Results for the half year ended 30 June 2021

RNS Number : 7566K
Randall & Quilter Inv Hldgs Ltd
06 September 2021
 

Randall & Quilter Investment Holdings Ltd

 

Results for the half year ended 30 June 2021

 

Announcing the Formation of Gibson Re, a Legacy Insurance Sidecar; Transitioning Legacy Insurance into a Recurring Fee-Based Business

 

6 September 2021

 

Randall & Quilter Investment Holdings Ltd. (AIM: RQIH) ("R&Q"), the leading non-life global specialty insurance company focusing on the Program Management and Legacy Insurance businesses, today announces its results for the half year ended 30 June 2021, and the launch of Gibson Re.

 

Strategic Update

 

· Formed Gibson Re, a Bermuda-domiciled collateralised reinsurer (commonly known as a "sidecar") with ~$300 million of capital; allows R&Q to support ~$2 billion of reserves 1

· Gibson Re will reinsure 80% of all of R&Q's new qualifying legacy transactions for three years, with R&Q participating in 20% to promote alignment of interest

· R&Q to receive annual recurring fees of 4.25% of Gibson Re's reserves for at least six years, plus potential performance fees

· Gibson Re will transform Legacy Insurance into primarily a recurring fee-based business

· By 2023 expect run-rate Group Fee Income of greater than $140 million and Group Pre-Tax Operating Profit of over $90 million, assuming Gibson Re capital is fully utilised by 2023

 

H1 2021 Financial Highlights

 

· Pre-Tax Operating Loss of $23.5 million; loss reduced to approximately breakeven when including two signed Legacy Insurance transactions with $23 million of Underwriting Profit that are expected to close in H2 2021, reflecting the episodic earnings profile associated with Legacy Insurance

· Program Management Gross Written Premium of $890 million and Fee Income of $50 million (H1 2021 annualised), increases of 80% and 135%, respectively, from H1 2020

· Program Management Pre-Tax Operating Profit of $20 million (H1 2021 annualised) compared with $1.6 million (H1 2020 annualised); Pre-Tax Operating Profit Margin of 40% compared with 7.5% at H1 2020

· Program Management Gross Written Premium target for FY 2023 increased to $1.75 billion from $1.5 billion

· Legacy Insurance completed eight transactions

· Legacy Insurance pipeline of over $1 billion of reserves; traditionally ~70% of transactions complete in H2

· Changed reporting currency to US Dollars for fiscal year 2021

· Interim dividend for H1 2021 of 2.0 pence per share and reiteration of progressive dividend policy of growing dividend from 4 pence per share in FY 2020

 

Q3 2021 Update

 

· Program Management added 8 new programs in July and August increasing Contracted Premium to ~$1.8 billion

· Legacy Insurance completed the first Insurance Business Transfer in Oklahoma between two unaffiliated parties, opening up a new avenue for US legacy business  

 

1 Subject to regulatory approval
 

Summary Financial Performance (see Notes for definitions)

($m, except where noted)

 

 

 

Group Results

 

 

 

 

 

Income Statement

H1 2021

H1 2020

Pre-Tax Operating Profit

(23.5)

12.8

Fee Income

25.1

10.7

Operating Earnings per Share 2

(8.5)c

5.9c

Profit Before Tax

(45.4)

0.7

Reported Earnings Per Share 2

(13.7)c

0.5c

Dividend Per Share

2.0p

3.8p

 

 

 

Balance Sheet

30 Jun 2021

31 Dec 2020

Tangible Net Asset Value Per Share 2

160.2c

173.3c

Net Asset Value Per Share 2

180.8c

193.3c

 

 

 

Business Segment Metrics

H1 2021

H1 2020

 

 

 

Program Management

 

 

Contracted Premium (period end)

1,605.0

925.0

Gross Written Premium 

445.0

247.0

Pre-Tax Operating Profit

9.9

0.8

Pre-Tax Operating Profit Margin

39.9%

7.5%

 

 

 

Legacy Insurance

 

 

Cash and Investments Acquired

147.9

402.9

Net Reserves Acquired

112.5

336.3

Pre-Tax Operating Profit

(14.8)

37.5

 

2 On a fully diluted basis

 

William Spiegel, Executive Chairman of R&Q, commented:

 

"Over the course of 2021, we have successfully implemented a key component of our Five-Year strategy - developing a more fee-based business. Our announcement of the formation of Gibson Re starts the transformation of R&Q's Legacy Insurance business from being balance sheet intensive with episodic earnings to a more capital light and predictable, largely recurring fee-based model. Gibson Re is a $300 million Bermuda-domiciled collateralised reinsurer owned and funded by sophisticated insurance investors. Our Legacy Insurance business now joins our Program Management business in generating most of its future revenues from annual recurring fees.

 

R&Q is repositioning the business to become an asset manager for Legacy Insurance business, focusing on our core strengths of insurance origination, underwriting and claims management. This change reduces our reliance on the capital markets to support our growth. The launch of Gibson Re simplifies our Legacy Insurance revenue model from one with lumpy Underwriting Income and seasonality (historically only ~30% of our Legacy Insurance transactions complete in H1 and ~ 70% in H2, measured by reserves acquired) to one with a predictable and high-quality recurring Fee Income. Importantly, by reducing the capital intensity of Legacy Insurance, we free up capital to support our previously announced progressive dividend policy and reduce our reliance on the equity markets for additional funding.

 

For the next three years, Gibson Re will reinsure 80% of all of R&Q's qualifying Legacy Insurance transactions. Gibson Re's capital allows R&Q to acquire approximately $2 billion of insurance reserves, and R&Q will be paid annual fees of 4.25% on reserves ceded to Gibson Re, plus potential performance fees. R&Q will manage Gibson Re for at least six years, and after seven years, R&Q will offer a commutation of the outstanding reserves. If all of Gibson Re's capital is deployed by 2023, Legacy Insurance should generate run-rate Fee Income of approximately $50 million. It is anticipated that we will raise a new sidecar after three years for ongoing capital support of the Legacy Insurance business.

 

Program Management continued its strong growth in the first half of 2021 with annualised Fee Income of approximately $50 million, a growth of nearly 135% from H1 2020. Importantly, Pre-Tax Operating Profit grew over 1,100% to $20 million on an annualised basis and we are seeing the benefits of significant operating leverage as Pre-Tax Operating Profit Margins grew to 40% from 7.5% in H1 2020. With 68 programs as of 31 August, 2021, we are increasing our target Gross Written Premium in 2023 from $1.5 billion to at least $1.75 billion. Furthermore, our 40% ownership of Tradesman Program Managers, which generated $31 million of net income (H1 2021 annualised), contributed Fee Income of $12 million (H1 2021 annualised).

 

The development of a more fee-based business model inevitably means adjustments in our reported earnings. This is due to the timing of revenue recognition as we transition to a business model that replaces upfront capital-intensive Underwriting Income with predictable annual recurring Fee Income. With the formation of Gibson Re, we expect FY 2021 Pre-Tax Operating Profit to be relatively flat to FY 2020, depending on the timing of completing Legacy Insurance transactions. By 2023, if we deliver on our business targets, we expect to generate run-rate Fee Income of greater than $140 million and Pre-Tax Operating Profit of over $90 million, assuming Gibson Re capital is fully utilised.

 

The Board of Randall & Quilter Investment Holdings Ltd. is pleased to confirm that it will pay an interim dividend of 2.0 pence per share on 12 October 2021.   The dividend will be paid to shareholders on the register on 24 September 2021, with a corresponding ex-dividend date of 23 September 2021.   Moreover, we reiterate our intention to grow the total amount of the annual cash dividend from the fiscal year 2020 level of 4 pence per share , in line with our progressive dividend policy. Given the expected Pre-Tax Operating Profit for fiscal year 2021 will be impacted by the transition to recurring Fee Income, the dividend payout ratio is likely to be significantly above our 25 - 50% range, funded by excess capital created by the establishment of Gibson Re.

 

We remain in the enviable position of being market leaders in specialised insurance markets with favorable market conditions and strong competitive moats around our businesses. To take advantage of these conditions, we are relentlessly pursuing our previously articulated Five-Year strategy of being a "capital efficient, fee-oriented and data driven company". Inevitably change is difficult and cannot be achieved without engagement and partnership from our employees and of course the support of our Board of Directors and shareholders.  As the expression goes: "there is no "I" in team"; business is a team sport and R&Q has an outstanding and motivated team."

 

Investor presentation

 

Our shareholders presentation and accompanying video is available on our website at:

  http://www.rqih.com/investors/shareholder-information/investor-presentations

 

As part of its commitment to open communication with all of its shareholder base, R&Q will also provide a live presentation and Q&A via the Investor Meet Company platform at 3pm on 6 September 2021. Registration details can be accessed via:

https://www.investormeetcompany.com/randall-quilter-investment-holdings-ltd/register-investor

 

Questions can be submitted pre-event via the IMC dashboard or at any time during the live presentation via the 'Ask a Question' function.

 

Enquiries to:

 

Randall & Quilter Investment Holdings Ltd

 

William Spiegel 

Alan Quilter 

Tel: +1 917-826-5877

Tel: 020 7780 5960

Tom Solomon                                                                                                       Tel: +1 917-597-8783

 

Numis Securities Limited  (Nominated Advisor and Joint Broker)

Stuart Skinner

Tel: 020 7260 1000 

Charles Farquhar 

 

Barclays Bank PLC  (Joint Broker)

Mark Astaire

Milan Solanki

Tel: 020 7260 1000 

 

 

Tel: 020 7632 2322

Tel: 020 7632 2322

 

 

FTI Consulting

Tom Blackwell

 

Tel: 020 3727 1051

 

 

Notes to financials

 

Pre-Tax Operating Profit or loss is a measure of how the Group's core businesses performed adjusted for Unearned Program Fee Revenue, intangibles created in Legacy Insurance acquisitions and net realised and unrealised investment gains on fixed income and lease-based assets.

 

Operating EPS represents Pre-Tax Operating Profit adjusted for the marginal tax rate, divided by the average number of diluted shares outstanding in the period.

 

Tangible Net Asset Value represents Net Asset Value adjusted for Unearned Program Fee Revenue, intangibles created in Legacy Insurance acquisitions, net unrealised investment gains on fixed income and lease-based assets and foreign translation currency reserves.

 

Gross Operating Income represents Pre-Tax Operating Profit before Fixed Operating Expenses and Interest Expense.

 

Fee Income represents Program Fee Revenue and our share of earnings from minority stakes in MGAs.

 

Underwriting Income represents net premium earned less net claims costs, acquisitions expenses, claims management costs and premium taxes / levies.

 

Investment Income represents income on the investment portfolio excluding net realised and unrealised investment gains on fixed income and lease-based assets.

 

Fixed Operating Expenses include employment, legal, accommodation, information technology, Lloyd's syndicate, and other fixed expenses of ongoing operations, excluding non-core and exceptional items.

 

Contracted Premium is the Gross Premium that our existing distribution partners believe their programs will generate over an annual period. We expect a significant portion of Contracted Premium to become Gross Written Premium.

 

Program Fee Revenue represents the full fee revenue from insurance policies already bound including Unearned Program Fee Revenue, regardless of the length of the underlying policy period. We believe Program Fee Revenue is a more appropriate measure of the revenue of the business during periods of high growth, due to a larger than normal gap between Gross Written and Gross Earned (IFRS) Premium.

 

Unearned Program Fee Revenue represents the portion of Program Fee Revenue that has not yet earned on an IFRS basis.

 

Program Fee represents Program Fee Revenue as a percentage of ceded written premium.

 

Pre-Tax Operating Profit Margin is our profit margin on Gross Operating Income.

 

Average Operating Tangible Equity is based on the Group's target solvency capital models and includes allocated debt.

 

Operating Return on Tangible Equity includes allocated interest expense and has been annualised for interim reporting periods.

 

 

Chief Financial Officer Review

 

Group

 

Effective this year, we are reporting our financials in US dollars. Given that the majority of our assets are denominated in US dollars, we decided to report our financial results in US dollars in order to minimise volatility of foreign exchange translation in our financial statement results.

 

Our H1 2021 financial results were impacted by the timing of completing Legacy Insurance transactions, which tend to close in the second half of the year. Nonetheless, we have a strong pipeline of transactions in our Legacy Insurance business and continue to experience strong growth in Program Management.

 

Our key performance indicators measure the run-rate economics of the business and adjust IFRS metrics to include fully written Program Fee Revenue and exclude non-cash intangibles created from acquisitions in Legacy Insurance, net realised and unrealised investment gains on fixed income and lease-based assets, foreign currency translation reserves and non-core, one-time items. We provide our key performance indicators on both a consolidated Group basis as well as on a segmental basis as described below.

 

Pre-Tax Operating Loss was $23.5 million compared to a profit of $12.8 million in H1 2020. This is primarily due to the timing of Legacy Insurance transactions, which historically are completed in the second half of the year. Had we included two signed transactions with $23 million of Underwriting Income that are expected to close in H2 2021, our Pre-Tax Operating Profit would have been break-even. Our Tangible Net Asset Value was $439.4 million and on a fully diluted basis; our Tangible Net Asset Value Per Share was 160.2 cents. One of our objectives is to grow Fee Income, which was $25.1 million, a 135% increase compared to H1 2020.

 

Our IFRS results include the impact of intangibles created from acquisitions in Legacy Insurance, mark-to-market movements in our fixed income investment portfolio, foreign currency translation reserves associated with changes in interest and exchange rates and non-core items, respectively, and exclude Unearned Program Fee Revenue. We had a pre-tax loss of $45.4 million compared to profit of $0.7 million in H1 2020 and our Net Asset Value Per Share was 180.8 cents.

 

Program Management

 

Our Program Management business continued to grow rapidly in H1 2021. At 30 June 2021, we had 60 active programs, an increase of 24 programs compared to H1 2020, our Contracted Premium was $1.6 billion, a 74% increase compared to H1 2020 and our Gross Written Premium was $445 million, an 80% increase compared to H1 2020.  Our results are beginning to show the benefits of scale as we earned a Pre-Tax Operating Profit of $9.9 million, representing a 39.9% margin on Gross Operating Income compared to breakeven profitability in H1 2020.

 

The primary driver of Pre-Tax Operating Profit is our Fee Income, which represents Program Fee Revenue from written premium ceded to reinsurers, and our share of net income generated from our 40% minority stake in Tradesman, which increased from 35% in Q1 2021. Fee Income was $25.1 million, a 135% increase compared to H1 2020.  The Program Fee averaged 4.6% and contributed $19.3 million of Fee Income and our 40% stake in Tradesman contributed $5.8 million of Fee Income.  Underwriting Income represents our ~5% retention of Program risk. We generated an Underwriting Loss of $1.2 million primarily due to the purchase of stop-loss reinsurance costing ~$2.6 million to minimise claims volatility. Excluding the purchase of stop loss reinsurance coverage, our Underwriting Income was $1.4 million, which is indicative of the underlying profitability that our reinsurers earn. Our Investment Income only contributed $0.9 million to Gross Operating Income due to the vast majority of premium ceded to third party reinsurers. Finally, Fixed Operating Expenses increased 59% compared to H1 2021 due to an increase in allocations of corporate expenses and the expansion of our staff with the establishment of our Excess & Surplus platform.

 

Legacy Insurance

 

Our Legacy Insurance business was impacted by the seasonality of completing transactions, which tend to close in the second half of the year. During H1 2021, we concluded eight transactions with Cash and Investments of $148 million and Net Reserves of $113 million, a decrease of 63% and 67%, respectively, compared to H1 2020 when we experienced an unusually high level of transaction volume. Our Pre-Tax Operating Loss was $14.8 million compared to a profit of $37.5 million in H1 2020. The primary driver of Pre-Tax Operating Profit is our Underwriting Income, which represents Tangible Day 1 gains on transactions originated during the year and claims management of transactions closed in prior years. Underwriting Income was $20.3 million, a 66% decrease compared to H1 2020 due to a lower amount of assets and reserves acquired during the period. Our Investment Income was $9.2 million, a 24% increase compared to H1 2020 driven by acquired assets on transactions over the past twelve months. Finally, our Fixed Operating Expenses grew 46% compared to H1 2021 primarily due to an increase in allocations of corporate expenses.

 

Our pipeline of transactions remains robust. We have two signed deals that are expected to close in H2 2021 with $60 million of net reserves and $23 million of Underwriting Income. Furthermore, we are actively involved in potential transactions representing over $1 billion of net reserves.

 

Corporate and Other

 

Our Corporate and Other segment includes investment income on excess capital, unallocated operating expenses, and finance costs.

 

Pre-Tax Operating Loss was $18.6 million, a 27% decrease compared to H1 2020 primarily driven by cost allocations to our business segments offset by higher Interest Expense associated with the issuance of $125 million of subordinated debt in H2 2020.

 

Our IFRS results include non-core and exceptional items, which amounted to a loss of $6.6 million in H1 2021. These represent non-recurring items such as pending mergers, retirement of executives, and one-time costs associated with special projects.

 

Cash and Investments

 

Our Cash and Investments have grown meaningfully over the last several years and now sit at $1.7 billion, driven by acquired assets in Legacy Insurance. We produced an annualised book yield, which excludes net realised and unrealised gains and losses on fixed income and lease-based assets, of 1.4%, a decrease of 30 bps compared to H1 2020 due to the impact of low interest rates and a relative increase in non dollar denominated assets. The 2-Year US Treasury yield averaged 15 bps in H1 2021 compared to 39 bps in 2020.

 

We maintain a conservative, liquid investment portfolio so that we can produce consistent cash flows to meet our liability obligations, while also earning a reasonable risk-adjusted return. 93% of our investments were rated investment grade, and another 2% of our portfolio was invested in non-rated money market funds. After cash, which comprised 16% of our portfolio, our largest allocations were to corporate bonds (43%), government and municipal securities (20%) and asset-backed securities (18%). Our portfolio remains with a short duration of 2.7 years, yet we are beginning to reinvest longer on the interest rate curve.

 

Our IFRS results include mark-to-market movements in fixed income assets, including realised net investment gains and losses, which amounted to a loss of $6.5 million for H1 2021, predominantly driven by the increase in interest rates since the beginning of the year.

 

Capital and Liquidity

 

Our estimated Group Solvency ratio remains very strong at 171%, a decrease of 17 percentage points compared to year-end 2020, but comfortably above our target of 150%. This reflects the impact of lower discount rates and other risk charges partially offset by the restructuring of $70 million of senior notes to receive Tier 3 capital treatment for Group Solvency purposes.  Our adjusted debt to capital, which provides for partial equity credit on our subordinated debt, was 29% and below our target of 30%.

 

 

Condensed Consolidated Income Statement

 

 

 

 

Six months

ended 30 June 2021 

 

 

Six months

ended 30 June 2020

 

 

Year 

ended 31 December 2020 

 

 

 

(unaudited)

 

(unaudited)

 

(audited)

 

Note

 

$000 

 

$000 

 

$000 

 

 

 

 

 

 

 

 

Gross written premium

 

 

527,003 

 

644,281 

 

991,314 

Reinsurers' share of gross written premium

 

 

(429,082)

 

(243,795)

 

(520,239)

Net written premium

 

 

97,921 

 

400,486 

 

471,075 

Change in gross provision for unearned premiums

 

 

(131,338)

 

(49,144)

 

(97,014)

Change in provision for unearned premiums, reinsurers' share

 

131,036 

 

59,905 

 

92,247 

Net change in provision for unearned premiums

 

 

(302)

 

  10,761

 

(4,767)

Net earned premium

 

 

97,619 

 

411,247 

 

466,308 

 

 

 

 

 

 

 

 

Investment income

5

 

5,353 

 

2,741 

 

28,560 

Program earned fee revenue

 

 

13,897 

 

8,210 

 

18,538 

Other income

 

 

5,915 

 

3,564 

 

7,356 

 

 

 

25,165 

 

14,515 

 

54,454 

 

 

 

 

 

 

 

 

Total income

3

 

122,784 

 

425,762 

 

520,762 

 

 

 

 

 

 

 

 

Gross claims paid

 

 

(228,858)

 

(116,805)

 

(270,621)

Reinsurers' share of gross claims paid

 

 

106,299 

 

70,893 

 

167,952 

Net claims paid

 

 

(122,559)

 

(45,912)

 

(102,669)

Movement in gross technical provisions

 

 

(12,548)

 

(377,124)

 

(446,665)

Movement in reinsurers' share of technical provisions

 

40,524 

 

76,473 

 

  151,584 

Net change in provision for claims

 

 

27,976 

 

(300,651)

 

(295,081)

Net insurance claims incurred

 

 

(94,583)

 

(346,563)

 

(397,750)

 

 

 

 

 

 

 

 

Operating expenses

 

 

(81,594)

 

(73,838)

 

(143,380)

 

 

 

 

 

 

 

 

Result of operating activities before goodwill on bargain purchase and impairment of intangible assets

 

 

(53,393)

 

5,361 

 

(20,368)

 

Goodwill on bargain purchase

 

 

22,718 

 

5,418 

 

84,174 

Amortisation and impairment of intangible assets

 

 

(6,854)

 

(3,641)

 

(14,185)

Share of profit of associates

 

 

5,758 

 

 

1,687 

Result of operating activities

 

 

(31,771)

 

7,138 

 

51,308 

Finance costs

 

 

(13,626)

 

(6,407)

 

(12,553)

(Loss)/profit from operations before income taxes

3

 

 (45,397)

 

731 

 

38,755 

Income tax credit/(charge)

6

 

 8,591 

 

 176 

 

(1,025)

(Loss)/profit for the period

 

 

 (36,806)

 

907 

 

37,730 

 

 

 

 

 

 

 

 

Attributable to equity holders of the parent:-

 

 

 

 

 

 

 

Attributable to ordinary shareholders

 

 

(36,806)

 

1,103 

 

37,815 

Non-controlling interests

 

 

 

(196)

 

(85) 

 

 

 

 (36,806)

 

907 

 

37,730 

 

 

 

 

 

 

 

 

Earnings per ordinary share from operations: -

 

 

 

 

 

 

 

Basic

8

 

(13.7)c

 

0.6c

 

17.5c 

Diluted

8

 

(13.7)c

 

0.5c

 

14.2c 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

 

Condensed Consolidated Statement of Comprehensive Income

 

 

 

 

 

 

Six months ended 30 June 2021

 

Six months ended 30 June 2020

Year ended

31 December

2020

 

 

 

(unaudited)

 

(unaudited)

 

(audited)

 

 

 

$000

 

$000

 

$000

Other comprehensive income: -

 

 

 

 

 

 

 

Items that will not be reclassified to profit or loss:

 

 

 

 

 

 

 

Pension scheme actuarial gains/(losses)

 

 

886 

 

(1,115)

 

(749)

Deferred tax on pension scheme actuarial losses

 

 

 359 

 

 394 

 

  331 

 

 

 

1,245 

 

(721)

 

(418)

Items that may be subsequently reclassified to profit or loss: -

 

 

 

 

 

 

Exchange gains on consolidation

 

 

 2,006 

 

2,162 

 

12,581 

Other comprehensive income

 

 

 3,251 

 

1,441 

 

12,163 

 

 

 

 

 

 

 

 

(Loss)/profit for the period

 

 

(36,806)

 

 907 

 

37,730 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 (33,555)

 

2,348 

 

49,893 

 

 

 

 

 

 

 

 

Attributable to: -

 

 

 

 

 

 

 

Equity holders of the parent

 

 

 (33,555)

 

2,546 

 

49,979 

Non-controlling interests

 

 

 

(198)

 

(86)

Total comprehensive income for the period

 

 

 (33,555)

 

2,348 

 

49,893 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

 

 

Condensed Consolidated Statement of Changes in Equity for the six months ended 30 June 2021

 

 

 

 

 

 

 

 

 

Attributable to equity holders of the Parent

 

 

Share 

 capital 

Share premium

Convertible debt

Treasury share reserve

Foreign currency translation reserve

Retained earnings

Total 

Non-controlling interests

Total 

 

 

$000 

$000 

$000 

$000 

$000 

$000 

$000 

$000 

$000 

 

 

 

 

 

 

 

 

 

 

 

At beginning of period

 

6,168 

200,885 

80,000 

(183)

(24,659)

267,521 

529,732 

(512)

529,220 

Functional currency revaluation

 

(77)

7,261 

7,231 

(21)

12,245 

(26,639)

 

 

 

 

 

 

 

 

 

 

 

Loss for the period

 

(36,806)

(36,806)

(36,806)

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

Exchange gains on consolidation

 

2,006 

2,006 

2,006 

Pension scheme actuarial losses

 

886 

886 

886 

Deferred tax on pension scheme actuarial losses

 

359 

359 

359 

Total other comprehensive income for the period

 

2,006 

1,245 

3,251 

3,251 

Total comprehensive income for the period

 

2,006 

(35,561) 

(33,555)

(33,555)

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

Share based payments

 

288 

204 

494 

494 

Conversion of convertible debt to ordinary shares

 

1,351 

85,880 

(87,231)

Issue of distribution shares

 

766 

(766)

 

 

 

 

 

 

 

Cancellation of distribution shares

 

(766)

(766)

(766)

Non-controlling interest in subsidiary disposed

 

512 

512 

At end of period

 

7,444 

293,548 

(10,408)

205,321 

495,905 

495,905 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                   

 

Condensed Consolidated Statement of Changes in Equity for the six months ended 30 June 2020

 

 

 

 

 

 

 

 

 

 

Attributable to equity holders of the Parent

 

 

Share 

 capital 

Share premium

Convertible debt

Treasury share reserve

Foreign currency translation reserve

Retained earnings

Total 

Non-controlling interests

Total 

 

 

$000 

$000 

$000 

$000 

$000 

$000 

$000 

$000 

$000 

 

 

 

 

 

 

 

 

 

 

 

At beginning of period

 

5,443 

178,264 

(37,241)

230,124 

376,590 

579 

377,169 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

1,103 

1,103 

(196)

907 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

Exchange gains/(losses) on consolidation

 

2,163 

2,163 

(1)

2,162 

Pension scheme actuarial losses

 

(1,115)

(1,115)

(1,115)

Deferred tax on pension scheme actuarial losses

 

394 

394 

394 

Total other comprehensive income for the period

 

2,163 

(721)

1,442 

(1)

1,441 

Total comprehensive income for the period

 

2,163 

382 

2,545 

(197)

2,348 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

Share based payments

 

11,404 

11,404 

11,404 

Issue of shares

 

428 

19,452 

19,880 

19,880 

Issue of convertible debt

 

80,000 

80,000 

80,000 

Purchase of own shares

 

(183)

(183)

(183)

Non-controlling interest in subsidiary disposed

 

(950)

(950)

At end of period

 

5,871 

209,120 

80,000 

(183)

(35,078)

230,506 

490,236 

(568)

489,668 

 

 

 

 

              

 

 

 

 

Condensed Consolidated Statement of Changes in Equity for the year ended 31 December 2020

 

 

 

 

 

 

 

 

 

 

Attributable to equity holders of the Parent

 

 

Share 

 capital 

Share premium

Convertible debt

Treasury share reserve

Foreign currency translation reserve

Retained earnings

Total 

Non-controlling interests

Total 

 

 

$000 

$000 

$000 

$000 

$000 

$000 

$000 

$000 

$000 

 

 

 

 

 

 

 

 

 

 

 

At beginning of period

 

5,443 

178,264 

(37,241)

230,124 

376,590 

579 

377,169 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

37,815 

37,815 

(85)

37,730 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

Exchange gains/(losses) on consolidation

 

12,582 

12,582 

(1)

12,581 

Pension scheme actuarial losses

 

(749)

(749)

(749)

Deferred tax on pension scheme actuarial losses

 

331 

331 

331 

Total other comprehensive income for the period

 

12,582 

(418)

12,164 

(1)

12,163 

Total comprehensive income for the period

 

12,582 

37,397 

49,979 

(86)

49,893 

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

Share based payments

 

14,810 

14,810 

14,810 

Issue of shares

 

725 

19,200 

19,925 

19,925 

Issue of convertible debt

 

80,000 

80,000 

80,000 

Purchase of own shares

 

(183)

(183)

(183)

Issue of distribution shares

 

11,389 

(11,389)

Cancellation of distribution shares

 

(11,389)

(11,389)

(11,389)

Non-controlling interest in subsidiary disposed of

 

(1,005)

(1,005)

At end of period

 

6,168 

200,885 

80,000 

(183)

(24,659)

267,521 

529,732 

(512)

529,220 

            

 

 

 

 

 

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

 

 

 

 

Condensed Consolidated Statement of Financial Position as at 30 June 2021

 

 

 

 

Note

 

30 June 

 2021 

 

30 June 

 2020 

31 December

 2020 

 

 

 

(unaudited)

 

(unaudited)

 

(audited)

 

 

 

$000 

 

$000 

 

$000 

Assets

 

 

 

 

 

 

 

Intangible assets

 

 

82,772 

 

58,102 

 

82,215 

Investments in associates

 

 

47,737 

 

 

45,312 

Property, plant and equipment

 

 

1,839 

 

2,014 

 

2,081 

Right of use assets

 

 

5,699 

 

5,998 

 

5,620 

Investment properties

 

 

1,882 

 

1,838 

 

1,832 

Financial instruments

 

 

1,490,656 

 

762,549 

 

1,351,892 

Reinsurers' share of insurance liabilities

7

 

1,376,566 

 

736,385 

 

1,180,612 

Current tax assets

 

 

 

1,346 

 

Deferred tax assets

 

 

7,923 

 

5,216 

 

5,737 

Insurance and other receivables

 

 

793,912 

 

803,038 

 

689,623 

Cash and cash equivalents

 

 

224,800 

 

330,753 

 

363,498 

Total assets

 

 

4,033,786 

 

2,707,239 

 

3,728,422 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Insurance contract provisions

7

 

2,616,668 

 

1,740,965 

 

2,402,790 

Financial liabilities

 

 

372,129 

 

146,197 

 

338,111 

Deferred tax liabilities

 

 

13,270 

 

11,445 

 

17,995 

Insurance and other payables

9

 

523,816 

 

306,239 

 

427,763 

Current tax liabilities

 

 

3,167 

 

2,915 

 

2,603 

Pension scheme obligations

 

 

8,831 

 

9,810 

 

9,940 

Total liabilities

 

 

3,537,881 

 

2,217,571 

 

3,199,202 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Share capital

11

 

7,444 

 

5,871 

 

6,168 

Share premium

 

 

293,548 

 

209,120 

 

200,885 

Convertible debt

11

 

 

80,000 

 

80,000 

Treasury share reserve

 

 

 

(183)

 

(183)

Foreign currency translation reserve

 

 

(10,408)

 

(35,078)

 

(24,659)

Retained earnings

 

 

205,321 

 

230,506 

 

267,521 

Attributable to equity holders of the parent

 

 

495,905 

 

490,236 

 

529,732 

Non-controlling interests in subsidiary undertakings

 

 

 

(568)

 

(512)

Total equity

 

 

495,905 

 

489,668 

 

529,220 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

 

4,033,786 

 

2,707,239 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Condensed Consolidated Financial Statements were approved by the Board of Directors on 3 September 2021 and were signed on its behalf by: 

 

 

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

 

 

 

 

Condensed Consolidated Cash Flow Statement

 

 

 

 

Six months

ended

30 June 2021

 

Six months

ended

30 June 2020

 

Year ended

31 December

2020

 

 

(unaudited)

 

(unaudited)

 

(audited)

 

 

$000

 

$000

 

$000

Cash flows from operating activities

 

 

 

 

 

 

(Loss)/profit for the period

 

(36,806)

 

907 

 

37,730 

Tax included in consolidated income statement

 

(8,591)

 

(176)

 

1,025 

Finance costs

 

13,626 

 

6,407 

 

12,553 

Depreciation and impairments

 

304 

 

1,167 

 

3,001 

Share based payments

 

492 

 

11,404 

 

14,810 

Share of profits of associates

 

(5,758)

 

 

(1,687)

Profit on divestment

 

(2,587)

 

 

(683)

Goodwill on bargain purchase

 

(22,718)

 

(5,418)

 

(84,174)

Amortisation and impairment of intangible assets

 

6,854 

 

3,641 

 

14,185 

Fair value (gain)/loss on financial assets

 

6,286 

 

8,478 

 

(5,600)

Loss on revaluation of investment property

 

 

 

167 

Loss on disposal of property, plant & equipment

 

 

 

Contributions to pension scheme

 

(552)

 

(499)

 

(1,021)

Profit on net assets of pension schemes

 

48 

 

92 

 

256 

Decrease/(increase) in receivables

 

(108,990)

 

(287,337)

 

(107,228)

Decrease/(increase) in deposits with ceding undertakings

 

160,009 

 

(1,242)

 

(147,164)

Increase/(decrease) in payables

 

98,027 

 

(11,604)

 

23,052 

Decrease/increase in net insurance technical provisions

 

(27,674)

 

289,891 

 

299,849 

Net cash from operating activities

 

71,970 

 

15,711 

 

59,076 

Cash flows to investing activities

 

 

 

 

 

 

Purchase of property, plant and equipment

 

(67)

 

(1,039)

 

(1,334)

Proceeds from disposal of property, plant and equipment

 

 

 

12 

Purchase of intangible assets

 

(9)

 

(13)

 

(21)

Sale of financial assets

 

61,239 

 

109,404 

 

100,288 

Purchase of financial assets

 

(340,228)

 

(131,077)

 

(364,730)

Acquisition of subsidiary undertaking (offset by cash acquired)

 

41,340 

 

7,891 

 

29,276 

Distributions from associates

 

3,333 

 

 

Divestment (offset by cash disposed of)

 

3,532 

 

(935)

 

(5,148)

Net cash used in investing activities

 

(230,851)

 

(15,769)

 

(241,657)

Net cash from financing activities

 

 

 

 

 

 

Repayment of borrowings

 

(27,759)

 

(55,526)

 

(56,673)

New borrowing arrangements

 

58,293 

 

8,806 

 

186,310 

Interest and other finance costs paid

 

(13,626)

 

(6,407)

 

(12,553)

Cancellation of shares

 

(766)

 

 

(11,389)

Receipts from issue of shares

 

 

19,880 

 

19,925 

Receipts from issue of convertible debt

 

 

40,000 

 

80,000 

Purchase of treasury shares

 

 

(183)

 

(183)

Net cash from financing activities

 

16,144 

 

6,570 

 

205,437 

 

 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(142,737)

 

6,512 

 

22,856 

Cash and cash equivalents at beginning of period

 

363,498 

 

309,445 

 

309,445 

Foreign exchange movement on cash and cash equivalents

 

4,039 

 

14,796 

 

31,197 

Cash and cash equivalents at end of period

 

224,800 

 

330,753 

 

363,498 

 

 

 

 

 

 

 

Share of Syndicates' cash restricted funds

 

57,842 

 

21,594 

 

36,444 

Other funds

 

166,958 

 

309,159 

 

327,054 

Cash and cash equivalents at end of period

 

224,800 

 

330,753 

 

363,498 

 

 

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

 

1.  Basis of preparation

The Condensed Consolidated Financial Statements have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) and in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting.

 

The Condensed Consolidated Financial Statements for the 2021 and 2020 half years are unaudited but have been subject to review by the Group's auditors. 

 

The Group has changed functional and presentation currency from GBP to US dollars with effect from 1 January 2021. The change in functional currency was made to reflect that US dollars has become the predominant currency in the company, accounting for a significant part of the Group's cash flow, cash flow management and financing. The change has been implemented with prospective effect. The change of presentation currency is applied retrospectively for comparative figures. Currency translation effects for the comparative figures arising from the change to the new presentation currency US dollars, are booked as translation differences within the equity statement. Comparison figures in the Consolidated Statement of Comprehensive Income have been re-presented to reflect the average currency rates of transactions in foreign currencies for the period.

 

The different components of assets and liabilities in US dollars correspond to the amount published in GBP translated at the USD/GBP closing rate applicable at the end of each reporting period.  As such, the change in presentation currency has not impacted the measurement of assets, liabilities, equity, or any ratios between these components, such as debt to equity ratios.

 

 

2Significant accounting policies

The accounting policies adopted in the preparation of the Condensed Consolidated Financial Statements are consistent with those followed in the preparation of the Group's Consolidated Financial Statements for the year ended 31 December 2020. There have been no amendments to accounting policies or new International Financial Reporting Standards adopted by the Group other than the change to presentation currency as highlighted in note 1.

 

 

3Segmental information

The Group's segments represent the level at which financial information is reported to the Board, being the chief operating decision maker as defined in IFRS 8.  The reportable segments have been identified as follows: -

• Program Management - the Group delegates underwriting authority to Managing General Agents (MGAs) to provide program capacity through its licensed platforms in the US and Europe

• Legacy Insurance - the Group acquires legacy portfolios and manages the run-off of claims reserves

• Corporate/Other - primarily includes the holding company and other non-core subsidiaries which fall outside of the segments above

 

The Group uses alternative performance measures which are described below.

 

 

 

Segmental results for the six months ended 30 June 2021

 

 

Note

Program Management

Legacy Insurance

Corporate / Other 

Total

 

 

$000

$000

$000 

$000

Underwriting income

(i)

(1,220)

20,271

-

19,051

Fee income

(ii)

25,134

-

-

25,134

Investment income

(iii)

904

9,240

1,458

11,602

Gross operating income

(iv)

24,818

29,511

1,458

55,787

 

 

 

 

 

 

Fixed operating expenses

(v)

(14,960)

(44,262)

(8,259)

(67,481)

Interest expense

 

-

(11,821)

(11,821)

Pre-tax operating profit/(loss)

(vi)

9,858

(14,751)

(18,622)

(23,515)

 

 

 

 

 

 

Deduction for unearned program fee revenue

(vii)

(5,539)

-

-

(5,539)

Movement on net intangibles

(viii)

-

(3,284)

-

(3,284)

Net unrealised and realised losses

 

(599)

(4,543)

(1,314)

(6,456)

Non-core and exceptional items

 

-

-

(6,603)

(6,603)

Profit/(loss) before tax

 

3,720

(22,578)

(26,539)

(45,397)

 

 

 

 

 

 

Segment assets as at 30 June 2021

 

1,170,351

2,683,940

179,495

4,033,786

Segment liabilities as at 30 June 2021

 

1,104,951

2,121,924

311,006

3,537,881

 

 

Segmental results for the six months ended 30 June 2020

 

 

Note

Program Management

Legacy Insurance

Corporate / Other 

Total

 

 

$000

$000

$000 

$000

Underwriting income

(i)

(1,718)

60,480

-

58,762

Fee income

(ii)

10,702

-

-

10,702

Investment income

(iii)

1,219

7,375

282

8,876

Gross operating income

(iv)

10,203

67,855

282

78,340

 

 

 

 

 

 

Fixed operating expenses

(v)

(9,427)

(30,368)

(19,731)

(59,526)

Interest expense

 

-

-

(5,988)

(5,988)

Pre-tax operating profit/(loss)

(vi)

776

37,487

(25,437)

12,826

 

 

 

 

 

 

Deduction for unearned program fee revenue

(vii)

(2,498)

-

-

(2,498)

Movement on net intangibles

(viii)

-

(1,681)

-

(1,681)

Net unrealised and realised losses

 

(52)

(8,559)

2,456

(6,155)

Non-core and exceptional items

 

-

-

(1,761)

(1,761)

Profit/(loss) before tax

(ix)

(1,774)

27,247

(24,742)

731

 

 

 

 

 

 

Segment assets as at 30 June 2020

 

712,735

1,816,719

177,785

2,707,239

Segment liabilities as at 30 June 2020

 

672,907

1,424,384

120,280

2,217,571

 

Segmental results for the year ended 31 December 2020

 

 

Note

Program Management

Legacy Insurance

Corporate / Other 

Total 

 

 

$000

$000

$000 

$000 

Underwriting income

(i)

(3,037)

103,555 

100,518 

Fee income

(ii)

24,149 

24,149 

Investment income

(iii)

2,547 

16,810 

1,403 

20,760 

Gross operating income

(iv)

23,659 

120,365 

1,403 

145,427 

 

 

 

 

 

 

Fixed operating expenses

(v)

(20,281)

(71,419)

(21,069)

(112,769)

Interest expense

 

(12,059)

(12,059)

Pre-tax operating profit/(loss)

(vi)

3,378 

48,946 

(31,725)

20,599 

 

 

 

 

 

 

Deduction for unearned program fee revenue

(vii)

(3,995)

(3,995)

Movement on net intangibles

(viii)

-

19,876 

19,876 

Net unrealised and realised gains/(losses)

 

(380)

7,149 

6,769 

Non-core and exceptional items

 

(4,494)

(4,494)

Profit/(loss) before tax

 

(997)

75,971 

(36,219)

38,755 

 

 

 

 

 

 

Segment assets as at 31 December 2020

 

909,256 

2,632,649 

186,517 

3,728,422 

Segment liabilities as at 31 December 2020

 

853,747 

2,020,939 

324,516 

3,199,202 

 

Notes:

 

(i)  Underwriting income represents Legacy Insurance tangible day one gains and reserve development / savings, net of claims costs and brokerage commissions. Underwriting income also includes Program Management retained earned premiums, net of claims costs, acquisition costs, claims handling expenses and premium taxes / levies.

 

(ii)  Fee income comprises program fee revenue which represents the fee revenue from insurance policies already bound (written), regardless of the amount of premium earned in the financial period, and earnings from minority stakes in MGAs.

 

(iii)  Investment income represents income arising on the investment portfolio excluding net realised and unrealised investment gains or losses on fixed income and lease-based assets.

 

(iv)  Gross operating income represents pre-tax operating profit before fixed operating expenses (v) and interest expense.

 

(v)  Fixed operating expenses include employment, legal, accommodation, information technology, Lloyd's Syndicate and other fixed expenses of ongoing operations, excluding non-core and exceptional items.

 

(vi)  Pre-tax operating profit or loss is a measure of how the Group's core businesses performed adjusted for unearned program fee revenue, intangibles created in Legacy acquisitions and net realised and unrealised investment gains on fixed income and lease-based assets.

 

(vii)  Unearned program fee revenue represents the portion of program fee revenue (ii) which has not yet been earned on an IFRS basis.

 

(viii)  Movement on net intangibles comprises the aggregate of intangible assets arising on acquisitions in the period less amortisation on existing intangible assets charged in the period.

 

 

 

(ix)  Profit before tax at segmental level for the six months ended 30 June 2020 has been restated to allocate interest expense entirely to Corporate/Other rather than across all business segments.

Geographical analysis

 

As at 30 June 2021

 

 

 

 

 

UK 

North America

Europe 

Total 

 

 

$000 

 

$000 

 

$000 

 

$000 

Gross assets

 

1,319,477 

 

1,893,090 

 

1,179,721 

 

4,392,288 

Intercompany eliminations

 

(194,997)

 

(98,675)

 

(64,830)

 

(358,502)

Segment assets

 

1,124,480 

 

1,794,415 

 

1,114,891 

 

4,033,786 

 

 

 

 

 

 

 

 

 

Gross liabilities

 

1,133,728 

 

1,718,909 

 

1,043,746 

 

3,896,383 

Intercompany eliminations

 

(253,481)

 

(50,233)

 

(54,788)

 

(358,502)

Segment liabilities

 

880,247 

 

1,668,676 

 

988,958 

 

3,537,881 

 

 

 

 

 

 

 

 

 

External revenuefor the six months ended 30 June 2021

 

21,330 

 

87,832 

 

13,622 

 

122,784 

 

As at 30 June 2020

 

 

 

 

 

UK 

North America

Europe 

Total 

 

 

$000 

 

$000 

 

$000 

 

$000 

Gross assets

 

634,868 

 

1,780,015 

 

711,999 

 

3,126,882 

Intercompany eliminations

 

(176,592)

 

(181,571)

 

(61,480)

 

(419,643)

Segment assets

 

458,276 

 

1,598,444 

 

650,519 

 

2,707,239 

 

 

 

 

 

 

 

 

 

Gross liabilities

 

424,996 

 

1,585,940 

 

626,278 

 

2,637,214 

Intercompany eliminations

 

(105,425)

 

(307,865)

 

(6,353)

 

(419,643)

Segment liabilities

 

319,571 

 

1,278,075 

 

619,925 

 

2,217,571 

 

 

 

 

 

 

 

 

 

External revenue for the six months ended 30 June 2020

 

118,329 

 

269,663 

 

37,770 

 

425,762 

 

As at 31 December 2020

 

 

 

 

 

UK 

North America

Europe 

Total 

 

 

$000 

 

$000 

 

$000 

 

$000 

Gross assets

 

1,302,631 

 

1,936,102 

 

867,187 

 

4,105,920 

Intercompany eliminations

 

(116,374)

 

(197,177)

 

(63,947)

 

(377,498)

Segment assets

 

1,186,257 

 

1,738,925 

 

803,240 

 

3,728,422 

 

 

 

 

 

 

 

 

 

Gross liabilities

 

1,083,656 

 

1,737,079 

 

755,965 

 

3,576,700 

Intercompany eliminations

 

(155,426)

 

(213,498)

 

(8,574)

 

(377,498)

Segment liabilities

 

928,230 

 

1,523,581 

 

747,391 

 

3,199,202 

 

 

 

 

 

 

 

 

 

External revenue for the year ended 31 December 2020

 

160,232 

 

291,805 

 

68,725 

 

520,762 

 

 

4.  Fair Value

 

The following table shows the fair values of financial assets using a valuation hierarchy; the fair value hierarchy has the following levels: -

Level 1 - Valuations based on quoted prices in active markets for identical instruments.  An active market is a market in which transactions for the instrument occur with sufficient frequency and volume on an ongoing basis such that quoted prices reflect prices at which an orderly transaction would take place between market participants at the measurement date.

Level 2 - Valuations based on quoted prices in markets that are not active or based on pricing models for which significant inputs can be corroborated by observable market data.

Level 3 - Valuations based on inputs that are unobservable or for which there is limited activity against which to measure fair value.

 

 

 

 

 

 

 

 

 

 

As at 30 June 2021

 

Level 1

$000

 

Level 2

$000 

 

Level 3
$000

 

Total
$000

 

 

 

 

 

 

 

 

 

Government and government agencies

 

316,353

 

-

 

-

 

316,353

Corporate bonds

 

987,219

 

50,059

 

-

 

1,037,278

Equities

 

12,930

 

293

 

-

 

13,223

Investment funds

 

20,414

 

83,961

 

-

 

104,375

Purchased reinsurance receivables

 

-

 

-

 

6,371

 

6,371

Total financial assets measured at fair value

 

1,336,916

 

134,313

 

6,371

 

1,477,600

 

 

 

 

 

 

 

 

 

 

As at 30 June 2020

 

Level 1

$000

 

Level 2

$000 

 

Level 3
$000

 

Total
$000

 

 

 

 

 

 

 

 

 

Government and government agencies

 

197,487

 

775

 

-

 

198,262

Corporate bonds

 

356,571

 

108,487

 

-

 

465,058

Equities

 

7,143

 

-

 

-

 

7,143

Investment funds

 

-

 

66,638

 

-

 

66,638

Purchased reinsurance receivables

 

-

 

-

 

6,304

 

6,304

Total financial assets measured at fair value

 

561,201

 

175,900

 

6,304

 

743,405

 

 

 

 

 

 

 

 

 

 

As at 31 December 2020

 

Level 1

$000

 

Level 2

$000 

 

Level 3
$000

 

Total
$000

 

 

 

 

 

 

 

 

 

Government and government agencies

 

311,343

 

478

 

-

 

311,821

Corporate bonds

 

742,436

 

35,759

 

-

 

778,195

Equities

 

7,169

 

298

 

-

 

7,467

Investment funds

 

-

 

73,973

 

-

 

73,973

Purchased reinsurance receivables

 

-

 

-

 

6,314

 

6,314

Total financial assets measured at fair value

 

1,060,948

 

110,508

 

6,314

 

1,177,770

 

The following table shows the movement on Level 3 assets measured at fair value for the six months ended 30 June 2021 and 2020,and the year ended 31 December 2020: -

 

June 

2021 

June 

2020 

December

2020 

 

$000 

$000 

$000 

 

 

 

 

Opening balance

6,314 

 7,796 

7,796 

Total net gains recognised in the Consolidated Income Statement

125 

441 

451 

Disposals

(68)

(1,933)

(1,933)

Closing balance

6,371 

6,304 

  6,314 

 

Level 3 investments (purchased reinsurance receivables) have been valued using detailed models outlining the anticipated timing and amounts of future receipts.

5.  Investment income

 

 

 

Six months ended

30 June 2021 

 

Six months ended

30 June 2020 

Year ended 

31 December

2020 

 

 

$000 

 

$000 

 

$000 

 

 

 

 

 

 

 

Interest income

 

11,639 

 

11,596 

 

22,960 

Realised gains/(losses) on investments

 

2,727 

 

(725)

 

(4,540)

Unrealised (losses)/gains on investments

 

(9,013)

 

(8,130)

 

10,140 

 

 

5,353 

 

2,741 

 

28,560 

 

6.  Income tax

 

 

 

Six months ended

30 June 2021

 

Six months

ended
30 June 2020

Year ended

31 December 2020 

 

 

$000 

 

$000 

 

$000 

 

 

 

 

 

 

 

Tax credit/(charge)

 

8,591 

 

176 

 

(1,025) 

 

The tax credit/(charge) in the Condensed Consolidated Income Statement is calculated on an effective tax rate method.

 

 

7.  Insurance contract provisions and reinsurance balances

 

 

 

Six months 

ended 

  30 June 

 2021 

 

Six months

 ended

30 June

  2020 

Year

ended 

31 December

  2020 

Gross

 

$000 

 

$000 

 

$000 

 

Insurance contract provisions at beginning of period

 

2,402,790 

 

1,400,411 

 

1,400,411 

Claims paid

 

(228,858)

 

(116,805)

 

(270,621) 

Increase/(decrease) in provisions arising from acquisition and disposal of subsidiary undertakings and syndicate participations

 

38,170 

 

 

(44,757)

 

 

426,140 

Increase in provisions arising from acquisition of reinsurance portfolios

 

74,315 

 

 

328,045 

 

 

  368,187 

Increase in claims provisions

 

167,091 

 

165,885 

 

349,099 

Increase in unearned premium reserve

 

131,338 

 

49,144 

 

97,014 

Net exchange differences

 

31,822 

 

(40,958)

 

32,560  

Insurance contract provisions at end of period

 

2,616,668 

 

1,740,965 

 

2,402,790 

 

 

 

 

Six months

  ended

 30 June

  2021 

 

Six months

  ended

 30 June

  2020 

Year

ended 

31 December

  2020 

Reinsurance

 

$000 

 

$000 

 

$000 

 

Reinsurers' share of insurance contract provisions at beginning of period

 

1,180,612 

 

615,711 

 

615,711 

Proceeds from commutations and reinsurers' share of gross claims paid

 

(106,299)

 

(70,893)

 

 

(167,952) 

Increase/(decrease) in provisions arising from acquisition and disposal of subsidiary undertakings and syndicate participations

 

 

 

(1,766)

 

 

283,068  

Increase in provisions arising from acquisition of reinsurance portfolios

 

 

 

 

 

1,402 

Increase in claims provisions

 

146,823 

 

147,366 

 

318,134 

Increase in unearned premium reserve

 

131,036 

 

59,905 

 

92,246 

Net exchange differences

 

24,394 

 

(13,938)

 

38,003 

 Reinsurers' share of insurance contract provisions at end of period

 

 

1,376,566 

 

 

736,385 

 

 

1,180,612 

 

 

 

 

 

 

 

 

 

Six months

  ended

 30 June

  2021 

 

Six months

  ended

 30 June

  2020 

Year

 ended 

31 December

  2020 

 

Net

 

$000 

 

$000 

 

$000 

 

 

Net claims outstanding at beginning of period

 

1,222,178 

 

784,700 

 

784,700 

 

Net claims paid and proceeds from commutations

 

(122,559)

 

(45,912)

 

(102,669)

 

Increase/(decrease) in provisions arising from acquisition of subsidiary undertakings and syndicate participations

 

38,170 

 

 

(42,991)

 

 

143,072 

 

Increase in provisions arising from acquisition of reinsurance portfolios

 

74,315 

 

 

328,045 

 

 

366,785 

 

Increase in claims provisions

 

20,268 

 

18,519 

 

30,965 

 

Decrease/(increase) in unearned premium reserve

 

302 

 

(10,761)

 

4,768 

 

Net exchange differences

 

7,428 

 

(27,020)

 

(5,443)

 

Net claims outstanding at end of period

 

1,240,102 

 

1,004,580 

 

1,222,178 

 

 

The assumptions used in the estimation of claims provisions relating to insurance contracts are intended to result in provisions which are sufficient to settle the net liabilities from insurance contracts. 

Provision is made at the reporting date for the estimated ultimate cost of settling all claims incurred in respect of events and developments up to that date, whether reported or not. The source of data used as inputs for the assumptions is primarily internal.

Significant uncertainty exists as to the likely outcome of any claim and the ultimate costs of completing the run off of the Group's owned insurance operations.

The Group owns several insurance companies in run-off. Significant uncertainty arises in the quantification of technical provisions for all insurance entities under the Group's control due to the long tail nature of the business underwritten by those entities.  The business written by the insurance company subsidiaries consists in part of long tail liabilities, including asbestos, pollution, health hazard and other US liability insurance.  The claims for this type of business are typically not settled until several years after policies have been written.  Furthermore, much of the business written by these companies is reinsurance and retrocession of other insurance companies, which lengthens the settlement period.

The provisions carried by the Group's owned insurance companies are calculated using a variety of actuarial techniques. The provisions are calculated and reviewed by the Group's internal actuarial team. In addition, the Group periodically commissions independent external actuarial reviews. The use of external advisers provides management with additional comfort that the Group's internally produced statistics and trends are consistent with observable market information and other published data.

When preparing these Condensed Consolidated Financial Statements, full provision is made in the aggregate for all costs of running off the business of the insurance entities to the extent that the provision exceeds the estimated future investment return expected to be earned by those entities deemed to be in run-off.  When assessing the amount of any provision to be made, the future investment income and claims handling expenses and all other costs of all the insurance company subsidiaries' and syndicates' businesses in run-off are considered in aggregate.  The quantum of the costs of running off the business and the future investment income has been determined through the preparation of cash flow forecasts over the anticipated period of the run offs.  The gross costs of running off the business are estimated to be fully covered by investment income.

Provisions for outstanding claims and Incurred but Not Reported (IBNR) claims are initially estimated at a gross level and a separate calculation is carried out to estimate the size of reinsurance recoveries. Insurance companies within the Group are covered by a variety of treaty, excess of loss and stop loss reinsurance programmes.

 

8.    Earnings per share

 

 

 

Six months

ended 30 June 2021

 

Six months

  ended 30 June 2020 

Year ended 

31 December 

2020 

 

 

 

 

 

 

 

 

 

No. 000's 

 

No. 000's 

 

No. 000's 

 

Weighted average number of Ordinary shares

 

267,915

 

200,354

 

216,026

Effect of dilutive share options

 

-

 

4,473

 

49,772

Weighted average number of Ordinary shares for the purposes

of diluted earnings per share

 

267,915

 

204,827

 

265,798

 

 

 

 

 

 

 

 

 

 

 

 

$000 

 

$000 

 

$000 

Earnings per share for profit from operations

(Loss)/Profit for the period attributable to Ordinary shareholders

(36,806) 

 

1,103 

 

37,815

 

 

 

 

 

 

Basic earnings per share

 

(13.7)c

 

0.6c

 

17.5c 

Diluted earnings per share

 

(13.7)c

 

0.5c

 

14.2c 

 

 

 

 

 

 

 

 

9.  Insurance and other payables

 

 

 

Six months ended 30 June 2021 

 

Six months ended 30 June 2020 

Year ended

31 December 2020 

 

 

$000 

 

$000 

 

$000 

 

 

 

 

 

 

 

Structured liabilities

 

516,393 

 

531,361 

 

516,393 

Structured settlements

 

(516,393)

 

(531,361)

 

(516,393)

 

 

 

 

Other creditors

 

523,816 

 

306,239 

 

427,763 

 

 

 

 

 

 

 

 

 

523,816 

 

306,239 

 

427,763 

 

 

 

 

 

 

 

Structured Settlements

Structured settlements are subject to annual review. No new structured settlement arrangements have been entered into during the period.  The movement in these structured liabilities during the period is primarily due to exchange movements.  Some group subsidiaries have paid for annuities from third party life insurance companies for the benefit of certain claimants.  The subsidiary company retains the credit risk in the unlikely event that the life insurance company defaults on its obligations to pay the annuity amounts.  In the event that any of these life insurance companies were unable to meet their obligations to these annuitants, any remaining liability may fall upon the respective insurance company subsidiaries.  The Directors believe that, having regard to the quality of the security of the life insurance companies together with the reinsurance available to the relevant Group insurance companies, the possibility of a material liability arising in this way is very unlikely. The life companies will settle the liability directly with the claimants and no cash will flow through the Group. These annuities have been shown as reducing the insurance companies' liabilities to reflect the substance of the transactions and to ensure that the disclosure of the balances does not detract from the users' ability to understand the Group's future cash flows.

 

10.  Borrowings

The total amounts owed to credit institutions at 30 June 2021 was $362,687k (30 June 2020: $138,680k, 31 December 2020: $330,275k).

 

The Group has issued the following debt:

 

Issuer

Principal

Rate

Maturity

 

Randall & Quilter Investment Holdings Ltd.

$70,000k

6.35% above USD LIBOR

2028

Randall & Quilter Investment Holdings Ltd.

$125,000k

6.75% above USD LIBOR

2033

Accredited Insurance (Europe) Limited

€20,000k

6.7% above EURIBOR

2025

Accredited Insurance (Europe) Limited

€5,000k

6.7% above EURIBOR

2027

R&Q Re (Bermuda) Limited

$20,000k

7.75% above USD LIBOR

2023

        

 

The Group's subsidiary, Accredited America Insurance Holding Corporation provides a full and unconditional guarantee for the payment of principal, interest and any other amounts due in respect of the $70,000k Notes issued by Randall & Quilter Investments Holdings Ltd.

 

 

11.  Issued share capital

Issued share capital as at 30 June 2021 amounted to $7,444k (30 June 2020: $5,871k, 31 December 2020: $6,168k).

 

During the period the Group converted 47,609,270 $0.01 convertible preference shares with a value of $80,000k in a subsidiary, to ordinary share capital of the Group.

 

12.  Guarantees and indemnities in the ordinary course of business

The Group has given various customary warranties and indemnities in connection with the disposals of R&Q Managing Agency and various insurance service entities.

 

The Group also gives various guarantees in the ordinary course of business.

 

 

13.  Goodwill

When testing for impairment of goodwill, the recoverable amount of each relevant cash generating unit is determined based on cash flow projections. These cash flow projections are based on the financial forecasts approved by management.  Management also consider the current net asset value and earnings of each cash generating unit.

No changes to the underlying assumptions have been made in the interim review.

 

14.  Business combinations

During the first six months of 2021, the Group made two business combinations of run-off portfolios and acquired two non-insurance legacy businesses (which were acquired as part of a single transaction). All of the Group's business combinations involved Legacy Insurance transactions and have been accounted for using the acquisition method of accounting.

Legacy entities and businesses

The following table shows the fair value of assets and liabilities included in the Condensed Consolidated Financial Statements at the date of acquisition of the legacy businesses:

 

Intangible assets

Other receivables

Cash &

investments

Other payables

Technical provisions

Tax

Net assets acquired

Consideration

Goodwill on bargain purchase

 

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

 

 

 

 

 

 

 

 

 

 

EIIDAC

3,086

450

64,057

(252)

(36,196)

(386)

30,759

9,148

21,611

NYSHPWCT

263

-

2,819

-

(1,975)

-

1,107

-

1,107

 

3,349

450

66,876

(252)

(38,171)

(386)

31,866

9,148

22,718

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

Other receivables

Cash &

investments

Other payables

Technical provisions

Tax

Net assets acquired

Consideration

Goodwill generated

 

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

 

 

 

 

 

 

 

 

 

 

Vibe

-

2,745

1,623

(933)

-

-

3,435

6,277

2,842

 

Goodwill on bargain purchase arises when the consideration is less than the fair value of the net assets acquired.  It is calculated after the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition.

M&A transactions can arise as legacy business can give rise to onerous capital and reporting obligations for insurers, even though they no longer actively participate in such business.

In order to disclose the impact on the Group as if the legacy entities had been owned for the whole period, assumptions would have to be made about the Group's ability to manage efficiently the run-off of the legacy liabilities prior to the acquisition.  As a result, and in accordance with IAS 8, the Directors believe it is not practicable to disclose revenue and profit before tax as if the entities had been owned for the whole period.

Where significant uncertainties arise in the quantification of the liabilities, the Directors have estimated the fair value based on the currently available information and on assumptions which they believe to be reasonable. 

The Group completed the following business combination during 2021:

 

EIIDAC

On 19 May 2021, the Group announced it had completed the acquisition of the entire issued share capital of Electric Insurance Ireland DAC ("EIIDAC"), an Irish domiciled captive insurance company of the General Electric Group. EIIDAC was incorporated in 2005 and wrote Employer's Liability and General Liability business between 2007 and 2020.

 

NYSHPWCT

On 13 July 2021, but effective 1 August 2020,  Accredited Surety & Casualty received regulatory approval to assume the Workers' Compensation Liability Policies of New York State Health Providers Workers Compensation Trust ("NYSHPWCT"). The policies assumed covered the period from April 1992 to January 2011.

 

Vibe

On 21 May 2021, following regulatory approval, the Group completed the acquisitions of Vibe Syndicate Management Limited ("VSML") and Vibe Services Management Limited ("Vibe Services"), (together "Vibe"), thus finalising the second completion of the purchase of the Vibe Group following the acquisition of Vibe Corporate Member Limited in December 2020.

 

15.  Related party transactions

The following Officers and connected parties were entitled to the following distributions during the period as follows: 

 

Six months ended 

30 June 2021 

Six months ended

30 June 2020 

Year ended

31 December 2020 

 

 

  $000 

$000 

$000 

 

 

 

 

 

 

A K Quilter and family

7

153 

 

W L Spiegel

15

82 

 

T S Solomon

4

59 

 

 

16.  Foreign exchange rates

The Group used the following exchange rates to translate foreign currency assets, liabilities, income and expenses into United States Dollars, being the Group's presentational currency:

 

 

 

Six months ended 30 June 2021 

 

Six months ended 30 June 2020 

Year ended

31 December 2020 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

UK Sterling

 

0.72 

 

0.79 

 

0.78

Euro

 

0.83 

 

0.91 

 

0.88

 

 

 

 

 

 

 

Spot

 

 

 

 

 

 

UK Sterling

 

0.72 

 

0.81 

 

0.74

Euro

 

0.84 

 

0.89 

 

0.82

 

 

 

 

 

 

 

 

 

 

 

 

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