Interim Results
Beazley Group PLC
30 July 2007
Press release
Beazley announces strong results for first half
Beazley Group plc, interim results for the six months ended 30 June 2007
London, 30 July, 2007
• Record profit before tax of £60.2m (2006: £28.3m)
• Gross premiums written up 10% to £434.1m (2006: £394.3m)
• Combined ratio 87% (2006: 90%)
• Gross written premiums from US operations up to US$77.9m (2006:
US$27.4m)
• Prior year reserve releases of £25.2m (2006: £11.3m)
• Dividend increased 25% to 2.0p (2006: 1.6p)
6 months 6 months Year
ended ended ended
30 Jun 2007 30 Jun 2006 31 Dec 2007
Gross premiums written (£m) 434.1 394.3 745.1
Net premiums written (£m) 325.6 255.2 574.3
Net earned premiums (£m) 290.4 225.7 509.6
Profit before tax (£m) 60.2 28.3 86.8
Profit before tax and foreign 60.6 36.2 96.2
exchange adjustments on non
monetary items (£m)
Profit after tax (£m) 41.6 19.9 59.9
Earnings per share (p) 11.6 5.5 16.8
Dividend per share (p) 2.0 1.6 4.8
Net assets per share (p) 98 80 89
Andrew Beazley, Chief Executive of Beazley, said:
'Our businesses performed well in the first half of 2007. Our Lloyd's
underwriters continue to develop attractive business in a market where rates,
although under pressure, remain at historically high levels. Our performance in
the first half of the year provides a solid basis for continued selective but
profitable underwriting during the second half.'
'Our US operations, now just over two years old, are making an increasing
contribution to our diversified and specialist business range, supporting our
long term cycle management strategy. Beazley was the first Lloyd's business to
establish a presence in the US admitted market. Earlier this year we began
underwriting commercial property insurance on an admitted basis, complementing
the management and professional liability lines that are now beginning to show
strong traction.'
ENDS
For further information, please contact:
Beazley Group plc
Andrew Beazley
Andrew Horton
T: +44 (0)20 7667 0623
Finsbury
Simon Moyse
Amanda Lee
T: +44 (0)20 7251 3801
Notes to editors:
Based in London, since 1986, Beazley (BEZ.L) is the parent company of a global
specialist risk insurance and reinsurance business operating through Lloyd's
syndicates 2623 and 623 in the UK and Beazley Insurance Company, Inc., a US
admitted carrier in all 50 states. Both syndicates are rated A by A.M. Best with
an aggregate capacity for 2006 of £830m (over US$1.4bn). Beazley Insurance
Company, Inc. is rated A- by A.M. Best.
Beazley is a market leader in many of its chosen lines of business, which
include professional indemnity, marine, reinsurance, commercial property and
personal lines.
Further information about us is available at www.beazley.com
CHIEF EXECUTIVE'S STATEMENT
We are delighted to announce record profits for the first six months of 2007 of
£60.2m (2006: £28.3m). High levels of premiums written through our Lloyd's
syndicates, a substantial increase in contribution from our US operations and a
benign claims environment have contributed to a good underwriting performance.
Our investment income has risen to £32.6m (2006: £19.1m), a return of 5.2%
(2006: 4.8%).
Underwriting
Gross premiums written have increased by 10% to £434.1m (2006: £394.3m), while
net earned premiums have risen by 29% to £290.4m (2006: £225.7m). Written
premiums were impacted by the devaluation of the US dollar, which for the period
in question has fallen in value against sterling by approximately 11%. Net
earned premiums have increased due to several factors. Firstly, our share of the
combined syndicate premiums written rose from 70% in 2005 to 81% in 2007.
Secondly, our reinsurance costs fell from £139.1m to £108.5m in 2007. Finally,
our US operation continues to gain traction, generating written premiums of
$77.9m in the first six months of 2007(2006: $27.4m).
Our combined ratio has reduced to 87% (2006: 90%). Within this the claims ratio
has reduced from 56% to 51% in 2007 and our expense ratio has developed as we
expected with an increase of 2% to 36%.
In 2007 we released £25.2m (2006: £11.3m) of prior year claims reserves. We made
releases from the reserves we were holding at the end of 2006 within both our
catastrophe exposed businesses and our specialty lines portfolio. There were few
large claims in the first half of 2007, which enabled us to release £7.3m from
our reinsurance, marine and commercial property accounts in respect of policies
written in 2006. Our specialty lines claims reserves have also continued to
develop well enabling us to make releases of £12.8m across a number of
underwriting years.
Rating environment
2001 2002 2003 2004 2005 2006 2007 YTD
Specialty Lines 100 135 160 167 166 165 161
Property 100 126 131 125 123 138 141
Reinsurance 100 143 149 148 149 190 205
Marine 100 118 129 128 131 142 133
Total 100 131 145 145 146 154 153
Over the past six months we have experienced an increasingly competitive rating
environment and we expect this trend to continue. The property and reinsurance
businesses have continued to see rate increases for catastrophe exposed business
in areas such as Florida and the Gulf of Mexico whereas other parts of our
account have experienced rate reductions. The combined effect is a reduction of
only 1% across our portfolio which demonstrates the advantage of a diversified
and specialist account. From an overall trading perspective rating levels in
many of our lines are still at historic highs and continue to provide attractive
underwriting opportunities. Nonetheless, we expect the trading environment to be
more challenging during the coming months. However, we are also confident of the
overall rating levels in our main areas of expertise remaining at levels that
deliver good underwriting profits.
Our largest account, specialty lines, has seen rates easing by 2% in the past
six months. We are able to maintain significant price stability in lines where
we have a substantial market position such as errors and omissions insurance for
US lawyers, architects and engineers. Close client relationships, risk
management advice and investment in claims management all form part of our value
proposition enabling us to differentiate ourselves and retain clients that value
high quality service. This business continues to trade at historically high
premium prices. The premium achieved in 2007 was 61% higher than for comparable
risks in 2001.
US business
The US business continues to gather pace, writing $77.9m in the first six months
of 2007 (2006: $27.4m). In the US we write business through our managing general
agent (MGA), on behalf of both our syndicates at Lloyd's and our own US domestic
insurance company. The strategy of having a presence on the ground in the US
enables us to insure risks on behalf of clients who would not normally insure
through London.
To support the growth in the US we injected a further $45m of capital into
Beazley Insurance Company, Inc. in April taking the total capital to $105m.
Our largest business line in the US, specialty lines, has performed well,
writing $60.3m (2006: $23.3m) in the six months. The focus for this business is
professional indemnity and management liability insurance. Our medical
malpractice book has recently been extended through the purchase of a managing
general agent, Sapphire Blue, that specialises in professional liability
insurance for US healthcare institutions. We know them well having participated
in their underwriting facility for some years.
The property team in the US has also had a strong six months writing $16.5m
(2006: $3.2m). The commercial property team started writing business through our
domestic insurance company in February and wrote $2.8m in the first half of this
year. The high value homeowners' insurance team also performed well, writing
$7.1m during the period.
We have increased our overall premium expectation for the US business in 2007
from $130m to $150m.
Reinsurance protection
The reinsurance market has now settled down after the dislocation experienced in
2006 following the losses sustained from Hurricane Katrina. Retrocessional
reinsurance protecting our reinsurance account remains scarce and expensive but
for all the other areas of our business cover is available at realistic terms.
The overall reinsurance spend has decreased in 2007. The largest component of
this reduction is the specialty lines proportional treaty arrangement where we
have rebalanced the treaty reducing our spend by £20m. In addition we have been
re-underwriting our reinsurance account to be less reliant on the reinsurance
market. This year as pricing generally remains at uneconomic levels we have
elected to buy less retrocessional cover.
We are particularly pleased with the reception by reinsurers of our new US
domestic commercial property initiative. Their comprehensive backing of our new
venture means that we are able to compete on level terms with the rest of the
market.
Reserve releases
In the first six months of 2007 we released £25.2m (2006: £11.3m) of prior year
reserve releases across a number of business lines. These reserve releases,
illustrated in the table below, are a reflection of our view that claims
development is better than we had previously estimated.
+--------------------------+---------------------------+---------------------------+
| |2007 |2006 |
+--------------------------+---------------------------+---------------------------+
| |£m |£m |
+--------------------------+---------------------------+---------------------------+
|Specialty lines |12.8 |7.4 |
+--------------------------+---------------------------+---------------------------+
|Property |6.1 |0.7 |
+--------------------------+---------------------------+---------------------------+
|Reinsurance |1.2 |0.4 |
+--------------------------+---------------------------+---------------------------+
|Marine |5.1 |2.8 |
+--------------------------+---------------------------+---------------------------+
|TOTAL |25.2 |11.3 |
+--------------------------+---------------------------+---------------------------+
Within our specialty lines business, the ultimate level of claims for any one
underwriting year becomes more certain in time and the corridor of uncertainty
narrows significantly after 4 to 6 years. The majority of the releases in the
first half of 2007 are from the 2003 and 2004 underwriting years. We remain
confident in the strength of reserves we hold for this business.
In addition to the specialty lines releases, we have also been able to lower
reserves held for catastrophe business written in 2006. Much of this portfolio
has now been earned which enabled us to release £7.3m across our reinsurance,
commercial property and offshore energy lines of business.
As our business matures we will continue to re-evaluate the reserves. Current
data indicates that our reserves are strong and a benign claims environment may
lead to further adjustment.
Specialty lines
Premium income within specialty lines rose 15% over the comparable period in
2006. Renewal rates softened slightly but by less than previously anticipated,
and through careful risk selection and market segmentation our underwriters
continue to develop profitable opportunities.
Our local US underwriting operation continued to grow, writing $41.6m in the US
admitted market through Beazley Insurance Company, Inc., and a further $18.7m in
premiums for the account of our Lloyd's syndicates. Our professional liability
business for architects and engineers grew particularly strongly, benefiting
from investments in claims expertise and marketing as well as a 20 year track
record in the class.
As noted above, our healthcare business took a significant step forward through
the acquisition in March 2007 of Sapphire Blue, an MGA focusing on the long term
health sector, which wrote $20 million in premiums in 2006.
We continue to focus on enhancing our claims services. During 2005 and 2006 we
developed our in-house claims service capabilities with the aim of improving our
client relationships by exceeding the service standards they have come to expect
from the broader market. Importantly this strategy also enables us to gain a
greater knowledge of the claims we manage, and hence settle claims more
efficiently.
Property
Property rates entering 2007 were at a cyclical high, which has lead to
significant increases in market capacity. Consequently, there has been a
downward pressure on rates in most of the property classes and specifically in
non-catastrophe areas. However, terms and conditions for catastrophe exposed
risks in the US still remain strong and the overall trading environment remains
favourable. In the absence of any major catastrophes, terms will continue to be
challenged through the rest of the year. Beazley's profile as a noted lead
underwriter allows us to see a wide range of business, but an emphasis on risk
selection and profitability remains core.
Our US presence has increased as we began underwriting mid-sized commercial
risks through our admitted insurance company. A focused approach based on the
key differentiators of experienced underwriting, flexible terms and rapid policy
delivery has received a positive reaction in the market.
Our surplus lines business based in Florida continues to grow its reputation as
a provider of high valued homeowner insurance, and this year we have expanded
into small commercial risks.
Reinsurance
2007 began well for our reinsurance team. Prices in the US improved with average
rate changes of 15% on renewals, although pressure to flatten or reduce rates
has increased as we have approached the middle of the year. Outside the US,
prices are flat or down slightly. Gross premiums rose by 7% to £43.2m as we
continued to grow the portfolio both through increased share on existing
accounts and new business.
Windstorm Kyrill caused losses across a wide area of Europe in January. The
impact on the Beazley reinsurance account is expected to be modest. The recent
UK flooding is currently estimated to produce insured losses in the region of
£3.0bn. Based on the limited information available at this early stage we
anticipate a modest impact from these events on Beazley. However, we expect both
these losses and Kyrill will be contained within reserves established for
attritional claims.
Marine
The marine team had a solid start to 2007, writing gross premiums of £79.6m
(2006: £81.7m). Net earned premiums increased by 29% to £55.3m. The team
continues to develop the existing portfolio, consolidating their strong market
position.
Renewal rates for hull, cargo and energy have been under pressure in 2007.
Despite this we are confident that these areas are trading profitably. We have
expanded our marine liability account through the acquisition of business from a
large coverholder. We are constantly looking for ways to expand the account in a
profitable manner, continuing to search out niche risks that we can fully
understand and service.
Investment income
Invested assets continued to grow - cash and investments now amount to £1,310.9m
which compares to £923.2m at the end of June 2006 and £1,167.8m at the end of
December 2006. Investment income increased to £32.6m in the first six months of
2007, compared with £19.1m over the same period in 2006. This represents an
annualised investment return of 5.2% on average assets for the period (4.8% in
first half 2006). The increase in investment income has been the result of the
continued growth in invested assets and higher yields on our fixed income
investments, together with good results from both our alternative investments
and our equity portfolio.
Dividend
The board is pleased to report that it will pay an increased interim dividend of
2.0p (2006: 1.6p). This will be paid on 31 August 2007 to shareholders on the
register on 10 August 2007.
Outlook
So far 2007 has been a robust year in terms of premiums written and benign in
terms of claims development. Reductions in rates have been in line with our
expectations. We continue to grow the business in a controlled manner, searching
out attractive risks to add to our portfolio. Lloyd's remains central to our
business strategy, and this has been reaffirmed by the recent upgrade of Lloyd's
financial strength rating by S&P to A+ from A. In addition, developing access to
new markets and business, a strong claims management service and informed
underwriting decisions remain central themes in our business vision.
We have been spending, and continue to spend, considerable management time
planning for 2008 and beyond. Our expectation is that most areas of business
will continue to soften and it is important that profitability is protected. The
opportunities within our US business initiative, our reserving philosophy, our
investment in claims management expertise, our growing investment balance and
our underwriting experience of managing previous insurance cycles will help to
maintain our track record of good profitability across the insurance cycle.
The first six months have been extremely positive with record premiums and
profits, US business expansion and strong claims reserves. No doubt the next six
months will bring a number of new as well as familiar challenges, which we look
forward to with enthusiasm. We have an invigorated but seasoned team and a firm
platform from which to trade. The excitement is the future.
Andrew Beazley
Chief Executive
Income Statement
For the period ended 30 June 2007
Note 6 months 6 months Year to 31
ended 30 ended 30 December
June 2007 June 2006 2006
(unaudited) (unaudited) (audited)
£m £m £m
Gross premiums written 2 434.1 394.3 745.1
Written premiums ceded to reinsurers (108.5) (139.1) (170.8)
Net premiums written 2 325.6 255.2 574.3
Change in gross provision for (73.6) (100.8) (84.9)
unearned premiums
Reinsurer's share of change in the 38.4 71.3 20.2
provision for unearned premiums
Change in net provision for unearned (35.2) (29.5) (64.7)
premiums
2 290.4 225.7 509.6
Net earned premiums
Net investment income 3 32.6 19.1 48.3
Other income 4 4.8 3.4 7.1
37.4 22.5 55.4
Revenue 2 327.8 248.2 565.0
Insurance claims 161.7 161.8 357.0
Insurance claims recovered from (13.2) (34.5) (86.3)
reinsurers
Net insurance claims 2,7 148.5 127.3 270.7
Expenses for the acquisition of 79.0 60.1 129.6
insurance contracts
Administrative expenses 25.6 17.2 38.8
Other expenses 8.8 13.6 33.5
Operating expenses 113.4 90.9 201.9
2 261.9 218.2 472.6
Expenses
Results of operating activities 65.9 30.0 92.4
Finance costs 5.7 1.7 5.6
Profit before tax 60.2 28.3 86.8
Comprises:
Profit before tax and foreign 60.6 36.2 96.2
exchange adjustments on non monetary
items
Foreign exchange on non-monetary (0.4) (7.9) (9.4)
items
Income tax expense (18.6) (8.4) (26.9)
Profit after tax 41.6 19.9 59.9
Earnings per share (pence per
share):
Basic 5 11.6 5.5 16.8
Diluted 5 11.5 5.5 16.7
Balance Sheet
As at 30 June 2007
30 June 30 June 31 December
2007 2006 2006
(unaudited) (unaudited) (audited)
£m £m £m
Assets
Intangible assets 29.2 19.8 21.9
Plant and equipment 7.0 6.1 7.0
Investments in associates 1.3 1.3 1.3
Deferred acquisition costs 89.6 70.5 78.9
Financial investments 956.3 802.4 958.4
Insurance receivables 259.5 234.0 244.0
Deferred tax assets 4.3 3.2 3.5
Reinsurance assets 410.2 420.5 345.3
Other receivables 17.0 36.4 14.5
Cash and cash equivalents 354.6 120.8 209.4
Total assets 2,129.0 1,715.0 1,884.2
Equity
Share capital 18.4 18.0 18.1
Reserves 226.5 228.5 225.8
Retained earnings 105.7 41.3 75.6
Total equity 350.6 287.8 319.5
Liabilities
Insurance liabilities 1,440.0 1,198.0 1,225.6
Borrowings 151.2 27.0 154.9
Derivative financial instrument 4.1 - 2.4
Deferred income tax 13.7 12.4 11.6
Current income tax liabilities 9.2 4.5 15.6
Creditors 159.3 183.4 152.7
Retirement benefit obligations 0.9 1.9 1.9
Total liabilities 1,778.4 1,427.2 1,564.7
Total equity and liabilities 2,129.0 1,715.0 1,884.2
Statement of movements in equity
For the period ended 30 June 2007
Share Reserves Retained Total
Capital Earnings
£m £m £m £m
Balance as at 1 January 2006 18.0 232.1 30.3 280.4
Retained profits for the period - - 19.9 19.9
2005 final dividends paid - - (8.9) (8.9)
Increase in employee share - 0.4 - 0.4
options
Acquisition of own shares held - (2.8) - (2.8)
in trust
Foreign exchange translation - (1.2) - (1.2)
differences
Balance as at 30 June 2006 18.0 228.5 41.3 287.8
Retained profits for the period - - 40.0 40.0
2006 interim dividends paid - - (5.7) (5.7)
Issue of shares 0.1 0.3 - 0.4
Increase in employee share - 0.4 - 0.4
options
Acquisition of own shares held - (1.2) - (1.2)
in trust
Change in net investment hedge - (0.6) - (0.6)
Foreign exchange translation - (1.6) - (1.6)
differences
Balance as at 31 December 2006 18.1 225.8 75.6 319.5
Retained profits for the period - - 41.6 41.6
2006 final dividends paid - - (11.5) (11.5)
Issue of shares 0.3 4.0 - 4.3
Increase in employee share - 1.1 - 1.1
options
Acquisition of own shares held - (3.6) - (3.6)
in trust
Change in net investment hedge - (1.0) - (1.0)
Foreign exchange translation - 0.2 - 0.2
differences
Balance as at 30 June 2007 18.4 226.5 105.7 350.6
Cash flow statement
For the period ended 30 June 2007
6 months 6 months Year to 31
ended 30 ended 30 December
June 2007 June 2006 2006
(unaudited) (unaudited) (audited)
£m £m £m
Cash flow from operating activities
Profit before tax 60.2 28.3 86.8
Adjustments for non-cash items:
Amortisation of intangibles 0.9 0.4 1.4
Depreciation of plant and equipment 0.7 0.3 1.2
Equity settled share based 0.8 0.4 0.8
compensation
Foreign exchange on translation of (1.8) (1.3) (4.6)
foreign subsidiary
Foreign exchange on translation of - (2.1) -
borrowings
Net fair value losses/(gains) on (1.0) 1.0 (8.8)
financial investments
Changes in operating assets and
liabilities
Increase in insurance liabilities 214.4 101.6 129.2
Increase in insurance receivables (15.5) (75.1) (85.1)
Decrease/(increase) in other (2.7) (8.0) 13.9
receivables
Increase in deferred acquisition (10.7) (17.8) (26.2)
costs
Decrease/(increase) in reinsurance (64.9) (26.0) 49.2
assets
Increase in other payables 3.4 64.3 37.6
Income tax paid (22.1) (2.9) (11.5)
Contribution to pension fund (1.0) (1.0) (1.0)
Acquisition of own shares in trust (3.6) (2.8) (4.0)
Net cash from operating activities 157.1 59.3 178.9
Cash flow from investing activities
Purchase of syndicate capacity - - (0.2)
Acquisition of subsidiary (net of (5.7) - (2.2)
cash acquired)
Purchase of plant and equipment (0.6) (3.9) (5.7)
Purchase of software development (0.6) (2.0) (3.1)
Purchase of investments (1,073.0) (529.5) (2,125.1)
Proceeds from sale of investments 1,076.2 498.0 1,947.2
Net cash used in investing (3.7) (37.4) (189.1)
activities
Cash flow from financing activities
Proceeds from Tier 2 subordinated - - 148.1
debt
Proceeds from issue of shares 4.5 - 0.4
Repayment of syndicated loan - - (18.6)
Dividends paid (11.5) (8.9) (14.6)
Net cash used in financing (7.0) (8.9) 115.3
activities
Net increase in cash and cash 146.4 13.0 105.1
equivalents
Cash and cash equivalents at 209.4 112.6 112.6
beginning of period
Effect of exchange rate changes on (1.2) (4.8) (8.3)
cash and cash equivalents
Cash and cash equivalents at end of 354.6 120.8 209.4
period
Notes to the financial statements
For the period ended 30 June 2007
1. Statement of accounting policies
Beazley Group plc is a group incorporated in England and Wales. The interim
financial statements of the group for the six months ended 30 June 2007 comprise
the parent company and its subsidiaries and the group's interest in associates.
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities, income and
expenses. Actual results may differ from these estimates. The accounting
policies applied by the group in these consolidated interim financial statements
are the same as those applied by the group in its consolidated financial
statements as at and for the year ended 31 December 2006. Our full accounting
policies are set out in the group's 2006 annual report.
The comparative figures for the financial year ended 31 December 2006 are
extracted from the company's statutory accounts for that financial year. Those
accounts have been reported on by the company's auditors and delivered to the
registrar of companies. The report of the auditors was (i) unqualified, (ii) did
not include a reference to any matters to which the auditors drew attention by
way of emphasis without qualifying their report, and (iii) did not contain a
statement under section 237(2) of 237 (3) of the Companies Act 1985.
2. Segmental analysis
The principal activity of the group is insurance. The following primary business
segments; specialty lines, property, reinsurance and marine have been applied.
All foreign exchange differences on non-monetary items have been included within
the unallocated totals. These have been split out as this provides a fairer
representation of the loss ratios, which would otherwise be distorted by the
mismatch arising under International Financial Reporting Standards (IFRS)
whereby unearned premium reserves and deferred acquisition costs (DAC) are
treated as non-monetary items and claims reserves are treated as monetary items.
2. Segmental analysis
30 June 2007
Specialty Property Reinsurance Marine Unallocated Total
Lines
£m £m £m £m £m £m
Gross premiums 205.3 106.0 43.2 79.6 - 434.1
written
Net premiums written 157.0 78.2 32.7 57.7 - 325.6
Net earned premiums 140.7 73.3 19.5 55.3 1.6 290.4
Net investment 22.2 4.1 3.2 3.1 - 32.6
income
Other income 2.4 1.4 0.6 0.4 - 4.8
Revenue 165.3 78.8 23.3 58.8 1.6 327.8
Net insurance claims 80.6 36.6 8.5 22.8 - 148.5
Expenses for the 36.8 20.6 5.0 15.4 1.2 79.0
acquisition of
insurance contracts
Administrative 15.9 5.6 1.5 2.6 - 25.6
expenses
Other expenses 4.4 1.7 0.7 1.2 0.8 8.8
Expenses 137.7 64.5 15.7 42.0 2.0 261.9
Results from 27.6 14.3 7.6 16.8 (0.4) 65.9
operating activities
Finance costs (5.7)
Profit before tax 60.2
Tax expense (18.6)
Profit after tax 41.6
Claims ratio 57% 50% 44% 41% - 51%
Expense ratio 37% 36% 33% 33% - 36%
Combined ratio 94% 86% 77% 74% - 87%
30 June 2006
Specialty Property Reinsurance Marine Unallocated Total
Lines
£m £m £m £m £m
£m
Gross premiums 179.3 92.9 40.4 81.7 - 394.3
written
Net premiums written 108.0 64.3 20.9 62.0 - 255.2
Net earned premiums 114.3 51.6 17.4 42.9 (0.5) 225.7
Net investment income 12.3 2.7 1.5 2.6 - 19.1
Other income 1.5 0.8 0.4 0.7 - 3.4
Revenue 128.1 55.1 19.3 46.2 (0.5) 248.2
Net insurance claims 72.7 25.5 10.1 19.0 - 127.3
Expenses for the 5.5 (0.9) 60.1
acquisition of
insurance contracts 27.1 16.5 11.9
Administrative 9.3 4.6 1.0 2.3 - 17.2
expenses
Other expenses 2.5 1.2 0.5 1.1 8.3 13.6
Expenses 111.6 47.8 17.1 34.3 7.4 218.2
Results from (7.9) 30.0
operating activities
16.5 7.3 2.2 11.9
Finance costs (1.7)
Profit before tax 28.3
Tax expense (8.4)
Profit after tax 19.9
Claims ratio 64% 49% 58% 44% - 56%
Expense ratio 32% 41% 37% 33% - 34%
Combined ratio 96% 90% 95% 77% - 90%
31 December 2006
Specialty Property Reinsurance Marine Unallocated Total
Lines
£m £m £m £m £m £m
Gross premiums 361.0 187.8 58.4 137.9 - 745.1
written
Net premiums written 267.3 149.9 40.5 116.6 - 574.3
Net earned premiums 234.6 123.1 42.1 101.5 8.3 509.6
Net investment income 35.9 4.2 4.1 4.1 - 48.3
Other income 4.0 1.3 0.7 1.1 - 7.1
Revenue 274.5 128.6 46.9 106.7 8.3 565.0
Net insurance claims 146.3 66.3 13.7 44.4 - 270.7
Expenses for the 50.8 39.9 10.3 28.5 0.1 129.6
acquisition of
insurance contracts
Administrative 21.8 9.9 3.3 3.8 - 38.8
expenses
Other expenses 7.8 4.0 1.5 2.6 17.6 33.5
Expenses 226.7 120.1 28.8 79.3 17.7 472.6
Results from 47.8 8.5 18.1 27.4 (9.4) 92.4
operating activities
Finance costs (5.6)
Profit before tax 86.8
Tax expense (26.9)
Profit after tax 59.9
Claims ratio 62% 54% 33% 44% - 53%
Expense ratio 31% 40% 32% 32% - 33%
Combined ratio 93% 94% 65% 76% - 86%
3. Net investment return
6 months 6 months Year to 31
ended 30 ended 30 December
June 2007 June 2006 2006
(unaudited) (unaudited) (audited)
£m £m £m
Investment income at fair value
through income statement
- interest income 24.6 19.0 28.0
Realised gains/(losses) on financial
investments at fair value through
income statement
- realised gains 8.8 2.8 22.9
- realised losses (8.2) (0.9) (9.9)
Net fair value gains/(losses) on
financial investments through income
statement
- fair value gains 18.5 1.1 24.4
- fair value losses (10.0) (2.1) (15.6)
Net fair value gains/(losses) on
fair value hedge
- change in interest rate swap (2.6) - (3.0)
- change in borrowings 2.6 - 3.0
Investment management expenses (1.1) (0.8) (1.5)
32.6 19.1 48.3
4. Other income
6 months 6 months Year to 31
ended 30 ended 30 December
June 2007 June 2006 2006
(unaudited) (unaudited) (audited)
£m £m £m
Profit commissions 3.6 2.9 5.5
Agency fees 0.5 0.5 1.1
Other income 0.7 - 0.5
4.8 3.4 7.1
5. Earnings per share
6 months 6 months Year to 31
ended 30 ended 30 December
June 2007 June 2006 2006
(unaudited) (unaudited) (audited)
Basic 11.6p 5.5p 16.8p
Diluted 11.5p 5.5p 16.7p
Basic
Basic earnings per share is calculated by dividing profit after tax of £41.6m
(2006: £19.9m) by the weighted average number of issued shares during the period
of 359.2m (2006: 360.6 m). The shares held in the ESOP have been excluded from
the calculation until such time as they vest unconditionally with the employees.
Diluted
Diluted earnings per share is calculated by dividing profit after tax of £41.6m
(2006: £19.9m) by the adjusted weighted average number of shares of 362.2m
(2006: 364.0m). The adjusted weighted average number of shares assumes
conversion of all dilutive potential ordinary shares, being share options. The
shares held in the ESOP have been excluded from the calculation until such time
as they vest unconditionally with the employees.
6. Dividends
An interim net dividend of 2.0p (2006: 1.6p) per ordinary share is payable on 31
August 2007 to shareholders registered on 10 August 2007 in respect of the six
months to 30 June 2007. These financial statements do not provide for the
dividends as a liability.
7. Insurance premiums and claims
The loss development tables below provide information about historical claims
development by the four segments - specialty lines, property, reinsurance and
marine. The tables are by underwriting year which in our view provides the most
transparent reserving basis. We have supplied tables for both ultimate gross
claims ratio and ultimate net claims ratio.
The top part of the table illustrates how the group's estimate of claims ratio
for each underwriting year has changed at successive year-ends. The bottom half
of the table reconciles the gross and net claims to the amount appearing in the
balance sheet.
While the information in the table provides a historical perspective on the
adequacy of the claims liabilities established in previous years, users of these
financial statements are cautioned against extrapolating redundancies or
deficiencies of the past on current claims liabilities. The group believes that
the estimate of total claims liabilities as at 30 June 2007 are adequate.
However, due to inherent uncertainties in the reserving process, it cannot be
assured that such balances will ultimately prove to be adequate.
Gross ultimate claims 2002ae 2003 2004 2005 2006 2007
% % % %
Specialty lines
12 months 71.4 70.9 71.2 69.0
24 months 67.3 70.0 68.3 -
36 months 65.0 66.4 - -
48 months 57.4 - - -
Position at 30 June 2007 53.3 65.5 67.0 68.9
Property
12 months 51.3 65.1 85.1 59.4
24 months 38.4 65.1 82.6 -
36 months 35.8 65.5 - -
48 months 35.1 - - -
Position at 30 June 2007 35.1 64.5 81.5 52.0
Reinsurance
12 months 58.6 86.7 192.2 52.5
24 months 33.5 80.2 182.5 -
36 months 28.0 75.5 - -
48 months 28.2 - - -
Position at 30 June 2007 28.2 75.4 185.4 34.2
Marine
12 months 60.0 62.2 82.6 57.2
24 months 44.7 64.2 79.8 -
36 months 39.0 62.0 - -
48 months 36.2 - - -
Position at 30 June 2007 35.8 62.1 75.1 52.2
Total
12 months 62.9 69.8 89.9 63.2
24 months 52.6 69.0 87.0 -
36 months 49.4 66.4 - -
48 months 45.2 - - -
Position at 30 June 2007 43.1 65.7 85.6 59.1
Total ultimate losses(£m) 1,048.3 276.8 477.3 667.5 529.0 599.4 3,598.3
Less paid claims net of reinsurance (£m) (828.8) (147.5) (247.2) (288.8) (50.3) (5.5) (1,568.1)
Less unearned portion of ultimate losses (£m) - - - (6.9) (111.2) (491.8) (609.9)
Gross claims liabilities (100% level) (£m) 219.5 129.3 230.1 371.8 367.5 102.1 1,420.3
Less unaligned share (£m) (65.9) (38.8) (69.0) (111.5) (79.5) (19.4) (384.1)
Gross claims liabilities, group share 153.6 90.5 161.1 260.3 288.0 82.7 1,036.2
Net ultimate claims 2002ae 2003 2004 2005 2006 2007
% % % %
Specialty lines
12 months 68.2 68.2 69.2 67.2
24 months 64.9 67.9 67.5 -
36 months 63.0 65.1 - -
48 months 55.9 - - -
Position at 30 June 2007 52.0 63.7 66.1 67.2
Property
12 months 49.1 59.7 64.9 62.4
24 months 42.6 61.7 62.8 -
36 months 40.3 60.8 - -
48 months 39.8 - - -
Position at 30 June 2007 39.8 60.5 60.6 56.9
Reinsurance
12 months 60.5 88.0 153.4 54.5
24 months 38.2 84.1 127.8 -
36 months 33.4 81.7 - -
48 months 34.1 - - -
Position at 30 June 2007 34.2 81.8 131.0 49.7
Marine
12 months 55.5 57.9 55.7 54.3
24 months 44.5 52.5 49.3 -
36 months 39.6 48.7 - -
48 months 39.2 - - -
Position at 30 June 2007 39.0 48.7 45.8 49.4
Total
12 months 60.4 66.4 73.5 62.6
24 months 53.1 65.5 69.0 -
36 months 50.5 63.1 - -
48 months 46.9 - - -
Position at 30 June 2007 45.0 62.3 67.3 60.0
Total ultimate losses(£m) 567.4 233.7 368.9 416.2 426.7 497.4 2,510.3
Less paid claims net of reinsurance (£m) (462.0) (134.7) (191.3) (140.3) (47.1) (5.5) (980.9)
Less unearned portion of ultimate losses (£m) - - - (4.9) (93.1) (418.5) (516.5)
Net claims liabilities (100% level) (£m) 105.4 99.0 177.6 271.0 286.5 73.4 1,012.9
Less unaligned share (£m) (31.6) (29.7) (53.3) (81.3) (61.7) (13.8) (271.4)
Net claims liabilities, group share (£m) 73.8 69.3 124.3 189.7 224.8 59.6 741.5
Analysis of movements in loss development tables
We have updated our loss development tables to show the interim ultimate loss
ratios as at 30 June 2007 for each underwriting year. As such, care should be
taken when comparing these half year movements to the full year movements shown
within the body of each table.
The benign claims experience during the first half of 2007 has produced a
general trend of reducing loss ratios across our business. We comment on the
other notable movements by team below.
In addition, we continue to maintain an element of our catastrophe loading on
the 2006 underwriting year. This should be considered when comparing the interim
30 June 2007 position of the 2006 underwriting year against the development of
the previous catastrophe free year, namely 2003.
Specialty Lines
The ultimate loss ratios on the 2003 underwriting year have continued to reduce
in light of the benign claims environment and the year is turning out to be
exceptional. The underlying claims developments on these classes do not follow
smooth patterns. Consequently, our reserving policy in these classes of business
is to move the ultimate loss ratios only when we have sufficient evidence to do
so.
Reinsurance
The increase in our ultimate loss ratio on the 2005 underwriting year has been
caused by a small reduction in expected ultimate premium income. The underlying
claims reserves remain unchanged from 31 December 2006.
The table below analyses our net insurance claims between current year
claims and adjustments to prior year net claims reserves. These have been
broken down by department and period.
6 months ended 30 June 2007 Specialty Property Reinsurance Marine Total
(unaudited) Lines
£m £m £m £m £m
Current year 93.4 42.7 9.7 27.9 173.7
Prior year
- 2004 and earlier (10.5) (0.8) 0.1 0.2 (11.0)
- 2005 year of account (2.3) (2.0) - (2.6) (6.9)
- 2006 year of account - (3.3) (1.3) (2.7) (7.3)
(12.8) (6.1) (1.2) (5.1) (25.2)
Net insurance claims 80.6 36.6 8.5 22.8 148.5
6 months ended 30 June 2006 Specialty Property Reinsurance Marine Total
(unaudited) Lines
£m £m £m £m £m
Current year 80.1 26.2 10.5 21.8 138.6
Prior year
- 2003 and earlier (4.4) (0.7) 0.1 (0.6) (5.6)
- 2004 year of account (3.0) 1.1 (0.5) (2.2) (4.6)
- 2005 year of account - (1.1) - - (1.1)
(7.4) (0.7) (0.4) (2.8) (11.3)
Net insurance claims 72.7 25.5 10.1 19.0 127.3
Year to 31 December 2006 Specialty Property Reinsurance Marine Total
(audited) Lines
£m £m £m £m £m
Current year 164.3 68.2 19.6 49.6 301.7
Prior year
- 2003 and earlier (12.3) (0.7) (0.4) (0.4) (13.8)
- 2004 year of account (4.7) (0.7) (0.8) (3.0) (9.2)
- 2005 year of account (1.0) (0.5) (4.7) (1.8) (8.0)
(18.0) (1.9) (5.9) (5.2) (31.0)
Net insurance claims 146.3 66.3 13.7 44.4 270.7
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 17th May 2024
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