TIDM32OW
RNS Number : 0363F
Brit Limited
16 February 2018
Brit LIMITED
PRESS RELEASE
16 February 2018
Full Year results for the Year ended 31 December 2017
A POSITIVE Performance IN a challenging year
Key points
-- Gross written premiums of US$2,057.0m (2016: US$1,912.2m), an
increase at constant exchange rates of 8.2%.
-- Risk adjusted premium rates on renewal business reduced by 1.3% (2016: 3.3%).
-- Combined ratio(1) of 112.4% (2016: 96.4%), including 16.2
percentage points of major losses (2016: 4.5pps) and 0.9pps in
respect of the Ogden rate change. Major losses in line with
expectations given the nature and scale of the events and our
market share.
-- Excellent return on invested assets(2) after fees of
US$204.2m or 4.9% (2016: US$102.9m or 2.6%).
-- Profit after tax of US$21.5m (2016: US$157.6m).
-- RoNTA(3) after FX movements of 2.5% (2016: 15.8%) and RoNTA
before FX movements of 1.1% (2016: 11.8%).
-- Adjusted net tangible assets(4) of US$1,043.7m (2016:
US$1,064.8m), after dividends paid of US$45.8m.
-- Capital ratio of 136.8% (2016: 125.6%).
-- Successful launch of Syndicate 2988 for the 2017 underwriting
year, supported by third party capital, with increased capacity for
2018, expanding Brit's current position as the largest Lloyd's only
insurer.
-- Successful launch of a new Bermuda-domiciled collateralised
reinsurance platform, Sussex Capital, with initial funding for 2018
of US$102.5m, further enhancing client and broker proposition.
-- Focus on leadership, innovation and distribution, with
continued opportunity-driven considered expansion in a number of
areas including US programs, US cyber and technology, US Yacht and
US Professional Lines.
Matthew Wilson, Group Chief Executive Officer of Brit Limited,
commented:
'2017 was dominated by the scale and multiplicity of natural
catastrophes from hurricanes, earthquakes and wildfires, resulting
in significant human and economic consequences in the regions
affected. Our products have responded to these events, supporting
numerous businesses and individuals to get back on their feet in
these difficult times. Our focus has been on providing an
outstanding claims service and we have been pro-active in ensuring
our customers' needs have been at the forefront of our actions. The
net impact of these events on Brit was US$250.0m, or 16.2pps of our
112.4% combined ratio. This was in line with our expectations given
the nature and scale of the events and our market share.
Market conditions have, as expected, remained difficult during
2017, with Brit experiencing an overall rate reduction of 1.3%,
albeit lower than the 3.3% reduction in 2016. Against this
backdrop, we have maintained our rigorous risk selection in the
classes experiencing pressure and continue to focus growth efforts
in classes experiencing more favourable rating conditions. This
strategy resulted in a respectable attritional ratio of 56.4%.
Our premium written grew by 8.2% at constant exchange rates over
2016, to US$2,057.0m. This was driven by positive back year premium
development, our initiatives to broaden our distribution base and
ongoing development of our core business. We continue to add
specialty underwriting talent in targeted areas and in 2017 have
strengthened our US program capability, launched a new US cyber and
technology team, and expanded our US Yacht and US Professional
Lines offerings.
During 2017, it was particularly pleasing to see our US
operation, BGSU, reach the milestone of writing over US$1bn of
premium since its formation in 2009. BGSU has reached this
milestone by delivering strong, profitable organic growth with a
focus on niche areas where it has significant expertise and
experience.
The successful launch in 2017 of Brit Syndicate 2988, together
with its increased capacity for 2018, reinforces our long-term
commitment to the Lloyd's market and ambition to use its
infrastructure to expand our current position as the largest
Lloyd's only insurer. It will also help us further position Brit as
Lloyd's 'underwriting leader of choice', building on our existing
strength across underwriting, claims and capital management and
track record of delivering attractive returns for capital
providers.
In December we launched a new Bermuda-domiciled collateralised
reinsurance platform, Sussex Capital, with initial funding of
US$102.5m. From 2018, Sussex Capital will write direct
collateralised reinsurance while also providing collateralised
reinsurance to Brit's Syndicate 2987. Its launch strengthens Brit's
reinsurance capability, provides access to a diversified source of
capital and further enhances our client and broker proposition.
While the outlook for 2018 is more positive with some
encouraging signs of rate improvements in certain classes, we
remain in a fiercely competitive market environment.
Notwithstanding, we believe that with highly disciplined
underwriting and our strategic focus on market leadership,
innovation in product and process, and the broadening of local
product distribution, we can look to the future with
confidence.'
Mark Allan, Chief Financial Officer of Brit Limited, said:
'During 2017, Brit delivered a profit after tax of US$21.5m,
against a backdrop of significant catastrophe activity, strong
competition and continued pricing pressures. Total value created
during the period was US$24.7m.
Claims arising from the major loss activity totalled US$250.0m,
increasing the combined ratio by 16.2pps to 112.4%. Our attritional
and expense ratios of ratio of 56.4% and 40.4% respectively were
relatively stable despite the challenging market conditions, while
reserve releases of US$9.6m after incorporating the effects of the
Ogden rate change continue to demonstrate our conservative
reserving approach.
Our net investment return was an outstanding US$204.2m,
representing a return of 4.9%, driven by gains on our equity and
fund investments. Foreign exchange gains, net of returns on FX
related derivatives, totalled US$12.6m.
The impact of the major losses on market-wide results highlights
the thin margins currently available in the specialty market and we
remain focused on defending our core business and maintaining a
disciplined approach to underwriting.
We increased the level of reinsurance purchased in 2017, with
spend increasing from 22.6% to 25.6% of premiums written. Our
relationship with the Bermuda domiciled special purpose reinsurer
Versutus Limited has continued to grow, with the amount of capital
deployed to support Brit increasing to US$187.0m for 2018. We have
also expanded the use of quota shares to manage our net exposure
and have purchased a two year catastrophe protection, which largely
explains the increase in ceded premium in the period. The events of
2017 have illustrated the benefits of these protections.
Our balance sheet remains strong, with adjusted net tangible
assets of US$1,043.7m, a small decrease of US$21.1m in the year,
after a dividend payment of US$45.8m. This means that we hold a
surplus of US$395.1m or 36.8% above the Group's management capital
requirement.
Syndicate 2988, Versutus and Sussex are key to Brit's strategy
of building long term relationships with the capital markets, and
through these platforms we now have access to over US$400m of
capacity. The support they provide enables us to strengthen our
reinsurance capability and manage our catastrophe risk exposures
whilst offering capital market investors attractive,
non-correlating returns.
While the outlook remains challenging, there are some positive
signs. We believe we are well positioned to navigate the current
climate and take advantage of opportunities as they arise.'
Notes
1 The combined ratio excludes the effect of foreign
exchange on non-monetary items.
2 Return on invested assets includes return on investment
related derivatives and share of net profit of associates
and is after deducting investment management fees.
3 RoNTA excludes foreign exchange movements and corporate
activity costs and is based on adjusted net tangible
assets.
4 Adjusted net tangible assets are defined as total
equity, less intangible assets net of the deferred
tax liability on those intangible assets.
For further information, please contact:
Antony E Usher, Group Financial Controller, +44 (0) 20 3857
Brit Limited 0000
+44 (0) 20 3727
Edward Berry, FTI Consulting 1046
+44 (0) 20 3727
Tom Blackwell, FTI Consulting 1051
About Brit Limited
Brit Limited is a market-leading global specialty insurer and
reinsurer, focused on underwriting complex risks. It has a major
presence in Lloyd's of London, the world's specialist insurance
market provider, with significant US and international reach. We
underwrite a broad class of commercial specialty insurance with a
strong focus on property, casualty and energy business. Our
capabilities are underpinned by strong financials.
Brit is a member of the Fairfax Financial Holdings Limited group
of companies (Fairfax). The Fairfax financial result for the year
ended 31 December 2017, which included the Brit Limited financial
result, was published on 15 February 2018.
www.britinsurance.com
Disclaimer
This press release does not constitute or form part of, and
should not be construed as, an offer for sale or subscription of,
or solicitation of any offer or invitation or advice or
recommendation to subscribe for, underwrite or otherwise acquire or
dispose of any securities (including share options and debt
instruments) of the Company nor any other body corporate nor should
it or any part of it form the basis of, or be relied on in
connection with, any contract or commitment whatsoever which may at
any time be entered into by the recipient or any other person, nor
does it constitute an invitation or inducement to engage in
investment activity under Section 21 of the Financial Services and
Markets Act 2000 (FSMA). This document does not constitute an
invitation to effect any transaction with the Company or to make
use of any services provided by the Company. Past performance
cannot be relied on as a guide to future performance.
Brit at a Glance
We are a market-leading global specialty (re)insurer and the
largest business that trades solely on the Lloyd's of London
platform, the world's leading specialist commercial insurance
market. We provide highly specialised insurance products to support
our clients across a broad range of complex risks, with a strong
focus on property, energy and casualty business.
We operate globally via a combination of our own international
distribution network that benefits from Lloyd's global licences and
our broker partners. Our underwriting capabilities are underpinned
by a strong financial position and our commitment to deliver
superior returns to our shareholders.
We have a strong track record and are passionate about our
business, our people and our customers and we have focused on
cultivating a franchise that is built on delivering exceptional
service. Our culture is centred on achievement and we have
established a framework that identifies and rewards strong
performance.
The Fairfax Group
Since June 2015, Brit has been a member of the Fairfax Financial
Holdings Limited group (Fairfax), a Canadian company whose shares
are listed on the Toronto Stock Exchange (www.fairfax.ca). Brit is
72.5% owned by FFHL Group Limited (FFHL), a Fairfax company, while
Brit's remaining shares are owned by the Ontario Municipal
Employees Retirement System (OMERS), the pension plan manager for
government employees in the Canadian province of Ontario. FFHL will
have the ability to purchase the shares owned by OMERS over
time.
We believe that the Fairfax Group is an excellent partner for
Brit, enabling us to enhance our global product offering. It
provides us with expanded underwriting opportunities and
distribution channels and supports the delivery of our strategy to
become a leading global specialty (re)insurer.
2017 underwriting review
2017 has been dominated by the extent and scale of natural
catastrophes, with multiple hurricanes, earthquakes and wildfires,
resulting in terrible human impact and significant economic
consequences in the regions affected. The economic loss estimate
from these events is in the region of US$353bn, while the insured
loss is estimated at between US$134bn and US$140bn, making it the
second most costly year on record after 2011.
Our products are designed to support businesses and individuals
in such difficult times and we have focussed on providing an
outstanding claims service, ensuring our customers' needs were met.
This claims service has included:
-- A focus on responding to our customers, managing the expected
volume pressures and containment of both indemnity and expense
ratios.
-- Ongoing monitoring of local resources available to adjust and
report claims, given the severity and the number of events hitting
the US and Caribbean in sequence.
-- 24/7 contact with claims third party administrators (TPAs)
and coverholders, managing claims on our behalf, to assess impact
and resourcing and to gauge activity and potential issues.
-- Extended deployment of Brit claims adjusters from London
directly into the TPA and coverholder operations in Texas and
Florida, providing an 'on the ground' local Brit presence, ensuring
claims were handled in accordance with Brit's standards while
favourably impacting accessibility and resolution times.
-- Ensuring claims payments were made swiftly by establishing
robustly funded claims loss funds, proactively making interim or
partial payments whenever possible to support our insureds'
recovery efforts.
-- Providing via contract endorsement, a number of select TPAs
and MGAs with additional claims handling authority, including an
increase in the authorised monetary thresholds and a waiver of
proofs of loss.
-- Successful adoption of satellite technology to capture high
resolution images of Northern California wildfire affected Brit
insured homes, enabling us to remotely adjust, settle and pay a
number of high severity total losses within days.
The net claims incurred by Brit from these events totalled
US$250.0m (Hurricane Harvey: US$51.5m; Hurricane Irma: US$110.1m;
Hurricane Maria: US$46.4m; Mexico earthquakes: US$6.8m; California
wildfires: US$35.2m), or 16.2pps on the combined ratio (2016:
US$68.4m/4.5pps). This was in line with our expectations given the
nature and scale of the events and our market share.
Our net exposure has been limited by our extensive reinsurance
programme, purchased specifically with such extreme events in mind.
We continually review our reinsurance protections to ensure
effectiveness and have ceded more premiums to reinsurers in recent
years as the market has softened. We have increased our use of
proportional reinsurance to manage net appetite in a period of very
challenging market conditions, while maintaining gross scale and
relevance.
Market conditions have, as expected, remained challenging during
2017. Premium rates continued to experience reductions, albeit at a
lower rate than in 2016, influenced by low instances of catastrophe
losses in recent years, competition from new entrants and
additional capacity from existing competitors with an appetite to
grow despite rating pressure.
However, during the year the market did show some encouraging
signs. A number of our competitors exited underperforming classes,
where they had been showing a lack of discipline. This gave us the
opportunity to hold the line in those areas and outperform our
planned premium. In particular, we were able to retain more premium
than planned in the Casualty Treaty and Commercial Worldwide
Property accounts. In Cyber, one of our key growth classes, we have
continued to support this growth market but increasing competition
has led us to be cautious on a number of new and existing
accounts.
Following the major losses in the second half of 2017, rates on
risks renewed increased across most affected classes, with
significant rate rises on impacted risks. Yachts, Cargo, Property
Treaty, Commercial North America Open Market, Commercial Worldwide,
BGSU E&S and BGSU Property Facultative have benefited from such
increases. However, in certain areas (eg Property Treaty, BGSU
E&S) rate increases have been limited by surplus capacity
remaining in the market. We have also seen continued instances of
undisciplined behaviour. We have clear thoughts on our expectations
on pricing and appetite post event and remain prepared to walk away
from renewals where terms do not meet our appetite and rating
criteria.
Overall risk adjusted premium rates reduced by 1.3% (2016:
3.3%), with reductions in our direct business of 1.2% (2016: 2.9%)
and reductions in our reinsurance portfolio of 1.7% (2016: 6.9%).
Rating pressure was most severe in our Direct Energy (4.7%
reduction), BGSU Casualty (3.5%), Property Facultative (2.1%), BGSU
Property (2.0%), Property Treaty (2.0%) and Casualty Treaty (2.0%).
These reductions were partly offset by rate increases of 3.1% in
Specialist Liability and marginal improvements in Accident and
Health (A&H) and Specialty Lines.
Our retention rate for the year was 83.6% (2016: 84.3%) which
reflects our focus on retaining core accounts and pro-active
management of broker relationships. During 2017, we have continued
to take a defensive position. We have looked to balance the
portfolio by actively defending our core business and modestly
expanding in areas where profitable opportunities exist, while
contracting in areas where it is felt that profit margins are
thinner.
GWP for 2017 totalled US$2,057.0m, an 8.2% increase at constant
exchange rates over 2016. This increase was driven by prior year
premium development (Property Facilities, Energy, Marine and BGSU),
increased contribution from our recent underwriting initiatives
(BGSU Cyber, BGSU Programs, BGSU Latin America, Engineering and
CPE, China/Singapore and Healthcare) and current year premium
growth (A&H, Cyber, D&O WW, Cargo and Specie, BGSU and
BGSB). Current year premiums also saw reductions in a number of
classes, resulting from active portfolio management (Marine
Liability, PI Non US and Aviation) and from market conditions
(principally Property Financial).
Our ability to lead business, combined with our innovative
approach to underwriting, supports our success in building
long-term and dependable market relationships.
Our distribution strategy remains key, especially during a
period of intense market competition, and we continue to build and
leverage our network. Continued improvement in relationships with
the broker and coverholder community, with a clear articulation of
our strategy and risk appetite, is a key area of focus.
This is evidenced by the continued contribution from our
overseas offices, allowing us to see business not generally
accessed in London.
-- Brit Global Specialty USA (BGSU) has written US$234.7m of
premium, 25.0% of growth over 2016 reflecting the continued
development of our US distribution network. This increase has
arisen from both recently launched classes and from organic growth
as we capitalise on market opportunities.
-- Our Bermuda operation, established in late 2013, has
selectively written reinsurance business in lines and markets that
we believe remain well rated, particularly Casualty Treaty.
Premiums generated by our Bermuda office equated to US$83.3m (2016:
US$60.5m).
-- China and Singapore continue to develop and provide
opportunity, we have seen stable levels of premiums (2017:
US$15.6m; 2016: US$15.5m).
Overall, the combination of strong portfolio management and
underwriting discipline has led to us achieving a 56.4% attritional
ratio in 2017 (2016: 55.5%), a solid underwriting performance given
the market backdrop and testimony to the strength of our
underwriting in such a competitive environment.
Business developments during 2017
During 2017 we have continued to focus on our underwriting
strategy. Key developments have included:
-- Syndicate 2988
Brit's new syndicate, Syndicate 2988, commenced underwriting in
late 2016, for the 2017 underwriting year. The new syndicate is
managed by Brit's existing Lloyd's managing agent, Brit Syndicates
Limited (BSL). Underwriting is undertaken by Brit's existing teams
and the syndicate will write a well-balanced global portfolio of
both insurance and reinsurance across a broad range of specialty
lines in which Brit already has well established product
offerings.
The first year capacity for Syndicate 2988 was provided solely
by external Names and was GBP55.0m (US$67.0m). For the 2018 year of
account, this has increased to GBP98.5m (US$133.3m), of which
GBP18.2m (US$24.6m) is provided by Brit's corporate member, Brit UW
Limited.
Syndicate 2988 reinforces Brit's long-term commitment to the
Lloyd's market and ambition to use its infrastructure to expand our
current position as the largest Lloyd's only insurer. It will also
help us further position Brit as the specialist underwriter of
choice, building on our existing strength across underwriting,
claims and capital management and track record of delivering
attractive returns for capital providers.
-- Sussex Capital
We announced a new Bermuda-domiciled collateralised reinsurance
platform, Sussex Capital. Sussex Capital was launched on 1 January
2018 with initial capital of US$102.5m. Sussex Capital, through
Sussex Re, a newly established Bermuda-domiciled special purpose
reinsurer, writes direct collateralised reinsurance while also
providing collateralised reinsurance to Brit's Syndicate 2987.
The launch of Sussex Capital is the next step in Brit's strategy
to build long term relationships with the capital markets. It
strengthens Brit's reinsurance capability, provides access to a
diversified source of capital to support property catastrophe risk
and further enhances our client and broker proposition.
-- Continued development of BGSU
o BGSU milestone - US$1bn written by our US office: Since it was
established in 2009, BGSU has now written over US$1bn in premium.
BGSU has reached this milestone by delivering strong, profitable
organic growth with a focus on niche areas where it has significant
expertise and experience. A significant strategic investment has
also been made by adding market leading teams and developing its
distribution network and spread of reach. It now offers insurance
and reinsurance, backed by the financial strength of Brit Syndicate
2987, with a focus on Specialty Package and Property. Specialties
include Public and Non-Profit, Property Direct and Facultative, and
Criminal Justice Service Operations.
o BGSU Cyber and Technology: We announced the launch of a new
Cyber and Technology team, with the appointment of an experienced
Chicago based Senior Vice President to lead the offering. In
October we further strengthened this team with the appointment of a
New York based Vice President. The launch of a US based Cyber Team
complements and enhances Brit's current London based platform by
offering local expertise and service to meet the growing demand for
cyber and technology products in the US SME sector.
o US Yacht Portfolio: Brit announced that BGSU has reached an
agreement with XL Catlin for the exclusive renewal rights for part
of its directly written yacht portfolio. BGSU's Yacht team will
service existing legacy Catlin policies through to expiration,
after which BGSU will provide renewal quotes to eligible customers.
The agreement relates to legacy policies written by Catlin, prior
to its acquisition by XL. This followed the appointments in 2016 of
a Senior Vice President, Marine and a Vice President, Yacht to
expand BGSU's marine footprint in the US.
o BGSU Professional Lines: We appointed an Executive Vice
President, Professional Lines, for BGSU, with responsibility for
establishing and developing Brit's Professional Lines portfolio in
the US, with a focus on SME business.
o BGSU Excess Casualty: BGSU also appointed a Senior Vice
President, Excess Casualty, to focus on writing excess casualty
through wholesale intermediaries.
o Strengthened Program Capability: BGSU appointed a Senior Vice
President, Programs, based in Alpharetta, GA, to focus on writing
Property, Casualty, Package and miscellaneous lines to specialised
US based agencies. With a focus on niche Program Managers, written
100% on E&S and admitted paper, the approach differs from, and
is complimentary to, Brit's current London based MGA
capabilities.
-- Brit Reinsurance (Bermuda) Limited
Brit completed the relocation of its Gibraltar based captive
reinsurer, Brit Insurance (Gibraltar) PCC Limited, to Bermuda,
following which the company was renamed Brit Reinsurance (Bermuda)
Limited (Brit Re).
This is a natural move as we continue to expand our Bermuda
platform and highly complementary to our continued focus on the US
market. Bermuda is an important hub for Brit, and its combination
of a mature regulatory environment, including Solvency II
equivalence, and access to highly qualified and experienced people
makes it the right home for Brit Re to support the Group's longer
term strategy.
-- Scion Underwriting Services Inc
The highly experienced US insurance industry veteran Scott Brock
joined Brit as President of Scion Underwriting Services Inc
(Scion). Scion will partner with Brit and other markets, including
third party capital, to support the insurance needs of several
targeted industries, both in the US and internationally. It will
develop new products that match the needs of those targeted
sectors, while leveraging Brit's distribution reach and Scott's
proven ability to effectively build-out new businesses.
-- Lutine Yacht Consortium
We further strengthen our leading marine offering by announcing
the launch of a new Brit-led Lloyd's consortium for Yachts. The
consortium has capacity of US$250.0m, offering 100% Lloyd's
security to insure motor and sailing vessels valued at over
US$10.0m. The consortium also offers worldwide coverage, has global
reach through Lloyd's brokers and their agents and clients will be
supported by a 24/7 claims service.
-- The Brit 'app'
We launched the new Brit 'app', which allows brokers to see the
location and availability of our underwriters (particularly when at
the Lloyd's 'box') as well as product information for each class of
business. Feedback so far has been excellent.
Financial Review
Overview of Results
The Group's income statement, re-analysed to show the key
components of our result, is set out below:
2017 2016 2015 2014 2013
US$m US$m US$m US$m US$m
--------------------------- -------- -------- -------- -------- --------
Gross written premium 2,057.0 1,912.2 1,999.2 2,148.5 1,849.7
Net earned premium
(note 1) 1,540.1 1,515.1 1,649.6 1,601.1 1,478.4
Underwriting result
(note 1) (172.8) 54.6 137.0 168.3 215.9
Underwriting result (172.8) 54.6 137.0 168.3 215.9
Return on invested
assets, net of fees 204.2 102.9 5.0 124.8 85.3
Corporate expenses (24.0) (21.3) (30.0) (38.8) (23.2)
Finance costs (17.1) (18.8) (20.6) (22.3) (23.4)
Other items 2.6 1.1 0.3 0.8 6.9
-------- -------- -------- -------- --------
(Loss)/profit on ordinary
activities before
tax, FX and corporate
activity costs (7.1) 118.5 91.7 232.8 261.5
FX movements 12.6 41.3 (60.2) 35.8 (90.8)
Corporate activity
costs (note 2) - - (23.8) (22.6) (3.1)
-------- -------- -------- -------- --------
Profit on ordinary
activities before
tax 5.5 159.8 7.7 246.0 167.5
Tax 16.0 (2.2) 7.9 (16.7) (10.1)
Discontinued operations - - - - (2.2)
-------- -------- -------- -------- --------
Profit for the year
after tax 21.5 157.6 15.6 229.3 155.2
--------------------------- -------- -------- -------- -------- --------
Note 1: Excluding the effects of foreign exchange on
non-monetary items.
Note 2: Corporate activity costs during 2015 relate to costs
incurred as a result of the acquisition of Brit by Fairfax. The
2014 corporate activity costs relate to Brit's IPO in April
2014.
Group performance and total value added
Brit's result for the year ended 31 December 2017 reflects
significant major loss activity, a solid attritional performance, a
very strong investment return and favourable FX movements.
The result on ordinary activities for the year before tax, FX
and corporate activity costs was a loss of US$7.1m (2016: profit of
US$118.5m), profit before tax was US$5.5m (2016: US$159.8m) and
profit after tax was US$21.5m (2016: US$157.6m). Return on adjusted
net tangible assets (RoNTA), excluding the effects of FX on
non-monetary items and corporate activity costs, decreased to 1.1%
(2016: 11.8%). RoNTA for 2017 after including foreign exchange
movements was 2.5% (2016: 15.8%) and total value created for the
year was US$24.7m (2016: US$139.0m).
Our adjusted net tangible assets at 31 December 2017 totalled
US$1,043.7m (2016: US$1,064.8m), after 2017 dividend payments of
US$45.8m.
We measure our performance using our key performance indicators
(KPIs).
2017 2016
-------------------------------------- --------- ----------
Return on net tangible assets before
FX movements (RoNTA) 1.1% 11.8%
Total value created US$24.7m US$139.0m
Combined ratio 112.4% 96.4%
Investment return (net of external
investment related expenses) 4.9% 2.6%
Capital ratio 136.8% 125.6%
Ratio of front office employees to
back office employees 163.8% 180.7%
-------------------------------------- --------- ----------
In 2017, we delivered a RoNTA of 1.1% in a year with significant
major loss events and challenging insurance and investment market
conditions. This performance, driven by a strong investment return,
resulted in a five year average RoNTA of 13.4%. RoNTA for 2017
after foreign exchange movements was 2.5% (2016: 15.8%). The
company has generated a total value of US$551.7m over the past five
years, an average of US$110.3m per annum.
The combined ratio is our key underwriting metric. Our combined
ratio in 2017 was 112.4% (2016: 96.4%), including 16.2pps (2016:
4.5pps) in respect of major losses and 0.6pps (2016: 3.5pps) of
reserve releases. Over the past five years, we have delivered an
average combined ratio of 95.1%.
The return on our invested assets was 4.9% or US$204.2m (2016:
2.6%/US$102.9m). This was a combination of US$48.2m (2016:
US$73.7m) of investment income, US$170.4m of mark-to-market gains
(2016: gains of US$72.3m) and return on associated undertakings of
US$5.1m (2016: US$3.6m), less losses on investment related
derivatives of US$6.4m (2016: US$32.9m) and fees of US$13.1m (2016:
US$13.8m).
Our balance sheet remains strong. At 31 December 2017, after
dividends paid during the year of US$45.8m, Group capital resources
totalled US$1,468.5m which equated to 136.8% of our Group capital
requirement of US$1,073.4m.
The ratio of front office employees to back office employees
monitors the efficiency of our business model. At 31 December 2017,
the ratio was 163.8%, reflecting that we had approximately 1.64
front office employees for every back office employee.
In addition to these KPIs, we have other measures that offer
further insight into the detail of our performance. These measures
are:
-- Premium related: Risk adjusted rate change; Retention rate;
-- Claims related: Claims ratio; Attritional loss ratio; Major
claims ratio; Reserve release ratio; and
-- Underwriting expense related: Underwriting expense ratio;
Commission ratio; Operating expense ratio.
Underwriting
Our underwriting result for the year amounted to a loss of
US$172.8m (2016: profit of US$54.6m) and our combined ratio, which
excludes the effect of foreign exchange on non-monetary items, was
112.4% (2016: 96.4%). The premiums, claims and expenses components
of this result are examined below.
Premiums written
Premium growth Growth
at constant
2017 2016 Growth FX rates
US$m US$m % %
----------------------- -------- -------- ------- -------------
Brit Global Specialty
Direct 1,675.0 1,546.6 8.3 9.0
Brit Global Specialty
Reinsurance 383.3 365.8 4.8 4.6
Other underwriting (1.3) (0.2) - -
Group 2,057.0 1,912.2 7.6 8.2
----------------------- -------- -------- ------- -------------
Gross written premium (GWP) increased by 7.6% to US$2,057.0m
(2016: US$1,912.2m). At constant exchange rates the increase was
8.2%. Direct business increased by 8.3% to US$1,675.0m (2016:
US$1,546.6m), while reinsurance increased by 4.8% to US$383.3m
(2016: US$365.8m).
The drivers of the 7.6% increase in Group GWP, which was in line
with expectations, are as follows:
-- Prior year premium development: The book again experienced
favourable development on prior years, resulting in an increase of
US$71.2m over 2016. The main contributors were our Property
Facilities, Energy, Marine and BGSU divisions.
-- Underwriting initiatives: The Group's underwriting
initiatives, launched from 2013 onwards, resulted in a US$42.8m
increase in GWP. The largest increases were seen in BGSU (Cyber,
Programs and Latin America business), Engineering and CPE,
China/Singapore and Healthcare.
-- Current year premiums: Current year premiums, excluding those
derived from the underwriting initiatives highlighted above,
increased by US$41.8m over 2016. Growth was primarily experienced
in A&H, Cyber, D&O WW, Cargo and Specie, BGSU and BGSB.
Contraction was seen in a number of classes, resulting from active
portfolio management (Marine Liability, PI Non US and Aviation) and
from market conditions (principally Property Financial).
-- Foreign exchange: The impact of foreign exchange resulted in
a US$11.0m year on year reduction in premium, which reflects the
movement during 2017 of the US dollar against a number of
currencies in which the Group writes business.
Premium ratings
Measure Commentary Track record
-------------- -------------------------------------------- -------------
Risk adjusted Although we continue to see rate decreases, 2017 (1.3)%
rate change the overall risk adjusted premium rate 2016 (3.3)%
decrease for renewal business during 2015 (4.1)%
2017 slowed to 1.3% (2016: 3.3%). Direct 2014 (2.9)%
business decreased by 1.2% (2016: 2.9%) 2013 0.3
and reinsurance by 1.7% (2016: 4.8%). %
The reduction in the rate of decrease
was influenced by rate improvements
in Q4 2017 across the major loss affected
classes, including Commercial North
America Open Market, Commercial Worldwide,
BGSU Property Facilities, Cargo, Hull
and Treaty Catastrophe North America.
-------------- -------------------------------------------- -------------
Retention rates
Measure Commentary Track record
---------- ---------------------------------------------- -------------
Retention Our retention rate for the period was 2017 83.6%
rate 83.6% (2016: 84.3%). The retention 2016 84.3%
rates we achieved in 2016 and 2017 2015 82.4%
reflect the successful renewal of a 2014 83.0%
profitable book of business, following 2013 83.0%
the re-underwriting of the book that
occurred between 2008 and 2012, through
which we rebalanced our book and non-renewed
around half of our underwriting portfolio.
The slight reduction in 2017 results
from active decisions not to renew
underperforming accounts in certain
divisions, such as Aviation.
---------- ---------------------------------------------- -------------
Outwards reinsurance
Our reinsurance expenditure in 2017 was US$526.2m or 25.6% of
GWP (2016: US$432.0m/22.6%), an increase of US$94.2m.
This additional expenditure is driven by the increased use of
quota shares, increased collateralised reinsurance cessions and the
recognition of the full premium relating to a two year reinsurance
contract. These additional protections were purchased to
effectively manage our net exposures in the current soft market
conditions and provide additional protection to our capital
base.
Net earned premium
Net earned premium (NEP) in 2017, excluding the effects of
foreign exchange on non-monetary items, increased by 1.7% to
US$1,540.1m (2016: US$1,515.1m, decrease of 8.2%). At constant
exchange rates the increase was 2.2% (2016: decrease of 6.1%).
Direct business increased by 0.5% to US$1,214.9m (2016:
US$1,208.6m, decrease of 8.9%), while reinsurance increased by 4.3%
to US$297.8m (2016: US$285.5m, decrease of 3.0%).
Growth in the direct portfolio is largely driven by BGSU,
partially offset by contractions in the other portfolios,
reflecting a reduction in premiums written over preceding financial
years, and by the decision to cede a greater proportion of
business. The increase in the reinsurance portfolio is principally
related to BGSB, reflecting year on year premium increases.
Claims
The claims ratio and its components are set out below:
Year Attritional Major claims Reserve release Claims
loss ratio ratio ratio
ratio
------ ------------ ------------- ---------------- -------
2017 56.4% 16.2% (0.6)% 72.0%
2016 55.5% 4.5% (3.5)% 56.5%
2015 55.2% - (1.7)% 53.5%
2014 51.0% 2.3% (3.3)% 50.0%
2013 51.3% 3.2% (6.0)% 48.5%
------ ------------ ------------- ---------------- -------
Our underlying claims experience in 2017 was in line with
expectations, with a small increase in our attritional loss ratio
to 56.4% (2016: 55.5%).
2017 saw a significant increase in catastrophe activity and the
Group incurred major claims of US$250.0m (2016: US$68.4m), as set
out below. Major claims are defined as claims in excess of
US$15.0m, incurred from natural or man-made catastrophes, or from
large single risk loss events (net of reinsurance and allowing for
reinstatements).
Major losses 2017 2016
US$m CoR% CoR% CoR%
---------------------- ------ ----- ----- -----
Hurricane Harvey 51.5 3.3 - -
Hurricane Irma 110.1 7.2 - -
Hurricane Maria 46.4 3.0 - -
Mexican earthquake 6.8 0.4 - -
California wildfires 35.2 2.3 - -
Alberta wildfires - - 19.2 1.3
Louisiana floods - - 10.9 0.7
Hurricane Matthew - - 26.3 1.7
Other (note 1) - - 12.0 0.8
Group 250.0 16.2 68.4 4.5
---------------------- ------ ----- ----- -----
Note 1: 'Other' includes Japan earthquake, Houston floods and
Gatlinburg wildfire.
As part of our standard reserving process, we released US$9.6m
of claims reserves established for prior year claims, the
equivalent of a combined ratio reduction of 0.6pps (2016:
US$53.5m/3.5pps). Releases were most significant in Casualty Treaty
and Energy, with releases also seen in Property (Direct and
Treaty). These releases were partially offset by a strengthening in
Long Tail Direct and a US$13.1m strengthening as a result of the
Ogden rate change, which impacted Specialist Liability and
Professional Lines. Our statement of financial position remains
strong and we continue to operate a robust reserving process.
Underwriting expenses
Our underwriting expense ratio was 40.4% (2016: 39.9%). Its
components are set out below:
Year Commission Operating expense Underwriting
ratio ratio expense
ratio
------ ----------- ------------------ -------------
2017 27.6% 12.8% 40.4%
2016 27.2% 12.7% 39.9%
2015 26.0% 12.2% 38.2%
2014 27.5% 12.0% 39.5%
2013 24.9% 12.0% 36.9%
------ ----------- ------------------ -------------
Commission costs were US$425.9m and the commission expense ratio
was 27.6% (2016: US$411.6m/27.2%). The small increase in the ratio
principally reflects changes in business mix and an increase in
NEP.
Our operating expenses are analysed below.
Expenses
Our operating expense ratio was stable at 12.8% (2016: 12.7%).
Operating expenses for the period were as follows:
Expense analysis 2017 2016
US$m US$m
------ ------
Underlying operating expenses including
bonus provisions 220.0 217.1
Project costs, timing differences and 0.5 -
other expense adjustments
------ ------
Total operating expenses 220.5 217.1
----------------------------------------- ------ ------
Underlying operating expenses during 2017 increased by 1.3% to
US$220.0m (2016: US$217.1m). The movement at constant exchange
rates was an increase of 7.3%, reflecting our predominantly
Sterling expense base. This increase relates to targeted expansion
and investment in growth areas, increased regulatory levies,
depreciation charges and IT costs.
As the majority of Brit's business is in US dollars and the
majority of the operating expenses are in Sterling, Brit made the
decision to effectively hedge the Sterling proportion of the
Group's expenses. This decision was driven by the weakness in
Sterling against the US dollar. To effect this, Brit purchased
Sterling in the spot and forward market. The benefit of this
derivative contract, US$6.7m, is recognised within the underwriting
result, but excluded from the combined ratio.
The allocation of operating expenses within the consolidated
income statement and the segmental information is as follows:
Disclosure of operating expenses 2017 2016
US$m US$m
------ ------
Acquisition costs 110.6 112.3
Other insurance related expenses 85.9 83.5
------ ------
Total insurance related expenses 196.5 195.8
Other operating expenses 24.0 21.3
Total operating expenses 220.5 217.1
---------------------------------- ------ ------
Return on invested assets
The investment portfolio is managed for the most part by Hamblin
Watsa Investment Counsel Limited, a Fairfax subsidiary with an
excellent long-term track record, whose sole business is managing
investment portfolios of Fairfax group companies. They are
supported by a number of external managers across core fixed income
and a small allocation to specialised credit.
The return on our invested assets was US$204.2m or 4.9% (2016:
US$102.9m/2.6%). This was a combination of US$48.2m (2016:
US$73.7m) of investment income, US$170.4m of mark-to-market gains
(2016: gains of US$72.3m) and return on associated undertakings of
US$5.1m (2016: US$3.6m), less losses on investment related
derivatives of US$6.4m (2016: US$32.9m) and fees of US$13.1m (2016:
US$13.8m).
Return on invested assets 2017 2016
US$m US$m
------- -------
Income 48.2 73.7
Released gains 2.9 62.3
Unrealised gains 167.5 10.0
------- -------
Investment return before fees 218.6 146.0
Investment management fees (13.1) (13.8)
------- -------
Investment return net of fees 205.5 132.2
Investment related derivative return (6.4) (32.9)
Return on associated undertakings 5.1 3.6
-------------------------------------- ------- -------
Total return 204.2 102.9
-------------------------------------- ------- -------
Return on invested
assets
(net of fees)
----------------------
Year %
------------ --------
2017 4.9
2016 2.6
2015 0.1
2014 2.9
2013 2.1
------------ --------
A key driver of return has been the strong growth in equity
markets. Over the year, Brit has increased its allocation to
equities which now represents 16.1% of our total portfolio.
Holdings within funds, which represent 3.0% of the portfolio, also
produced a very significant return (US$47.3m or 59.6%). The Group's
fixed income investments (governments and corporates), which
represent 44.0% of the portfolio, contributed US$38.7m to the
result.
At the start of 2017, markets and investors balanced improving
economic conditions with increased focus on political risk.
Scepticism around the US Presidency and the potential longer term
impact of the US policies on global trade, growth and monetary
policy resulted in declines in government bond yields combined with
equity markets grinding higher as core economic data improved.
In the second half of the year, greater confidence in the
ability to drive US economic policy through the legislative system
resulted in political risks receding and greater focus on the
positive data coming through in jobs, consumer confidence and
output across the US and most developed economies, albeit with the
UK lagging behind as Brexit anxieties prevailed.
At 31 December 2017, the running yield (expressed as yield as a
% of invested assets) of our total portfolio was 1.3% (2016: 0.9%),
reflecting the high proportion of our portfolio invested in cash
and cash equivalents. This increased over the year as the US
Federal reserve increased the Fed Funds rate for the third time,
responding to positive growth data, a fall in unemployment and the
prospect of these factors feeding through to higher levels of
inflation, despite the conundrum of lower levels of
productivity.
The income on our portfolio was lower in 2017, reflecting the
decision to move to a short duration, lower yielding allocation in
Q4 2016 to avoid the risk associated with interest rates moving
higher as economic growth returned. As a result, our portfolio
generated income of US$48.2m during the year, lower than the
previous year where the fixed income portfolio was invested at the
longer part of the curve (2016: US$73.7m).
Our two associated undertakings produced a positive return of
US$5.1m (2016: US$3.6m).
-- Ambridge Partners LLC, a leading managing general underwriter
of transactional insurance products of which Brit has a 50% share,
contributed US$4.4m to this return (2016: US$3.4m); and
-- Camargue Underwriting Managers Proprietary Limited, a leading
managing general underwriter of a range of specialised insurance
products and specialist liability solutions in South Africa of
which a 50% share was acquired on 30 August 2016, contributed
US$0.7m to this return (2016: US$0.2m).
Foreign exchange
We manage our currency exposures to mitigate the impact on
solvency rather than to achieve a short-term impact on earnings. We
experienced a total foreign exchange gain of US$12.6m in 2017
(2016: gain of US$41.3m), reflecting the movement of the US dollar
against other currencies in which we trade and hold assets. This
total foreign exchange related gain comprised:
-- An unrealised revaluation gain of US$1.8m (2016: gain of
US$61.2m), primarily relating to the mark to market of the capital
we hold in non-US dollar currencies to match our risk exposures.
The gain primarily results from the weakening of the US dollar
against the core currencies of Sterling, Euro and Canadian dollar,
where the gain on our long Canadian dollar position has largely
been offset by losses on short Sterling and Euro positions. In
addition, a small gain on revaluation of non-core currency
positions, including Australian dollar, has been recorded;
-- Gains of US$4.9m (2016: losses of US$19.9m) on derivative
contracts which were entered into to help manage our monetary FX
exposures and therefore should be viewed in conjunction with our
monetary FX movements. This excludes the gain on the derivative
contract entered into to effectively hedge the Sterling proportion
of the Group's expenses, as explained in the 'Expenses' section
above; and
-- Gain of US$5.9m (2016: no overall gain or loss), as a result
of the IFRS requirement to recognise non-monetary assets and
liabilities at historic exchange rates. This adjustment is
essentially a timing difference. The adjustment for the full year
2017 comprises the un-wind of the credit carried on the balance
sheet at 31 December 2016 (US$3.6m), plus the debit balance
established during 2017 (US$2.3m).
The allocation of the FX result within the consolidated income
statement is as follows:
Foreign exchange gains and (losses) 2017 2016
US$m US$m
-------------------------------------------- ------ -------
Net change in unearned premium provision
- non-monetary FX effect (3.3) 19.0
Acquisition costs - non-monetary FX
effect 1.3 (10.0)
Net foreign exchange losses - non-monetary
(Note 1) 7.9 (9.0)
------ -------
5.9 -
------ -------
Net foreign exchange gains - monetary
(Note 1) 1.8 61.2
Return on derivative contracts - FX
related instruments (Note 2) 4.9 (19.9)
------ -------
6.7 41.3
------ -------
Total gain/(loss) 12.6 41.3
-------------------------------------------- ------ -------
Note 1: The sum of these two amounts, US$9.7m (2016: US$52.2m),
is the 'Net foreign exchange gains' figure per the consolidated
income statement.
Note 2: Excludes the gain on the derivative contract entered
into to effectively hedge the Sterling proportion of the Group's
expenses.
Tax
Our tax on ordinary activities for 2017 resulted in a tax credit
of US$16.0m (2016: tax expense US$2.2m), based on a group profit
before tax of US$5.5m (2016: US$159.8m).
The Group is liable to taxes on its corporate income in a number
of jurisdictions, in particular the UK, Gibraltar and the US, where
its companies carry on business. A tax charge is calculated in each
legal entity across the Group and then consolidated. Therefore, the
Group's effective rate is sensitive to the location of profits and
is a composite tax rate reflecting the mix of tax rates charged in
those jurisdictions.
The 2017 Group rate varies from the weighted average rate in
those jurisdictions for a number of factors. The principal factor
is the impact of income not subject to tax such as underwriting
results and investment income arising in Bermuda. An additional
factor is the future reduction in the UK corporation tax rate to
17% in 2020 and its effect on deferred tax liabilities and prior
year adjustments, relating primarily to the syndicate's
underwriting results which are taxed in later years.
In 2017 the effective rate was further distorted by major
underwriting losses arising in the UK which are subject to tax on a
declaration basis and so will be tax effected in 2020. This gives
rise to a tax credit in the year and a deferred tax asset carried
forward.
Financial position and capital Strength
Overview
Our business is underwritten exclusively through our
wholly-aligned Lloyd's Syndicate 2987, which benefits from Lloyd's
ratings of A (Excellent) from A.M. Best, AA- (Very Strong) from
Fitch and A+ (Strong) from Standard & Poor's.
Our capabilities and ambition are underpinned by our strong
financial position. At 31 December 2017, our adjusted net tangible
assets totalled US$1,043.7m (2015: US$1,064.8m). At 31 December
2017, Group capital resources totalled US$1,468.5m, giving surplus
management capital of US$395.1m or 36.8% (2016: US$297.1m/25.6%)
over our Group capital requirement of US$1,073.4m. The position at
31 December is after dividends paid during the year of
US$45.8m.
Our revolving credit facility (RCF) remains at US$360.0m with an
expiry date of 31 December 2020. At 31 December 2017, the cash
drawings on the facility were US$45.0m (2016: undrawn) and a
US$80.0m uncollateralised letter of credit (LoC) was in place (31
December 2016: US$80.0m/uncollateralised) to support our
underwriting activities. At the date of this report, 14 February
2018, there were no cash drawings on the facility and the US$80.0m
uncollateralised LoC remained in place.
At 31 December 2017, our gearing ratio was 24.6% (2016:
18.9%).
Asset allocation
Brit's invested assets (financial investments, investment in
associates, cash and cash equivalents and derivative contracts) at
31 December 2017 were US$4,316.1m (31 December 2016: US$3,971.5m).
This increase reflects favourable exchange rates, increased premium
and the high level of return during 2017.
The Brit portfolio saw limited change in its fixed income
holdings in 2017. The portfolio remained defensively positioned
from both an interest rate and credit perspective, being short
duration to protect against rising rates combined with low exposure
to corporate credit with a focus on high quality issuers. The
year-end allocation reflected cash and cash equivalents (2017:
US$1,573.5m/36.5%; 2016: US$1,027.3m/25.9%) with a reduced holding
in fixed income securities (2017: US$1,891.3m/43.8%; 2016:
US$2,425.4m/61.1%). Brit's equity allocation increased to
US$820.5m/19.0% (2016: US$492.0m/12.4%) through a combination of
new purchases and strong investment return.
Our asset allocation, on both a look-through basis and statutory
disclosure basis, is set out in the tables below:
31 December Total
2017 invested
assets
(look
Statutory basis through)
-----------------------------------------------------------------------------
Equity Debt Specialised Cash Associated Derivative
securities securities investment and cash undertakings assets
funds equivalents
----------------------------
US$m US$m US$m US$m US$m US$m US$m
------------- ------------- ----------- ----------- ----------- ------------ ------------ ---------- ---------
Government
Look through debt
basis securities - 1,254.6 5.3 - - - 1,259.9
Corporate
debt securities - 631.3 0.1 - - - 631.4
Structured
products - 0.2 15.3 - - - 15.5
Equity securities 686.7 - 93.4 - 40.4 - 820.5
Alternative
investments - - 10.6 - - - 10.6
Cash and cash
equivalents - - 1.9 1,571.6 - - 1,573.5
Investment
related derivatives - - - - - 4.7 4.7
------------ ----------
Total invested
assets (statutory) 686.7 1,886.1 126.6 1,571.6 40.4 4.7 4,316.1
---------------------------- ----------- ----------- ----------- ------------ ------------ ---------- ---------
31 December Total
2016 invested
assets
(look
Statutory basis through)
-----------------------------------------------------------------------------
Equity Debt Specialised Cash Associated Derivative
securities securities investment and cash undertakings assets
funds equivalents
----------------------------
US$m US$m US$m US$m US$m US$m US$m
------------- ------------- ----------- ----------- ----------- ------------ ------------ ---------- ---------
Government
Look through debt
basis securities - 1,829.3 1.6 - - - 1,830.9
Corporate
debt securities - 594.4 0.1 - - - 594.5
Structured
products - 1.0 13.0 - - - 14.0
Equity securities 399.8 - 55.6 - 36.6 - 492.0
Alternative
investments - - 7.3 - - - 7.3
Cash and cash
equivalents - - 1.8 1,025.5 - - 1,027.3
Investment
related derivatives - - - - - 5.5 5.5
------------ ----------
Total invested
assets (statutory) 399.8 2,424.7 79.4 1,025.5 36.6 5.5 3,971.5
---------------------------- ----------- ----------- ----------- ------------ ------------ ---------- ---------
Our investments in specialised investment funds account for
US$126.6m or 2.9% (2016: US$79.4m/2.0%) of our invested assets on a
statutory reporting basis. The increase in 2017 is driven by
increased allocation to specialist funds and strong growth on these
positions over the year as equity markets rallied. The remaining
specialised funds in this category cover small allocations to US
and European credit.
The duration of our portfolio at 31 December 2017 was 0.5 years
(2016: 1.1 years), which is shorter than the duration of our
liabilities. This positioning is driven by the positive
macro-economic environment and the risk that government spending
plans and fiscal policy in the US could result in significant
increases in yields over the short to medium term.
At 31 December 2017, 79.9% of our invested assets were
investment grade quality (2016: 82.7%), with the reduction
reflecting the increased allocation to equity and funds.
Outlook
As expected, 2017 saw a further softening of rates, albeit at a
reduced pace, and a continued challenging underwriting environment,
combined with exceptionally low interest rates, geopolitical
uncertainty, global growth concerns and market volatility.
There are however some encouraging signs. We have seen a number
of our competitors exit underperforming classes where they had been
showing a lack of discipline. Furthermore, following the major
losses, rates on risks renewed have shown increases across most
affected classes, with significant rate rises on impacted risks.
However, in certain areas rate increases have been limited by
surplus capacity remaining in the market and we have seen continued
instances of undisciplined behaviour.
The outlook for investment markets, given the stronger economic
growth numbers generated in most economies, is also more promising
than in recent times, especially as cash rates start to rise for
yield starved investors. However, rich valuations in both equity
and credit markets require caution as the economic outlook evolves
through the next stage of the business cycle.
While there are some encouraging signs, the outlook remains
challenging. However, we maintain focus on our core fundamentals of
underwriting discipline, risk selection and capital management and
continue to make good progress with the selective expansion of our
global distribution capability, capitalising on our initiatives of
recent years. We have clear thoughts on our expectations on pricing
and appetite post event and remain prepared to walk away from
renewals where terms do not meet our appetite and rating
criteria.
Directorate Changes
On 1 January 2017, Richard Ward stepped down from his role as
Chairman, but remains on the Board as Senior Independent Director.
On the same date, Mark Cloutier, formerly Group Chief Executive
Officer, became Group Executive Chairman, with Matthew Wilson
replacing him as Group Chief Executive Officer, and Gordon Campbell
joining the Board as a non-executive Director.
Principal risks and risk management
Overview
There are a number of risks and uncertainties which could impact
the Group's future performance.
The Board monitors the key risks that the Company is exposed to
against its tolerance level through the quarterly 'own risk and
solvency assessment' (ORSA) process. This includes both the
qualitative assessment of the risk control environment and capital
assessment using a stochastic model.
The key categories of risk include:
-- Overarching risk: earnings, solvency and liquidity; and
-- Individual risk categories: insurance, market, credit and operational and group.
The key risks and uncertainties are set out in the following
table and the principal risks in the current environment are set
out below.
Risk category Risk Description
-------------- ------------------ ---------------------------------------
Insurance Underwriting Emerging experience is inconsistent
- pricing with the assumptions and pricing
models used.
-------------- ------------------ ---------------------------------------
Underwriting Premiums are insufficient to
- catastrophe meet the long-term profitability
expected.
-------------- ------------------ ---------------------------------------
Reserving Prior year reserves are insufficient
to cover claims (net of reinsurance).
-------------- ------------------ ---------------------------------------
Investment Investment market Invested assets adversely affected
risk by changes in economic variables,
such as interest rates, bond
yields, equity returns, credit
spreads, credit ratings.
-------------- ------------------ ---------------------------------------
Operational People Failure to attract, motivate
and group and retain key Directors, senior
underwriters, senior management
and other key personnel, on
whom our future success is
substantially dependent.
-------------- ------------------ ---------------------------------------
United Kingdom's exit from the EU (Brexit)
Following the triggering of article 50 of the Treaty of Lisbon
on 29 March 2017, we continue to monitor the ensuing negotiations
and other developments. Our focus remains on putting our clients
first. We will continue to work to minimise the impact on Brit and
our clients and to take advantage of opportunities as they
arise.
Lloyd's implementation plan for its new Brussels-based European
insurer is progressing. It has commenced an on-boarding programme
for managing agents to ensure the necessary operational changes are
implemented to allow business to be written through its Brussels
subsidiary from 1 January 2019. Brit is supportive of Lloyd's
proposals and looks forward to participating on the new
platform.
Financial information and availability of accounts
The financial information set out above does not constitute the
Company's statutory accounts for the year ended 31 December 2017 or
2016, but is derived from those accounts. Statutory accounts for
2016 have been delivered to the Registrar of Companies and the
statutory accounts for 2017 will be delivered following the
Company's annual general meeting. The auditor has reported on those
accounts; their reports were unqualified and did not contain
statements under Section 498(2) or (3) of the Companies Act
2006.
The audited Annual Report and Accounts for 2017 are expected to
be available on the Company's website no later than 16 March 2017.
An announcement will be made when they are available.
The preliminary results were approved by the Board on 14
February 2018.
Responsibility statement of the Directors
The Directors confirm that, to the best of their knowledge:
-- The consolidated financial statements, contained within the
2017 Company's statutory accounts, which have been prepared in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position, and profit or loss of the
Group; and
-- The Strategic Report, contained within the 2017 Company's
statutory accounts, includes a fair review of the development and
performance of the business and the position of the Group, together
with a description of the principal risks and uncertainties that it
faces.
Matthew Wilson Mark Allan
Group Chief Executive Officer Chief Financial Officer
14 February 2018 14 February 2018
Consolidated Income Statement
For the year ended 31 December 2017
Year ended Year ended
31 December 31 December
2017 2016
US$m US$m
-------------------------------------- ---- -------------- -----------------
Revenue
Gross premiums written 2,057.0 1,912.2
Less premiums ceded to reinsurers (526.2) (432.0)
--------------------------------------------- -------------- -----------------
Premiums written, net of reinsurance 1,530.8 1,480.2
Gross amount of change in provision
for unearned premiums (54.3) 21.4
Reinsurers' share of change in
provision for unearned premiums 60.3 32.5
Net change in provision for unearned
premiums 6.0 53.9
Earned premiums, net of reinsurance 1,536.8 1,534.1
--------------------------------------------- -------------- -----------------
Investment return 205.5 132.2
Return on derivative contracts 5.2 (52.8)
Other income 13.9 1.1
Net foreign exchange gains 9.7 52.2
Total revenue 1,771.1 1,666.8
--------------------------------------------- -------------- -----------------
Expenses
Claims incurred:
Claims paid:
Gross amount (1,068.4) (874.9)
Reinsurers' share 206.7 140.7
--------------------------------------------- -------------- -----------------
Claims paid, net of reinsurance (861.7) (734.2)
Change in the provision for claims:
Gross amount (619.0) (183.9)
Reinsurers' share 372.4 62.0
--------------------------------------------- -------------- -----------------
Net change in the provision for
claims (246.6) (121.9)
Claims incurred, net of reinsurance (1,108.3) (856.1)
Acquisition costs (535.4) (530.9)
Other operating expenses (109.9) (104.8)
Total expenses excluding finance
costs (1,753.6) (1,491.8)
--------------------------------------------- -------------- -----------------
Operating profit 17.5 175.0
Finance costs (17.1) (18.8)
Share of net profit of associates 5.1 3.6
Profit on ordinary activities
before tax 5.5 159.8
Tax income/(expense) 16.0 (2.2)
Profit for the year 21.5 157.6
--------------------------------------------- -------------- -----------------
All profits arise from continuing operations.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
Year ended Year ended
31 December 31 December
2017 2016
US$m US$m
------------------------------------------- -------------- -----------------
Profit attributable to owners
of the parent 21.5 157.6
Other comprehensive income
Items not to be reclassified to profit
or loss in subsequent periods:
Actuarial losses on defined benefit
pension scheme (1.9) (5.4)
Deferred tax gain relating to actuarial
gains on defined benefit pension scheme 0.3 0.9
Items that may be reclassified to profit
or loss in subsequent periods:
Change in unrealised foreign currency
translation losses on foreign operations 7.4 (13.7)
Total other comprehensive income 5.8 (18.2)
--------------------------------------------- -------------- -----------------
Total comprehensive income recognised
for the year 27.3 139.4
--------------------------------------------- -------------- -----------------
Consolidated Statement of Financial Position
At 31 December 2017
31 December 31 December
2017 2016
US$m US$m
--------------------------------- -------------- --------------
Assets
Intangible assets 97.8 93.9
Property, plant and equipment 21.3 22.9
Deferred acquisition costs 235.7 219.6
Investments in associated
undertakings 40.4 36.6
Reinsurance contracts 1,349.5 884.1
Employee benefits 48.6 42.5
Deferred taxation 20.4 0.4
Current taxation 13.7 15.3
Financial investments 2,699.4 2,903.9
Derivative contracts 18.3 12.6
Insurance and other receivables 908.3 718.3
Cash and cash equivalents 1,571.6 1,025.5
Total assets 7,025.0 5,975.6
------------------------------------ -------------- --------------
Liabilities and Equity
Liabilities
Insurance contracts 5,027.3 4,243.5
Borrowings 219.8 157.5
Other financial liabilities 82.1 -
Deferred taxation - 25.8
Provisions 2.4 2.4
Current taxation 21.1 4.6
Derivative contracts 12.5 11.8
Insurance and other payables 529.5 382.0
Total liabilities 5,894.7 4,827.6
------------------------------------ -------------- --------------
Equity
Called up share capital 6.4 6.4
Capital redemption reserve 0.2 0.2
Foreign currency translation
reserve (83.6) (91.0)
Retained earnings 1,207.3 1,232.4
Total equity attributable
to owners of the parent 1,130.3 1,148.0
------------------------------------ -------------- --------------
Total liabilities and equity 7,025.0 5,975.6
------------------------------------ -------------- --------------
Approved by the Board of Directors on 14 February 2018 and
signed on its behalf by:
Matthew Wilson Mark Allan
Group Chief Executive Officer Chief Financial Officer
Consolidated Statement of Cash Flows
For the year ended 31 December 2017
Year ended Year ended
31 December 31 December
2017 2016
US$m US$m
---------------------------------------- -------------- --------------
Cash flows from operating activities
Cash generated from operations 532.3 579.4
Tax paid (12.0) (3.4)
Interest received 42.3 57.8
Dividend received 6.4 17.5
Net cash inflows from operating
activities 569.0 651.3
------------------------------------------ -------------- --------------
Cash flows from investing activities
Purchase of intangible assets (7.4) (6.3)
Purchase of property, plant and
equipment (0.9) (8.3)
Investment in associated undertaking 1.6 (4.9)
Net cash outflows from investing
activities (6.7) (19.5)
------------------------------------------ -------------- --------------
Cash flows from financing activities
Drawdown on revolving credit facility 45.0 -
Purchase of class A shares for
cancellation - (58.1)
Purchase of shares for share-based
payment schemes (11.6) (3.4)
Interest paid (13.6) (15.4)
Dividend paid (45.8) (90.8)
Net cash outflows from financing
activities (26.0) (167.7)
------------------------------------------ -------------- --------------
Net increase in cash and cash
equivalents 536.3 464.1
Cash and cash equivalents at beginning
of the year 1,025.5 581.0
Effect of exchange rate fluctuations
on cash and cash equivalents 9.8 (19.6)
------------------------------------------ -------------- --------------
Cash and cash equivalents at the
end of the year 1,571.6 1,025.5
------------------------------------------ -------------- --------------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
Called Foreign
up Capital currency
share redemption translation Retained Total
capital reserve reserve earnings equity
US$m US$m US$m US$m US$m
--------- ------------- ------------- ---------- --------
At 1 January 2017 6.4 0.2 (91.0) 1,232.4 1,148.0
----------------------------- --------- ------------- ------------- ---------- --------
Total comprehensive income
recognised - - 7.4 19.9 27.3
Share-based payments - - - 0.8 0.8
Dividend - - - (45.8) (45.8)
----------------------------- --------- ------------- ------------- ---------- --------
At 31 December 2017 6.4 0.2 (83.6) 1,207.3 1,130.3
----------------------------- --------- ------------- ------------- ---------- --------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Called Foreign
up currency
share Own translation Retained Total
capital shares reserve earnings equity
US$m US$m US$m US$m US$m
--------- -------- ------------- ---------- --------
At 1 January 2016 6.6 - (77.3) 1,227.2 1,156.5
-------------------------------- --------- -------- ------------- ---------- --------
Total comprehensive income
recognised - - (13.7) 153.1 139.4
Repurchase of class A shares - - - (58.1) (58.1)
Cancellation of share capital (0.2) 0.2 - - -
Share-based payments - - - 1.0 1.0
Dividend - - - (90.8) (90.8)
-------------------------------- --------- -------- ------------- ---------- --------
At 31 December 2016 6.4 0.2 (91.0) 1,232.4 1,148.0
-------------------------------- --------- -------- ------------- ---------- --------
Nature and Purpose of Group Reserves
Own shares: Own shares represents the cost of shares held in trust for settling
share-based payments and shares held in treasury.
Capital Redemption Reserve: The balance represents the amount by which share
capital is diminished in the event of a share
cancellation and is required to be recognised in a legal reserve so as to
maintain the Group's capital.
Foreign currency translation reserve: The balance on this reserve represents
the foreign exchange differences arising from
the translation of financial statement information of entities within the
Group from functional currencies to the presentational
currency of the Group.
Retained earnings: Retained earnings represents the cumulative comprehensive
income retained by the Group after
taxation and after any distributions made from this account.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR XELFFVLFXBBK
(END) Dow Jones Newswires
February 16, 2018 02:00 ET (07:00 GMT)
Brit 3.6757% (LSE:32OW)
Historical Stock Chart
From Dec 2024 to Jan 2025
Brit 3.6757% (LSE:32OW)
Historical Stock Chart
From Jan 2024 to Jan 2025
