TIDMHUW
RNS Number : 8731H
Helios Underwriting Plc
23 May 2014
23 May 2014
Helios Underwriting plc
("HUW" or the "Company")
Preliminary results for the year ended 31 December 2013
HUW is pleased to announce its preliminary results for the year
ended 31 December 2013.
Financial highlights
Year ended 31 December Change
----------------------- ------------------------- -------
2013 2012
----------------------- ------------ ----------- -------
Gross premium written GBP11.9m GBP9.1m + 31%
----------------------- ------------ ----------- -------
Operating profit GBP1.28m GBP0.68m + 88%
----------------------- ------------ ----------- -------
Profit after tax GBP0.73m GBP0.76m - 4%
----------------------- ------------ ----------- -------
Earnings per share 8.57p 9.92p - 14%
----------------------- ------------ ----------- -------
Net asset value GBP9.8m GBP9.1m + 8%
----------------------- ------------ ----------- -------
NAV per share GBP1.15 GBP1.07 + 7%
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Business overview 2013
-- 2011 underwriting year of account profit return on capacity of 7.58%
-- Operating profit return on net asset value of 13.03%
-- New dividend policy of annual base plus specials
-- Recommended total dividend for this year 4.5p per share
-- Parent Company adjusted net assets plus Humphrey & Co
valuation of the Group's underwriting subsidiaries of GBP14.7m or
GBP1.72 per share
Commenting, Sir Michael Oliver, Chairman, said:
"The operating profit before tax for the year of GBP1,280,000
shows a significant improvement on 2012 and on this key measure
2013 is our best year to date. During 2013 we acquired four LLVs at
what we believe to be attractive prices. Already in 2014 we have
made three more acquisitions and have identified significant scope
for further growth. The Board is pleased to recommend a maiden
final dividend for 2013 of 1.5p per share together with a special
dividend of 3.0p per share."
Commenting, Nigel Hanbury, Chief Executive, said:
"Our strategic objective is to underwrite at Lloyd's with
superior capital efficiency, lower risk and higher return. We
continue to see a strengthening flow of vehicles for sale at
attractive prices. The combined ratio of HUW's portfolio for 2013
was a creditable 83.5% on this key measure, our best result to
date. In summary, 2013 has been a transformational year for HUW.
Over the past 12 months, we have redefined our strategy, refined
our portfolio of existing syndicates, launched a 50% quota share
with XL Re, made further acquisitions, implemented a new investment
policy and strengthened the management and advisory teams. We look
forward to the future with great enthusiasm."
For further information please contact:
HUW 020 7863 6655 / nigel.hanbury@huwplc.com
Nigel Hanbury - Chief Executive 020 7863 6657 / paul.lumbis@huwplc.com
Paul Lumbis - Chief Financial
Officer
Smith & Williamson Corporate
Finance
David Jones 020 7131 4000
Westhouse Securities
Robert Finlay
Darren Vickers 020 7601 6100
Haggie Partners
Peter Rigby 020 7562 4444
About HUW
HUW provides a limited liability direct investment into the
Lloyd's insurance market and is quoted on the London Stock
Exchange's AIM market (ticker: HUW). HUW's subsidiary underwriting
vehicles trade within the Lloyd's insurance market as corporate
members of Lloyd's writing GBP21 million of capacity for the 2014
account. The portfolio provides a good spread of classes of
business being concentrated in property insurance and reinsurance.
For further information about the Company please visit
www.huwplc.com.
Chairman's statement
Your Board is pleased to report positive results for 2013 as
Helios Underwriting plc ("HUW"). We continue to enjoy a close
association with the Hampden Group of companies; however, as we
enter this exciting stage in the Company's development we felt that
the time was right for a more distinct identity under a new name.
In Greek mythology, Helios was the sun god, the son of Hyperion,
depicted as driving his chariot across the sky from east to west
daily. Accordingly our new name emphasises our continued focus - to
shine a light on the opportunities that exist within the Lloyd's
market.
The profit after tax of GBP731,000 for the year ended 31
December 2013 compares with profit after tax of GBP763,000 for
2012. This result includes a net charge of GBP427,000 in respect of
goodwill and amortisation. Excluding this, the operating profit
before tax for the year of GBP1,280,000 shows a significant
improvement on 2012 (GBP681,000) and on this key measure 2013 is
our best year to date.
Net assets have increased to GBP9.8m which equates to GBP1.15
per share and when the unamortised value of capacity is added back
it shows a value of GBP1.51 per share.
For the first time, we are pleased to have the ability to
publish an independent valuation of the Group's Limited Liability
Vehicles ("LLVs"). Humphrey & Co is the market's primary
provider of vendor valuations of LLVs. The aggregate value as at 31
December 2013 of HUW's subsidiaries owned at that date is GBP7.6m.
When combined with audited adjusted net assets of the holding
company at the same date, we arrive at a total valuation of HUW of
GBP14.7m or GBP1.72 per share.
During 2013 we acquired four LLVs at what we believe to be
attractive prices. Already in 2014 we have made three more
acquisitions and have identified significant scope for further
growth.
In addition to increased underwriting, one of the key
by-products of all these acquisitions was the increased exposure to
their open years of 2011 (now closed), 2012 and 2013, which were at
varying degrees of maturity at the time of purchase. While a price
is paid for these open years, HUW benefits from any improvements
between the acquisition date and closure, as well as affording us
the opportunity to participate in future underwriting.
The total amount of premium limit purchased last year over the
three open years was in excess of GBP11.6m. Furthermore some of the
underwriting vehicles own significant Funds at Lloyd's. They may
also have other assets which can be invested, or if surplus to
underwriting requirements can be released to fund further
purchases.
Our advisers expect that Lloyd's, as a whole, will continue to
trade profitably in most years. Despite increased competition in
most classes and the expectation of lower investment returns we
will continue to seek to achieve our objective of market
out-performance through a focus on quality syndicates, judicious
use of reinsurance and continuing our acquisition strategy.
A major strategic development for HUW during the year was the
introduction of our 50% quota share arrangement with XL Re. Not
only does this help shape our risk/reward profile in a favourable
direction, but the ability of HUW to attract a partner of the
calibre and global scale of XL Re clearly reflects positively on
our business, team, portfolio and prospects in general.
At this point, I would therefore like to thank Nigel for his
crucial role in our achievements during 2013, his first full year
with HUW as Chief Executive. His tireless efforts on behalf of the
board and shareholders to drive the business forward lead me to
have great confidence in our future prospects.
As the Group operates in the cyclical and volatile insurance
market significant volatility in future results is to be expected.
The Group manages its capital with a view to supporting the
development of the business, including supporting increases in the
Group's underwriting through the acquisition of further capacity,
whilst maintaining the required level of stability of the Group to
provide a degree of security to shareholders. We continue to
support the principle of a share buy-back policy for occasions when
the board feels it is prudent to do so, but it is not currently
anticipated that the buy-back authority will be used at this time
as the Group continues to focus on the growth of its underwriting
business.
Against the backdrop of this capital management policy and our
significant progress over the past year, the Board has concluded
that it is the right time to introduce the payment of a modest and
sustainable base annual dividend, to be paid as a single final
dividend. This base annual dividend, which is not expected to grow
significantly, will be supplemented, when circumstances allow, by
an annual special dividend which, when paid, will target an amount
between 20% and 30% of cash received by the Group in relation to
the most recently closed year of account, such profits normally
being finalised and received by the Group approximately 30 months
following the end of the relevant calendar year. Payment of any
special dividend will be dependent on the performance of the
Group's underlying business, any business requirements resulting
from major market events in the intervening period, and on
opportunities for growth through the acquisition of additional
capacity.
The Board is pleased to recommend a maiden final dividend for
2013 of 1.5p per share together with a special dividend of 3.0p per
share payable to shareholders on the register on 6 June 2014. Both
are subject to shareholder approval at the AGM. The special
dividend equates to approximately 20% of the GBP1.3m cash released
from the 2011 year of account net of Hampden Agencies' fees and
profit commission, including the cash released from the three
acquisitions completed in 2014 from which HUW will benefit. These
dividends amount to an aggregate payment of GBP384,000. If
approved, it is expected that the final and special dividend will
be paid to shareholders as a single payment on 4 July 2014.
Sir Michael Oliver
Non-executive Chairman
22 May 2014
Chief Executive's review
Highlights
-- 2011 year of account produced a profit of GBP1,207,000,
representing a profit of 7.58% on 2011 capacity
-- We ended the year with approximately 75% of our capacity
supporting syndicates rated either A or B by Hampden Agencies
Limited
-- Helios Underwriting's combined ratio strongly outperformed
both the Lloyd's market and a peer group of eleven competing
companies
-- Our two largest classes of business remain reinsurance and US
dollar property insurance
-- New dividend policy of annual base plus specials
-- Recommended total dividend for this year 4.5p per share
The 2011 underwriting year of account which closed at 31
December 2013 performed well, producing a profit of GBP1,207,000,
compared to a profit of GBP401,000 for the 2010 year of account at
31 December 2012. This represents a profit of 7.58% on 2011
capacity (Lloyd's overall market result was 4.02%) compared to a
profit of 2.55% for the 2010 account which was 0.06% above the
Lloyd's market average result of 2.49%. The 2012 year of account is
estimated to outperform Lloyd's with a profit of 7.51% at the
mid-point estimate (Lloyd's 5.61%). The final result typically
represents an improvement over the initial estimates.
A complete set of published estimates is not available for the
2013 year of account until the end of May 2014, however, we have
already received estimates accounting for 57% of HUW's capacity
averaging a 6.1% mid-point profit. Hampden Agencies retains its
forecast of a profit in the range of 2.5% to 7.5% for the 2013
account for Hampden Agencies clients on average.
The traditional method for comparing the performance of
competing insurance business is an analysis of the combined ratio,
which is the sum of net claims and expenses divided by net earned
premiums. The combined ratio of HUW's portfolio for 2013 was a
creditable 83.5% on this key measure, our best result to date, with
the underwriting result benefiting from a benign year for
catastrophe losses. HUW strongly outperformed both the Lloyd's
market combined ratio of 86.8% and a peer group of eleven competing
insurance and reinsurance companies whose average combined ratio
was 93.4%.
Net tangible assets per share fell marginally by 4% during 2013,
principally as a result of the four acquisitions made in the year.
Year end net tangible assets were GBP6.897m with the balance of
Lloyd's minimum capital requirement in November 2013 of GBP11.088m
being supplied by Letters of Credit from quota share reinsurance
capital providers from which we benefit from both a fee and profit
commission.
Our strategic objective is to underwrite at Lloyd's with
superior capital efficiency, lower risk and higher return. Our
quota share agreement with XL Re released over GBP4m from our Funds
at Lloyd's ("FAL") to provide a modest war chest and during the
year we acquired over GBP5m of underwriting capacity for the 2014
year of account through a series of transactions. We continue to
see a strengthening flow of vehicles for sale at attractive prices.
This is partly due to the age profile of the investor population,
some of whom may wish to take profits after a long run of
favourable results combined with tax benefits for those that wish
to sell as going concerns.
The quota share has also improved our risk/reward ratio since we
retain the earnings for the more certain underwriting years prior
to 2013. I am pleased to report that the agreement has been renewed
for the 2014 account. Increasing our scale has also allowed us to
negotiate our fees with some of our advisers and while some of the
terms have a delayed effect they will significantly improve results
over time.
Classes of business for 2014
Helios Underwriting's portfolio for 2014 continues to provide a
good spread of business across managing agents and classes of
business with motor and liability providing a balance to the
catastrophe exposed reinsurance and property business, as well as
contributing through diversification to lower capital requirements.
The two largest classes of business remain reinsurance and US
dollar property insurance.
We continue to actively increase our exposure to higher quality
syndicates and ended the year with approximately 75% of our
capacity supporting syndicates rated either A (superior) or B
(above average) by Hampden Agencies. HUW's portfolio for 2014
continues to provide a good spread of business across managing
agents and classes of business. 25.6% of the capacity is in the
three syndicates rated "A" by Hampden Agencies, being Syndicates
386, 609 and 2791, with Kiln Syndicate 510 being the largest
holding at 13.6% of capacity. The top ten syndicates comprise 78.5%
of the portfolio. Two new syndicates were joined for 2014. We have
steadily improved our focus on our core six syndicate holdings
whilst still maintaining appropriate diversification.
We welcome Paul Lumbis to the management team. Paul joined us on
a consultancy basis in July 2013 and has since been appointed as
Group Chief Financial Officer. Paul's financial acumen, his
expertise in the world of corporate finance and long association
with the insurance markets equips him extremely well to be of
significant value as we continue to grow.
As we have grown we have also improved the infrastructure
supporting the day to day functioning of the Company. In March this
year we announced the appointment of Westhouse Securities Limited
as the Company's broker. We have also appointed a new Group Company
Secretary and retained Haggie Partners to provide public relations
support. Smith & Williamson Corporate Finance Limited continue
to act as our nominated adviser, with Hampden Group continuing to
provide back office support and Hampden Agencies acting as our
members' agent and Lloyd's adviser, as well as providing syndicate
research. With continued significant opportunities for growth
ahead, we are pleased to have the support of a broader advisory
team, all of whom have extensive expertise and experience in the
Lloyd's market.
A by-product of the worsening conditions in the reinsurance
market is that some traditional reinsurance products are now once
again available on terms acceptable to HUW. We will investigate
whether we wish to avail ourselves of such opportunities with a
view to further increasing our capital efficiency.
Our investment strategy announced last year remains unchanged
with the majority of our portfolio being split roughly half in the
CF Ruffer Total Return Fund and the CF Ruffer Absolute Return Fund
(both managed by Ruffer LLP) and half in the Trojan Fund (managed
by Troy Asset Management Limited). The amount invested has reduced
significantly as a result of the investment in acquisitions but
over the period the total return from the two funds has been 3.4%
which has significantly beaten cash.
The investment of these assets gives the shareholder the ability
to obtain an investment return as well as a return from taking
underwriting risk. Over many years this double use of assets has
been one of the attractions of investing at Lloyd's.
Outlook
The underwriting environment in 2014 continues to be
challenging. Opportunities remain, however, particularly for higher
quality syndicates, not least in the more effective purchase of
better priced outward reinsurance, but also for nimble underwriting
to exploit the more profitable niche classes for which Lloyd's has
such a well earned reputation. HUW's strategy and business model is
based on backing the best underwriters and syndicates as we seek
out-performance of the average market experience. We will continue
to explore options for making capital available for acquisitions,
both through further potential quota share arrangements and through
other capital raising alternatives.
In summary, 2013 has been a transformational year for HUW. Over
the past 12 months, we have redefined our strategy, refined our
portfolio of existing syndicates, launched a 50% quota share with
XL Re, made further acquisitions, implemented a new investment
policy and strengthened the management and advisory teams. We look
forward to the future with great enthusiasm.
Nigel Hanbury
Chief Executive
22 May 2014
Lloyd's Advisers' Report
2013 major losses at Lloyd's were GBP873m (15 year average:
GBP1,572m)
According to the latest Swiss Re Sigma study, issued in March
2014, insured losses from natural catastrophes and man-made
disasters in 2013 were around $45bn compared with $81bn in 2012.
Major insured losses in 2013 were just under the ten year average
of $48bn a year at 2012 prices.
The most costly insured losses in 2013 were the flooding in June
affecting central and eastern Europe costing $4.1bn, and hailstorm
Andreas in Germany and France costing $3.8bn the following month.
Floods in Canada in June 2013 cost $1.9bn while a deadly tornado in
Moore, Oklahoma, in May 2013 is estimated to have cost $1.8bn in
insured claims, the most from a single weather event in the US in
2013. The largest loss of life was from Typhoon Haiyan in the
Philippines in November, where 7,500 died or went missing but
insured losses were modest at $1.5bn compared with $12.5bn of
economic losses.
As a market, 2013 was a benign year for catastrophes with
Lloyd's net ultimate claims at 31 December 2013 estimated at
GBP873m (GBP1.8bn in 2012), which is significantly below the 15
year average of GBP1.572bn and a significant reduction on the
record claims suffered in 2011 of GBP4.7bn.
US property/casualty industry made its first underwriting profit
in 2013 since 2007
The underwriting results of the US property/casualty insurance
industry improved in 2013 with the first underwriting profit being
declared since 2007, benefiting from reduced catastrophe losses and
increasing rates. Net insured losses from catastrophes fell to
$14.1bn from $33.1bn in 2012. Net gains from underwriting were
$15.5bn compared with net losses the previous year of $15.4bn. Net
investment gains (income and realised capital gains) enabled an
improved overall net profit after tax of $63.8bn compared with
$35.1bn in 2012. The return on average policyholders' surplus was
10.3%, its highest level since the 12.4% return in 2007.
Capital levels ended 2013 at record highs for both insurers and
reinsurers
Capital levels at year end 2013 were again at record highs for
both insurers and reinsurers. At Lloyd's total net resources
increased by 4% in 2013 to a record GBP21.2bn with the solvency
surplus improving marginally to a record GBP3.1bn. The
policyholders' surplus of the US property/casualty industry, a
proxy for underwriting capacity, grew by 11.3% ($66.3bn) in 2013 to
a record $653.3bn. Reinsurance capital also grew, but by a more
modest 7% ($35bn) to a record $540bn at year end 2013, according to
reinsurance broker Aon Benfield.
Influx of alternative capital adds to record capital
During 2013, industry capital was boosted by improved operating
results, in part driven by a sharp fall in insured losses from
natural catastrophes and man-made disasters. The most significant
trend to affect the reinsurance market in 2012/2013 was the growing
supply of alternative capital which is both a threat and an
opportunity to the traditional reinsurance equity backed model.
Alternative capital may be used as quasi capital by the reinsurance
industry but may also compete with traditional equity backed
reinsurance companies. Investor interest has been generated from a
wide range of sources including pension funds, life assurers,
endowments and high net worth family trusts.
Reinsurance broker Guy Carpenter estimates that between January
2012 and December 2013 approximately $15bn of new capital has
entered the reinsurance market and now provides total alternative
capital of $45bn or 15% of global property reinsurance limits.
Insurance industry has become more disciplined at deploying its
capital
Historically, the industry has on average been unsuccessful in
controlling the supply of capacity, which has contributed to
cyclical downturns benefiting policyholders rather than
shareholders. In recent years, a number of companies have shown a
willingness to return excess capital to shareholders through share
buy backs or special dividends, demonstrating a focus on
shareholder value and mitigating the pressure to deploy excess
capital by writing additional business, which is likely to be
under-priced.
Demand - positive signs continue for US insurance
marketplace
Insurance demand, measured by premium, has grown over the long
term, being linked to growth in GDP and levels of insurance
penetration. During the great recession of 2007-2009 US net written
insurance premiums fell by an aggregate 6.8% the first three year
decline since 1930-1933. Growth in overall net premiums, a proxy
for demand, accelerated in the US to 4.6% in 2013 from 4.3% in
2012.
Premium growth in Q4 2013 was the 15th consecutive quarter of
growth with average commercial lines rates up for the tenth
consecutive quarter. However, reinsurance demand has been adversely
affected at 1 January 2014 by the trend of major insurance groups
to retain more premium volume and risk on their own growing balance
sheets, according to Willis Re.
The demand component has been boosted by a combination of
increasing premium rates and the recovering US economy contributing
to organic growth. Encouragingly, net written premium has now
overtaken its previous peak in 2006. While demand for insurance
continues to be impacted by sluggish economic conditions, the
benefits of even slow growth will compound over time. US real GDP
growth was 1.8% in 2011, 2.2% in 2012 and 1.9% in 2013.
Organic growth opportunities which would ordinarily use up
surplus capital have been limited in this cycle with GDP growth,
whether measured in nominal or real terms, being the slowest of any
expansion since 1948. The economy's capacity utilisation is still
below pre-recession levels with the US operating at 79.2% of
industrial capacity in December 2013, although well above the June
2009 low of 66.9%.
Lloyd's is well placed to take advantage of an improving excess
and surplus lines (E&S) segment of the US insurance market. In
2012, according to AM Best, Lloyd's had an 18.0% (18.6% in 2011)
share of the US E&S market with its next biggest competitor
being AIG with 14.5% (17.2% in 2011). Lloyd's total E&S premium
grew by 10% from $5.7bn in 2011 to $6.3bn in 2012, benefiting from
a combination of GDP growth and an increased flow of business as
admitted carriers moved away from underwriting more difficult
risks.
The investment environment
The investment environment remains critical in order to
understand the insurance industry, both from a balance sheet
perspective (the asset side) and from a profit and loss
perspective. In an era of low inflation and low interest rates, the
only way for an insurer to make an acceptable return on equity for
its investors is to make an underwriting profit and repay surplus
capital to shareholders.
At previous cycle turning points, premium rates have turned up
due to capital being depleted either through a period of reserve
deteriorations or through significant "market changing" catastrophe
losses. In this cycle, the upturn in US insurance rates has begun
without either of these factors being present. In our view, the
principal reason for the upturn in US insurance rates is the
investment environment of low interest rates with the US Federal
Reserve actively signalling that it is determined to keep interest
rates low until unemployment drops below 6.5% or until inflation
expectations exceed 2.5%.
Even with the recent rises in interest rates, the treasury yield
curve remains close to its most depressed level in at least 45
years. A US Treasury five year bond bought at a yield of 1.55% on
31 December 2008 on reinvestment on 31 December 2013 would only
yield 1.75%. The significance of this is not lost on insurance
company management who realise that combined ratios must be lower
in today's depressed investment environment to generate a risk
appropriate return on equity. In 2012, the Insurance Information
Institute calculated that a combined ratio of about 100%, i.e. a
break even underwriting result, would generate a return on equity
of around 7% which compares with 10% in 2005 and 16% in 1979 for
the same 100% combined ratio.
The investment component of the return on equity by line of
business is particularly important in capital intensive lines such
as reinsurance, or casualty business where claims may not be paid
out for a number of years. Apart from controlling expenses the main
way for insurance company management to compensate for this "lost
investment income" is to encourage their underwriters to put rates
up.
There has been a trend in declining yields from 2007. As of 30
April 2014 the two year US Treasury is yielding 0.42% and the five
year 1.69%.
Rating - 2013 was a tale of two halves in reinsurance - momentum
slows down for US reinsurance
The principal driver of underwriting profitability is the level
of premium rates combined with policy terms and conditions.
The surge in alternative reinsurance capital supplied by third
party investors had a greater-than-expected impact at the mid-year
2013 renewals, particularly for Florida, with Guy Carpenter
reporting 15% rate reductions while loss-free US property
catastrophe programmes decreased by between 12.5% and 30% at 1
July. The mid-year renewals were in marked contrast to the stable
rates seen earlier in the year. The weighted average rate change
for US property catastrophe reinsurance business in 2013 was
approximately 7%. Rate reductions continued at the 1 January 2014
US renewals averaging 15% (9% compared with 1 January 2013 rates)
with competition being spurred by the absence of a major hurricane
in 2013.
Rate reductions continued at the 1 April 2014 renewals which
comprise the entire Japanese market and a few large US programmes.
Willis Re estimated that excess of loss covers for Japanese
earthquake risks fell by 12.5% to 17.5% with typhoon rates falling
by 10% to 15%. US premiums paid by nationwide insurers fell by 10%
to 20% for catastrophe loss-free accounts and by up to 10% for
loss-hit renewals. In addition, terms and conditions have begun to
be relaxed and multi-year contracts offered.
The impact of terms and conditions on prospective underwriting
return is much more difficult to measure than that of rate. It is
only after a loss that the impact of a broadening of cover is fully
appreciated. The 1 January 2014 renewal season brought signs that
underwriters are now prepared to broaden cover and increasingly
offer multi-year contracts, expansion of hours clauses, less
punitive reinstatement provisions and expanded coverage for
terrorism, cyber and workers' compensation risk have been
mentioned. Willis Re comments that "experienced reinsurers will
remember that the relaxation of terms and conditions more so than
price reduction caused the real damage in the last soft market
cycle". However, while rate using Guy Carpenter's rate on line
index for US business is 20% down on the average between 2006 and
2013 at 1 January 2014, it is still 14% above rates in 2005.
In contrast, we are now seeing a sustained upturn in property
and casualty insurance rates in the United States, which does not
suffer from the ease of entry of alternative sources of capital
seen in the reinsurance sector. After nearly eight years of
decreases, the first increase we saw was in the third quarter of
2011 and by the first quarter of 2013 rate increases had
accelerated to 5.2% using data supplied by the Council of Insurance
Agents and Brokers, the largest increase since 2003. Rate increases
moderated over the course of 2013, to 4.3% at Q2, to 3.4% at Q3 and
to 2.1% at Q4. This has continued in 2014 with rates increasing by
1.5% in Q1 2014.
Going forward, the US insurance pricing cycle, given the absence
of reserve deteriorations from the prior years at a market
aggregate level, may prove more muted than in the past.
The implications for a more muted pricing cycle are that the
upward trend in rates could slow down further or potentially come
to an end during 2014. Already we have seen rates reduce for larger
insurance risks such as energy, large property and aviation.
Outside of the US, rate competition has returned to the UK motor
market following the introduction of new legislation implemented in
July 2013 with rates for comprehensive private car business falling
by 14.1% in the twelve months to December 2013, according to the
AA. In the first quarter of 2014 rates private car comprehensive
rates fell a further 5.6%.
Insurance broker Marsh reports that global insurance rates, as
tracked by the Marsh Risk Management Global Insurance Index,
continued their downward trend in the fourth quarter of 2013. The
only exception to the global trend was the US where the composite
index showed a modest increase for the eighth consecutive
quarter.
At an aggregate level, industry results and Lloyd's results
continued to benefit from favourable prior year releases which are
proving to be more persistent and higher than was envisaged even
twelve months ago. This evidence suggests that the insurance
industry is better at using technology, historical data and
modelling to price new business and estimate losses, which should
inherently translate into more stable profitability and pricing
cycles.
Prospects for 2014
Our formal profit target for the 2014 account (assuming an
average year for catastrophe losses) is a range of 0% to 7.5% on
capacity, for the average Hampden client, which is lower than the
2.5% to 7.5% we set for the 2013 account in September 2012, and
reflects, in the main, the softening of reinsurance rates.
We expect rate increases to continue in 2014 for small and
medium US property and casualty accounts but at a lower level of
increase than seen in 2013. Risks to this expectation are if there
is renewed economic weakness affecting demand compared with the
current moderate GDP growth or if rate competition were to increase
in part due to reductions in reinsurance pricing.
Overall we estimate that rates will reduce by 4.1% in 2014,
which compares with our initial estimate of a reduction of 2.3% on
average. Further reductions in reinsurance rates are expected in
July following on from the reductions at mid-year in 2013, 1
January 2014 and the reductions at 1 January, 1 April, and 1 June
2014.
Since 2006 US reinsurance rates have been amongst the most
attractive of any class of business and have made a significant
contribution to Lloyd's profitability in this period. Despite rate
reductions, there remains a reasonable technical margin on US
business, albeit not the exceptional margin experienced between
2006 and 2009. The influx of alternative capital is not only
squeezing margins on reinsurance business but also leading to
pressure on signings and therefore adding to the potential for
reduced income. The traditional reinsurance market has also
responded to increasing competition by relaxing policy terms and
conditions as well as being prepared to enter multi-year contracts.
Due to reinsurance rate reductions, the balance of risk and reward
on US business is beginning to shift from net sellers of
reinsurance to net buyers of reinsurance.
Despite our continued optimism on the rate outlook for US
insurance business, additional capital is being deployed by
Berkshire Hathaway with its entry into the US excess and surplus
lines market and its participation on 7.5% of Aon's retail
placements with Lloyd's participation. Both moves have the
potential to impact margins negatively in 2014 and beyond. The
effect should be mitigated by Berkshire Hathaway's reputation for
pricing discipline. As the reinsurance market softens more
reinsurers are expected to follow Berkshire Hathaway's lead by
allocating capital to insurance operations.
Top ten syndicates for 2014
2014 2014 HUW 2014 HUW
Syndicate Portfolio Portfolio
Capacity Capacity % of
Syndicate Managing agent GBP'000s GBP'000s Total Largest class
---------- -------------------- ----------- ----------- ----------- ---------------
RJ Kiln & Co.
510 Ltd 1,064,220 2,442 13.5 US$ Property
Managing Agency
2791 Partners Ltd 453,213 2,304 12.7 Reinsurance
Beazley Furlonge US$ Non-Marine
623 Ltd 243,000 1,976 10.9 Liability
Atrium Underwriters
609 Ltd 420,229 1,848 10.2 Energy
Hiscox Syndicates
33 Ltd 1,000,000 1,397 7.7 Reinsurance
Catlin Underwriting
6111 Agencies Ltd 106,000 992 5.5 US$ Property
Asta Managing
6117 Agents Ltd 58,000 868 4.8 Reinsurance
Pembroke Managing
2014 Agency Ltd 74,967 845 4.7 Reinsurance
ERS Syndicate
218 Management Ltd 437,624 803 4.4 Motor
Hiscox Syndicates
6104 Ltd 72,104 748 4.1 Reinsurance
---------- -------------------- ----------- ----------- ----------- ---------------
Subtotal 14,223 78.5
-------------------------------- ----------- ----------- ----------- ---------------
Total 2014 HUW Portfolio 18,133 100.0
-------------------------------- ----------- ----------- ----------- ---------------
Source: 2014 Syndicate capacities sourced from Moody's
Consolidated income statement
Year ended 31 December 2013
Year ended Year ended
31 December 31 December
2013 2012
Note GBP'000 GBP'000
------------------------------------ ----- ------------- -------------
Gross premium written 11,938 9,141
Reinsurance premium ceded (2,251) (1,820)
------------------------------------ ----- ------------- -------------
Net premium written 9,687 7,321
Change in unearned gross premium
provision (29) (405)
Change in unearned reinsurance
premium provision 43 52
------------------------------------ ----- ------------- -------------
14 (353)
------------------------------------ ----- ------------- -------------
Net earned premium 9,701 6,968
Net investment income 5 208 429
------------------------------------ ----- ------------- -------------
Revenue 9,909 7,397
------------------------------------ ----- ------------- -------------
Gross claims paid (5,867) (4,685)
Reinsurers' share of gross claims
paid 1,134 930
------------------------------------ ----- ------------- -------------
Claims paid, net of reinsurance (4,733) (3,755)
------------------------------------ ----- ------------- -------------
Change in provision for gross
claims 1,148 229
Reinsurers' share of change in
provision for gross claims (478) 24
------------------------------------ ----- ------------- -------------
Net change in provision for claims 670 253
------------------------------------ ----- ------------- -------------
Net insurance claims and loss
adjustment expenses (4,063) (3,502)
Expenses incurred in insurance
activities (4,042) (2,743)
Other operating expenses (524) (471)
------------------------------------ ----- ------------- -------------
Operating expenses (4,566) (3,214)
------------------------------------ ----- ------------- -------------
Operating profit before goodwill
and amortisation 4 1,280 681
Goodwill on bargain purchase 133 568
Impairment of goodwill (98) (81)
Amortisation of syndicate capacity (462) (314)
------------------------------------ ----- ------------- -------------
Profit before tax 853 854
Income tax charge (122) (91)
------------------------------------ ----- ------------- -------------
Profit attributable to equity
shareholders 731 763
------------------------------------ ----- ------------- -------------
Earnings per share attributable
to equity shareholders
Basic and diluted 7 8.57p 9.92p
------------------------------------ ----- ------------- -------------
The profit attributable to equity shareholders and earnings per
share set out above are in respect of continuing operations.
Consolidated statement of financial position
At 31 December 2013
Year ended Year ended
31 December 31 December
2013 2012
Note GBP'000 GBP'000
------------------------------------- ------ ------------- -------------
Assets
Intangible assets 2,929 1,797
Reinsurance assets:
- reinsurers' share of claims
outstanding 4,154 4,323
- reinsurers' share of unearned
premium 800 590
Other receivables, including
insurance receivables 11,554 9,343
Prepayments and accrued income 1,569 1,216
Financial assets at fair value 22,213 20,978
Cash and cash equivalents 1,066 1,444
--------------------------------------------- ------------- -------------
Total assets 44,285 39,691
--------------------------------------------- ------------- -------------
Liabilities
Insurance liabilities:
- claims outstanding 21,596 19,814
- unearned premium 5,968 4,624
Deferred income tax liabilities 1,656 938
Other payables, including insurance
payables 4,116 4,589
Accruals and deferred income 1,123 631
--------------------------------------------- ------------- -------------
Total liabilities 34,459 30,596
--------------------------------------------- ------------- -------------
Shareholders' equity
Share capital 853 853
Share premium 6,996 6,996
Retained earnings 1,977 1,246
--------------------------------------------- ------------- -------------
Total shareholders' equity 9,826 9,095
--------------------------------------------- ------------- -------------
Total liabilities and shareholders'
equity 44,285 39,691
--------------------------------------------- ------------- -------------
Consolidated statement of cash flows
Year ended 31 December 2013
Year ended Year ended
31 December 31 December
2013 2012
GBP'000 GBP'000
--------------------------------------------- ------------- -------------
Cash flows from operating activities
Results of operating activities 853 854
Interest received (2) (27)
Investment income (381) (320)
Goodwill on bargain purchase (133) (568)
Impairment of goodwill 98 81
Loss on sale of intangible assets 8 1
Amortisation of intangible assets 462 314
Income tax paid (86) (179)
Change in fair value of investments 137 (128)
Changes in working capital:
- decrease in other receivables 2,687 2,225
- decrease in other payables (1,336) (1,044)
- net decrease in technical provisions (3,273) (2,991)
--------------------------------------------- ------------- -------------
Net cash outflow from operating activities (966) (1,782)
--------------------------------------------- ------------- -------------
Cash flows from investing activities
Interest received 2 27
Investment income 381 320
Purchase of intangible assets (3) (218)
Proceeds from disposal of intangible assets 2 51
Net inflow of financial assets at fair
value 3,276 854
Acquisition of subsidiaries, net of cash
acquired (3,070) (828)
--------------------------------------------- ------------- -------------
Net cash inflow from investing activities 588 206
--------------------------------------------- ------------- -------------
Net decrease in cash and cash equivalents (378) (1,576)
Cash and cash equivalents at beginning
of year 1,444 3,020
--------------------------------------------- ------------- -------------
Cash and cash equivalents at end of year 1,066 1,444
--------------------------------------------- ------------- -------------
Statements of changes in shareholders' equity
Year ended 31 December 2013
Attributable to owners of the parent
--------------------- -------------------------------------------------
Ordinary Share Retained
share capital premium earnings Total
Consolidated GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------------- --------- ---------- ---------
At 1 January 2012 741 6,261 483 7,485
Share issue 112 735 - 847
Profit for the year - - 763 763
--------------------- --------------- --------- ---------- ---------
At 31 December 2012 853 6,996 1,246 9,095
--------------------- --------------- --------- ---------- ---------
At 1 January 2013 853 6,996 1,246 9,095
Profit for the year - - 731 731
--------------------- --------------- --------- ---------- ---------
At 31 December 2013 853 6,996 1,977 9,826
--------------------- --------------- --------- ---------- ---------
Notes to the financial information
Year ended 31 December 2013
1. General information
The Company is a public limited company listed on AIM and
incorporated and domiciled in the UK.
2. Accounting policies
The principal accounting policies adopted in the preparation of
the preparation of the financial information set out in this
announcement are set out in the full financial statements for the
year ended 31 December 2013 (the "Financial Statements").
3. Segmental information
The Group has three segments that represent the primary way in
which the Group is managed:
-- syndicate participation;
-- investment management; and
-- other corporate activities.
Other
Syndicate Investment corporate
Year ended 31 December participation management activities Total
2013 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------------- ------------ ------------ ---------
Net earned premium 9,723 - (22) 9,701
Net investment income 247 (39) - 208
Net insurance claims
and loss adjustment
expenses (4,063) - - (4,063)
Expenses incurred in
insurance activities (4,042) - - (4,042)
Other operating expenses 51 - (575) (524)
Goodwill on bargain
purchase - - 133 133
Impairment of goodwill - - (98) (98)
Amortisation of syndicate
capacity - - (462) (462)
--------------------------- --------------- ------------ ------------ ---------
Profit before tax 1,916 (39) (1,024) 853
--------------------------- --------------- ------------ ------------ ---------
Other
Syndicate Investment corporate
Year ended 31 December participation management activities Total
2012 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------------- ------------ ------------ ---------
Net earned premium 6,968 - - 6,968
Net investment income 405 24 - 429
Net insurance claims
and loss adjustment
expenses (3,502) - - (3,502)
Expenses incurred in
insurance activities (2,743) - - (2,743)
Other operating expenses (111) - (360) (471)
Goodwill on bargain
purchase - - 568 568
Impairment of goodwill - - (81) (81)
Amortisation of syndicate
capacity - - (314) (314)
--------------------------- --------------- ------------ ------------ ---------
Profit before tax 1,017 24 (187) 854
--------------------------- --------------- ------------ ------------ ---------
The Group does not have any geographical segments as it
considers all of its activities to arise from trading within the
UK.
No major customers exceed 10% of revenue.
Net earned premium within 2013 other corporate activities
totalling GBP22,000 represents the 2013 underwriting year of
account net Group quota share reinsurance premium payable to
Hampden Insurance PCC (Guernsey) Limited - Cell 6 for Hampden
Corporate Member Limited, Nameco (No. 365) Limited, Nameco (No.
605) Limited, Nameco (No. 321) Limited, Nameco (No. 917) Limited,
Nameco (No. 229) Limited and Nameco (No. 518) Limited. This net
quota share reinsurance premium payable is included within
'reinsurance premium ceded' in the Consolidated Income
Statement.
All of the Group's limited liability vehicles have entered into
a Group quota share reinsurance contract with Hampden Insurance PCC
(Guernsey) Limited - Cell 6 for the 2014 underwriting year of
account.
4. Operating profit before goodwill and amortisation
Underwriting year of
account*
------------------------------------------
2010
Year ended and Pre- Corporate Other
31 December prior 2011 2012 2013 acquisition reinsurance corporate Total
2013 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- --------- --------- --------- --------- ------------- ------------- ----------- ---------
Gross premium
written 13 14 1,284 13,494 (2,867) - - 11,938
-------------------- --------- --------- --------- --------- ------------- ------------- ----------- ---------
Net premium
written 25 (33) 1,082 11,068 (2,346) (109) - 9,687
-------------------- --------- --------- --------- --------- ------------- ------------- ----------- ---------
Net earned
premium 94 427 5,465 6,257 (2,433) (109) - 9,701
Net investment
income - 132 53 24 (125) - 124 208
Net insurance
claims and
loss adjustment
expenses 10 788 (2,172) (3,650) 961 - - (4,063)
Operating expenses (78) (481) (1,920) (2,410) 1,092 - (769) (4,566)
-------------------- --------- --------- --------- --------- ------------- ------------- ----------- ---------
Operating profit
before goodwill
and amortisation 26 866 1,426 221 (505) (109) (645) 1,280
-------------------- --------- --------- --------- --------- ------------- ------------- ----------- ---------
Underwriting year of
account*
2009
Year ended and Pre- Corporate Other
31 December prior 2010 2011 2012 acquisition reinsurance corporate Total
2012 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- --------- --------- --------- --------- ------------- ------------- ----------- ---------
Gross premium
written - 27 1,046 10,907 (2,839) - - 9,141
-------------------- --------- --------- --------- --------- ------------- ------------- ----------- ---------
Net premium
written - (224) 860 8,952 (2,171) (96) - 7,321
-------------------- --------- --------- --------- --------- ------------- ------------- ----------- ---------
Net earned
premium - 155 3,826 5,213 (2,130) (96) - 6,968
Net investment
income 5 278 94 40 (173) - 186 429
Net insurance
claims and
loss adjustment
expenses 14 1,072 (1,881) (3,745) 1,037 - - (3,502)
Operating expenses - (418) (1,287) (1,771) 931 - (669) (3,214)
-------------------- --------- --------- --------- --------- ------------- ------------- ----------- ---------
Operating profit
before goodwill
and amortisation 19 1,087 752 (263) (335) (96) (483) 681
-------------------- --------- --------- --------- --------- ------------- ------------- ----------- ---------
Pre-acquisition relates to the element of results from the new
acquisitions before they were acquired by the Group.
* The underwriting year of account results represent the group's
share of the Syndicates results by underwriting year of account
before corporate member level reinsurance and members agents
fees.
5. Net investment income
Year ended Year ended
31 December 31 December
2013 2012
GBP'000 GBP'000
-------------------------------------------- ------------- -------------
Investment income 381 320
Realised gains on financial assets at fair
value through profit or loss 5 3
Unrealised (losses)/gains on financial
assets at fair value through profit or
loss (137) 128
Investment management expenses (43) (49)
Bank interest 2 27
-------------------------------------------- ------------- -------------
Net investment income 208 429
-------------------------------------------- ------------- -------------
6. Operating profit before tax
Year ended Year ended
31 December 31 December
2013 2012
GBP'000 GBP'000
--------------------------------------------------------- ------------- -------------
Profit before tax is stated after charging/(crediting):
Directors' remuneration 236 84
Exchange differences 107 125
Amortisation of syndicate capacity 462 314
Acquisition costs in connection with the
new subsidiaries acquired in the year 49 45
Impairment of goodwill 98 81
Goodwill on bargain purchase (133) (568)
Auditors' remuneration:
- audit of the Parent Company and Group
Financial Statements 25 25
- audit of subsidiary company Financial
Statements 22 14
- other services - -
--------------------------------------------------------- ------------- -------------
The Group has no employees other than the Directors of the
Company.
Year ended Year ended
31 December 31 December
2013 2012
GBP'000 GBP'000
----------------------------------------- ------------- -------------
Sir Michael Oliver 20,000 20,000
Andrew Leslie (resigned 27 June 2013) 14,600 15,000
Jeremy Evans 15,000 15,000
Michael Cunningham 15,000 15,000
Andrew Christie (appointed 8 July 2013) 7,500 -
Nigel Hanbury 164,000 18,750
----------------------------------------- ------------- -------------
Total 236,100 83,750
----------------------------------------- ------------- -------------
The Chief Executive Nigel Hanbury has a bonus incentive scheme
in addition to his basic remuneration. The above figures include an
accrual for the year of GBP89,000 (2012: GBPnil) in respect of this
scheme. No other Directors derive other benefits, pension
contributions or incentives from the Group. At 31 December 2013 no
share options were held by the Directors (2012: nil).
The Company established a Nomination and Remuneration Committee
during the year.
7. Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the period.
The Group has no dilutive potential ordinary shares.
Earnings per share has been calculated in accordance with IAS
33.
The earnings and weighted average number of shares used in the
calculation are set out below:
Year ended Year ended
31 December 31 December
2013 2012
-------------------------------------------- ------------- -------------
Profit for the year GBP731,000 GBP763,000
-------------------------------------------- ------------- -------------
Weighted average number of shares in issue 8,526,948 7,691,769
-------------------------------------------- ------------- -------------
Basic and diluted earnings per share 8.57p 9.92p
-------------------------------------------- ------------- -------------
8. Financial statements
The financial information set out in this announcement does not
constitute statutory accounts but has been extracted from the
Group's Financial Statements which have not yet been delivered to
the Registrar. The Group's annual report will be posted to
shareholders shortly and further copies will be available from the
Company's registered office: Hampden House, Great Hampden, Great
Missenden, Buckinghamshire HP16 9RD and on the Company's website
www.huwplc.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR QKBDKOBKDFPB
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