TIDMHUW
RNS Number : 1220O
Helios Underwriting Plc
26 May 2015
26 May 2015
Helios Underwriting plc
("HUW" or the "Company")
Final results for the year ended 31 December 2014
HUW is pleased to announce its final results for the year ended
31 December 2014.
Financial highlights
-- Gross premium written during the period totalled GBP17.1m
-- Operating profit before tax of GBP1,230,000
-- Profit after tax of GBP1,043,000
-- Earnings per share of 12.23p
-- Net asset value increase to GBP10.5m
-- Net asset value per share of GBP1.23
-- 2012 underwriting year of account profit return on capacity of 13.01%
-- Operating profit return on net asset value of 11.73%
-- Recommended total dividend for this year of 5.1p 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
Year ended 31 December Change
---------------------------- --------------------------- -------
2014 2013 2012
---------------------------- --------- -------- ------ -------
Gross premium written
(GBP'000) 17,062 11,938 9,141 +43%
---------------------------- --------- -------- ------ -------
Operating profit (GBP'000) 1,230 1,280 681 -4%
---------------------------- --------- -------- ------ -------
Profit after tax (GBP'000) 1,043 731 763 +43%
---------------------------- --------- -------- ------ -------
NAV per share (GBP) 1.23 1.15 1.07 +7%
---------------------------- --------- -------- ------ -------
Commenting, Sir Michael Oliver, Chairman, said:
"Your Board is pleased to report another set of encouraging
results for 2014. The profit after tax for the year of GBP1,043,000
shows a significant improvement on 2013 of GBP731,000 and
represents our best year to date. Net assets have increased to
GBP10.5m from GBP9.8m at 31 December 2013, a growth of 6.71%. The
results were helped by an excellent result from the 2012
underwriting account of 13.01% on our net underwriting capacity of
GBP21.1m compared to the 2011 account, which produced 7.58% on
underwriting capacity of GBP15.9m. Following a successful year the
Board is pleased to recommend a final dividend of 1.5p per share
together with a special dividend of 3.6p per share payable to all
shareholders on the register at 5 June 2015."
Commenting, Nigel Hanbury, Chief Executive, said:
"2014 has been a year during which we have carried through our
stated strategy. The returns give us confidence that the strategy
is working, under difficult market conditions, for the benefit of
the shareholders. We aim to do more of the same for 2015."
For further information please contact:
HUW nigel.hanbury@huwplc.com
Nigel Hanbury - Chief Executive
Smith & Williamson Corporate
Finance
David Jones 020 7131 4000
Westhouse Securities
Robert Finlay 020 7601 6100
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 GBP23 million of capacity for the 2015
account. The portfolio provides a good spread of classes of
business being concentrated in property insurance and reinsurance.
For further information please visit www.huwplc.com.
Chairman's statement
Your Board is pleased to report another set of encouraging
results for 2014. The profit after tax for the year of GBP1,043,000
shows a significant improvement on 2013 of GBP731,000 and
represents our best year to date. Net assets have increased to
GBP10.5m from GBP9.8m at 31 December 2013, a growth of 6.71%. The
results were helped by an excellent result from the 2012
underwriting account of 13.01% on our net underwriting capacity of
GBP21.1m compared to the 2011 account, which produced 7.58% on
underwriting capacity of GBP15.9m.
Shareholders will note that the profit after tax is considerably
greater than the previous year, but the operating profit was down
by some 4%. This is largely due to negative goodwill emanating from
our program of acquisitions which had a beneficial effect combined
with increased operating costs (reduced for 2015). The Board
recognises that it is important to grow and continues to explore
various options. To do so does inevitably increase costs, such as
professional and advisors fees, which accounts for much of the
reduced operating profit.
Following the precedent set last year we are once again
reporting the Parent Company's adjusted net assets, plus the
independent valuation of the Group's Limited Liability Vehicles as
produced by Humphrey & Co, which is the market's primary
provider of vendor valuations. This has increased to GBP1.72 per
share from GBP1.64 per share (restated) in 2013, or total net
assets of GBP14.7m (2013: GBP14.0m).
During 2014 we acquired four vehicles at acceptable prices and
have made a further three purchases already this year with one more
still to complete. These all should show satisfactory results on
the open years of 2013 and 2014.
Including the three new acquisitions in 2015, our gross premium
income limit underwritten for the 2015 year of account is GBP23.0m
compared to GBP25.6m for 2014, GBP23.9m for 2013 and GBP23.7m for
2012. The reduction is explained by the continuing programme of
"quality control", compulsory de-emptions and syndicate cessations.
We continue with our strategy of reinsuring a significant portion
of the youngest, least mature year, such that reinsurance has now
risen to 70% from 50%. The gross premium figure nets down, after
reinsurance, to GBP6.9m for 2015, GBP10.7m for 2014, GBP17.5m for
2013 and GBP23.7m for 2012. However, we have a significant war
chest which can be utilised to purchase more vehicles if they
become available at reasonable prices. Should such purchases be
achieved, the net underwriting figure will rise considerably on all
accounts between now and the time they come to close.
The Board considers that the risks attaching to the open
accounts of 2014 and prior are sufficiently well developed that no
further protection is required. However, the market remains very
competitive and we continue to take advantage of the availability
of reasonably priced stop loss reinsurance to mitigate any losses
that may arise on the 2015 account.
Following a successful year the Board is pleased to recommend a
final dividend of 1.5p per share together with a special dividend
of 3.6p per share payable to all shareholders on the register at 5
June 2015. In aggregate these amount to a total of GBP457,000,
compared to GBP384,000 in 2014. Furthermore the Board also intends
to put in place a Scrip Dividend Scheme to give shareholders the
opportunity to elect to receive dividends in the form of new
ordinary shares instead of cash and an appropriate resolution will
be proposed at the 2015 Annual General Meeting to give the Board
the requisite authority. The terms and conditions of the proposed
Scrip Dividend Scheme will be set out in a circular to be sent to
shareholders shortly.
If approved the dividend will be made in a single payment or
share issue on 3 July 2015.
Sir Michael Oliver
Non-executive Chairman
22 May 2015
Chief Executive's review
Syndicate profit distributions
Profit distributions from Helios Underwriting's ("HUW")
portfolio of syndicates continue to be made by reference to the
traditional three-year Lloyd's accounting. Using this measure of
performance, Helios Underwriting's portfolio significantly
outperformed the Lloyd's result as a percentage of capacity on the
2012 account at 31 December 2014 with a profit of 13.01% (Lloyd's:
11.93%) and is estimated to outperform Lloyd's on the 2013 account
with a profit of 8.5% at the mid-point estimate after eight
quarters (Lloyd's: 4.8%).
At this early stage of development on the 2014 account, a
complete set of published estimates is not available until the end
of May 2015. In March 2015 Hampden Agencies updated its forecast
profit for the 2014 year from its initial range of 0%-7.5% to
2.5%-10% for clients of Hampden Agencies on average.
HUW's 2014 underwriting result
The traditional method for comparing the performance of
competing (re)insurance companies is an analysis of the combined
ratio, which is the sum of net claims and expenses divided by net
earned premium. I am delighted to report that the combined ratio of
Helios Underwriting's portfolio for 2014 was 87.6% with the
underwriting result benefiting from another benign year for
catastrophe losses. Using this measure of performance, Helios
Underwriting outperformed both the Lloyd's market combined ratio of
88.1% (by 0.5 percentage points) and a peer group of eleven
competitor insurance and reinsurance companies whose average
combined ratio was 93.1% (by 5.5 percentage points). Helios
Underwriting has outperformed both the Lloyd's market and the
competitor group in each of the past four financial years.
HUW's capital position
Net tangible assets per share fell marginally by 3% during 2014,
principally as a result of the four acquisitions made in the year.
Year-end net tangible assets were GBP6.7m (GBP6.9m at year end
2013) with the balance of Lloyd's minimum capital requirement in
November 2014 of GBP13.1m (GBP11.1m in November 2013, being
supplied by letters of credit from quota share reinsurance capital
providers from which we benefit from both a fee and profit
commission).
Strategic objective and risk management strategy
2014 has been a year during which we have carried through our
stated strategy. The returns give us confidence that the strategy
is working, under difficult market conditions, for the benefit of
the shareholders.
During the year Helios successfully purchased four vehicles and,
following the year end, were able to purchase three more with a
fourth subject to completion. This succession of vehicles purchased
exceeded our expectations. However at the time of going to press a
quieter period seems to be upon us. Given the age profile of
potential vendors it seems reasonable to assume that mortality will
ensure further sales, although a satisfactory price can never be
guaranteed. It is important to point out that the main threat to
our strategy is that we are unable to secure sufficient purchases
at acceptable prices.
Our strategic objective remains to underwrite at Lloyd's with
superior capital efficiency, lower risk and higher return. In order
to achieve this the Company announced in 2012 that it was
purchasing quota share reinsurance. One of the reasons it did so
was in response to deteriorating market conditions. These
conditions have continued to worsen and we have re-examined our
strategy to ensure that it remains appropriate. I am pleased to say
that we believe that is the case. The essential features of the
strategy constitute an increased purchase of quota share to 70%,
from 50% initially, on the youngest year of account. The quota
share cover is collateralised by letters of credit up to the amount
of the indemnity.
We retain the maximum possible exposure to older, more mature
years of account which, generally speaking, show a consistent
pattern of improvement and, in our view, have a lower risk
attaching to them although, for example, at the time of going to
press, 2014 still contains significant unprotected (by us) risk.
Furthermore we will receive an annual fee from this arrangement as
well as a profit commission if appropriate.
I am pleased to report that the quota share arrangement has been
renewed for the 2015 account with all three reinsurers.
To further protect the Company from underwriting losses, Helios
purchases regular stop loss reinsurance from Hampden Insurance PCC
(Guernsey) Limited, a Guernsey Protected Cell which is reinsured
100% with a very large A+ rated international reinsurer. We buy the
maximum available to us with the ultimate aim that all vehicles are
covered, although for various reasons some are not covered in the
short term; for example, quotes might not be available for a recent
LLV purchase, in which case we will run that risk until such time
as it can be included. We buy cover in excess of a 10% of overall
premium limit ("OPL") deductible, which is designed to contain any
possible loss at an acceptable figure.
It is our judgement that should a single loss or series of
losses strike the insurance market then the strategy outlined above
will position us satisfactorily for the opportunities which would
no doubt become apparent. However, if the timing of those losses
are further out than might be expected, this strategy should
continue to produce satisfactory profits within an acceptable risk
profile.
Classes of business for 2015
The final important piece of the risk management matrix is to
ruthlessly focus on quality syndicates which have traditionally
outperformed in difficult times.
Helios Underwriting's portfolio for 2015 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. Currently, the balance of risk and
reward has now shifted from net sellers of reinsurance to net
buyers of reinsurance. Reinsurance exposure based on syndicate
business plans has therefore reduced for 2015 to 24.0% from 30.9%
in 2014 while US$ property insurance exposure has increased to
17.6% from 16.0% in 2014.
We continue to actively increase our exposure to higher quality
syndicates and ended the year with 54% of our capacity supporting
syndicates rated either "AA" (excellent) or "A" (very good), the
top two out of four syndicate ratings according to Hampden. HUW's
portfolio for 2015 continues to provide a good spread of business
across managing agents and classes of business. 24.6% of the
capacity is in the two syndicates rated "AA" by Hampden Agencies,
being Syndicates 609 and 2791, while Kiln Syndicate 510, rated "B",
is the largest holding at 17.1% of capacity. The top ten syndicates
comprise 82.5% of the portfolio. Apart from a small participation
on a life syndicate through a Nameco acquisition, one new syndicate
was joined for 2015 which writes catastrophe-exposed US middle
market commercial insurance risks.
In our view there is a correlation between quality and the price
these syndicates are likely to achieve at auction, which leaves us
exposed to a drop in value which would certainly occur if there
were a very significant, market-changing catastrophe. Our weighted
average value of capacity is GBP7.8m and it is not inconceivable
that this could reduce significantly in a major crisis.
Shareholders should be aware that such a reduction would affect our
adjusted net asset value at least in the short term.
Top ten syndicates for 2015
2015
--------------
2015 HUW 2015
syndicate portfolio HUW
capacity capacity portfolio
Syndicate Managing agent GBP'000 GBP'000 % of total Largest class
--------- ---------------------------- ---------- --------- ---------- --------------
Tokio Marine Kiln Syndicates
510 Limited 1,064,046 3,510 17.1 US$ property
Managing Agency Partners
2791 Limited 400,000 2,839 13.9 Reinsurance
US$ non-marine
623 Beazley Furlonge Limited 230,479 2,258 11.0 liability
Atrium Underwriters
609 Limited 420,863 2,194 10.7 US$ property
33 Hiscox Syndicates Limited 1,000,000 1,730 8.5 US$ property
Catlin Underwriting
6111 Agencies Limited 104,365 1,148 5.6 Reinsurance
ERS Syndicate Management
218 Limited 350,099 921 4.5 Motor
6104 Hiscox Syndicates Limited 65,210 863 4.2 Reinsurance
Pembroke Managing Agency
2014 Limited 100,000 800 3.9 Reinsurance
Asta Managing Agency
6117 Limited 38,290 641 3.1 Reinsurance
--------- ---------------------------- ---------- --------- ---------- --------------
Subtotal 16,904 82.5
--------------------------------------------------- --------- ----------
Other 3,556 17.5
--------------------------------------------------- --------- ----------
Total 2015 HUW portfolio 20,460 100.0
--------------------------------------------------- --------- ----------
Source: 2015 syndicate capacities sourced from Lloyd's.
Principal risks and uncertainties
The principal risks and uncertainties to the Group's future cash
flows will arise from the Group's participation in the results of
Lloyd's syndicates. These risks and uncertainties are mostly
managed by the syndicate managing agents. The Group's role in
managing these risks and uncertainties, in conjunction with Hampden
Agencies Limited, is limited to a selection of syndicate
participations, monitoring the performance of the syndicates and
the purchase of appropriate member level reinsurance.
The Group benefits from strategic collateralised quota share
arrangements on its 2013, 2014 and 2015 years of account.
The 2013 year of account arrangement is in respect of 50% of its
business with Bermudan reinsurer XL Re Limited ("XL Re", part of
global NYSE quoted insurer XL Group plc) through Hampden Insurance
PCC (Guernsey) Limited-Cell 6 ("Cell 6"), a special purpose
vehicle.
The 2014 year of account has a strategic collateralised quota
share arrangement in respect of 50% of its business with XL Re,
12.45% with Bermudan reinsurer Everest Reinsurance Bermuda Limited
("Everest", part of global NYSE quoted insurer Everest Re Group,
Ltd) and 7.55% with Guernsey reinsurer Polygon Insurance Co Limited
("Polygon") through Cell 6.
The Group anticipates these arrangements as strategic long-term
relationships. However, the contracts are annually renewable and
the Group has a contingency plan in place in the event of
non-renewal under both normal and adverse market conditions.
Further information on risk management is disclosed in Note 3 to
the Financial Statements.
The biggest single risk faced by insurers is deficient loss
reserves combined with inadequate pricing, which accounts for 44.3%
of insurance failures according to AM Best in its latest review of
insurer impairments in the US. Particularly for casualty business,
where the period or "tail" for a claim to be paid may be many years
after the receipt of premium, the feedback loop between reserving
and pricing is critical. Under-reserving leads to inadequate
pricing based on false profitability which then can be exacerbated
by multiple years of underwriting losses before pricing can be
corrected. Under-reserving usually arises due to unforeseen events
such as legislative, social or economic changes but can also be due
to risks which underwriters are aware of but which have not been
fully priced into the premium charged.
Rapid growth is the third largest reason for insurer
impairments, accounting for 12.3% of impairments, while investment
problems (6.6%) and catastrophe losses (7.1%) play a much smaller
role. Rapid growth can be associated with moving into new lines of
business where there is limited or no prior experience and
therefore could cause both increased pricing and reserving risk.
Cyber liability has the potential to fall into this category if not
managed carefully. Excessive growth in a softening/soft market when
compared with peers is usually a warning signal since that growth
is usually, by definition, accompanied by underwriting business at
a lower rate than the previous carrier.
HUW approaches the management of portfolio risk by diversifying
across classes of business, syndicates and managing agents and,
with the advice of Hampden Agencies, understanding the cycle
management and reserving strategy of each syndicate as well as the
rate environment. We also assess the downside in the event of a
major loss through monitoring the aggregate losses estimated by
managing agents to realistic disaster scenarios ("RDSs") prescribed
by Lloyd's. Risk is assessed in the context of potential return
with catastrophe exposure being actively managed dependent on
market conditions.
The RDS events comprise 16 compulsory events including a Florida
hurricane, a Californian earthquake and a Japanese earthquake,
together with six scenarios subject to de minimis reporting of the
more difficult to model liability or political risk scenarios. The
largest losses modelled for 2015 remain $125bn for a Florida
windstorm in both Miami Dade and Pinellas. The largest earthquake
loss modelled remains in California with a $78bn industry loss for
both Los Angeles and San Francisco. Syndicates are also required by
Lloyd's to report two further realistic events (Alternative A and
B) that represent potential material impact to the syndicate.
HUW's largest modelled exposures net of reinsurance at syndicate
level as a percentage of gross premiums have reduced for 2015
compared with 2014 before taking into account HUW's stop loss
reinsurance and quota share reinsurance protections. This reflects
a reduced reinsurance exposure which is consistent with the
reduction in margins for peak zone catastrophe exposures. The
largest for 2015 is the larger of two windstorm events consisting
of a north-east US hurricane, immediately followed by a South
Carolina hurricane at 28.2% of gross premium, net of reinsurance
(32.2% in 2014). The next largest is the Gulf of Mexico windstorm
at 25.1% net (30.4% in 2014).
All RDS exposures as a percentage of gross premium are within
the 30% net of reinsurance Hampden Agencies guidelines.
Corporate, social and environmental responsibility
The Group aims to meet the expectations of its shareholders and
other stakeholders in recognising, measuring and managing the
impacts of its business activities. The majority of the Group's
business activities are carried out by the syndicates in which
activities, including employment of syndicate staff, are the
responsibility of the syndicate managing agents. Each managing
agent also has responsibility for the environmental activities of
each syndicate although, by their nature, syndicates do not produce
significant environmental emissions.
For the reasons described above, the Board of Directors does not
consider it appropriate to monitor or report any performance
indicators in relation to corporate, social or environmental
matters.
Outlook
2014 has shown that our strategy works under current conditions.
We aim to do more of the same for 2015. We can see encouraging
possibilities under most circumstances, but the threat remains that
the satisfactory flow of target vehicles either dries up or the
price to acquire them becomes unaffordable. We believe neither is
likely but the possibility remains.
Nigel Hanbury
Chief Executive
22 May 2015
Lloyd's Advisers' report - Hampden Agencies
Good news for reinsurance buyers
We expect that Lloyd's will continue to underwrite profitably in
2015, although current competitive market conditions, particularly
in reinsurance, make Lloyd's more vulnerable to above average
catastrophe losses. Going forward, we forecast that the amplitude
of the underwriting cycle will be lower than in previous cycles due
to two factors. First, the claims paying ability of both insurers
and reinsurers has seldom been stronger when capital is compared
with premium income, which is likely to limit the upside in good
years. Second, in an era of low investment returns and declining
yields on the traditional bond investments favoured by insurers,
the long-term loss of investment return remains a force for
underwriting discipline and should limit the downside in each cycle
trough.
However, the reduction in bond investment yields has contributed
to a significant influx of alternative capital into the catastrophe
reinsurance sector as institutional third party investors supply
capital to the reinsurance sector in a "search for yield".
Alternative capital has contributed to reduced rates for
reinsurance and a consequent reduction in prospective underwriting
returns from reinsurance. Today, the risk reward ratio favours net
buyers of reinsurance as opposed to net sellers of reinsurance,
with syndicates able to buy significantly better reinsurance cover
and stop loss reinsurance being available again to clients of
Hampden for the 2014 and 2015 accounts. Our target result for the
2015 three-year account is a modest profit in the range of 0% to 5%
of capacity assuming an average year for major losses.
Lloyd's competitive position remains strong
Lloyd's competitive position remains strong as we enter 2015.
Underwriting discipline is evidenced by the fact that 27.5% of
syndicates have de-empted their underwriting capacity for 2015
compared with 12.6% of syndicates de-empting for 2014. Total market
underwriting capacity at 1 January 2015 reduced by just under 1% to
GBP26.2bn. In June 2014 Fitch Ratings upgraded Lloyd's to "AA-"
(very strong) reflecting its expectation that Lloyd's future cross
cycle underwriting performance will be more favourable than that
achieved by Lloyd's historically, both in absolute terms and
compared with peers.
Catastrophe losses have been benign in both 2013 and 2014
Reported financial results for both insurers and reinsurers in
2013 and 2014 have benefited from below average catastrophe losses
with Swiss Re Sigma estimating total insured losses (natural
catastrophe and man-made) of $35bn in 2014 compared with $45bn in
2013. Insured catastrophe losses in 2014 were 45% lower than the
ten-year average to 2013 of $64bn a year and 22% lower than in
2013. Benign catastrophe losses have contributed to an artificially
rosy picture of financial results and also played a part in
increasingly competitive underwriting conditions, particularly in
the reinsurance sector.
In 2014 the North Atlantic hurricane season was relatively mild
with no major hurricane making landfall in the US, the ninth year
running that this has happened. However, Mexico was impacted by
$1.6bn of insured losses from Hurricane Odile in September 2014,
making Odile the second most costly catastrophe event in Mexico
after Hurricane Wilma in 2005. The largest losses for the year were
a spate of strong storms with hailstones in mid-May hitting many
parts of the US over a five day period, resulting in insured losses
of $2.9bn. The next largest losses were in Europe in June with wind
and Hailstorm Ela, which caused significant damage to properties
and vehicles in France, Germany and Belgium, resulting in overall
insured losses of $2.7bn.
Lloyd's net ultimate claims for 2014 major losses at 31 December
2014 were only GBP670m, which compares with Lloyd's 15-year average
(excluding 2014) of GBP1,617m a year indexed for inflation to 2014.
In 2014 Lloyd's issued ten major loss codes with three of those
affecting the aviation war market where exposed policies were
underwritten into the 2013 underwriting year of account. These
aviation war losses included the Malaysia Airlines loss, MH370, on
8 March 2014 where the whole loss has been shared equally between
the hull underwriters and the aviation war underwriters, and the
second Malaysia Airlines loss, MH017, over Ukraine on 17 July 2014.
The largest insured event was a terrorist attack at Tripoli Airport
in Libya between 13 July and 22 July 2014 where various aircraft
were damaged during fighting, with Willis reporting that the hull
war reserve for the losses is estimated at $407m.
Late in the year, on 28 December 2014, the Air Asia loss led by
Allianz is estimated at $100m to $140m and will affect the 2014
year of account. Aviation losses during 2014 dominated Lloyd's
major losses on an annual accounting basis costing GBP310m, net of
reinsurance out of a total of GBP670m of major losses.
Alternative capital is the most significant trend to affect the
reinsurance market
The most significant trend to affect the reinsurance industry in
recent years has been the development and growing acceptance of
alternative "third party" sources of capital provided by
institutional investors in the form of catastrophe bonds,
"sidecars" and collateralised structures. During 2014 the growth in
alternative capital accelerated compared with 2012 and 2013 with
reinsurance broker Guy Carpenter estimating that a further $15bn of
alternative capital was raised during the year. Total alternative
capital is now $60bn, which is equivalent to 18% of total
reinsurance capital compared with 15% at year end 2013. Aon
Benfield estimates that $100bn of new alternative capital will have
entered the market in the six years from 2013 to 2018. This would
bring total alternative capital close to $150bn by year end 2018.
As recently as 2008, alternative capital totalled only 8% of total
reinsurance capital compared with 18% at year end 2014.
The impact of alternative capital on the property catastrophe
sector of the reinsurance market has been dramatic. Its influence
is particularly significant for low probability loss events such as
one expected every 250 years, or a series of events with the same
probability, where it now has a market share according to broker
Aon Benfield of between 40% and 50%. The impact on pricing has been
significant. Willis Re estimates that the expected return (the
difference between the coupon and the expected loss from
catastrophe bonds with US wind exposures) fell by 26% from 6.18% in
2013 to only 4.5% in 2014.
The balance of risk and reward has now shifted from net sellers
of reinsurance to net buyers of reinsurance. The scale of the
impact on traditional reinsurance profit margins is analysed by
Dowling & Partners, which expects a 90% combined ratio
(equivalent to a 10% underwriting profit) on Florida business at
June 2015 compared with 60% in June 2012. This represents a 75%
reduction in profits over three years.
Supply - continues to outpace demand
Reinsurance capital grew to $540bn by the end of 2013, an
increase of 7% or $40bn since the end of 2012, according to
reinsurance broker Aon Benfield. At the end of 2014 there was a
further increase of 6% or $35bn to a record $575bn including $64bn
of deployed alternative capacity. Reinsurance capital has increased
by 70% since year end 2008 when it was $340bn. The policyholders'
surplus of the US property casualty insurance industry, a proxy for
underwriting capacity, grew by 11.3% to a record $653.3bn at year
end 2013. At 30 September 2014 policyholders' surplus had grown by
a further $20.6bn to $673.9bn, a rise of 3.2%. US insurers' capital
has increased by 48% since year end 2008. The premium to surplus
ratio, a measure of the claims paying ability of the industry, fell
to a near record low of $1 of surplus for every $0.73 of net
written premium (a ratio of 1 is strong; a lower ratio is even
stronger).
Supply measured by excess capital presents a significant
challenge to insurance and reinsurance company managements.
Reinsurance companies are particularly challenged in today's
environment by the commoditisation of the market for peak property
catastrophe reinsurance. Barriers to entry are higher for insurance
lines of business, particularly casualty, although Aon Benfield
speculates that alternative capital's "next most likely disruptive
move will be in property insurance and business interruption".
Choices faced by company managements are centred on four key
strategies. Our favoured strategy is capital management with excess
capital being repaid to shareholders through share buy-backs or
special dividends. A second approach is organic growth but this is
difficult to achieve in today's competitive rating environment
other than in selected lines such as cyber liability. A third
approach and an alternative to organic growth is to acquire, and in
part this explains the increased merger and acquisition activity we
have seen in the industry in 2014 and 2015. 2014 saw the first
annual increase in transaction volume since 2011 with a 21%
increase in mergers and acquisitions in the global insurance
industry, rising from 319 transactions in 2013 to 384 in 2014. Like
M&A in other sectors, insurance industry, M&A has had mixed
results. A KPMG survey suggested that just 17% of M&A deals
added value, 30% made no difference, while 53% destroyed values.
The fourth approach is to be patient and wait for better
underwriting opportunities.
Demand - opportunity to absorb risk from cyber liability
Insurance demand is a combination of two factors. First is
exposure growth which is driven mainly by economic and demographic
growth. 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, began to recover in 2010, accelerating to 4.6% in 2013.
In the first nine months of 2014 US net written premiums rose by
3.9% over the same period in 2013. The second is rate. During
calendar year 2014 US property and casualty rates stabilised with
rates up marginally in the first and third quarters but down
marginally in the second and fourth quarters. The main impetus for
net written premium growth is the recovering US economy as the
number and value of insurable interests such as property,
employment and liability risks increase. However, the recovery from
the 2007-2009 worldwide great recession has been weak with an
annual average in the US of 2.3% real GDP gains from the trough in
2009. This is around half the level of economic growth which would
normally occur after a recession.
US nominal GDP growth has averaged just 3.5% per annum in the
last seven years which is well below its 6.6% per annum average
since World War Two. With low inflation rates across the globe in
2015 nominal growth is not going to be boosted by inflation. As of
January 2015 14 of the OECD list of 34 major economies have
year-on-year consumer price inflation ("CPI") changes of zero or
less while another 13 are less than 1%. Lloyd's remains heavily
dependent on US income as a source of business with 44% of income
being US and Canada domiciled and an estimated 60% of income being
US dollar denominated in 2014 based on year and exchange rates.
Lloyd's is well placed to take advantage of its leading position
in the excess and surplus ("E&S") lines segment of the US
insurance market where non-standard insurance risks are placed. In
2013, according to A M Best, Lloyd's had an 18.8% share (18.0% in
2012) of the US E&S market with its next biggest competitor
being AIG with 12.8% (14.5% in 2012). Lloyd's total E&S premium
grew to $7.1bn in 2013, a rise of 13%, having benefited from a
combination of GDP growth, reduced competition from AIG and an
increased flow of business as admitted carriers moved away from
underwriting more difficult risks. Lloyd's reports a further
increase of 15% to over $8bn in 2014.
Lloyd's remains committed to developing its business in emerging
markets, although income in many of these countries will be
affected in sterling terms by depreciating currencies as well as
the fact that the main engine for growth in insurance premiums in
emerging countries remains auto insurance, where Lloyd's has
limited involvement. One potential bright area of innovation where
Lloyd's is a leading player is the market for cyber insurance. The
leading player in the Lloyd's market is Beazley, whose Breach
Response product is the fastest growing class of business for
Beazley - Syndicate 623 is the third largest syndicate in Helios
Underwriting's portfolio. While great care needs to be taken in
managing exposures in a class of business where actuarial data is
limited, US cyber insurance income for all carriers is estimated to
have risen from $1.3bn in 2013 to $2bn in 2014 with further strong
growth anticipated this year.
The investment environment - reinvestment yields continue to
fall
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. The current era is one of low inflation and low
interest rates. Already in 2015 a total of 24 central banks have
reduced interest rates including India, Canada, Russia, Australia,
Denmark, Sweden, Switzerland and China. In Denmark, Sweden and
Switzerland central bank interest rates are negative. In 300 years,
the Bank of England base rate has never been lower than the current
0.5%. The current government bond yield environment is described by
Bank of America Merrill Lynch as "the death of zero" with 2015
having a theme of negative yield. This follows the story of no
yield in 2014 and low yields in 2013. Ten countries now have
negative yielding government bonds including EUR1.4 trillion in the
Eurozone in January 2015 compared with almost zero in June 2014,
and EUR2.4 trillion in Japan in January 2015 compared with zero in
October 2014.
The yield on invested assets for insurers, which are typically
focused on safe government and corporate bonds, continues to
decline as the yield on maturing bonds generally exceeds yields on
new investments. Asset managers Conning & Company estimate that
US insurers' book yield has reduced from 4.42% prior to the Great
Recession to an estimated 3.28% in 2014, a fall of 114 basis
points. The scenario of reducing investment yields continues to be
a significant factor encouraging underwriting discipline. For every
1% reduction in investment yield an insurer wishing to maintain its
return on equity for its shareholders must reduce its combined
ratio by a certain percentage, which varies by line of business.
The Insurance Information Institute estimates that the combined
ratio for reinsurance business needs to fall by 7.3% compared with
a fall of only 1.8% for personal lines business. However, low
investment yields also raise the prospect of insurers making
riskier investments on the asset side of their balance sheet with
the objective of boosting returns through taking on more asset
risk.
Reducing bond yields are symptomatic of a deflationary
environment with 19 of the 34 OECD major countries having
year-on-year declines in consumer prices as at January 2015. In the
US, the Federal Reserve's favoured measure of inflation/deflation
(the PCE Deflator) fell by 0.2% in both November and December 2014.
We view deflation as less of a threat to insurers than inflation,
other than recession sensitive lines of business, should recession
follow deflation. In particular, reserves may develop beneficially
to become "redundant" as reserving trend assumptions prove
pessimistic in direct contrast to deficiencies which follow
unexpected bouts of inflation.
Current yields are the lowest since the 1950s
US Treasury yields have been falling in every decade since the
1980s. During the 1980s the average yield of the US Treasury
ten-year note was 10.6%, falling to 6.7% during the 1990s. By the
2000s it was 4.5% and in this decade so far the average is 2.5%.
The yield in this decade averaging 2.5% is consistent with the
1950s, when yields averaged 3.2%. That was a decade when the US
P&C industry made an underwriting profit (a combined ratio of
lower than 100%) in eight years out of ten. In periods when yields
have been higher, the industry has tended to underwrite at a
loss.
The Treasury yield curve is close to its most depressed level in
50 years with a three-year duration required to get a positive
yield of at least 1%. The impact of the financial crisis on
achievable investment returns across the yield curve can be seen in
the chart below [included in full Financial Statements], which
shows pre-crisis levels for bonds with a duration of one month
right up to 30 years, which varied from 4.82% to 5.11%, an almost
flat yield curve. Compare this to the yield curve today with higher
yields for duration risk. Only 0.02% is earned on a one-month
Treasury bill, while the 30 year maturity yields are currently
2.47% (as at 1 April 2015). We also show the yield curve in July
2012, when yields were the lowest since July 2007.
Rating - opportunities for buyers of reinsurance
2015 marks the third successive year of property catastrophe
reinsurance rate reductions in Lloyd's largest market, the US. The
principal driver of underwriting profitability is the level of
premium rates combined with policy terms and conditions.
Reinsurance margins are under pressure, not just from reductions of
rate which compound over time but also from a relaxation in terms
and conditions whose effects are more difficult to measure.
Reductions in reinsurance rates are bad news for net sellers of
reinsurance but good news for net buyers of reinsurance who are
able to take advantage of more cost effective outwards reinsurance
and reduce their net exposures.
Reinsurance rate decreases at 1 January 2015 averaged as much as
or higher than the decreases experienced in 2014. Guy Carpenter's
World Rate On Line Index fell by 11% in 2014 and is down by 11.4%
at 1 January 2015 at a level of 195. Since its last peak in 2006
the World Rate On Line Index has fallen by 33.33%. Rate decreases
at 1 January 2015 averaged as much as or more than the decreases
experienced in 2014.
Apart from property catastrophe reinsurance, offshore energy
rates are under the most pressure while aviation rates continue to
fall despite an estimated $1.6bn of market losses in 2014. UK fleet
motor rates continue to increase in contrast to private car, where
the AA reports rates were down 10% in the year to 31 December 2014,
despite marginal increases in both quarter three and quarter four,
following three years of rate reductions. Most property and
casualty insurance rates in the US were stable in 2014 apart from
"big ticket" commercial property. Property underwriters have been
able to take advantage of cheaper reinsurance.
The upturn in property and casualty insurance rates in the US
began in the third quarter of 2011 following nearly eight years of
rate decreases. During 2014 rates stabilised, ending the year up by
0.4%, with small increases in the first and third quarters
compensated by small rate decreases in the second and fourth
quarters, using data supplied by the Council of Insurance Agents
and Brokers ("CIAB"). However, by Q1 2015 the CIAB reports that
rate reductions across all accounts averaged 2.3%.
US pricing cycle likely to be more muted than in previous
cycles
Our view is that the US insurance pricing cycle is likely to be
more muted than it was in the past with a reduced amplitude of both
rate peaks and rate troughs. It is also likely in the current low
interest rate environment that the duration of cycles will be
shorter with the industry becoming more efficient at analysing and
pricing risks. Like rating, cash flow has also peaked but is also
remaining stable, indicating that for 2015 and 2016 margins will
remain acceptable with the added benefit of continued prior year
releases. However, prior year releases are expected to reduce as
soft market accident years since 2007 are not considered as well
reserved as the hard market years between 2002 and 2006.
Prospects for 2015
Our formal profit target for the 2015 three-year account is a
range of 0% to 5% of underwriting capacity, which is lower than the
0% to 7.5% on capacity range we set in advance for the 2014
account, which we have since upgraded to 2.5% to 10.0% due to the
benign catastrophe losses in calendar year 2014. Each September we
update our assessment of market conditions and in our forecast
assume a level of major losses, such as catastrophes, which is
equal to the long-term average of each of the syndicates within the
Hampden Agencies portfolio, to arrive at a target underwriting
result. So far in 2015 the assessment we made last September about
the rating environment is proving correct in that the trend of rate
reductions seen in most classes of business during 2014 is
continuing into 2015.
In setting our profit target, we aim to be cautious in our
forecasting. The profit target is for the pure year only and
therefore excludes prior year reserve movements. Apart from 2010,
which was affected by a series of earthquake and weather related
catastrophe losses in each of the years 2008, 2009 and 2011 through
to 2013, Hampden's pure year profit target set in advance of each
underwriting year has been lower than the results and estimates for
the Hampden portfolio.
Reduced profitability from underwriting reinsurance business is
bad news for net sellers of reinsurance but good news for net
buyers of reinsurance, who are now able to buy much more cost
effective reinsurance to protect the downside in an increasingly
challenging market. With income reducing, control of expenses
becomes ever more important, particularly as it coincides with
reducing investment returns. While Hampden's target profit does not
include potential prior year releases, bottom line results in the
current rating environment are becoming increasingly dependent on
conservative reserving. Where reserving is merely adequate or worse
the current environment leaves little room to hide.
Competitive market conditions also coincide with the balance of
power shifting from underwriters to brokers. Today, the growing
power of intermediaries is a theme which cannot be ignored as they
seek to capture a larger share of the economic pie from
transactions through fees for services. Time will tell whether
broker facilities are simply another symptom of a soft market or a
more permanent change which enables both brokers and underwriters
to reduce costs and streamline the placement process. Such broker
facilities are likely to favour the larger syndicates in the
Lloyd's market, which are favoured by Helios Underwriting, with
smaller syndicates being squeezed.
Hampden Agencies
22 May 2015
Consolidated income statement
Year ended 31 December 2014
Year ended Year ended
31 December 31 December
2014 2013
Note GBP'000 GBP'000
---------------------------------------------------------- ------- -----------
Gross premium written 17,062 11,938
Reinsurance premium ceded (3,418) (2,251)
---------------------------------------------------------- ------- -----------
Net premium written 13,644 9,687
---------------------------------------------------------- ------- -----------
Change in unearned gross premium provision (243) (29)
Change in unearned reinsurance premium provision (28) 43
---------------------------------------------------------- ------- -----------
(271) 14
---------------------------------------------------------- ------- -----------
Net earned premium 13,373 9,701
Net investment income 516 208
Other income 29 -
---------------------------------------------------------- ------- -----------
Revenue 13,918 9,909
---------------------------------------------------------- ------- -----------
Gross claims paid (7,435) (5,867)
Reinsurers' share of gross claims paid 1,375 1,134
---------------------------------------------------------- ------- -----------
Claims paid, net of reinsurance (6,060) (4,733)
---------------------------------------------------------- ------- -----------
Change in provision for gross claims 464 1,148
Reinsurers' share of change in provision for gross claims (319) (478)
---------------------------------------------------------- ------- -----------
Net change in provision for claims 145 670
--------------------------------------------------------- ------- -----------
Net insurance claims and loss adjustment expenses (5,915) (4,063)
Expenses incurred in insurance activities (5,800) (4,042)
Other operating expenses (973) (524)
---------------------------------------------------------- ------- -----------
Operating expenses 6(6,773) (4,566)
--------------------------------------------------------- ------- -----------
Operating profit before goodwill and amortisation 1,230 1,280
Goodwill on bargain purchase 785 133
Impairment of goodwill - (98)
Amortisation of syndicate capacity 8 (881) (462)
--------------------------------------------------------- ------- -----------
Profit before tax 1,134 853
Income tax charge (91) (122)
--------------------------------------------------------- ------- -----------
Profit attributable to equity shareholders 1,043 731
--------------------------------------------------------- ------- -----------
Earnings per share attributable to equity shareholders
Basic and diluted 7 12.23p 8.57p
--------------------------------------------------------- ------- -----------
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 2014
31 December 31 December
2014 2013
Note GBP'000 GBP'000
---------------------------------------------------- ------- -----------
Assets
Intangible assets 8 3,770 2,929
Reinsurance assets:
- reinsurers' share of claims outstanding 4,682 4,154
- reinsurers' share of unearned premium 1,014 800
Other receivables, including insurance receivables 16,379 11,554
Prepayments and accrued income 2,067 1,569
Financial assets at fair value 22,977 22,213
Cash and cash equivalents 3,605 1,066
---------------------------------------------------- ------- -----------
Total assets 54,494 44,285
---------------------------------------------------- ------- -----------
Liabilities
Insurance liabilities:
- claims outstanding 26,179 21,596
- unearned premium 8,005 5,968
Deferred income tax liabilities 2,137 1,656
Other payables, including insurance payables 6,213 4,116
Accruals and deferred income 1,475 1,123
---------------------------------------------------- ------- -----------
Total liabilities 44,009 34,459
---------------------------------------------------- ------- -----------
Shareholders' equity
Share capital 853 853
Share premium 6,996 6,996
Retained earnings 2,636 1,977
--------------------------------------------------- ------- -----------
Total shareholders' equity 10,485 9,826
---------------------------------------------------- ------- -----------
Total liabilities and shareholders' equity 54,494 44,285
---------------------------------------------------- ------- -----------
Consolidated statement of cash flows
Year ended 31 December 2014
Year ended Year ended
31 December 31 December
2014 2013
GBP'000 GBP'000
-------------------------------------------------------------- -----------
Cash flows from operating activities
Results of operating activities 1,134 853
Interest received (2) (2)
Investment income (435) (381)
Goodwill on bargain purchase (785) (133)
Impairment of goodwill - 98
(Profit)/loss on sale of intangible assets (36) 8
Amortisation of intangible assets 881 462
Income tax paid (33) (86)
Change in fair value of investments 156 137
Changes in working capital:
- (increase)/decrease in other receivables (706) 2,687
- increase/(decrease) in other payables 1,164 (1,336)
- net decrease in technical provisions (109) (3,273)
----------------------------------------------------- ------- -----------
Net cash inflow/(outflow) from operating activities 1,229 (966)
----------------------------------------------------- ------- -----------
Cash flows from investing activities
Interest received 2 2
Investment income 435 381
Purchase of intangible assets (439) (3)
Proceeds from disposal of intangible assets 504 2
Net inflow of financial assets at fair value 5,122 3,276
Acquisition of subsidiaries, net of cash acquired (3,930) (3,070)
----------------------------------------------------- ------- -----------
Net cash inflow from investing activities 1,694 588
----------------------------------------------------- ------- -----------
Cash flows from financing activities
Dividends paid (384) -
----------------------------------------------------- ------- -----------
Net cash outflow from financing activities (384) -
----------------------------------------------------- ------- -----------
Net increase/(decrease) in cash and cash equivalents 2,539 (378)
Cash and cash equivalents at beginning of year 1,066 1,444
----------------------------------------------------- ------- -----------
Cash and cash equivalents at end of year 3,605 1,066
----------------------------------------------------- ------- -----------
Cash held within the syndicates' accounts is GBP1,059,000 (2013:
GBP980,000) of the total cash and cash equivalents held at the year
end of GBP3,605,000 (2013: GBP1,066,000). The cash held within the
syndicates' accounts is not available to the Group to meet its
day-to-day working capital requirements.
Statements of changes in shareholders' equity
Year ended 31 December 2014
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 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
-------------------- -------- -------- ------- -------
At 1 January 2014 853 6,996 1,977 9,826
Dividends paid - - (384) (384)
Profit for the year - - 1,043 1,043
-------------------- -------- -------- ------- -------
At 31 December 2014 853 6,996 2,636 10,485
-------------------- -------- -------- ------- -------
Notes to the financial statements
Year ended 31 December 2014
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 financial information set out in this announcement are set out
in the full financial statements for the year ended 31 December
2014 (the "Financial Statements"). These policies have been
consistently applied to all the years presented, unless otherwise
stated.
The Financial Statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as endorsed by
the European Union ("EU"), IFRIC interpretations and those parts of
the Companies Act 2006 applicable to companies reporting under
IFRS.
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
participation management activities Total
Year ended 31 December 2014 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------ ------- ---------- ---------- -------
Net earned premium 13,838 - (465) 13,373
Net investment income 473 43 - 516
Other income - - 29 29
Net insurance claims and loss adjustment
expenses (5,915) - - (5,915)
Expenses incurred in insurance activities (5,800) - - (5,800)
Other operating expenses (87) - (886) (973)
Goodwill on bargain purchase - - 785 785
Impairment of goodwill - - - -
Amortisation of syndicate capacity (see
Note 8) - - (881) (881)
------------------------------------------ ------- ---------- ---------- -------
Profit before tax 2,509 43 (1,418) 1,134
------------------------------------------ ------- ---------- ---------- -------
Other
Syndicate Investment corporate
participation management activities Total
Year ended 31 December 2013 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------ ------- ---------- ---------- -------
Net earned premium 9,723 - (22) 9,701
Net investment income 247 (39) - 208
Other income - - - -
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 (see
Note 8) - - (462) (462)
------------------------------------------ ------- ---------- ---------- -------
Profit before tax 1,916 (39) (1,024) 853
------------------------------------------ ------- ---------- ---------- -------
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 2014 other corporate activities
totalling GBP465,000 (2013: GBP22,000 - 2013 year of account only)
presents the 2013 and 2014 years of account net Group quota share
reinsurance premium payable to Hampden Insurance PCC (Guernsey)
Limited - Cell 6. 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
Group quota share reinsurance contracts with Hampden Insurance PCC
(Guernsey) Limited - Cell 6 for the 2015 underwriting year of
account.
4. Operating profit before goodwill and amortisation
Underwriting year of account*
------------------------------------------------------
2011 Pre- Corporate Other
and prior 2012 2013 2014 acquisition reinsurance corporate Total
Year ended 31 December GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2014
--------------------------- ------- ------- ------- ----------- ------------ ---------- ------- -------
Gross premium written - 107 1,574 16,655 (1,274) - - 17,062
--------------------------- ------- ------- ------- ----------- ------------ ---------- ------- -------
Net premium written - 89 1,373 13,858 (1,049) (627) - 13,644
--------------------------- ------- ------- ------- ----------- ------------ ---------- ------- -------
Net earned premium - 744 6,603 7,707 (1,054) (627) - 13,373
Net investment income - 256 110 47 (93) - 196 516
Other income - - - - - - 29 29
Net insurance claims
and loss adjustment
expenses - 980 (3,088) (4,283) 476 - - (5,915)
Operating expenses - (532) (2,206) (3,105) 445 - (1,375) (6,773)
--------------------------- ------- ------- ------- ----------- ------------ ---------- ------- -------
Operating profit before
goodwill and amortisation - 1,448 1,419 366 (226) (627) (1,150) 1,230
--------------------------- ------- ------- ------- ----------- ------------ ---------- ------- -------
Underwriting year of account*
------------------------------------------------------
2010 Pre- Corporate Other
and prior 2011 2012 2013 acquisition reinsurance corporate Total
Year ended 31 December GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2013
--------------------------- ------- ------- ------- ----------- ------------ ---------- ------- -------
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
Other income - - - - - - - -
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
--------------------------- ------- ------- ------- ----------- ------------ ---------- ------- -------
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
charges.
5. Net investment income
Year ended Year ended
31 December 31 December
2014 2013
GBP'000 GBP'000
------------------------------------------------------------------- -----------
Investment income 435 381
Realised gains on financial assets at fair value through
profit or loss 279 5
Unrealised losses on financial assets at fair value through
profit or loss (156) (137)
Investment management expenses (44) (43)
Bank interest 2 2
------------------------------------------------------------ ----- -----------
Net investment income 516 208
------------------------------------------------------------ ----- -----------
6. Operating expenses (excluding goodwill and amortisation)
Year ended Year ended
31 December 31 December
2014 2013
GBP'000 GBP'000
-------------------------------------------------------------------- -----------
Expenses incurred in insurance activities 5,800 4,042
Exchange differences 22 (116)
Directors' remuneration 238 236
Acquisition costs in connection with the new subsidiaries
acquired in the year 51 49
Professional fees 505 206
Administration and other expenses 75 81
Auditors' remuneration:
- audit of the Parent Company and Group Financial Statements 32 29
- audit of subsidiary company Financial Statements 30 22
- audit related assurance services 20 17
------------------------------------------------------------- ----- -----------
Operating expenses 6,773 4,566
------------------------------------------------------------- ----- -----------
7. Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders after tax 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
2014 2013
--------------------------------------------------------- -----------
Profit for the year after tax GBP1,043,000 GBP731,000
------------------------------------------- ------------ -----------
Weighted average number of shares in issue 8,526,948 8,526,948
------------------------------------------- ------------ -----------
Basic and diluted earnings per share 12.23p 8.57p
------------------------------------------- ------------ -----------
8. Intangible assets
Goodwill Syndicate Total
capacity
GBP'000 GBP'000 GBP'000
--------------------------------------- --------- ---------- --------
Cost
At 1 January 2013 - 3,221 3,221
Additions 98 3 101
Disposals - (37) (37)
Impairment (98) - (98)
Acquired with subsidiary undertakings - 1,927 1,927
--------------------------------------- --------- ---------- --------
At 31 December 2013 - 5,114 5,114
--------------------------------------- --------- ---------- --------
At 1 January 2014 - 5,114 5,114
Additions - 439 439
Disposals - (724) (724)
Impairment - - -
Acquired with subsidiary undertakings - 2,240 2,240
--------------------------------------- --------- ---------- --------
At 31 December 2014 - 7,069 7,069
--------------------------------------- --------- ---------- --------
Amortisation
At 1 January 2013 - 1,424 1,424
Charge for the year - 462 462
Disposals - (28) (28)
Acquired with subsidiary undertakings - 327 327
--------------------------------------- --------- ---------- --------
At 31 December 2013 - 2,185 2,185
--------------------------------------- --------- ---------- --------
At 1 January 2014 - 2,185 2,185
Charge for the year - 881 881
Disposals - (256) (256)
Acquired with subsidiary undertakings - 489 489
--------------------------------------- --------- ---------- --------
At 31 December 2014 - 3,299 3,299
--------------------------------------- --------- ---------- --------
Net book value
As at 31 December 2012 - 1,797 1,797
As at 31 December 2013 - 2,929 2,929
--------------------------------------- --------- ---------- --------
As at 31 December 2014 - 3,770 3,770
--------------------------------------- --------- ---------- --------
9. 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: 85 Gracechurch Street, London EC3V 0AA
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
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