to equity
Called up share Redemption Retained Non-controlling holders of
capital Share Premium Reserve Earnings Total interests the entity
2016 $000s $000s $000s $000s $000s $000s $000s
---------------- ---------------- -------------- --------------- --------------- -------------- ----------------- --------------
At 30 June 2015 34 22,105 (11,993) 7,484 17,630 179 17,809
Profit and
total
comprehensive
income - - - 10,370 10,370 47 10,417
---------------- ---------------- -------------- --------------- --------------- -------------- ----------------- --------------
Total equity as
at 30 June
2016 34 22,105 (11,993) 17,854 28,000 226 28,226
---------------- ---------------- -------------- --------------- --------------- -------------- ----------------- --------------
The accompanying notes form an integral part of these
consolidated financial statements.
GBGI Limited
Consolidated cash flow statement
For the year ended 30 June 2017
2017 2016
Notes $000s $000s
------------------------------------------------------------------ ------ --------- ------------------
Cash flows from operating activities
Profit before taxation 13,935 10,734
Adjustments for:
Share-based payments 11 130 -
Depreciation of property, plant and equipment 12 301 227
Amortisation of intangible assets 12 313 59
Loss on disposal of property, plant and equipment 12 99 -
Finance costs 9 427 660
------------------------------------------------------------------ ------ --------- ------------------
Operating profit before working capital changes 15,205 11,680
Changes in working capital
Increase in other receivables (16,697) (9,700)
Increase in gross insurance liabilities 13,124 8,678
Increase/(decrease) in other liabilities 2,648 (771)
(Increase)/decrease in reinsurers share of technical provisions (324) 7,102
------------------------------------------------------------------ ------ --------- ------------------
Cash generated from operations 13,956 16,989
Income taxes paid 32 -
------------------------------------------------------------------ ------ --------- ------------------
Net cash generated from operating activities 13,988 16,989
------------------------------------------------------------------ ------ --------- ------------------
Cash flows from investing activities
Purchases of property and equipment 18 (193) (632)
Purchase of intangibles 17 (2,213) (1,772)
Purchase of investments 10 (249) -
Purchase of business, net of cash acquired 32 (882) -
Net cash used in investing activities (3,537) (2,404)
------------------------------------------------------------------ ------ --------- ------------------
Cash flows from financing activities
Dividends paid to holders of Class D shares 9 (427) (660)
Proceeds from the issuance of Ordinary shares 27 12,379 -
Net cash used / generated by financing activities 11,952 (660)
------------------------------------------------------------------ ------ --------- ------------------
Net change in cash and cash equivalents 22,403 13,925
Cash and cash equivalents at the beginning of the period 53,818 39,893
Cash and cash equivalents at the end of the period 21 76,221 53,818
------------------------------------------------------------------ ------ --------- ------------------
The accompanying notes form an integral part of this
consolidated financial information.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
a) General information
GBGI Limited ('GBGI' or the "Group") was incorporated as Saxton
Lane Company Limited in Guernsey in 2008 and is a multiple line
insurance group writing substantially all lines of expatriate
health insurance products and long term liability insurance
products.
GBGI is a Guernsey corporation located at Level 5, Mill Court La
Charroterie, St. Peter Port, Guernsey GY1 1EJ. Its registration
number is 48728.
b) Basis of preparation
The financial statements represents the consolidated financial
statements for the Group for each of the full two years ended 30
June 2017 and 2016. The consolidated financial statements have been
prepared in accordance with International Financial Reporting
Standards ('IFRS') and IFRC Interpretations issued by the
International Accounting Standards Board as adopted by the European
Union.
The financial statements have been prepared using the historical
cost convention. Outstanding claims liability and reinsurance and
other recoveries are carried at Management's best estimate of the
amounts at which these will be settled based on the information
currently available to them. These policies have been consistently
applied to all periods presented.
The preparation of the consolidated financial statements
requires the use of certain critical accounting estimates. The
areas involving a higher degree of judgement of complexity, or
areas where assumptions or estimates are significant are disclosed
in note 2 below.
The presentation currency of the financial statements is US
Dollars, rounded to the nearest thousands ($'000) unless otherwise
indicated. The Group's functional currency is US Dollars. The
presentation and functional currency of the Group and its
subsidiaries is deemed to be US Dollars.
c) Going concern
The Directors have prepared a cash flow forecast covering a
period extending beyond 18 months from the financial statements
presented as at 30 June 2017.
The Directors have taken into account the historical positive
cash flows, growth in business and the inherent risks and
uncertainties facing the business, and have derived forecast
assumptions that are the Directors' best estimate of the future
development of the business. For these reasons, they continue to
adopt the going concern basis of accounting in preparing the
consolidated financial statements. The consolidated financial
statements do not include any adjustments that would result from
the going concern basis of preparation being inappropriate.
d) New accounting standards and amendments
The new International Financial Reporting Standards ('IFRS') and
International Standards ('IAS') and amendments detailed below are
not mandatory until the effective dates stated. Early adoption is
permitted where the standards has been endorsed by the EU.
Title Effective Date
-------- ----------------------- ---------------
IFRS 9 Financial instruments 1 January 2018
IFRS 15 Revenue from contracts 1 January 2018
with customers
IFRS 16 Leases 1 January 2019
IFRS 17 Insurance Contracts 1 January 2021
-------- ----------------------- ---------------
The Group will apply the standards detailed above for the
reporting periods beginning on the effective dates set out
above.
New standards, interpretations and amendments not yet
effective
The following new standards, interpretations and amendments,
which are not yet effective and have not been adopted early in
these financial statements, will or may have an effect on the
Group's future financial statements:
-- IFRS 9 Financial Instruments, effective annual periods
beginning on or after 1 January 2018, endorsed by the EU. IFRS 9 is
a replacement for IAS 39 'Financial Instruments' and covers three
distinct areas. Phase 1 contains new requirements for the
classification and measurement of financial assets and liabilities.
Phase 2 relates to the impairment of financial assets and requires
the calculation of impairment on an expected loss basis rather than
the current incurred loss basis. Phase 3 relates to less stringent
requirements for general hedge accounting.
The Group performed a high-level impact assessment of all three
aspects of IFRS 9. This preliminary assessment is based on
currently available information and may be subject to changes
arising from further detailed analyses or additional reasonable and
supportable information being made available to the Group in the
future. Overall, the Group expects no significant impact on its
balance sheet and equity, except for the effect of applying the
impairment requirements of IFRS 9. The group plans to defer the
application of IFRS 9 until the earlier of the effective date of
the new insurance contracts standard of 1 January 2021, applying
the temporary exemption from applying IFRS 9 as introduced by the
amendments.
Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with
IFRS 4 Insurance Contracts
In September 2016, the IASB issued amendments to IFRS 4 to
address issues arising from the different effective dates of IFRS 9
and the upcoming new insurance contracts standard. The amendments
introduce two alternative options for entities issuing contracts
within the scope of IFRS 4, notably a temporary exemption and an
overlay approach. The temporary exemption enables eligible entities
to defer the implementation date of IFRS 9 for annual periods
beginning before 1 January 2021 at the latest. An entity may apply
the temporary exemption from IFRS 9 if: (i) it has not previously
applied any version of IFRS 9 before and (ii) its activities are
predominantly connected with insurance on its annual reporting date
that immediately precedes 1 April 2016. The overlay approach allows
an entity applying IFRS 9 to reclassify between profit or loss and
other comprehensive income an amount that results in the profit or
loss at the end of the reporting period for the designated
financial assets being the same as if an entity had applied IAS 39
to these designated financial assets. An entity can apply the
temporary exemption from IFRS 9 for annual periods beginning on or
after 1 January 2018. An entity may start applying the overlay
approach when it applies IFRS 9 for the first time. The Group
performed an assessment of the amendments and reached the
conclusion that its activities are predominantly connected with
insurance as at 30 June 2017. The Group intends to apply the
temporary exemption in its reporting period starting on 1 July
2018.
-- IFRS 15 Revenue from Contracts with Customers, effective
annual periods beginning on or after 1 January 2018, endorsed by
the EU, sets out to clarify the principles of revenue recognition
and establish a single framework for revenue recognition. This
standard replaces the previous standard IAS 11 Construction
Contracts, IAS18 Revenue and revenue related IFRICs.
The Group expects to apply IFRS 15 fully retrospective. Given
insurance contracts are scoped out of IFRS 15, the Group expects
the main impact of the new standard to be on the accounting for
income from investments. The Group does not expect the impact to be
significant.
-- IFRS 16 Leases, effective annual periods beginning on or
after 1 January 2019, endorsed by the EU sets out the principles
for the recognition, measurement, presentation and disclosure of
leases for both parties to a contract, i.e. the customer ('lessee')
and the supplier ('lessor'). IFRS 16 completes the IASB's project
to improve the financial reporting of leases and replaces the
previous leases Standard, IAS 17 Leases, and related
Interpretations.
The impact of this new standard on the Group is still being
considered.
-- IFRS 17 Insurance Contracts, effective annual periods
beginning on or after 1 January 2021 sets out the requirements that
a company should apply in reporting information about insurance
contracts it issues and reinsurance contracts it holds. IFRS 17
supersedes IFRS 4. IFRS 17 will provide comprehensive guidance on
accounting for insurance contracts and investment contracts with
discretionary participation features. For general insurance
contracts, IFRS 17 will introduce mandatory discounting of loss
reserves expected to be paid in more than one year as well as risk
adjustment, for which confidence level equivalent disclosure will
be required. Further, IFRS 17 is expected to have a significant
impact on accounting for life insurance contracts as well as on the
presentation of insurance contract revenue in the financial
statements.
The impact of this new standard on the Group is still being
considered.
e) Basis of consolidation
The consolidated financial statements incorporates the assets
and liabilities of all entities controlled by the Group as at 30
June 2017 and 2016 and the results of all controlled entities for
the financial years then ended. Control is the power over the
investee, exposure, or rights, to variable returns from its
involvement with the investee and the ability to use its power over
the investee to affect the amount of the investor's returns. The
effects of all transactions between controlled entities are
eliminated in full. Non-controlling interests in the results and
equity of the controlled entities are shown separately in the
consolidated statement of comprehensive income and consolidated
statement of financial position.
Business combinations are accounted for using the acquisition
method when control of an entity of business is obtained. The cost
of an acquisition is measured as the fair value of the assets
given, equity instruments issued and liabilities incurred or
assumed at the date of exchange. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any non-controlling
interest. The excess of the cost of acquisition over the fair value
of the Group's share of the identifiable net assets acquired is
recorded as goodwill. If the cost of acquisition is less than the
fair value of the net assets of the controlled entity acquired, the
difference is recognised directly in profit or loss.
Non-controlling interests in an acquiree are recognised at the
non-controlling interest's proportionate share of the acquiree's
net identifiable assets.
f) Insurance contracts
A contract is recognised as an insurance contract if it
transfers significant insurance risk. Such contracts may also
transfer financial risk. Insurance risk is transferred to the Group
where it agrees to compensate a policyholder if a specified
uncertain event, other than those caused by changes in a financial
variable such as interest and foreign exchange rates, adversely
affects the policyholder. All of the Group's insurance products are
classified as insurance contracts.
The results are determined on an annual basis whereby the
incurred cost of claims, commission and related expenses are
charged against the earned proportion of premiums, net of
reinsurance as follows:
i) Premiums written
Premiums written relate to business incepted during the year,
together with any additional premiums arising on insurance
contracts recognised in prior years. Written premiums include
estimates of premiums due but not yet receivable or notified to the
Group, less allowance for cancellations. Premiums are stated net of
taxes collected on behalf of third parties.
ii) Unearned premiums
Unearned premiums represent the proportion of premiums written
that relate to periods of insurance coverage to be provided in
periods subsequent to the reporting date. Unearned premiums are
earned as revenue over the period of the contract on a time
apportionment basis, unless there is a marked unevenness in the
incidence of risk over the period covered by the insurance. In
these cases, premiums are recognised based on the assessed
incidence of risk.
iii) Acquisition costs
Acquisition costs, which represent commissions due to internal
employees and third party brokers for the sale of insurance
policies are deferred and amortised over the period in which the
related premiums are earned.
iv) Claims incurred
Claims incurred comprise claims and related expenses paid in the
year and changes in the provisions for outstanding claims,
including provision for claims incurred but not reported and
related expenses, together with any adjustments to claims
outstanding from previous years.
v) Claims provisions and related reinsurance recoveries
Provision is made at the reporting date for the estimated cost
of claims incurred but not settled at the reporting date, including
the cost of claims incurred but not yet reported to the Group.
Although the Group takes all reasonable steps to ensure that it has
appropriate information regarding its claim exposures, given the
uncertainty in establishing claims provisions, it is likely that
the final outcome will be different from the original liability
established and may result in significant adjustments to the
amounts provided. Adjustments to the amounts provided are reflected
in the consolidated financial statements in the accounting period
in which the adjustments are made.
The Group does not discount liabilities for unpaid claims.
The estimation of claims incurred but not recorded ('IBNR') is
generally subject to a greater degree of uncertainty than the
estimation of the cost of settling claims already notified to the
Group, where more information about the claim event is generally
available. The in-house underwriting team conducts the IBNR review
using standard actuarial methodologies to evaluate and determine
the IBNR reserves for of the Group.
vi) Reinsurance
The Group cedes reinsurance in the normal course of business,
with retention limits set for each line of business. The contracts
entered into by the Group with reinsurers, under which the Group is
compensated for losses on one or more contracts issued by the Group
and that meet the classification requirements for insurance
contracts, are classified as reinsurance contracts. Outward
reinsurance premiums are recognised in the same accounting period
as the related premium income. Reinsurance claims recoveries are
recognised in the same accounting period as the related insurance
claims are accounted for.
The amounts recoverable from reinsurers are estimated based upon
the gross provisions, having due regard to their collectability and
the terms of the related reinsurance contract. The reinsurance
recoveries in respect of estimated claims incurred but not reported
are assumed to be consistent with the historical pattern of such
recoveries, adjusted to reflect changes in the nature and extent of
the reinsurance program over time. The recoverability of
reinsurance recoveries is assessed having regard to market data on
the financial strength of each of the reinsurers.
Gains and losses on buying reinsurance are recognised
immediately at the point of purchase and not amortised.
The reinsurers' share of claims incurred, in the profit or loss,
reflects the amounts received or receivable from reinsurers in
respect of those claims incurred during the period. The reinsurance
premiums due are primarily premiums payable for reinsurance
contracts and are recognised in the profit or loss as outward
reinsurance premiums when due.
g) Foreign Currencies
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot rate of
exchange at the reporting date.
Non-monetary items are measured at historical cost and are
translated using the exchange rate at the date of the transaction
and non-monetary items measured at fair value are measured using
the exchange rate when fair value was determined.
The Group is exposed to gains and losses that result from the
effect of changes in foreign currency exchange rates on foreign
currency denomination transactions. Gains and losses which result
from transactions denominated in foreign currency are reported in
the consolidated statement of comprehensive income.
h) Property, plant and equipment
Property, plant and equipment is stated at cost (or deemed cost)
less accumulated depreciation and any accumulated impairment
losses. Cost includes expenditure that is directly attributable to
bringing the asset to its working condition for its intended
use.
Property, plant and equipment are depreciated to their residual
values over their useful lives. Depreciation is calculated on the
straight line method to reduce their carrying value to the residual
amount as follows:
Equipment 5 years
Furniture and fixtures 5-7 years
Leasehold improvements 7 years
The residual values, length of the economic lives and
depreciation method applied are reviewed on a regular basis, and at
least at every reporting date, and adjusted as appropriate. Where
the carrying amount of an asset is greater than its estimated
recoverable amount, it is written down immediately to its
recoverable amount. Gains and losses on disposal of property and
equipment are determined by reference to their carrying amount.
i) Intangible assets
Costs of implementing new software systems are capitalised as
incurred. Amortisation of software does not commence until the
system is fully installed and operational. Intangible assets
acquired are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is their fair
value as at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated
amortisation and any accumulated impairment losses. The amortisable
intangible assets represent computer software and development costs
and are reported net of accumulated amortisation.
Costs of implementing new software systems are capitalised as
incurred. Amortisation of software does not commence until the
system is fully installed and operational.
The amortisable intangible assets are amortised on a
straight-lined basis over its estimated useful life of 3-5 years
and is assessed for impairment whenever there is an indication that
the intangible asset may be impaired. The amortisation of
intangible assets is carried out only when the implementation is
complete and the asset is in use.
j) Goodwill
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the fair value of consideration
transferred over the Group's interest in the net fair value of the
identifiable net assets, liabilities and contingent liabilities of
the entity acquired and the fair value of non-controlling interest
in the acquiree.
For the purpose of impairment testing, goodwill acquired in a
business combination is allocated to each of the CGUs, or groups of
CGUs, that is expected to benefit from the synergies of the
combination. Goodwill is tested for impairment annually, or more
frequently if circumstances indicate impairment may have occurred.
If the recoverable amount of the cash generating unit is less than
its carrying amount. The impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to that unit
and then to the other assets of the unit pro rata based on the
carrying amount of each asset in the unit. Any impairment loss is
recognised in profit or loss. Impairment losses so recognised are
not subsequently reversed.
k) Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held
on call, together with other short term highly liquid investments
which are not subject to significant changes in value and have
original maturities of less than three months.
l) Tax
The charge for tax is based on the results for the year
determined in accordance with the relevant tax laws and regulations
that are enacted, or substantively enacted, at the reporting date
in each jurisdiction.
Deferred tax is provided in full on all temporary differences
arising between the carrying amounts in the consolidated financial
statements and the tax bases of the assets and liabilities.
Deferred tax assets are recognised to the extent that it is
regarded as more likely than not that they will be recovered.
Deferred tax is calculated based on the tax rates that have been
enacted or substantively enacted at the end of the reporting period
and which are expected to be in force when the relevant deferred
tax asset is realised or the relevant deferred tax liability is
settled. Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority within the Group.
m) Employee benefits
Share-based payments
A transaction is accounted for as a share-based payment where
the Group receives services from employees and pays for these in
shares and similar equity instruments.
The Group makes equity-settled share-based payments to certain
employees. Equity-settled share-based schemes are measured at fair
value (excluding the effect of non-market-based vesting conditions)
at the date of grant, measured by use of an appropriate valuation
model. The expected life used in the model has been adjusted, based
on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
The fair value determined at the grant date of the
equity-settled share-based payments is expensed over the vesting
period, based on the Group's estimate of shares that will
eventually vest.
Share options are forfeited when an employee ceases to be
employed by the Group.
Short-term employee benefits
Short-term employee benefits, including compensated absences,
are benefits to be paid within one year after the end of the
reporting period in which the related services are rendered. A
liability and expense are recognised for the undiscounted amount
expected to be paid for short-term employee benefits in the period
in which the employee renders services in exchange for the
benefits.
Other long-term employee benefits
The Group and its subsidiaries make payments to defined
contribution benefit arrangements on behalf of employees. The
charge to the profit or loss represents the amounts payable by the
Group for the year. The assets relating to these arrangements are
held separately to those of the Group.
n) Operating segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision maker has been identified as the Chief
Executive Officer.
The Board considers that the Group's insurance activities
constitute only one operating and reporting segment, as defined
under IFRS 8. Management reviews the performance of the Group by
reference to total results.
The total profit measures are operating profit and profit for
the year, both disclosed on the face of the consolidated profit or
loss. No differences exist between the basis of preparation of the
performance measures used by management and the figures in the
Group financial statements.
o) Financial assets
The Group's financial assets are loans and receivables.
Financial assets are recognised when the Group becomes party to the
provisions of the contract.
Loans and receivables
These investments are initially recognised at cost, being the
fair value of the consideration paid for the acquisition of the
investment. All transaction costs directly attributable to the
acquisition are also included in the cost of the investment. After
initial measurement, loans and receivables are measured at
amortised cost less allowance for impairment. Loans and receivables
are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. The Group's loans
and receivables financial assets comprise all short-term trade and
other receivables (excluding prepayments) and cash and cash
equivalents included in the Statement of Financial Position.
Short term receivables are measured at cost, less any
impairment. Cash and cash equivalents includes cash in hand,
deposits held at call with banks, other short term highly liquid
investments with original maturities of three months or less.
Impairment of financial assets
All financial assets are assessed at the end of each reporting
period as to whether there is any objective evidence of impairment
as a result of one or more events having an impact on the estimated
future cash flows of the asset.
An impairment loss in respect of loans and receivables financial
assets is recognised in the profit or loss and is measured as the
difference between the asset's carrying amount and best estimate of
the recoverable amount, which is an approximation of the amount
that the Group would receive for the asset if it were to be sold at
the reporting date.
In a subsequent period, if the amount of the impairment loss
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously
recognised impairment loss is reversed through profit or loss to
the extent that the carrying amount of the asset at the date the
impairment is reversed does not exceed what the amortised cost
would have been had the impairment not been recognised.
p) Financial liabilities
The Group's financial liabilities are all categorised as loans
and payables. Financial liabilities are recognised when, and only
when, the Group becomes a party to the contractual provisions of
the financial instrument.
Loans and payables
The Group's loans and payables comprise all trade and other
payables (excluding other taxes and social security costs and
deferred income), insurance liabilities, redeemable preferred
shares and Class D shares. Short term payables are measured at
cost. They represent balances where the Group is not able to avoid
settlement in cash or another financial asset.
Shares issued by the Group are classified as a financial
liability to the extent that they meet the definition of a
financial liability. Both the redeemable preferred stock and Class
D shares are classified as a financial liability as the Group has
contractual obligation to deliver cash and, in this case, payment
of dividends which are accrued and paid annually.
The redeemable preferred stocks and Class D shares, are measured
initially at fair value, net of transaction costs and are measured
subsequently at amortised cost and interest is recognised in profit
or loss.
A financial liability is derecognised when the obligation under
the liability is discharged, cancelled or expires.
When an existing financial liability is replaced by another from
the same party on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as a de-recognition of the original
liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognised in the
profit or loss.
q) Commission and fees
The Group earns a managing general underwriter and agency
commission income for underwriting, marketing, and administration.
Commission income is recognised as one unit of account on a
pro-rata basis over the policy period. The Group also earns a
fronting fee on the policies it writes. Fees vary from 3% to 5.5%
of premiums written. Income is recognised on a pro-rata basis over
the contract period and is included in commission and fees on the
consolidated statements of income. The Group also charges a policy
administrative fee, which is invoiced in addition to the insurance
premium. Such fees are recognised as revenue over the policy term,
which matches with the period the services are rendered.
Profit commission is a commission paid by the insurance and
reinsurance carriers based on overall profit of business placed
with the carriers during a particular contractual year. Profit
commission is recorded at the earlier date of when the amounts are
received from the reinsurance carriers or when the commission can
be reasonably estimated and earned by the Group.
r) Share capital
Financial instruments issued by the Group are classified as
equity only to the extent that they do not meet the definition of a
financial liability or financial asset.
Apart from redeemable preferred stocks and Class D shares, the
Group's common shares are classified as equity instruments. Any
dividends paid for the redeemable preferred stocks and class D
shares are classified as finance costs. Any dividends on the equity
instruments are reported against the accumulated retained earnings
in the statement of changes in equity.
s) Investment income
Interest income is recognised in the statement of profit or loss
as it accrues and is calculated by using the effective interest
rate method.
t) Deferred acquisition cost
Those direct and indirect costs incurred during the financial
period arising from acquiring or renewing of insurance contracts
and/or investment contracts are deferred to the extent that these
costs are recoverable out of future premiums from insurance
contract. All other acquisition costs are recognised as an expense
when incurred.
Subsequent to initial recognition, this Deferred acquisition
cost ("DAC") asset for life insurance is amortised over the
expected life of the contracts as a constant percentage of expected
premiums. DAC for general insurance and health products are
amortised over the period in which the related revenues are earned.
The deferred acquisition costs for reinsurers are amortised in the
same manner as the underlying asset amortisation and is recorded in
the statement of profit or loss.
Changes in the expected useful life or the expected pattern of
consumption of future economic benefits embodied in the asset are
accounted for by changing the amortisation period or method and are
treated as a change in an accounting estimate.
An impairment review is performed at each reporting date or more
frequently when an indication of impairment arises. When the
recoverable amount is less than the carrying value, an impairment
loss is recognised in the statement of profit or loss.
DACs are derecognised when the related contracts are either
settled or disposed of.
2. Critical accounting estimates, assumptions and judgments
The Group makes estimates and assumptions that affect the
reported amounts of assets and liabilities within the next
financial year. Estimates and judgements are continually evaluated
and based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances.
The key areas in which critical estimates and assumptions are
applied are described below:
a) Liability for unpaid claims and loss adjustment expenses
The estimation of the ultimate liability arising from claims
made under insurance contracts is the Group's most critical
accounting estimate. There are several sources of uncertainty that
need to be considered in the estimate of the liability that the
Group will ultimately pay for such claims.
Provision is made at the reporting date for the estimated cost
of claims incurred but not settled at the reporting date. The
liability for outstanding claims includes the cost of claims
reported but yet to be paid, claims incurred but not reported, and
the estimated expenses to be incurred in settling claims. There is
the potential that the amounts at which claims are settled could
differ to the amounts at which they are currently provided.
The estimation of insurance liabilities is subject to
considerable variability as it requires the use of informed
estimates and judgments. These estimates and judgments are based on
numerous factors, and may be revised as additional experience
becomes available or as regulations change. The Group takes all
reasonable steps to ensure that it has appropriate information
regarding its claims exposures.
In arriving at booked claims provisions, management also took
into consideration changes or uncertainties which may create
distortions in the underlying statistics or which might cause the
cost of unsettled claims to increase or reduce when compared with
the cost of previously settled claims including:
-- changes in patterns of claim incidence, reporting
and payment;
-- the impact of inflation (both economic/wage
and superimposed);
-- changes in the mix of business;
-- the impact of large losses;
-- medical and technological developments;
-- changes in policyholder behaviour.
There is the potential that the amounts at which claims are
settled and, the related reinsurance recoveries, could differ
materially from the amounts at which they are disclosed in the
consolidated statement of financial position.
The methods used to analyse past claim experience and to project
future claim experience are largely determined by the available
data and the nature of the portfolio. The projections given by the
different methodologies assist in setting the range of possible
outcomes. The most appropriate estimation technique is selected
taking into account the characteristics of the business class and
the extent of the development of each accident year.
b) Estimate of reinsurance recoveries
The Group's reinsurance premiums, loss expense and reserves
related to reinsurance business are accounted for on a basis
consistent with those used in accounting for the original policies
issued and terms of the reinsurance contracts. Loss expenses
related to ceded premiums have been netted against the total loss
expenses which are included in expenses on the consolidated
statements of income.
The Group also enters into a personal accident excess of loss
reinsurance agreement where minimum deposit premiums are paid by
the Group. The Group's gross loss reserve is ultimately based on
management's reasonable expectations of future events as is the
estimate of future recoveries from reinsurers. It is reasonably
possible that the expectations associated with these amounts could
change in the next year and that the effects of such changes could
be material to the consolidated financial statements.
c) Intangible assets
Goodwill is subject to an annual impairment review and more
frequently if events or changes in circumstances indicate that the
carrying amount may be impaired. This requires an estimation of the
recoverable amount of the CGU to which goodwill is allocated.
Details of the key assumptions used in the estimation of the
recoverable amounts are contained in Note 17.
The key area in which critical judgements are applied are
described below:
a) GBG Philippines
The Group's Directors have considered the power they exert over
the Groups participation in GBG Philippines. Notwithstanding the
fact the Group holds 28% of the shares it is their opinion that
they have the power over the investee to affect the investor's
returns and that GBGI controls GBG Philippines. As such GBG
Philippines has been consolidated as if it were a subsidiary (see
note 19).
3. Management of insurance and financial risk
The management of risk is a fundamental concern of the Group's
management. This note summarises the key risks to the Group and the
policies and procedures put in place by management to manage them.
The components of insurance, market, credit, liquidity and
operational risk are considered below:
a) Insurance Risk
Insurance risk refers to fluctuations in the timing, frequency,
and severity of insured events relative to the expectations at the
time of underwriting. Insurance risk can also refer to fluctuations
in the timing and amount of claim settlements and reserves.
Insurance risk is historically the single most significant risk
area within the Group. It is split between four principal key
risks, which are all managed through the application of controls as
well as the use of reinsurance
to offset exposures through the transfer of risk. These four key risks are as follows:
Failure of pricing: The Group faces the risk of incorrect
pricing of products resulting in financial losses or reduced
profit, through being set too high (therefore losing market share)
or too low (therefore resulting in an unacceptable profit
contribution for that product). The Group seeks to manage this
through the setting and review of pricing guidelines relevant to
each business line and the application of a strict hierarchy of
underwriting authorities is in place to ensure that policies are
underwritten with management oversight.
Ineffective strategy/failure of product: When an inappropriate
strategy or product is introduced for a specific business line or
the Group as whole, there is an increased risk that material
financial and reputational losses will occur. The Group seeks to
manage this through the use of processes and procedures in place
over the production, review and analysis of annual business.
Failure to manage risk aggregation/accumulation: The Group may
be exposed to an increased likelihood of disproportionate losses
for specific perils if insured risks are overly focused on a
specific geographical area or type of policy cover. The Group seeks
to manage this through the use of pre-bind rules and authorities to
manage significant within line and cross-line exposures.
Adverse reserve development: The Group may be exposed to reserve
shortfalls or distortions through failing to set sufficient cash
reserves or through failing to adopt a robust and consistent
reserve strategy across products offered to insured and countries.
The Group seeks to manage this through monitoring adherence to
established policies and procedures in place governing claims
reserving practices.
Amounts recoverable from reinsurers are estimated in a manner
consistent with the outstanding claims provisions and are in
accordance with the reinsurance contracts. The Group purchases
excess of loss insurance, as part of its risks mitigation programme
to limit the maximum net loss.
Concentration of insurance risk
The Group monitors its operations to consider and manage any
potential risk concentrations and manage any potential risk
concentrations by reference to such analysis.
Impairment of insurance receivables
No material amount is past due and impaired, hence, no material
impairment is required to be made in the opinion of the
directors.
Claims development
The loss development tables presented below show the cumulative
provisions for insurance claims, whether reported or not, and
related loss adjustment expenses arising for each accident year
from 2012 onwards. The historical net insurance claims provision
for all outstanding claims arising for accident years prior to 2012
are shown cumulatively as one figure in the left hand column. All
amounts shown in the tables have been stated at constant exchange
rates based on the rates prevailing at 30 June 2017.
Insurance Claims - Gross
As at 30 June 2017
2011 2012 2013 2014 2015 2016 2017 Total
and
prior
Accident Year $000s $000s $000s $000s $000s $000s $000s $000s
----------------------------- ------- ------- ------- ------- ------- ------- ------- --------
Estimate of ultimate
claims costs:
Balance at end of 6 months 1,274 3,205 5,707 10,064 12,197 13,173 13,354
Balance at end of 18 months 30,997 34,706 42,675 65,390 69,709 83,171
Balance at end of 30 months 44,526 40,168 46,232 68,684 74,757
Balance at end of 42 months 45,016 40,016 46,903 68,557
Balance at end of 54 months 44,370 39,980 46,920
Cumulative claims payments:
Balance at end of 6 months 485 978 1,131 2,661 2,025 3,859 2,438
Balance at end of 18 months 21,984 22,150 31,724 45,460 46,880 62,103
Balance at end of 30 months 40,725 35,651 44,989 64,902 71,046
Balance at end of 42 months 42,724 37,553 45,778 67,282
Balance at end of 54 months 43,948 38,437 46,017
----------------------------- ------- ------- ------- ------- ------- ------- ------- --------
Current estimate of
cumulative claims 44,370 39,980 46,920 68,557 74,757 83,171 13,354 371,109
Cumulative payments to date 43,948 38,437 46,017 67,282 71,046 62,103 2,438 331,271
----------------------------- ------- ------- ------- ------- ------- ------- ------- --------
Total loss reserve
(Note 25) 422 1,543 903 1,275 3,711 21,068 10,916 39,838
----------------------------- ------- ------- ------- ------- ------- ------- ------- --------
Insurance Claims - Net of Reinsurance
As on 30 June 2017
2011 and prior 2012 2013 2014 2015 2016 2017 Total
Accident Year $000s $000s $000s $000s $000s $000s $000s $000s
---------------------------------- --------------- ------ ------ ------- ------- ------- ------ --------
Estimate of ultimate
claims costs:
Balance at end of 6 months 319 338 743 1,713 5,286 13,173 8,076
Balance at end of 18 months 7,210 5,642 7,913 12,053 33,504 44,126
Balance at end of 30 months 8,451 5,903 8,839 13,397 37,112
Balance at end of 42 months 8,415 6,080 8,777 13,127
Balance at end of 54 months 8,433 6,035 8,784
Cumulative claims payments:
Balance at end of 6 months 121 77 118 497 1,011 3,859 1,413
Balance at end of 18 months 4,817 3,703 6,039 8,878 23,388 35,181
Balance at end of 30 months 8,292 5,662 8,543 12,652 35,737
Balance at end of 42 months 8,376 5,944 8,635 13,096
Balance at end of 54 months 8,433 6,007 8,679
---------------------------------- --------------- ------ ------ ------- ------- ------- ------ --------
Current estimate of
cumulative claims 8,433 6,035 8,784 13,127 37,112 44,126 8,076 125,693
Cumulative payments to date 8,433 6,007 8,679 13,096 35,737 35,181 1,413 108,546
---------------------------------- --------------- ------ ------ ------- ------- ------- ------ --------
Net liability in the statement
of financial position (Note 25) - 28 105 31 1,375 8,945 6,663 17,147
---------------------------------- --------------- ------ ------ ------- ------- ------- ------ --------
Insurance Claims - Gross
As at 30 June 2016
2010 and prior 2011 2012 2013 2014 2015 2016 Total
Accident Year $000s $000s $000s $000s $000s $000s $000s $000s
----------------------------- --------------- ------- ------- ------- ------- ------- ------- --------
Estimate of ultimate
claims costs:
Balance at end of 6 months 626 647 3,205 5,707 10,064 12,197 13,173
Balance at end of 18 months 13,301 17,695 34,706 42,676 65,389 69,709
Balance at end of 30 months 21,747 22,777 40,168 46,233 68,683
Balance at end of 42 months 22,957 22,057 40,016 46,904
Balance at end of 54 months 22,776 22,345 40,250
Cumulative claims payments:
Balance at end of 6 months 176 310 978 1,131 2,661 2,025 3,859
Balance at end of 18 months 9,022 12,963 22,150 31,723 45,461 46,880
Balance at end of 30 months 19,286 21,441 35,651 44,989 64,901
Balance at end of 42 months 20,805 21,922 37,553 45,777
Balance at end of 54 months 21,049 22,252 38,472
----------------------------- --------------- ------- ------- ------- ------- ------- ------- --------
Current estimate of
cumulative claims 22,776 22,345 40,250 46,904 68,683 69,709 13,173 283,840
Cumulative payments to date 21,049 22,252 38,472 45,777 64,901 46,880 3,859 243,190
----------------------------- --------------- ------- ------- ------- ------- ------- ------- --------
Total loss reserve
(Note 25) 1,727 93 1,778 1,127 3,782 22,829 9,314 40,650
----------------------------- --------------- ------- ------- ------- ------- ------- ------- --------
Insurance Claims - Net of Reinsurance
As on 30 June 2016
2010 and prior 2011 2012 2013 2014 2015 2016 Total
Accident Year $000s $000s $000s $000s $000s $000s $000s $000s
---------------------------------- --------------- ------ ------ ------ ------- ------- ------ -------
Estimate of ultimate
claims costs:
Balance at end of 6 months 157 162 338 743 1,713 5,286 8,363
Balance at end of 18 months 3,326 3,885 5,642 7,912 12,054 33,505
Balance at end of 30 months 3,738 4,713 5,903 8,838 13,266
Balance at end of 42 months 3,736 4,679 6,080 8,776
Balance at end of 54 months 3,708 4,748 6,055
Cumulative claims payments:
Balance at end of 6 months 44 78 77 118 497 1,011 2,641
Balance at end of 18 months 2,255 2,562 3,703 6,040 8,878 23,389
Balance at end of 30 months 3,698 4,594 5,662 8,544 12,652
Balance at end of 42 months 3,730 4,646 5,944 8,636
Balance at end of 54 months 3,707 4,726 6,003
---------------------------------- --------------- ------ ------ ------ ------- ------- ------ -------
Current estimate of
cumulative claims 3,708 4,748 6,055 8,776 13,266 33,505 8,363 78,421
Cumulative payments to date 3,707 4,726 6,003 8,636 12,652 23,389 2,641 61,754
---------------------------------- --------------- ------ ------ ------ ------- ------- ------ -------
Net liability in the statement
of financial position (Note 25) 1 22 52 140 614 10,116 5,722 16,667
---------------------------------- --------------- ------ ------ ------ ------- ------- ------ -------
The estimates of claim cost are presented at the end of 6 months
because the policy year is different from the financial year.
Sensitivity analysis
Key assumptions
The Group develops these estimates for the claims liability on
the assumption of the information which is currently available,
including potential claims which have been reported to the Company,
experience of the development of similar claims and case law. This
includes assumptions made on the average claim costs, number of
claims for each accident year, legislative changes, and changes in
inflation rates, changes in patterns of claim incidence, reporting
and payment.
The key assumptions selected are average claim costs or number
of claims for each incident year as these factors can be quantified
whereas other assumptions like legislative changes or change in
patterns of claim incidence are not easily quantifiable. It is
assumed that the increase or lower of one of these key assumptions
by 5% will result in 2 possible scenarios:
(i) Scenario 1: the gross written premium increase or decrease
by 5% but the loss reserve ratio remains the same; and
(ii) Scenario 2: The gross written premium increase or decrease
by 5% but with no change to claims recoverable from reinsurers.
The 5% is the sensitivity rate that represents management's
assessment of the reasonably possible change in the average claim
cost or number of claims for each accident year in the next 12
months.
The following tables demonstrate the impact of a 5 percent
change (lower/higher) in the following key assumptions, with all
other assumptions held constant, to the profit before tax and
equity for each reported year:
2017
Impact on gross Impact on
premium recoverable from Impact on net
Change in written reinsurers premium written Impact on profit
assumptions Scenarios $000s $000s $000s $000s
-------------------- ------------- -------------------- ------------------- ------------------- -----------------
+/- 5% average
premium written Scenario 1 9,174 (3,889) 5,285 5,285
--------------------
Scenario 2 9,174 - 9,174 9,174
---------------------------------- -------------------- ------------------- ------------------- -----------------
2016
Impact on
Impact on gross recoverable from Impact on net
Change in premium written reinsurers premium written Impact on profit
assumptions Scenarios $000s $000s $000s $000s
-------------------- ------------- ------------------- ------------------- -------------------- -----------------
+/- 5% average
premium written Scenario 1 7,680 (3,795) 3,885 3,885
--------------------
Scenario 2 7,680 - 7,680 7,680
---------------------------------- ------------------- ------------------- -------------------- -----------------
b) Market Risk
Market risk is the risk that the Group is adversely affected by
movements in the value of its financial assets or liability arising
from market movements such as interest rates and foreign exchange
rates or other price risk. A description of the Group's principal
risk relating to market risk is shown below, along with a summary
description of controls the Group applies in seeking to mitigate
this risk:
Currency risk
The Group sells less than 12% of its insurance policies to
foreign customers in foreign currency denominations. At each period
end, foreign currency monetary items are translated using the
closing rate. Currency risk arises where assets and liabilities are
settled in currencies other than the functional currency of the
Group. Currency risk is the risk that the fair value of future cash
flows of a financial instrument will fluctuate because of changes
in foreign exchange rates. The Group has no significant
concentration of currency risk.
China Total
$000s USD CAD EUR GBP Indian Rupee Renminbi Others 30 June 2017
-------------------------- ------- ------ ------ ---- ------------- ---------- ------- --------------
Cash and cash equivalent 69,173 817 3,552 711 962 783 223 76,221
China Total
$000s USD CAD EUR GBP Indian Rupee Renminbi Others 30 June 2016
-------------------------- ------- ------ ------ ---- ------------- ---------- ------- --------------
Cash and cash equivalent 46,078 1,312 2,844 680 1,861 98 945 53,818
-------------------------- ------- ------ ------ ---- ------------- ---------- ------- --------------
Sensitivity Analysis
The impact of 10% movement in the key foreign exchange rates of
US$ as shown below will result in an increase/decrease of profit
before tax and financial assets/ (liabilities) by $683,000 (2016:
$679,000).
Impact of 10% movement in foreign exchange rate of $:
$000s China
30 June 2017 CAD EUR GBP Indian Rupee Renminbi Total
-------------------------- ------ ------ ----- ------------- ---------- ------
Cash and cash equivalent 82 355 71 96 79 683
$000s China
30 June 2016 CAD EUR GBP Indian Rupee Renminbi Total
-------------------------- ------ ------ ----- ------------- ---------- ------
Cash and cash equivalent 131 284 68 186 10 679
--------------------------- ------ ------ ----- ------------- ---------- ------
Fair value hierarchy
The Groups financial assets and liabilities are classified as
loans and receivables. Therefore, a fair value hierarchy is not
separately disclosed. In the opinion of the Directors the amounts
at which the financial assets and liabilities are disclosed in the
consolidated financial statements is a reasonable approximation of
their fair value.
c) Financial Risk
A description of each of the Group's principal risks attached to
financial risk is shown below; along with a summary description of
controls the Group applies in seeking to mitigate these risks:
Credit risk
Credit risk is defined as the risk that one party to a financial
instrument will fail to discharge an obligation and cause the other
party to incur a financial loss. The Group has exposure to credit
risk principally through its holdings of reinsurance assets. No
material insurance premium receivables are past due, hence no
material impairment risk has been identified by the Directors.
There has been no change in the Group's processes in respect of
credit risk over the period.
The Group faces a risk of material losses if their main
reinsurers fail or are unable to pay their contractual share of
claims payable. The Group seeks to manage this through annual
review of the financial strength and creditworthiness of
reinsurance counterparties as well as tracking overall exposures to
individual reinsurers. In addition, a list of approved reinsurers
is maintained, and an established process is in place to ensure
that approval is obtained before reinsurance cover is taken out
with a reinsurer not on the approved list (this may include
requiring collateralisation).
The Group faces a risk of material losses and cash flow issues
if third party obligors are unable to pay amounts due. The Group
seeks to manage this risk through the utilisation of processes and
procedures in place to ensure that the Group only utilises approved
bank operating accounts. In addition, the Group has controls in
place to ensure that brokers used are subject to credit checks
prior to and during the period where they provide services to the
Group, where it is possible to do so.
The following table provides an analysis of the major categories
of financial assets with credit risk exposure and the credit rating
of those financial assets based upon the ratings published by
various agencies i.e. Standard & Poor's or equivalent, Moody's
Investors Service, Fitch Ratings and A.M. Best Company.
Below
investment
Not
AAA AA A BBB grade rated Total
As at 30
June
2017 $000s $000s $000s $000s $000s $000s $000s
------------- ------------ --------------- ------------- ---------------- ---------------------------- ---------------------------- ----------
Financial
assets
Insurance
premium
receivable - - - - - 69,721 69,721
Reinsurance
recoverable
on loss
reserves 5,844 8,357 8,441 - - 49 22,691
Other
receivables 2,040 2,749 4,338 - - 31,423 40,550
Cash at bank
and in hand - - 76,221 - - - 76,221
------------- ------------ --------------- ------------- ---------------- ---------------------------- ---------------------------- ----------
Total 7,884 11,106 89,000 - - 101,193 209,183
------------- ------------ --------------- ------------- ---------------- ---------------------------- ---------------------------- ----------
Financial
liabilities
Insurance
liabilities 118,875
Other
insurance
liabilities 51,383
Trade and
other
payables 22,356
Redeemable
preferred
stock 250
Total 192,864
------------- ------------ --------------- ------------- ---------------- ---------------------------- ---------------------------- ----------
Net amount 16,319
------------- ------------ --------------- ------------- ---------------- ---------------------------- ---------------------------- ----------
Below
investment
Not
AAA AA A BBB grade rated Total
As at 30
June
2016 $000s $000s $000s $000s $000s $000s $000s
------------- ------------ --------------- ------------- ---------------- ---------------------------- ---------------------------- ----------
Financial
assets
Insurance
premium
receivable - - - - - 61,343 61,343
Reinsurance
recoverable
on loss
reserves 14,142 6,245 3,596 - - - 23,983
Other
receivables - 3,679 - - - 17,482 21,161
Cash at bank
and in hand - - 53,818 - - - 53,818
------------- ------------ --------------- ------------- ---------------- ---------------------------- ---------------------------- ----------
Total 14,142 9,924 57,414 - - 78,825 160,305
------------- ------------ --------------- ------------- ---------------- ---------------------------- ---------------------------- ----------
Financial
liabilities
Insurance
liabilities 105,751
Other
insurance
liabilities 50,031
Trade and
other
payables 15,429
Redeemable
preferred
stock 250
Class D
shares 5,500
------------- ------------ --------------- ------------- ---------------- ---------------------------- ---------------------------- ----------
Total 176,961
------------- ------------ --------------- ------------- ---------------- ---------------------------- ---------------------------- ----------
Net amount (16,656)
------------- ------------ --------------- ------------- ---------------- ---------------------------- ---------------------------- ----------
The financial assets and liabilities are classified as loan and
receivables. The amounts disclosed are, in the opinion of
management, comparable to fair value.
d) Liquidity risk
Liquidity risk is defined as the risk that the Group will
encounter difficulty in meeting obligations associated with its
financial liabilities, primarily insurance claims, as they fall
due. This risk is mitigated by holding funds predominately in
liquid financial assets i.e. cash and cash equivalents and constant
monitoring of expected asset and liability maturities. The Group
further manages this risk through monthly reviews of the Group cash
accounts as well as review and approval of forward looking reviews
of cash requirements into the next quarter. The Group's Treasury
department is also operationally responsible to ensure that
sufficient funding required for future expected cash requirements
are available and that the sources of funding are appropriately
diversified. There has been no change in the Group's processes in
respect of liquidity risk over the period.
The following table provides an analysis of the maturity profile
of financial liabilities, including insurance liabilities:
Carrying value in
One to Two to More than three statement of
Less than one year two years three years years financial position
As at 30 June 2017 $000s $000s $000s $000s $000s
---------------------- ------------------- ----------- ------------- --------------------- --------------------
Insurance
liabilities:
Loss reserves (Note
23) 33,524 6,314 - - 39,838
Reinsurance premium
payable
(Note 24) 37,917 7,140 - - 45,057
Unearned premium
(Note 23) 79,037 - - - 79,037
Premium deposits
and credits to
Customers (Note
24) 6,326 - - - 6,326
Borrowings: - - - - -
Redeemable
Preferred Stock
(Note 26) - - - 250 250
Total 156,804 13,454 - 250 170,508
---------------------- ------------------- ----------- ------------- --------------------- --------------------
Carrying value in
One to Two to More than three statement of
Less than one year two years three years years financial position
As at 30 June 2016 $000s $000s $000s $000s $000s
---------------------- ------------------- ----------- ------------- --------------------- --------------------
Insurance
liabilities:
Loss reserves (Note
23) 35,091 5,559 - - 40,650
Reinsurance premium
payable
(Note 24) 38,756 6,139 - - 44,895
Unearned premium
(Note 23) 65,101 - - - 65,101
Premium deposits
and credits to
customers (Note
24) 5,136 - - - 5,136
Borrowings:
Redeemable
Preferred Stock
(Note 26) - - - 250 250
Class D shares
(Note 26) 660 660 660 3,520 5,500
---------------------- ------------------- ----------- ------------- --------------------- --------------------
Total 144,744 12,358 660 3,770 161,532
---------------------- ------------------- ----------- ------------- --------------------- --------------------
e) Operational risk
Operational risk is defined by the Group as the risk of loss
resulting from inadequate or failed internal processes, people and
systems, or from external events. It is intrinsic to the Group's
operations but is actively mitigated and managed. A description of
each of the Group's three principal risks attached to operational
risk is shown below; along with a summary description of the
controls the Group applies in seeking to mitigate these risks.
There has been no change in the Group's processes in respect of
operational risk over the period.
IT systems failure: The Group potentially faces a risk of
business interruptions and inefficiencies if IT systems fail. Such
business interruptions would impact on the profitability of the
Group and has the potential to cause reputational damage. The Group
seeks to manage this risk through having procedures in place to
back-up data together with other controls designed to minimise
external threats/unauthorised access.
Non-IT systems failure: The Group also potentially faces a risk
of business interruptions and inefficiencies from a wide range of
potential issues, such as insufficient or inadequately skilled
staff, accounting errors, errors in processing such as mismatching
reinsurance contracts, poor customer service, badly executed
projects and extreme events such as fires or natural disasters that
affect the Group's offices and staff. The Group seeks to manage
these risks through the claims audits, implementation of training,
development of policies and appropriate procedures and continued
system enhancements.
Legal, regulatory or compliance breach: The Group operates in a
highly regulated insurance environment, whereby breaches of the
regulations the Group works within may lead to significant
financial penalties and reputational damage. The Group seeks to
manage this risk through a number of policies and procedures in
place covering regulatory requirements. These policies are reviewed
periodically by key senior management and the Group's legal
department to ensure that they provide a basic framework within
which the Group is compliant with local and regional regulatory
requirements. The Group also has a Regulatory and Compliance
Working Group that meets regularly to review key metrics that
pertain to regulatory and compliance and discuss any open issues
that fall within the purview of regulatory and compliance.
f) Capital risk management
The Group's capital management objectives are:
-- to ensure the Group's ability to continue as a going concern
so that it can continue to provide returns for shareholders and
benefits for other stakeholders; and
-- to provide an adequate return to shareholders by pricing
products and services commensurate with the level of risk.
To meet these objectives, the Group reviews its budgets and
forecasts on a regular basis to ensure there is sufficient capital
to meet the needs of the Group through to profitability and
positive cash flow.
The capital structure of the Group consists of shareholders'
equity as set out in the Group's Statement of Changes in Equity.
All working capital requirements are financed from existing cash
resources and borrowings.
In accordance with the Insurance Business (Bailiwick of
Guernsey) Law 2002, the minimum capital requirement of GBG
Insurance Limited ("GIL"), being a licensed insurer writing general
insurance business, is GBP100,000 (equivalent to $134,000) as at 30
June 2017 and 2016.
Similarly, in accordance with the Insurance Business (Bailiwick
of Guernsey) Law 2002, the minimum capital requirement of Global
Security Life Insurance Ltd ("GSLIL"), being a licensed insurer
writing general insurance business, is GBP250,000 (equivalent to
$334,000) as at 30 June 2017 and 2016. This company ceased writing
business on October 1, 2016 and is currently in run off.
4. Segment Information
For management purposes, the Group has categorised all its
revenue and profit in one reportable segment - provision of
specific and customised health, disability, life and travel
insurance products to meet the needs of expatriates, third country
local nationals, and high net worth local nationals worldwide.
In the normal course of business, the Group engages in
reinsurance ceded transactions as part of its overall underwriting
strategy. Reinsurance includes quota share, excess of loss, and
facultative treaties on all policies written. Reinsurance ceded
does not discharge the Group from its liabilities to the original
policyholders in respect of the risk being reinsured.
2017 2016
$000s $000s
----------------------------------------------------- --------- ---------
Gross premiums written
Gross written premium in period 183,488 153,592
Change in the gross provision for unearned premiums (12,723) (3,859)
------------------------------------------------------ --------- ---------
170,765 149,733
----------------------------------------------------- --------- ---------
Outward reinsurance premiums
Premium ceded to reinsurers in period (77,787) (75,895)
Change in unearned premium provision (1,616) (3,161)
------------------------------------------------------ --------- ---------
(79,403) (79,056)
----------------------------------------------------- --------- ---------
Earned premiums, net of reinsurance 91,362 70,677
Commission and fees 42,949 37,491
-------------------------------------------------------- --------- ---------
Total revenue 134,311 108,168
------------------------------------------------------ --------- ---------
Geographic segment
The following analysis of the Group's total revenue is based on
the geographic location of the Group entities operating, the
corresponding segment assets are based on the geographical location
of the Group's non-current assets and loss reserves (gross,
reinsurers share and net). The Group does not have the geographical
analysis of the revenue by location of the customers and the cost
to produce this information would be excessive.
Total revenue
Region 2017 2016
$000s $000s
---------- -------- --------
America 30,320 23,968
Asia 2,483 3,567
Europe 330 790
Guernsey 101,178 79,843
Total 134,311 108,168
----------- -------- --------
Non-current assets (excluding income tax assets)
Region 2017 2016
$000s $000s
--------- ------ ------
America 9,341 6,830
Asia 170 190
9,511 7,020
--------- ------ ------
Loss reserve
Region 2017 2016
$000s $000s
---------- ------- -------
Guernsey 39,838 40,650
Total 39,838 40,650
------------ ------- -------
Reinsurers share of loss reserve
Region 2017 2016
$000s $000s
------------------ ---------------- ---------
Guernsey (22,691) (23,983)
Total (22,691) (23,983)
-------------------- ---------------- ---------
Net insurance liabilities
Region 2017 2016
$000s $000s
---------------- ----------- -------
Guernsey 15,855 16,667
Total 15,855 16,667
----------------- ----------- -------
5. Investment income
2017 2016
$000s $000s
--------------------------- ------ ------
Cash and cash equivalents 287 63
------------------------------ ------ ------
6. Other (income) /expense
2017 2016
USD'000 USD'000
--------------------------------------------------- -------- --------
Net foreign exchange (gains)/loss (1,469) 690
------------------------------------------------------ -------- --------
Indirect Initial Public Offering ("IPO") expenses 393 -
--------------------------------------------------- -------- --------
Total (1,076) 690
------------------------------------------------------ -------- --------
7. Commission and fees
2017 2016
$000s $000s
----------------------------------- ------- -------
Earned commission income 28,616 27,772
Earned administration fee - other 4,573 537
Earned fronting fee income 8,492 6,075
Administration fees - other 89 75
Profit commission 1,179 3,025
Other commission and fees - 7
-------------------------------------- ------- -------
42,949 37,491
----------------------------------- ------- -------
8. Commission expense
2017 2016
$000s $000s
-------------------------------------- --------- --------
Commission paid and payable 33,981 22,574
Closing deferred acquisition costs 15,099 14,847
Opening deferred acquisition costs (14,847) (9,768)
--------------------------------------- --------- --------
Change in deferred acquisition costs 252 5,079
--------------------------------------- --------- --------
34,233 27,653
-------------------------------------- --------- --------
9. Finance costs
2017 2016
$000s $000s
--------------------------------- ------ ------
Dividend paid on Class D shares 427 660
----------------------------------- ------ ------
10. Investments
2017 2016
$000s $000s
----------------------------- ------ ------
Equity securities - at cost 249 -
-------------------------------- ------ ------
In January 2017, Global Benefits Group (GBG) entered into a
strategic partnership with a new Georgia-based insurance company.
JSC Risk Management and Insurance Company, known as Global Benefits
Georgia. The Group invested $248,551 into Global Benefits Georgia
for 15% ownership of the authorized shares. The Group is a minority
shareholder and does not control the investee, therefore the Group
did not include Global Benefits Georgia in the consolidated
financial statements.
The Group has not disclosed fair values for investment in Global
Benefits Georgia as fair values or fair value ranges for the
investment cannot be reliably estimated. There is no active market
for this investment.
11. Share-based payment arrangements
a) Description of share-based payment arrangements
On 22 February 2017, as part of the initial public offering, the
Group established share option programmes that entitle employees to
purchase shares in the Group. Under this programmes, holders of
vested options are entitled to purchase shares at the market price
of the shares at grant date. The key terms and conditions related
to the grants under these programmes are as follows; all options
are to be settled by the physical delivery of shares.
(Number (Contractual
(Grant date) of instruments) (Vesting conditions) life of options)
-------------- ----------------- --------------------- ------------------
(22 February (2,328,900) (3 years service (10 years)
2017) from grant
date)
-------------- ----------------- --------------------- ------------------
The options will vest at 33.33% per year for a three year period
from the grant date.
b) Measurement of fair values
The fair value of the employee share options has been measured
using the Black-Scholes formula. The inputs used in the measurement
of the fair values at grant date of the share-based payment plans
were as follows.
Fair value at grant date GBP1.50
------------------------------------------------------- ----------
Share price at grant date GBP1.50
------------------------------------------------------- ----------
Exercise price GBP1.50
------------------------------------------------------- ----------
Expected volatility (weighted-average) 22.0%
---------------------------------------------------------- ----------
Expected life (weighted-average) six years
------------------------------------------------------- ----------
Expected annual dividend yield 5.0%
---------------------------------------------------------- ----------
Risk-free interest rate (based upon government bonds) 2.4%
---------------------------------------------------------- ----------
Expected volatility was based upon peer group volatility using a
six year historical average. Expected life was estimated using the
simplified method, based on the mid-point between the vesting
period and the contractual term for the grants.
For the year ended 30 June 2017 the total expense for the
share-based payments was $130,395 and is included in Administrative
Expenses. Below an overview is provided of shares provided in the
employee stock option plan.
The following table illustrates the number and weighted average
exercise prices (WAEP) of, and movements in, share options during
the year:
2017 Total
Outstanding at 1 July - -
2016
Number of shares conditionally
granted 2,328,900 2,328,900
Number of shares allocated - -
Number of shares forfeited - -
Number of shares vested - -
-------------------------------- ---------- ----------
Outstanding at 30 June
2017 2,328,900 2,328,900
--------------------------------- ---------- ----------
There were no options outstanding as of 30 June 2016 year. There
were no options exercisable as of 30 June 2017 and 2016.
12. Profit for the year is after charging the following:
2017 2016
$000s $000s
------------------------------------------------------- ------- -------
Amortisation of intangible assets 313 59
Depreciation of property, plant and equipment 301 227
Payments to defined contribution pension arrangements 402 353
Distribution and marketing costs 2,328 1,216
Employee compensation 17,465 13,346
Other staff costs 3,012 1,985
Network fees 1,584 -
Operating lease payments 1,733 1,020
Other office costs 966 1,098
Transportation costs 2,040 1,447
Professional and legal fees 5,145 4,760
Auditors' fees 533 351
Restructuring expenses - 1,125
Staff welfare and entertainment 134 90
Office costs - printing, postage, telecoms and IT 819 815
License and software fees 279 119
Bank charges 1,948 1,697
Dues and subscriptions 252 257
Other overheads 540 993
---------------------------------------------------------- ------- -------
39,794 30,958
------------------------------------------------------- ------- -------
13. Net claims
2017
------------------------------------ ------- ------------ -------
Gross Reinsurance Net
$000s $000s $000s
------------------------------------ ------- ------------ -------
Gross claims paid 86,461 (39,655) 46,806
Movement in insurance loss reserve (813) 1,292 479
------------------------------------- ------- ------------ -------
85,648 (38,363) 47,285
------------------------------------ ------- ------------ -------
2016
------------------------------------ ------------------------------
Gross Reinsurance Total
$000s $000s $000s
------------------------------------ ------- ------------ -------
Gross claims paid 71,303 (42,320) 28,983
Movement in insurance loss reserve 4,614 3,939 8,553
------------------------------------- ------- ------------ -------
75,917 (38,381) 37,536
------------------------------------ ------- ------------ -------
14. Employee costs
The table below sets out the employee costs incurred by the
Group:
2017 2016
$000s $000s
----------------------------------- ------- -------
Wages and salaries and commission 15,089 11,640
Social security costs 877 676
Other benefit costs 1,499 1,030
------------------------------------- ------- -------
Total 17,465 13,346
------------------------------------- ------- -------
The average number of persons employed directly by the Group
(including directors) during the year were:
2017 2016
Number Number
---------------------------- ------- -------
Staff
Operations 180 177
Finance and administration 43 48
Technology 12 14
Sales and marketing 42 27
Executive 15 14
------------------------------ ------- -------
Total 292 280
------------------------------ ------- -------
Key management personnel
2017 2016
$000s $000s
----------------------- ------ ------
Wages and salaries 4,117 3,876
Social security costs 155 188
Pension costs 93 125
------------------------- ------ ------
Total 4,365 4,189
------------------------- ------ ------
Highest paid Director
2017 2016
$000s0 $000s
----------------------- ------- ------
Wages and salaries 900 1,201
Social security costs 22 25
------------------------- ------- ------
Total 922 1,226
------------------------- ------- ------
15. Income tax expense
GBGI and GIL are assessed at the Company standard rate of 0% due
to the change to the Guernsey corporate income tax regime.
The Group does not file a consolidated return with its foreign
subsidiaries. The Group files US federal and state returns and its
foreign subsidiaries file returns in their respective
jurisdictions. GBG files a consolidated US federal income tax
return with its subsidiaries ICS, GBGH, GBG US, GAS, GIS and GBGC
(Note 19 for company's full name). Income taxes currently payable
are based on the taxable income for the period.
Income tax expense for the years ended 30 June 2017 and 2016 are
shown below:
i) Analysis of the tax charge for the year
2017 2016
$000s $000s
--------------------------------------- ------ ------
Current tax on profits for the period
US domestic tax 26 8
Foreign tax 119 77
---------------------------------------- ------ ------
145 85
Increase in deferred income tax 120 232
---------------------------------------- ------ ------
Income tax expense 265 317
------------------------------------------ ------ ------
ii) Analysis of the factors affecting the tax (credit)/expense
for the year
The tax assessed for the year is lower than the standard rate of
corporation tax in United States. The differences are explained
below:
2017 2016
$000s $000s
------------------------------------------------------------- -------- --------
Profit before tax 13,935 10,734
-------------------------------------------------------------- -------- --------
Tax at effective rate in Guernsey - -
Higher rates of current income tax in foreign jurisdictions 145 85
Change in deferred taxes assets (3,125) (2,272)
Unrecognised deferred tax assets 3,245 2,504
Current tax expense for the year 265 317
----------------------------------------------------------------
The Group has US federal and US state carried forward losses and
accelerated temporary differences excluding the tax amortisation of
goodwill amounting to $26,899,000 and $25,135,000 as at 30 June
2017 (2016: $14,744,000 and $16,344,000). The losses are available
to offset future taxable income which expires in varying amounts
beginning in 2033 for US federal and state tax purposes. Any
foreign net operating losses do not expire. As the timing and
extent of taxable profits are uncertain, the deferred tax asset of
$9,703,000 (2016: $6,458,000) arising on these losses and
accelerated temporary differences has not been recognised in the
consolidated financial statements.
Deferred tax asset and liabilities
2017 2016
$000s $000s
Tax assets 90 267
Tax liabilities - -
Tax assets 90 267
Deferred tax:
Deferred tax liabilities (1,208) (1,088)
Deferred tax liabilities 2017 2016
$000s $000s
Intangible assets - goodwill (1,208) (1,088)
(1,208) (1,088)
Movement on the deferred tax liabilities
At 1 July (1,088) (865)
Credit/(charge) in the profit or loss (120) (232)
Adjustment for previous year - 9
At 30 June (1,208) (1,088)
Current tax assets and liabilities are recoverable/payable
within one year. Deferred tax assets and liabilities are
recoverable/payable after more than one year.
16. Earnings per share - Basic
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Group by the weighted average
number of Ordinary shares in issue during the year, excluding
Ordinary shares purchased by the Group and held as treasury shares,
and share-based payments for employees. Diluted earnings per share
is calculated based on the profit attributable to ordinary
shareholders and weighted-average number of Ordinary shares
outstanding after adjustments for the effects of all dilutive
potential Ordinary shares.
Basic and diluted earnings per share 2017 2016
Profit attributable to the equity holders (USD'000) 13,459 10,370
Weighted average number of ordinary shares in issue (in numbers) 73,643,652 66,418,950
Basic and diluted earnings per share (USD) 0.18 0.16
As at 30 June 2017, the total number of potentially dilutive
shares related to outstanding stock options was 2,328,900 (30 June
2016: zero). The outstanding stock options were excluded from the
diluted earnings per share calculation as the impact of including
the stock options would have an anti-dilutive effect.
On 20 February 2017, the Company effectively performed a
1-for-1950 share split. Each common share, issued and outstanding
as of such effective date, were effectively exchanged and converted
into 1,950 ordinary shares. All share and per share amounts have
been restated to reflect the share spilt for all periods
presented.
17. Intangible assets
Goodwill Software development Total
$000s $000s $000s
------------------------
Cost as at 30 June 2015 3,820 864 4,684
Additions - 1,772 1,772
Cost as at 30 June 2016 3,820 2,636 6,456
Additions 798 2,213 3,011
Cost as at 30 June 2017 4,618 4,849 9,467
Amortisation as at 30 June 2015 - (451) (451)
Charge for the year - (59) (59)
Amortisation as at 30 June 2016 - (510) (510)
Charge for the year - (313) (313)
Amortisation as at 30 June 2017 - (823) (823)
Net book value 2016 3,820 2,126 5,946
Net book value 2017 4,618 4,026 8,644
The balance of goodwill as at 30 June 2017 and 2016 was
$4,618,817 and $3,820,461. The goodwill balance relates to the
acquisition of the business assets of TieCare International, Inc.
and GBG Holdings, Inc. in November 2005 and the acquisition of
Quality Health Management, LLC in January 2017. The amortisation on
software has been charged to the profit or loss as indicated in
Note 12.
Goodwill and impairment review
The Group has goodwill that has been acquired through business
combinations but does not hold any intangible assets that have
indefinite lives.
The approach of the Group is to test impairment at the cash
generating unit ('CGU') level. This is the lowest level of unit at
which the Group is effectively able to manage and monitor
performance, cash flow and goodwill. The Group has one CGU, namely
the insurance business.
The goodwill has been allocated for impairment testing purposes
to this cash generating unit. The valuation is performed on a
value-in-use basis.
In order to evaluate the recoverable amounts relating to the CGU
based on value in use, the following key information should be
noted.
* The recoverable amounts have been determined using
the cash flow forecast from its most recent financial
plans projected for a five-year period and then
extrapolated into perpetuity, with a discount rate
applied.
* The financial plans have been prepared at the cash
generating unit level based on historical trends
adjusted for expected events. These individual plans
have been aggregated as the basis for the cash flow
forecast.
* The discount rate has been calculated as the weighted
average cost of capital. The post-tax discount rates
calculated was 14.0%.
* The perpetual growth rate of 3% reflects the maturity,
penetration and profile of the cash generating unit.
This rate is not higher than the average long term
industry growth rate.
Sensitivity to changes in assumptions
With regard to the assessment of value in use for the insurance
cash generating unit, management does not believe a reasonably
possible change in any of the above key assumptions would cause the
carrying value of the units to exceed the recoverable amount, as
the recoverable amount well exceeded the carrying value.
Management performed their annual review of goodwill and
determined no impairment existed for the years ended 30 June 2017
and 2016.
18. Property, plant and equipment
Leasehold improvements Equipment Furniture &fixtures Total
$000s $000s $000s $000s
Cost as at 1 July, 2015 380 437 736 1,553
Additions 126 376 130 632
Cost as at 30 June 2016 506 813 866 2,185
Depreciation as at 1 July 2015 (212) (267) (405) (884)
Charge for the year (52) (73) (102) (227)
Depreciation as at 30 June 2016 (264) (340) (507) (1,111)
Net book value as at 1 July 2015 168 170 331 669
Net book value as at 30 June 2016 242 473 359 1,074
Equipment Furniture & fixtures Total
Leasehold improvements
$000s $000s $000s $000s
Cost as at 1 July 2016 506 813 866 2,185
Additions - 121 72 193
Disposals (337) (10) (24) (371)
Cost as at 30 June 2017 169 924 914 2,007
Depreciation as at 1 July 2016 (264) (340) (507) (1,111)
Charge for the year (25) (177) (99) (301)
Disposals 247 - 25 272
Depreciation as at 30 June 2017 (42) (517) (581) (1,140)
Net book value as at 1 July 2016 242 473 359 1,074
Net book value as at 30 June 2017 127 407 333 867
19. Investments in group undertakings
The Group's operating subsidiaries as at 30 June 2017 are as
follows:
Country of business /
Place of Proportion of ordinary shares held by the
Name of subsidiary Principal activity incorporation Group
2017 2016
% %
GBG Insurance Limited
(GIL) (1) Insurance business Guernsey 100 100
Global Benefits Group
Europe B.V. (GBE)
(1) Broker Netherlands 100 100
Global Benefits Group
Inc. (GBG US) Services Delaware 100 100
International Claims Claims Payer for
Services (ICS) International Claims Delaware 100 100
GBG Administrative Licensed US Third
Services (GAS) Party Administrator California 100 100
Global Benefits Group
US Licensed Broker US California 100 100
Shanghai (GBG)
Enterprise
Management
Consulting LLC Consulting China 100 100
Global Benefits Group
Canada (GBGC) Shell - Dormant Canada 100 100
GBG Services (India) Administration India 74 74
GBG Holdings Inc.
(GBGH) Premium Collection Delaware 100 100
Administration and
GBG Philippines Inc. Sales Philippines 28 16
GBG Insurance
Services Inc. (GIS) Shell - Dormant California 100 100
Global Security Life
Insurance Limited
(GSLIL) (1) Insurance Guernsey 100 100
Global Security Life Insurance - inactive -
Insurance Limited pending license
(1) approval Delaware 100 100
GBG Assist Inc. New - inactive Delaware 100 100
Quality Health Licensed US Third
Management LLC Party Administrator Florida 100 -
Note:
(1) are directly held subsidiaries, all others are indirectly
held.
Movements in and the closing balance of non-controlling
interests are disclosed in the consolidated statement of
comprehensive income and consolidated statement of financial
position.
The Group's Directors have considered the power they exert over
the Groups participation in GBG Philippines. Notwithstanding the
fact the Group holds 28% of the shares it is their opinion that
they have the power over the investee to affect the investor's
returns and that GBGI controls CBC Philippines. As such GBG
Philippines has been consolidated as if it were a subsidiary.
20. Trade and other receivables
2017 2016
$000s $000s
Insurance premium receivables 69,721 61,343
Profit commissions receivables 3,575 3,997
Other receivables 3,991 4,422
Prepaid expenses and other current assets 6,264 3,545
Other trade receivables 4,299 -
Claim deposits 12,908 5,278
Note receivable - related party (Note 33) - 1,467
Stock subscription receivables - 13
100,758 80,065
The other receivables balance consists of an amount owed to the
Group from a third party administrator for claims that were paid by
the third party administrator that were not in accordance with
policy benefits or were not approved by the Group. The Group
determined no allowance was required as at 30 June 2017.
21. Cash and cash equivalents
2017 2016
$000s $000s
--------------------------- ------- -------
Cash and cash equivalents 51,342 24,885
Restricted cash 24,879 28,933
----------------------------- ------- -------
Total 76,221 53,818
----------------------------- ------- -------
In its capacity as a managing general agent, the Group collects
premiums from its customers. The Group deducts its administrative
fees and the authorised commissions associated with the sale of the
policies and claims administration from these premiums. The net
premium not reserved for claims payment is then remitted to the
respective carriers. Unremitted insurance premiums are held in a
fiduciary capacity until the Group disburses them and is classified
as restricted cash. The Group invests these unremitted funds only
in cash and money market accounts.
22. Dividends
The Group did not declare any ordinary dividends for the years
ended 30 June 2017 and 2016. The Group has paid a sum of $427,000
in 2017 and $660,000 in 2016 to the class D shareholders (Note 9).
The Group was required to pay a distribution to Class B and Class C
common shareholders in accordance with contractual obligations
triggered upon admission in the amount of $16,513,000.
23. Net insurance liabilities
2017 2016
$000s $000s
--------- ---------
Gross
Loss reserve Including IBNR 39,838 40,650
Unearned premiums 79,037 65,101
---------
Total insurance liabilities, gross 118,875 105,751
---------
Reinsurance
Reinsurers share of technical provisions
Reinsurers share of loss reserve Including IBNR (22,691) (23,983)
Unearned premiums (27,891) (26,275)
---------
Total reinsurers share of technical provisions (50,582) (50,258)
---------
Net
Loss reserve Including IBNR 17,147 16,667
Unearned premiums 51,146 38,826
---------
Total insurance liabilities, net 68,293 55,493
---------
This impact of the reinsurance arrangements entered into by the
Group can be seen in the consolidated statement of comprehensive
income and the statement of financial position.
The Group establishes claim reserves, which are estimates of
future payments of reported and unreported claims and claim
adjustment expenses, with respect to insured events that have
occurred. Reserving is a complex process dealing with uncertainty,
requiring the use of informed estimates and judgements. Any changes
in estimates or judgements are reflected in the results of
operations in the year in which estimates and judgements are
changed.
24. Other insurance liabilities
2017 2016
$000s $000s
Reinsurance premium payable 45,057 44,895
Premium deposits and credits to customers 6,326 5,136
Total other insurance liabilities 51,383 50,031
25. Movements in insurance liabilities and reinsurance assets: claims provision movement
Gross Reinsurance Net
$000s $000s $000s
------------------------------------- -------------
At as 1 July 2015
Brought forward as at 1 July 2015 36,037 27,922 8,115
Claims settled in cash in the year (71,303) (42,320) (28,983)
Increase/(decrease) in liabilities
Arising from current year claims 78,645 40,277 38,368
Arising from prior year claims (2,729) (1,896) (833)
---------
At as 30 June 2016 40,650 23,983 16,667
---------
Brought forward as at 1 July 2016 40,650 23,983 16,667
Claims settled in cash in the year (86,461) (39,655) (46,806)
Increase/(decrease) in liabilities
Arising from current year claims 88,384 39,403 48,981
Arising from prior year claims (2,735) (1,040) (1,695)
At as 30 June 2017 39,838 22,691 17,147
The financial impact of the reinsurance arrangement entered into
by the Group are disclosed in the consolidated statement of
comprehensive income and consolidated statement of financial
position.
26. Redeemable preferred stock and Class D shares
Borrowings consist of redeemable preferred stock and Class D
shares
2017 2016
$000s $000s
250 Redeemable preferred stock Series A 250 250
Class D Shares - 5,500
Redeemable preferred stock Series A
The redeemable preferred stock represents 250 non-voting Series
A preferred shares of GIL issued for cash with a par value of
$1,000 per share issued under the terms of a Preferred Share
Agreement dated 27 June 2011. Such shares represent all of the
authorised shares of Series A Preferred Shares.
The preferred shares accrue dividends ('Investor's
Distribution') at 50% of the difference between the underwriting
profit and 10% of the net risk premium of insurance premiums
received by the Group as a result of the direct marketing efforts
of the holder of the redeemable preferred shares.
If at the end of any policy year there is an underwriting loss,
this loss is carried forward to subsequent policy years and no
dividend will be paid until such time that the loss carry forward
is applied to underwriting profit of subsequent policy years such
that the loss ratio for policy years in aggregate is less than one.
The maximum investor premium is equal to eight times the par value
of the outstanding preferred shares.
The par value and therefore the maximum investor premium the
Group will accept can be increased by mutual agreement of the
parties.
At the option of the investor, and if the investor chooses not
to receive its dividend at the end of any policy year in which
there are no loss carry forwards, then the investor shall be
entitled to apply its distribution to subscribe for and receive
additional preferred shares. As there were no related policies in
force for the years ended 30 June 2017 and 2016, no dividends were
earned.
The shares are redeemable by the Group at the earlier of twenty
years from the date of issuance and the expiration of any run-off
period after termination of a Co-operation Agreement between GIL
and the investor or as otherwise agreed between the Group and the
investor. The redemption price shall be the par value of the
preferred shares or as may be agreed between the Group and the
Preferred Shareholder.
In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Group, the investor as a holder of
the Series A Preferred Shares shall be entitled to receive only the
amount as shall be equal to the investor's distribution it would
have received in accordance with the foregoing. The holder of the
Series A preferred stocks shall not be required to make additional
capital contributions to the Group other than contributions in an
amount equal to the underwriting loss without the express prior
approval of the Group.
Class D shares
On 26 June 2013, the Group entered into an Exchange Agreement
and Amendment to the Securities and Exchange Agreement dated 22
September 2010, where 3,000,000 Class D Common, shares were issued
to an independent third party and 2,500,000 Class D Common Shares
were issued to a shareholder. The agreement requires the Group to
comply with certain covenants. As at 30 June 2017 and 2016, the
Group was in compliance with its covenants.
The consideration for the issue of the 3,000,000 Class D Common
Shares was the cancellation of a Promissory Note issued to the
independent third party by the Group on 22 September 2010 which had
a maturity date of 22 September 2015. The Group cancelled the note
in exchange for the issuance of such shares. In the opinion of the
Group, the reasonable present cash value of the shares issued was
determined as $3,000,000, which was the amount outstanding on the
Promissory Note and that in its opinion, the present cash value of
the consideration for the issue of such shares was not less than
the amount credited for the issue of the shares.
The consideration for the issue of the 2,500,000 Class D Common
Shares was the cancellation of a Promissory Note issued to the
independent third party by the Group on 22 September 2010 which had
a maturity date of 22 September 2015. The Group cancelled the note
in exchange for the issuance of such shares. In the opinion of the
Group, the reasonable present cash value of the shares issued was
determined as $2,500,000, which was the amount outstanding on the
Promissory Note and that in its opinion, the present cash value of
the consideration for the issue of such shares was not less than
the amount credited for the issue of the shares.
Class D Non-Voting Common Shares accrue dividends at the rate
per annum of $0.12 per share, payable quarterly in arrears.
Dividends paid on the Class D Non-Voting Common Shares were
$427,000 and $660,000 in the years ended 30 June 2017 and 2016,
respectively.
As part of an initial public offering on 22 February 2017,
5,500,000 Class D Shares were exchanged for 2,933,333 of Ordinary
Shares. No gain or loss was recorded on the retirement of Class D
Shares.
27. Share capital
On 22 February 2017, the Group began to trade on the Exchange.
The Group's authorised share capital was 87,752,283 Ordinary Shares
of $0.001 par value per share. The Group's issued share capital is
summarised in the table below:
Issued and
fully paid Total issued share Total issued
Class of number of Issued nil capital (number of share Dividend
common share shares paid shares shares) Par value capital $ Voting rights rights
Ordinary One vote per
Shares 87,752,283 - 87,752,283 $0.001 87,752 share Eligible
Period ending 30 June 2017:
The following transactions took place prior to admission to the
Exchange on 22 February 2017:
-- exchanged 2,604 Class A Voting, 18,684 Class A Non-Voting,
9,367 Class B, 355 Class C Voting, and 3,051 Class C Non-Voting
Shares, all at $1.00 per share, into 66,418,950 Ordinary shares at
$0.001 per share
-- exchanged 5,500,000 Class D Shares at $1.00 per share for
2,933,333 of Ordinary Shares at $0.001 per share.
-- issued 8,858,667 of Ordinary Shares at $0.001 per share in
lieu of cash distribution in accordance with contractual
obligations triggered upon admission to Class B and Class C
shareholders
-- Initial placement of 21,333,333 Ordinary Shares at GBP1.50 on the exchange.
The called up share capital disclosed in the consolidated
statement of financial position represents the difference between
issue price and the nominal value of the shares issued by the
Group.
Prior to the initial public offering on 22 February 2017, the
Company's authorised share capital was 5,537,468 Common Shares of
$1.00 each and this includes class D Shares (classified as a
financial liability note 26). The Company's previously issued share
capital is summarised in the table below:
(Issued and fully Total issued share (Total issued
(Class of common paid number of (Issued nil paid capital (number of share capital
share) shares) shares) shares) (Par value) USD) (Voting rights) (Dividend rights)
(One vote per
(Class A Voting) (2,604) (-) (2,604) ($1.00) (2,604) share) (Eligible)
(Class A Non-Voting) (18,684) (-) (18,684) ($1.00) (18,684) (None) (Eligible)
(Class B Non-Voting) (9,367) (-) (9,367) ($1.00) (9,367) (None) (None)
(One vote per
(Class C Voting) (355) (-) (355) ($1.00) (355) share) (None)
(Class C Non-Voting) (3,051) (-) (3,051) ($1.00) (3,051) (None) (None)
(Total) (34,061) (34,061) (34,061)
Share premium
The share premium represents the amounts subscribed for share
capital in excess of the par value of the shares.
Dividend and Capital Requirements
Payment of dividends to the Group by its insurance subsidiary
(GIL) is limited by insurance regulations. The maximum amount of
ordinary dividends that GIL may pay to shareholders in a 12-month
period is limited to the amount that would not preclude GIL from
meeting the margin of solvency or approved asset requirements. GIL
has not declared any dividends for the years ended 30 June 2017 and
2016. All dividends require approval by the Board of Directors.
In accordance with the Insurance Business (Bailiwick of
Guernsey) Law 2002, the minimum capital requirement of GIL, being a
licensed insurer writing general insurance business, is GBP100,000
(equivalent to $130,000) as at 30 June 2017 and (equivalent to
$134,000) as at 30 June 2016.
Similarly, payment of dividends to the Group by its insurance
subsidiary (GSLIL) is limited by Guernsey insurance regulations.
The maximum amount of ordinary dividends that GIL may pay to
shareholders in a 12-month period is limited to the amount that
would not preclude GSLIL from meeting the margin of solvency or
approved asset requirements determined in accordance with the
Insurance Business Solvency Rules, 2015. GSLIL has not declared any
dividends for the years ended 30 June 2017 and 2016. All dividends
require approval by the Board of Directors.
In accordance with the Insurance Business (Bailiwick of
Guernsey) Law 2002, the minimum capital requirement of GSLIL, being
a licensed insurer writing general insurance business, is
GBP250,000 (equivalent to $325,000) as at 30 June 2017. This
company ceased writing business on October 1, 2016 and is currently
in run off.
28. Capital redemption reserve
Amount $000s
Balance as at 1 July 2016 (11,993)
Removal of Class A Voting and Class A Non-Voting 11,993
Repurchase of shares as repayment for note receivable (1,467)
Balance as at 30 June 2017 (1,467)
During the year ended 30 June 2011, the Group purchased 3,280 $1
Class A Voting and 3,280 $1 Class A Non-Voting Common Shares from a
shareholder for $12,000,000. The excess of the consideration paid
over the nominal value of the shares are classified as treasury
stock.
Prior to the initial public offering, the Group removed Class A
Voting and Class A Non-Voting Shares from the articles. Prior to
admission to trading on the Exchange, a shareholder from GBGI
Limited transferred 788,088 Ordinary Shares as repayment on the
note receivable of $1,467,167.
29. Trade and other payables
2017 2016
$000s $000s
Trade payables 8,045 4,695
Accruals and other payables 14,311 10,734
22,356 15,429
30. Contingent liabilities
In the normal course of business, the Group engages in
reinsurance ceded transactions as part of its overall underwriting
strategy. Reinsurance includes quota share, excess of loss and
facultative treaties on all policies written. Reinsurance ceded
does not discharge the Group from its liabilities to the original
policyholders in respect of the risk being reinsured. The Group
believes its reinsurance companies are financially stable.
The Group is also involved in certain claims and legal
proceedings which have arisen in the normal course of business.
Management does not believe that the outcome of any current pending
claims or legal proceedings in which the Group is currently
involved will have a material adverse effect on the Group's
consolidated financial position, results of operations or cash
flows.
31. Operating lease commitments
The Group has various operating leases for office space and
equipment with terms expiring at various dates through June 2022.
The future minimum lease payments under non-cancelable operating
leases in excess of one year at 30 June 2017 are as follows:
2017 2016
$000s $000s
Office space and equipment
Within next 12 months 1,247 1,138
More than 12 months and less than 5 years 2,534 842
More than 5 years - -
3,781 1,980
Operating lease payments recorded for the years ended 30 June
2017 and 2016 were $1,734,723 and $1,019,648, respectively.
32. Acquisition of subsidiary
On 20 January 2017, the Group acquired 100% of the shares and
voting interests in Quality Health Management LLC (QHM), a leading
third-party administrator and cost containment firm.
For the five and a half months ended 30 June 2017, QHM
contributed revenue of $801,801 and profit of $221,438 to the
Group's results.
a) Consideration transferred
The following table summarises the acquisition date fair value
of each major class of consideration transferred.
$000s
Cash 1,350
Future annual cash payments 535
Total consideration transferred 1,885
b) Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets
acquired and liabilities assumed at the date of acquisition.
$000s
Trade and other receivables 5,715
Cash 1,003
Trade and other payables (5,631)
Total identifiable net assets acquired 1,087
There is a deferred and contingent consideration element to the
business combination portion of the acquisition of QHM. This
element consists of two $325,000 payments to be made on 31 January
2018 and 31 January 2019 respectively.
Measurement of fair values
The trade receivables comprise gross contractual amounts due of
$5,669,759, of which zero was expected to be uncollectible at the
date of acquisition.
c) Goodwill
Goodwill arising from the acquisition was $798,356. The goodwill
is attributable mainly to QHM's extensive provider network and cost
containment strategies. None of the goodwill recognised is expected
to be deductible for tax purposes.
d) Acquisition-related costs
The Group incurred acquisition-related costs of $7,358 on legal
fees and diligence costs. These costs have been included in
"administrative expenses."
33. Related parties
The Group had a note receivable from a shareholder of GBGI in
the amount of $1,760,500. As at 30 June 2017 and 2016 the balance
on the note receivable is $0 and $1,467,167. In April 2014, the
Group and the shareholder amended the note receivable to reflect a
lump sum principal payment plan with the lump sum being due the
earlier of January 2017 as defined by the agreement. All other term
notes remained unchanged, including the payment of interest
compounded quarterly at 2.5%. In February 2017, as part of the
share capital exchange and initial public offering, the shareholder
paid the note receivable with 788,088 of Ordinary Shares.
The Group provided advances to various officers of the Group.
The total amount of advances outstanding as at 30 June 2017 and
2016 were $296,000 and $228,000, respectively. These advances are
included within prepaid expenses and other assets on the
consolidated balance sheets.
The Group paid for various services associated with an
acquisition activity in 2013 that was reviewed but later abandoned
that were shared by two shareholders of the Group. As at 30 June
2017 and 2016 the Group has a receivable due from the shareholders
for reimbursement of those costs in the amount of $139,999 for each
year. The receivable is included within prepaid expenses and other
assets on the consolidated balance sheets.
The Group has an operating agreement with their Eastern Europe
sales representative. The Group pays the representative's operating
expenses in exchange for the representative serving as Regional
Vice President for Eastern Europe. The operating expense amounted
to $1,296,549 and $992,530, for the years ended 30 June 2017 and
2016, respectively.
On 22 September 2010, the Group entered into a consulting
agreement with a minority shareholder. The consulting agreement
provided for a minimum annual consulting fee of $219,069, with
provisions for increases in fees that are capped at $350,000 for
any given 12-month period. In February 2017, the agreement was
terminated. The consulting expense incurred relating to the
consulting agreement was $199,000 and $289,264, for the years ended
30 June 2017 and 2016, respectively.
Employment Agreements
The Group has entered into employment agreements with certain
officers and employees. Some of these employment contracts do not
have a term and expire upon retirement or termination. These
agreements have minimum obligations of approximately $720,000
annually and are not included in the table below.
Certain employment agreements also include provisions for
additional compensation based on performance criteria; some have a
provision for additional compensation related to change in control,
and some have severance provisions.
The Group also has employment agreements with certain officers
and employees with terms expiring at various dates through June
2019. Future minimum obligations under such agreements with defined
terms are as follows:
Years ending 30 June $000s
2017 4,783,979
2018 3,059,913
2019 1,902,375
9,746,267
34. Events after the reporting period
The Group has advised that it will be changing its accounting
calendar from the current 30 June fiscal year ending date to 31
December starting 31 December 2017. There have been no other
material events subsequent to the period end and up to 21 November
2017, the date of approval of the financial statements by the Board
of Directors.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FMMZMFMGGNZZ
(END) Dow Jones Newswires
November 22, 2017 02:01 ET (07:01 GMT)
Gbgi (LSE:GBGI)
Historical Stock Chart
From Apr 2024 to May 2024
Gbgi (LSE:GBGI)
Historical Stock Chart
From May 2023 to May 2024