TIDM32OW
RNS Number : 9585C
Brit Limited
14 February 2020
Brit LIMITED
PRESS RELEASE
14 February 2020
Full Year results for the Year ended 31 December 2019
a return to profit driven BY a strong UNDERWRITING
PERFORMANCE
Key points
-- Gross written premiums of US$ 2,293.5 m (2018: US$2,239.1m),
a 2.4% increase (3.4% at constant FX rates).
-- Risk adjusted premium rates increases on renewal business of 5.9% (2018: 3.7% increase) .
-- Combined ratio(1) of 95.8% (2018: 103.3%), including 3.6
percentage points of major losses (2018: 12.0pps).
-- No material change in overall net major loss estimates for 2017 and 2018 events.
-- Return on invested assets (2) after fees of US$148.1m or 3.6% (2018: -US$82.1m or -2.0%).
-- Profit on ordinary activities before the impact of FX and tax
of US$183.0m (2018: loss of US$181.2m).
-- Profit after tax of US$ 179.9m (2018: loss of US$166.5m) and
RoNTA(3) before FX movements of 18.1% (2018: -14.4%).
-- Adjusted net tangible assets(4) of US$1,150.4m (2018: US$992.9m).
-- Strong capital ratio(5) of 128.4% (2018: 130.4%).
-- Continued implementation of our strategy, including:
o Brit managed third party capacity on Sussex, Versutus II and
Syndicate 2988, expanded to over US$440m for 2019 (2018:
US$400m);
o Completed the acquisition of Ambridge Partners LLP, one of the
world's leading MGUs of complex risks, based in New York; and
o Significant strategic investment in Sutton Special Risk Inc.,
a leading Toronto based MGU specialising in Accident & Health
business.
Matthew Wilson, Group Chief Executive Officer of Brit Limited,
commented:
'I am pleased to report a return to profit for Brit, with our
underwriting performance and investment return delivering a strong
2019 result, with a profit before tax of US$186.3m and a combined
ratio of 95.8%. Given the ongoing market environment, I believe
this is an encouraging set of results reflecting our clear
strategy, which is focused on leadership, innovation and
distribution, and the talent and commitment of our people.
2019 has undoubtedly had its challenges for the industry, on the
back of the difficult prior two years. Claims experience has again
been impacted by significant major loss activity, an increasing
impact from small and medium loss events, and continued pressures
on attritional loss ratios. The industry has also witnessed the
increasing effects of social inflation, climate change and other
socio-economic factors. Despite this, we reported an improved
underwriting result which reflected the combination of rate
increases, a healthy attritional ratio, a reduced level of major
losses and an unbroken record of reserve releases since we started
disclosing them 16 years ago.
Risk adjusted premium rate increases achieved in 2019 were 5.9%,
building on 2018's positive movement of 3.7%. Our premium written
grew by 3.4% at constant exchange rates, to US$2,293.5m. We have
expanded our core book, reflecting improved market conditions and
targeted growth across our treaty portfolio and selected direct
classes, partly offset by planned contractions across a number of
challenged classes.
Where classes remained challenging, we continued to take
decisive action to protect our balance sheet by discontinuing those
business lines. During 2019, we withdrew from certain classes
written in the US and Latin America, and took the decision to
withdraw from the Lloyd's Singapore Platform and the Lloyd's China
Platform. This streamlining provides added focus to our core
markets and products, where we see the most potential to further
develop our leadership positions.
We strive to provide direction and leadership within our
business and to our industry. We are supportive of the Future at
Lloyd's Blueprint and are proud to have worked with Lloyd's to be
the first Lloyd's Syndicate to use ILS capacity to back our capital
at Lloyd's, a landmark achievement.
For 2019, Brit's total managed capacity across our third-party
capital vehicles, Versutus, Sussex Capital and Syndicate 2988
increased to US$440m. The renewal and expansion of our ILS
capacity, alongside the planned growth in gross written premium for
Syndicate 2988, continues our successful strategy of managing
capital for third parties by offering access to Brit's leading
underwriting capabilities, deep client relationships and extensive
distribution network.
Following significant research and development, we successfully
launched our e-trading portal in 2019, initially focussing on SME
Cyber business. This initiative presents Brit with the opportunity
to open new distribution channels, and the potential to grow our
most profitable segments more efficiently.
We have continued to invest in businesses with a strong track
record in both distribution and underwriting. We completed our
acquisition of New York headquartered Ambridge Partners LLC
(Ambridge), one of the world's leading managing general
underwriters of Transactional Insurance, Complex Management
Liability Insurance and Intellectual Property Insurance. We also
made a significant strategic investment in Sutton Special Risk Inc
(Sutton), a leading Toronto based MGU, which specialises in
Accident & Health business and underwrites on behalf of a broad
panel of Lloyd's syndicates and international carriers.
In claims we have continued to focus on our client service
capabilities and development of a best-in-class service. We have
entered into a new partnership with the Geospatial Intelligence
Center, to provide us with industry-leading aerial images of
event-affected areas which will allow us to make rapid and accurate
property catastrophe assessments for our clients when they are most
in need. This was used to great success after Hurricane Dorian hit
the Bahamas, where we were able to expedite several total loss
claim settlements without delay. We have also launched a mobile
claims app for Android and iPhone for our cyber clients, allowing
them to quickly and directly report a cyber breach, facilitating
immediate event management.
In October, we launched our new brand purpose, 'writing the
future'. It will inform everything we do, from how we communicate,
how we develop and deliver our services, to how we work together.
It means that in choosing Brit, our clients are choosing a service,
not just buying a product, and are choosing a partner who will help
them face the future and thrive. Put simply, our purpose places
innovation at the heart of our strategy. In October, we launched
BritX, our innovation hub, led by our newly appointed Head of
Innovation, aimed at creating disruption in the London Insurance
Market. It has already identified several areas of opportunity with
real potential, which we have begun to execute.
2019 was another year where our client centric, progressive
approach was recognised by the wider industry. For the second
successive year, our claims team won the Claims Team of the Year at
the 2019 Insurance Day London Market Awards. They also won two
individual awards at the LMA Claims awards. We were named 'Cyber
Underwriting Firm of the Year' by the Insurance Insider for the
third year in succession, while we were shortlisted for a total of
seven awards at the Insider Honours and Insurance Day London Market
Awards.
In our most recent staff survey, 91% of our colleagues took the
opportunity to respond. More than 98% said they were 'proud to work
for Brit' and over 95% would 'recommend Brit as a great place to
work'. The passion and dedication of our people undoubtedly sets us
apart, and I'd like to thank each of them for their devotion to our
clients, business partners, Brit and our parent company Fairfax,
and congratulate them on a strong set of financial results. We
constantly look for opportunities to enhance our culture and in
2020 we will look to do so through the formation of an Inclusion
and Diversity Forum and an Employee Engagement Forum.
Looking ahead, a number of indicators give us increased cause
for optimism, including continuing rate increases, the withdrawal
of market capacity from certain business lines and the measures
taken by Lloyd's to improve market competitiveness as highlighted
in their 'Blueprint One'. Whilst the market is not without its
challenges, our clear strategy of embracing data driven
underwriting discipline and applying rigorous risk selection,
coupled with innovative capital management solutions and continued
investment in distribution, uniquely positions us to respond to
today's opportunities and challenges.'
Mark Allan, Group Chief Financial Officer of Brit Limited,
said:
'During 2019, Brit delivered a profit before tax of US$186.3m
and a profit after tax of US$179.9m. After a challenging period, it
is pleasing to report a strong result, reflecting the continued
commitment of all our staff.
Underwriting contributed US$68.4m to the result, with a combined
ratio of 95.8%. This reflected an attritional ratio of 55.0% and a
major loss ratio of 3.6%. 2019 saw another year of windstorm events
causing damage in the US and Japan. Our balanced underwriting
approach meant our losses were contained within expectations for
the year.
For Brit and the wider market, 2017 and 2018 have proved to be
challenging years, with a number of early large losses and
attritional pressure occurring in addition to significant
catastrophes in those years. However, we have seen more benign
claims activity on older years, with 2016 and prior showing
releases, resulting in an overall US$47.9m reserve release,
equivalent to a 2.9pps reduction in the combined ratio. It was
particularly pleasing that despite major catastrophe loss creep for
the market, there was no material change to our overall net 2017
and 2018 major loss position.
Our investment return was US$148.1m (net of fees), a return of
3.6%. This was driven by the strong performance of our equity
portfolio, which recovered the losses experienced in late 2018 as
markets rebounded, and by the performance of our fixed income
portfolio which also generated positive income and capital
returns.
Preserving a strong financial position is critical to the
long-term success of an insurance business. Our balance sheet
remains strong as we maintain our 'conservative best estimate'
reserving policy which provides us with a secure foundation. Our
adjusted net tangible assets increased to US$1,150.4m (31 December
2018: US$992.9m), after capital contributions, dividends paid and
the impact of the Ambridge acquisition. As a result, we hold
surplus management capital of US$348.9m, 28.4% over the Group's
management capital requirement. During the period, our capital
requirements increased from US$1,081.1m to US$1,227.7m, primarily
reflecting movements in interest rates. We also benefit from the
financial strength of our parent, Fairfax, and from our
relationships with our capital partners supporting Syndicate 2988
and the Sussex vehicles.
Our investment portfolio on a look-through basis remains
consistent with our position throughout 2018, with a large
allocation to cash and cash equivalents (US$525.2m or 12.6%) and
fixed income securities (US$2,962.9m or 70.8%). Brit's equity and
fund allocation stands at US$692.8m or 16.6%. At 31 December 2019,
81.1% of our invested assets were investment grade and the duration
of the portfolio was 1.1 years. The low yield environment remains
challenging and there continues to be much uncertainty in the
current market outlook, with strong fundamentals contrasting with
many macroeconomic and political risks. We are well positioned to
continue to benefit from the positive economic environment in the
US.
In the period, we have seen a healthy contribution from our
third party capital vehicles and from our investment in MGAs.
Working with our capital and distribution partners is an important
part of Brit's strategy, enhancing our leadership position and
strengthening our client proposition while also generating fee
income and assisting us in managing our expense base.
We have seen positive insurance market developments in the year,
such as rate increases and capacity withdrawals, which will provide
us with further opportunities in 2020. However, the market
continues to face significant challenges such as the frequency and
magnitude of major and medium loss events, attritional ratio
pressures, expense levels and political and economic uncertainty.
Our strategy and discipline position us well in this
environment.
Syndicate 2988, which was established at the end of 2016 and
writes business predominantly on behalf of third party capital, has
planned gross written premium of US$223.4m for 2020, an increase of
40.8% over 2019. For 2020, capacity is being provided by an
expanded investor base and by Brit and we are delighted to welcome
our new investors.
The ILS market is going through a transitional period on the
back of 2017 and 2018, with market loss activity highlighting
different strategies, risk profiles and performance. Against this,
Brit is well positioned, able to offer partners access to our
attractive underwriting track record and distribution, alongside
clear alignment in all of our third party capital vehicles, which
we believe is critical. We remain committed to all our ILS ventures
and focused on continuing to build on our track record of
outperformance. We were delighted with the result of our
fundraising activity in 2019, and welcome a number of new investors
into our vehicles.
In December, we announced the launch of Sussex Specialty
Insurance Fund. The fund, which is closely aligned to the
objectives laid out in Lloyd's recent blueprint, will allow Sussex
to offer institutional investors direct access to
Lloyd's-underwritten specialty insurance and reinsurance through an
ILS fund structure. It will access Lloyd's by providing capital to
support Syndicate 2988 and will offer a diversified basket of risks
from across the Lloyd's market, underwritten by Brit's global
platform.
I believe our plans for 2020, underpinned by our wider strategy
and discipline, position us well to maximise opportunities as they
arise and allow us face the future with optimism.'
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 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.
5 The capital ratio is calculated as available resources as a percentage
of management entity capital requirements.
For further information, please contact:
+44 (0) 20 3857
Antony E Usher, Group Financial Controller, 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 2019, which included the Brit Limited financial
result, was published on 13 February 2020.
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 primarily 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 care deeply about our clients' needs, ensuring that we not
only surround them with - and invest in - the best talent in the
industry, but also combine the depth of our experience with the
latest technology to deliver a relentless innovation agenda. Acting
in open, honest partnership, our clients can be sure that with Brit
by their side the future isn't something to be feared, it's
something to be seized.
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.
At Brit, LEADERSHIP, INNOVATION and enhancing our product
DISTRIBUTION are at the heart of our strategy, underpinned by our
strong underwriting and claims expertise.
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 89.3% 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 Fairfax 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 our ability to be a leading global specialty
(re)insurer.
2019 underwriting review
The market has continued to benefit from the strengthening of
premium rates during 2019. Brit achieved an overall risk adjusted
rate increase of 5.9% (2018: 3.7%). All classes, with the exception
of Property Political Risks and Violence, experienced an increase,
with the main contributors being Property Open Market , Marine, US
Specialty, Specialist Liability and Property Facilities . We remain
focused on the overall value of our products, ensuring we rate them
so they are economically attractive for our business. This has led
us to exit a number of classes which, despite significant rate
rises, remain unattractive.
These increases were driven by the re-engineering of Brit
portfolios to deliver improvements in performance; the tightening
of conditions in the US E&S market as participants look to
improve performance; the withdrawal of competitors from selected
poor performing segments following the 2017 and 2018 major loss
events and Lloyd's initiatives; and reduction in available capacity
in the London Market as the year progressed.
However, while we have seen such positive developments, there
are still many challenges facing our market.
2019 has been a year of reduced but still significant natural
catastrophe activity, with hurricanes, typhoons and wildfires
having a devastating impact on people's lives, homes and
businesses, and resulting in an estimated global economic loss of
approximately US$140bn and global insured loss estimates in the
region of approximately US$56bn.
In 2019, the market has also experienced deterioration in the
insured loss estimates arising from the 2017 and 2018 events,
already the most costly back-to-back years on record.
The net impact to Brit of the claims incurred from 2019
catastrophe events, before reinstatements, was US$58.4m, or 3.6pps
on the combined ratio (2018: US$196.8m/12.0pps). These losses were
within our expectations, given the scale and nature of the events,
and we have once again benefitted from the protection of our
extensive reinsurance programme . There has been no material
movement in Brit's overall net estimates arising from the 2017 and
2018 events.
Our customers are our priority, and our products are designed to
support our insureds when faced with difficult and unexpected
challenges. It follows that we focus on providing outstanding
claims service, to ensure we can support and service our customers
when they need us most. This claims service has included:
-- A focus on responding to our customers and pursuing
opportunities to reduce claims lifecycle and bring claims to
resolution at every opportunity;
-- On-boarding and monitoring of local third-party resources
available to adjust and report claims. Claims is a local business,
and oversight and support for our delegated claims TPAs and
coverholders, managing claims on our behalf, 24 hours a day, seven
days a week;
-- Swiftly establishing dedicated loss funds for our TPAs and
coverholders in order to expedite claims payments and pursuing new
insuretech solutions to modernise claims payments and loss
funding;
-- Proactively making interim or partial payments whenever
possible to support our insureds' recovery efforts;
-- Utilising Geospatial Intelligence Centre technology to
advance our property claims adjusting capabilities, specifically by
capturing high resolution images of Brit insured homes affected by
Hurricane Dorian and California Wildfires. Losses were immediately
referred to our TPAs for payment, even when affected areas could
not be accessed by local field adjusters; and
-- Increasing our focus on containment of loss adjusting
expense, either through utilising Geospatial Intelligence Centre
technology, legal bill review, or other agile service models,
designed to reduce the overall cost of handling claims and expedite
our claims process.
Our overall GWP for 2019 was US$ 2,293.5 m, an increase of 2.4%
over 2018 (US$2,239.1m), or 3.4 % at constant rates of exchange.
Growth areas included BGSU's underwriting initiatives (Casualty RI
US, Cyber, Excess Casualty, General Liability and Professional
Liability ), our Scion MGA and our core classes ( Casualty Treaty,
Property Treaty, Property Political Risks and Violence, and
Financial and Professional Liability ). The increase generated by
these areas was partially offset by lower levels of prior year
premium development, our re-engineering of certain classes (such as
Marine) and our withdrawal from a number of other underperforming
classes, including International Professional Indemnity, Aviation,
Contractors' Plant and Equipment, and Yacht.
Our retention ratio at 78.0% was marginally lower than in 2018
(80.2%), as we non-renewed certain accounts due to unsustainable
pricing levels and exited our worst performing classes. Across all
lines we have retained our underwriting discipline and are prepared
to discontinue accounts that we believe are inadequately priced or
outside of our appetite.
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 continues to be evidenced by the increasing contribution
from our overseas offices, allowing us to see business not
generally accessed in London.
-- Brit Global Specialty USA (BGSU) has written US$305.8m of
premium, 6.3% of growth over 2018. This increase is after the exit
from certain underperforming classes and reflects the continued
development of our US distribution network. It has arisen from both
recently launched initiatives and from organic growth, as we
capitalise on market opportunities.
-- Scion Underwriting Services Inc., our US MGA headed by Scott
Brock, generated US$46.0m of premium for Brit in 2019, its second
year of operations (2018: US$5.4m).
-- Ambridge Partners LLC, our New York based MGA of which we
acquired the remaining 50% during 2019, generated US$46.7m of
premium for Brit.
-- Our Bermuda operation, established in late 2013, has
selectively written reinsurance business in lines and markets that
we believe remain well rated. Premiums generated by our Bermuda
office in 2019 equated to US$110.1m (2018: US$91.5m).
Our combined ratio in 2019 was 95.8% , including 3.6pps in
respect of major losses and (2.9) pps of reserve releases. Over the
past five years, we have delivered an average combined ratio of
99.9%, despite the extreme catastrophe years of 2017 and 2018.
Overall, the combination of strong portfolio management and
underwriting discipline has led to us achieving a 55.0% attritional
ratio in 2019 (2018: 57.2%), a solid underwriting performance given
the market backdrop and testament to the strength of our
underwriting in such an ongoing competitive environment.
As part of our standard reserving process, we released US$ 47.9
m of net reserves established for prior year claims, the equivalent
of a combined ratio reduction of 2.9pps (2018: US$99.3m/6.1pps),
reflecting favourable development across most classes, with
Financial and Professional Lines, Specialty, Property and
Programmes and Facilities being the most significant. There has
been no material movement in Brit's overall net estimates arising
from the 2017 and 2018 events. The releases in 2018 included the
favourable impact on certain legacy classes afforded by a loss
portfolio reinsurance with RiverStone Managing Agency Limited (for
and on behalf of Lloyd's Syndicate 3500) and favourable development
of the 2017 catastrophe events.
Business developments during 2019
During 2019 we have continued to focus on our underwriting
strategy. Developments have included:
-- Brit managed capacity on new initiatives expanded to over US$440m for 2019
In February 2019, Brit announced the completion of the Versutus
2019 Series. This was the fifth annual renewal and continued the
development of the Versutus Ltd (Versutus) vehicle.
2019 also saw the continued development of Sussex Capital, which
writes through Sussex Re in Bermuda, providing direct
collateralised reinsurance as well as collateralised reinsurance to
Brit's reinsurance portfolio. Sussex has an open-ended fund
offering investors a balanced portfolio of reinsurance risks and
continued to expand in 2019.
In addition, Syndicate 2988 had a planned gross written premium
of US$158.7m for the 2019 year of account, an increase of 12% over
2018.
Brit's total managed capacity across Versutus, Sussex Capital
and Syndicate 2988 for 2019 was approximately US$440m.
-- Brit Re rated A (Excellent) by A.M. Best
A. M. Best assigned a Financial Strength Rating of A
(Excellent), with a 'stable' outlook, to Brit Reinsurance (Bermuda)
Limited (Brit Re). This rating reflected Brit Re's balance sheet
strength, which A.M Best assessed as 'very strong', and the
positive impact of having Fairfax as its ultimate parent.
Following the assignment of this rating, Brit Re plans to expand
its reinsurance portfolio in 2020 by selectively writing a modest
amount of Casualty Treaty business.
-- Continued development of BGSU
BGSU Cyber and Technology
In July 2019, we appointed two experienced VPs, Cyber &
Technology, based in San Francisco and New York. They are
responsible for underwriting and supporting the continued growth of
BGSU's successful Cyber & Technology offering, which launched
in 2017.
BGSU Casualty
In July 2019, we appointed a VP, Primary General Liability and a
VP, Excess Casualty, based in California in Walnut Creek and Los
Angeles respectively. The two appointments represented a
strengthening of BGSU's Casualty portfolio and follow a period of
sustained growth for BGSU's Casualty and Professional Lines
offering.
-- Acquisition of Ambridge Partners LLC
On 18 April, Brit completed its acquisition of the remaining 50%
of Ambridge Partners LLC (Ambridge). Brit made an initial 50%
strategic investment in Ambridge in 2015 and Ambridge has been a
key trading partner of Brit for the past thirteen years. This
acquisition continues Brit's selective international expansion into
niche specialty businesses with a strong track record in
distribution and underwriting. Ambridge is one of the world's
leading managing general underwriters of complex risks, focusing on
Transactional Insurance, Complex Management Liability Insurance and
Intellectual Property Insurance. It was established in 2000 and now
has a team of over 50 employees based in New York, London and
Frankfurt. Ambridge retains its independence, continuing to
underwrite as a managing general underwriter on behalf of its
existing broad Brit-led consortium of Lloyd's syndicates and
international insurers.
-- Sutton Special Risk Inc.
On 2 January 2019, Brit made a significant strategic investment
in Sutton Special Risk Inc (Sutton). Sutton is a leading MGU,
specializing in Accident & Health business, with over 40 years
of experience as a Lloyd's coverholder. Sutton has been an
important trading partner for Brit for the last 16 years. Founded
in 1978 by William J. Sutton, it underwrites Accident, Health and
Special Risk products with a team of 40 employees based in Toronto,
New York and London, and wrote approximately CAD$54m of premium in
2019. Brit's 49% investment offers attractive exposure to a
fast-growing MGU with a strong presence in Canada and the United
States and continues Brit's selective international expansion
through niche specialty businesses with excellent distribution and
underwriting capabilities, alongside highly skilled and experienced
professionals. Sutton will retain its independence, continuing to
underwrite as an MGU on behalf of its existing broad panel of
Lloyd's syndicates and international carriers.
-- Launch of Brit's e-trading Portal
Following significant research and development, Brit's e-trading
portal started binding US Cyber policies on 1 May. The portal gives
brokers an agile, user-friendly outlet for Brit's leading cyber
underwriting capabilities, allowing them to quote and bind in
minutes, entirely online, with a maximum of four question
responses. The portal is underpinned by preventative risk
management and breach response service with clients having access
to extensive training modules, security trend updates and
downloadable content aimed at helping businesses and their
employees protect against an event. This key strategic initiative
presents Brit with the opportunity to access business previously
not available to the London Market, the ability to reduce
acquisition and administrative expenses and the potential to grow
our most profitable segments.
-- Adoption of aerial imagery for high tech claims service
In June, Brit announced a new partnership with the Geospatial
Intelligence Center (GIC), which was created by the National
Insurance Crime Bureau (NICB), a US not-for profit organisation.
After an event, GIC aircraft have special access to affected areas
to capture high-resolution images and assess property damage.
Access to these industry-leading aerial images allows Brit to make
rapid and accurate property catastrophe assessments without any
ground presence to expedite claim settlements for our clients when
they need it most.
-- BGS Bermuda - Property Reinsurance
In April, we appointed a Vice President of Property Reinsurance.
This role will manage our BGSB Property team, which has grown to
over US$30m gross premium through a mix of US Cat and Retro
business since it launched in 2013. It will also work closely with
Sussex Re and Brit Re as we continue to build our Bermuda based
reinsurance platform.
-- Kidnap & Ransom
In February, we appointed an experienced Kidnap & Ransom
underwriter. This role complements the existing Brit businesses as
well as introducing product diversity. Following our Kidnap &
Ransom product's 'soft launch' in early 2019, brokers have reacted
positively to how we have articulated the difference in our product
offering from that of our competitors, reflecting our exclusive
partnership with Schillings and the experience of our underwriting
and claims teams.
-- Cyber underwriting firm of the year award
In September, Brit received the 'Cyber underwriting firm of the
year award' at the Insurance Insider Rankings Cyber awards. The
winners for this category were selected following an Insurance
Insider survey of brokers who were asked to rate the nominees based
on six key areas: knowledge and experience; negotiation skills;
response times; communication; creativity; and consistency in the
treatment of risks and relationships.
This is an outstanding achievement which has culminated from
investment in Cyber and Tech E&O for over ten years, allowing
Brit to develop both coverage and claims offerings as the risks and
legislations continue to evolve.
-- Claims team recognition
The Brit Claims Team won Claims Team of the Year for the second
year running at the Insurance Day London Market Awards. The award
reflected Brit's 'strong focus on enhancing the end customer
experience' alongside its ability to use innovation to improve both
service levels and efficiency. Examples include the use of Geo
Imaging during wildfires and the rollout of technology leveraging
mobile phone cameras to adjust claims.
The claims team also received two awards at the LMA Claims
awards. These awards are testament to the claims team relentless
client service and genuine commitment to innovation, and also
reflect Brit's market leadership in claims.
-- Claims App for Cyber clients
An app for Brit's Cyber clients, allowing them to access
important information and direct contact numbers in the event of a
cyber breach, was launched in November. With the hours immediately
after a breach critical, the app provides a simple, effective and
informative reporting service to our clients.
-- Llift Space
Brit announced the launch of a new space product, Llift Space,
in December. The product is backed by a consortium of 18
syndicates, led by Brit and Hiscox MGA, and is targeted at the
'NewSpace' sector. The product is designed to cater to the distinct
needs of the rapidly growing 'new space' sector. Llift Space is
designed for satellites that weigh less than 300kg.
-- Innovation - The launch of BritX
Brit's purpose is to help our clients and partners thrive in an
uncertain world and drive the industry forward in terms of
products, services and technology; innovation is at the heart of
this strategy.
BritX, our new innovation team led by our newly appointed Head
of Innovation, James Birch, was launched in November 2019 to create
real change and action. It is an innovation-led cross functional
business unit, whose remit is to identify opportunities to disrupt
our market, identify significant growth opportunities and explore
how we can capitalise on these.
-- Key corporate appointments
We have made a number of key corporate appointments during the
period, including:
-- A Head of Innovation, to manage the innovation process at
Brit and identify strategies, business opportunities and new
technologies. ;
-- An experienced Head of Outwards Reinsurance, who will replace
our existing Head of Outwards Reinsurance who will be retiring
towards the end of 2019; and
-- A Head of Strategy, to help develop, manage and implement
Brit's strategic initiatives and Brit's engagement with, and
response to, the Future at Lloyd's initiative.
-- Continued Portfolio Management
Where classes remain challenging, we have continued to take
action to improve our performance and maintained our rigorous risk
selection criteria. During 2019, we examined the classes we write
in BGSU as well as our broader international operations, and took
the following decisions:
-- Withdrawal from certain classes written in the US: We took
the decision to place Inland Marine, Yacht, CJSO written in US into
runoff and to exit Latin American property facultative reinsurance,
casualty and engineering business.
-- Singapore: We also took the decision to withdraw from the
Lloyd's Singapore Platform, reflecting group appetite and a lack of
rate adequacy.
-- China: Following the resignation in July 2019 of our
representative, we have decided to withdraw from the Lloyd's China
Platform.
This streamlining provides added focus on our core markets,
where we see the most potential to further build meaningful scale
and generate sustainable underwriting profit.
-- 2020 business planning
-- Syndicate 2987
Syndicate 2987, Brit's wholly aligned Syndicate, has planned
gross net written premium growth of 5.5% for 2020, reflecting both
premium rate increases and organic growth. This growth is targeted
primarily in the Syndicate's top performing classes, such as
Property Treaty, Casualty Treaty and Cyber Privacy & Tech,
through growth from existing business and new opportunities. This
growth will be partially offset by contraction in a small number of
classes facing more challenging conditions.
-- Syndicate 2988
Syndicate 2988 was established at the end of 2016 and writes
business predominantly on behalf of third party capital. The 2020
year of account has a planned gross written premium of US$223.4m,
an increase of 40.8% over 2019's plan. For 2020, capacity is being
provided by an expanded investor base and by Brit, thereby
demonstrating alignment to the strategy of the Syndicate.
-- Sussex Lloyd's Specialty Insurance Fund
In December, we announced the launch of the Sussex Specialty
Insurance Fund ('SIF' or 'the Fund'). Our collaboration with
Lloyd's has enabled us to be the first Lloyd's Syndicate to use ILS
capacity to back its capital at Lloyd's, a ground-breaking
achievement.
The Fund will sit as part of Brit's Sussex Capital platform and
will allow Sussex to offer institutional investors direct access to
Lloyd's-underwritten specialty insurance and reinsurance through an
ILS fund structure. The Fund will access Lloyd's by providing
capital to support Syndicate 2988.
Financial Performance Review
Overview of Results
The Group's income statement, re-analysed to show the key
components of our result, is set out below:
2019 2018 2017 2016 2015
US$m US$m US$m US$m US$m
Gross written premium 2,293.5 2,239.1 2,057.0 1,912.2 1,999.2
Net earned premium (Note
1) 1,638.5 1,466.1 1,540.1 1,515.1 1,649.6
Underwriting result (Note
1) 68.4 (56.9) (172.8) 54.6 137.0
Underwriting result 68.4 (56.9) (172.8) 54.6 137.0
Return on invested assets,
net of fees 148.1 (82.1) 204.2 102.9 5.0
Corporate expenses (20.3) (20.0) (24.0) (21.3) (30.0)
Finance costs (23.7) (18.8) (17.1) (18.8) (20.6)
Other items 10.5 (3.4) 2.6 1.1 0.3
-------- -------- -------- -------- --------
Profit/(loss) on ordinary
activities before tax, FX
and corporate activity costs 183.0 (181.2) (7.1) 118.5 91.7
FX movements 3.3 (9.1) 12.6 41.3 (60.2)
Corporate activity costs
(note 2) - - - - (23.8)
-------- -------- -------- -------- --------
Profit/(loss) on ordinary
activities before tax 186.3 (190.3) 5.5 159.8 7.7
Tax (6.4) 23.8 16.0 (2.2) 7.9
Profit/(loss) for the year
after tax 179.9 (166.5) 21.5 157.6 15.6
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.
Group performance and total value created
Brit's result for the year ended 31 December 2019 reflects
improving market conditions, a strong attritional performance,
reduced major loss activity, solid prior year reserve releases,
increased contribution from our MGA interests and a good investment
return.
The result on ordinary activities for the year before tax, FX
and corporate activity costs was a profit of US$183.0m (2018: loss
of US$181.2m), profit before tax was US$186.3m (2018: loss before
tax of US$ 190.3m ) and profit after tax was US$179.9m (2018: loss
after tax was US$166.5m ). Return on adjusted net tangible assets
(RoNTA), excluding the effects of FX and corporate activity costs,
increased to 18.1% (2018: decrease of 14.4%). RoNTA for 2019 after
including foreign exchange movements was 18.4% (2018: 15.4%
negative) and total value created for the year was US$198.6m (2018:
US$175.6m negative).
Our adjusted net tangible assets at 31 December 2019 totalled US
$1,150.4m (2018: US $992.9m).
We measure our performance using our key performance indicators
(KPIs).
2019 2018
Return on net tangible assets before FX movements
(RoNTA) 18.1% (14.4)%
Total value created US$198.6m US$(175.6)m
Combined ratio 95.8% 103.3%
Investment return (net of external investment
related expenses) 3.6% (2.0)%
Capital ratio 128.4% 130.4%
Ratio of front office employees to back office
employees 150.9% 155.5%
---------- ------------
In 2019, our RoNTA was 18.1% (2018: 14.4% negative), reflecting
improving market conditions, a strong attritional performance,
reduced major loss activity, solid prior year reserve releases,
increased contribution from our MGA interests and a good investment
return. This return resulted in a five year average RoNTA of
5.1%.
In 2019, value creation was US$198.6m, or 20.0% of opening
adjusted NTA (2018: negative US$175.6m). The company has generated
a total value of US$205.9m over the past five years, an average of
US$41.2m per annum.
The combined ratio is our key underwriting metric. Our combined
ratio in 2019 was 95.8% (2018: 103.3%), including 3.6pps (2018:
12.0pps) in respect of major losses and -2.9pps (2018: -6.1pps) of
reserve releases. Over the past five years, we have delivered an
average combined ratio of 99.9% despite the extreme catastrophe
years of 2017 and 2018.
The return on our invested assets was US$148.1m or 3.6% (2018:
negative US$82.1m/2.0%). This was a combination of US$87.3m (2018:
US$75.5m) of investment income, US$51.9m of realised losses (2018:
gains of US$39.6m), US$134.8m of mark-to-market unrealised gains
(2018: losses of US$203.4m), return on associated undertakings of
US$0.3m (2018: US$6.5m) and losses on investment related
derivatives of US$2.8m (2018: gains of US$0.1m), less fees of
US$11.7m (2018: US$12.9m). Our 2019 return also includes a negative
adjustment of US$7.9m (2018: positive adjustment of US$12.5m),
which represents the share of our consolidated investment vehicles
owned by third parties.
Our investment strategy takes a long-term view of markets, which
can lead to significant variations in our year-on-year return
figures. Over the past five years, we have delivered an average
investment return of 1.8%.
Our statement of financial position remains strong. At 31
December 2019, following a capital injections from Fairfax of
US$70.6m, Group capital resources totalled US$1,576.6m (2018:
US$1,409.8m) which equated to 128.4% (2018: 130.4%) of our Group
capital requirement. During the period, our capital requirements
increased from US$1,081.1m to US$1,227.7m, primarily reflecting
movements in interest rates.
At 31 December 2019, the ratio of front office employees to back
office employees was 150.9% (2018: 155.5%), reflecting that we had
approximately 1.5 front office employees for every back office
employee. The reduction in the ratio over 2018 primarily reflects
the relative increased back office staff to support our overseas
growth initiatives, third party capital management and regulatory
requirements.
In addition to our KPIs, we have other measures that offer
further insight into the detail of our performance. These measures
include:
-- 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 was a profit of US$68.4m
(2018: loss of US$ 56.9 m) and our combined ratio, which excludes
the effect of foreign exchange on non-monetary items, was 95.8%
(2018: 103.3%). The premiums, claims and expenses components of
this result are examined below.
Premiums written
Premium growth Growth at
constant
2019 2018 Growth FX rates
US$m US$m % %
-------- -------- -------
Brit Global Specialty Direct 1,713.5 1,758.0 (2.5) (1.5)
Brit Global Specialty Reinsurance 537.7 451.7 19.0 19.6
Other underwriting 42.3 29.4 43.9 45.4
Group 2,293.5 2,239.1 2.4 3.4
Gross written premium (GWP) increased by 2.4% to US$2,293.5m
(2018: US$2,239.1m). At constant exchange rates the increase was
3.4 %. Direct business decreased by 2.5 % to US$1,713.5m (2018:
US$1,758.0m), while reinsurance increased by 19.0 % to US$537.7m
(2018: US$451.7m) and other underwriting increased by 43.9% to
US$42.3m (2018: US$29.4m).
The drivers of the increase in Group GWP, which was in line with
expectations, are as follows:
-- Underwriting initiatives: The Group's underwriting
initiatives of recent years resulted in a US$115.3m increase in
GWP. The largest increases were seen in BGSU (Casualty RI US,
Professional Liability, General Liability, Cyber, Excess Casualty
and Programmes) and in Scion. Growth was also seen in Kidnap &
Ransom and Healthcare Liability.
-- Other current year premiums: Other current year premiums
decreased by US$10.0m over 2018. This reflects decisive action
taken to improve our performance by discontinuing business lines
which remained challenging, including certain classes written in
the US and Latin America, and our withdrawal from the Lloyd's
Singapore Platform and the Lloyd's China Platform. The premium
reductions from these actions were partly offset by targeted growth
in our treaty portfolio and higher margin direct classes.
-- Prior year premium development: The book again experienced
favourable development on prior years, but at a lower rate than in
2018. This resulted in a year-on-year reduction of US$30.0m.
-- Foreign exchange: The impact of foreign exchange resulted in
a US$20.9m year-on-year reduction in premium, which reflects the
movement during 2019 of the US dollar against a number of
currencies in which the Group writes business.
Measure Commentary Track record
Risk adjusted The risk adjusted rate change shows whether premium 2019 5.9%
rate change rates are increasing, reflecting a hardening market, 2018 3.7%
or decreasing, reflecting a softening market. A 2017 (1.3)%
hardening market indicates increasing profitability. 2016 (3.3)%
2015 (4.1)%
------------------------------------------------------ -------------
2019 saw a continued positive rate environment, building on that
of 2018, with an overall risk adjusted premium rate increase of
5.9% across the portfolio (2018: 3.7%) . Direct business premium
rates increased by 7.7% (2018: 3.8%) and reinsurance by 2.2% (2018:
3.0%). All classes with the exception of Property Political Risks
and Violence experienced an increase, with the main contributors
being Property Open Market , Marine, US Specialty, Specialist
Liability and Property Facilities .
Retention rates
Measure Commentary Track record
Retention The retention rate shows the proportion of our 2019 78.0%
rate business that renews, on a premium weighted basis, 2018 80.2%
compared to the previous year. 2017 83.6%
2016 84.3%
2015 82.4%
---------------------------------------------------- -------------
Our retention rate for the period was 78.0% (2018: 80.2%). The
retention rates we achieved in 2018 and 2019 reflect the successful
renewal of a profitable book of business. The reduction in 2019
results from the action taken to improve our performance by
discontinuing business lines which remained challenging .
Outwards reinsurance
Our reinsurance expenditure in 2019 was US$ 637.3 m or 27.8% of
GWP (2018: US$756.7m/33.8%), a reduction of US$ 119.4 m . This
reduction reflects:
-- The loss portfolio reinsurance contract entered into in 2018
with RiverStone Managing Agency Limited (for and on behalf of
Lloyd's Syndicate 3500) , a Fairfax sister company. Under the terms
of this reinsurance Brit ceded its Non-US PI, 2014 and prior EL
UK/PL UK and legacy books of business for a premium of US$186.3m.
Excluding this transaction, the 2018 reinsurance expenditure was
US$570.4m or 25.4% of GWP ; and
-- The increased use of proportional treaty in 2019, to provide
flexibility in the challenging market conditions and to manage net
exposure on classes where our risk appetite is lower than the
efficient operating scale.
Net earned premium
Net earned premium (NEP) in 2019, excluding the effects of
foreign exchange on non-monetary items, increased by 11.8% to
US$1,638.5m (2018: US$ 1,466.1m , decrease of 4.8%). Direct
business increased by 6.4% to US$1,159.6m (2018: US$ 1,089.5 m ,
decrease of 10.3%), reinsurance increased by 15.8% to US$385.7 m
(2018: US$333.2m , increase of 11.9%) and other underwriting
increased by 114.7% to US$93.2m (2018: US$43.4m , increase of
58.4%).
Excluding the impact of the 2018 loss portfolio reinsurance
contract, 2019 NEP decreased by 0.8% .
Claims
The claims ratio and its components are set out below:
Year Attritional Major claims Reserve release Claims
loss ratio ratio ratio
ratio
2019 55.0% 3.6% (2.9)% 55.7%
2018 57.2% 12.0% (6.1)% 63.1%
2017 56.4% 16.2% (0.6)% 72.0%
2016 55.5% 4.5% (3.5)% 56.5%
2015 55.2% - (1.7)% 53.5%
------------ ------------- ---------------- -------
Our underlying claims experience in 2019 was in line with
expectations, with a reduction in our attritional loss ratio to
55.0% (2018: 57.2%). This reflects favourable claims experience
across our Direct portfolio (principally Programmes and Facilities
and Property). Compound rate increases over 2018 (+3.7%) and 2019
(+5.9%), combined with a change in mix as we target growth on our
high performing segments while taking remedial action on more
marginal business, has also contributed to the improvement.
Catastrophe activity was again significant in 2019, albeit
reduced from 2018 and 2017 levels. The Group incurred major claims,
before reinstatement premiums, of US$ 58.4 m (2018: US$196.8m), as
set out below. Major losses are defined as claims which are
initially assessed as having the potential to exceed US$15.0m (net
of reinsurance and allowing for reinstatements), incurred from
natural or man-made catastrophes, or from large single risk loss
events.
Major losses 2019 2018
US$m US$m
-------------------------------- ------
Hurricane Dorian 24.3 -
Typhoon Faxai 12.5 -
Typhoon Hagibis 24.8 -
Typhoon Jebi - 26.0
Hurricane Florence - 27.1
Typhoon Mangkhut - 7.0
Hurricane Michael - 56.3
California wildfires (Note 1) - 98.1
Total before third party share 61.6 214.5
Third party investors share
of major losses (Note 2) (3.2) (17.7)
Total 58.4 196.8
---------------------------------- ------ -------
CoR 3.6% 12.0%
---------------------------------- ------ -------
Note 1: 2019 California Wildfires did not classify as a major
event for Brit .
Note 2: Accounting rules require Brit to consolidate Sussex
Capital and Versutus II which have third party investors. This
adjustment eliminates the third party share of major losses, which
is included in the Group's consolidated income statement within
'gains on other financial liabilities'.
As part of our standard reserving process, we released US$ 47.9
m of net reserves established for prior year claims, the equivalent
of a combined ratio reduction of 2.9pps (2018: US$99.3m/6.1pps),
maintaining our unbroken record of reserve releases since we
started disclosing them in 2004.
The 2019 release reflected favourable development across most
classes. Financial and Professional Lines, Specialty, Property and
Programmes and Facilities generated the most significant releases,
partly offset by strengthening on US Specialty. There was no
material movement in Brit's overall net estimates arising from the
2017 and 2018 events. The releases in 2018 included the favourable
impact on certain legacy classes afforded by the loss portfolio
reinsurance with RiverStone Managing Agency Limited (for and on
behalf of Lloyd's Syndicate 3500) and favourable development of the
2017 catastrophe events.
Expenses
Our underwriting expense ratio was 40.1% (2018: 40.2%). Its
components are set out below:
Year Commission Operating expense Underwriting expense
ratio ratio ratio
2019 27.2% 12.9% 40.1%
2018 27.8% 12.4% 40.2%
2017 27.6% 12.8% 40.4%
2016 27.2% 12.7% 39.9%
2015 26.0% 12.2% 38.2%
----------- ------------------ ---------------------
Commission costs were US$443.3m and the commission expense ratio
was 27.2% (2018: US$456.1m/27.8%). The decrease in the ratio
principally reflects changes in business mix and additional quota
share overriders.
Our operating expense ratio increased to 12.9 % (2018: 12.4%).
Operating expenses for the period were as follows:
Expense analysis 2019 2018
US$m US$m
Underlying operating expenses including bonus
provisions 275.3 231.6
Project costs, timing differences and other expense
adjustments (Note 1) 1.1 5.1
------ ------
Total operating expenses 276.4 236.7
------ ------
Note 1: Includes minority share of expenses incurred by
consolidated vehicles
Underlying operating expenses during 2019 increased by 18.9% to
US$275.3m (2018: US$231.6m). US$23.2m ( 10.0 pps) of the increase
represents Ambridge operating expenses consolidated for the first
time during 2019 and amortisation of intangible assets arising on
the acquisition of Ambridge. The remainder of the increase relates
to targeted expansion and investment in growth areas, increased
regulatory levies and increased support costs .
As the majority of Brit's business is in US dollars and the
majority of the operating expenses are in Sterling, Brit made the
decision to effectively hedge the Sterling proportion of the
Group's expenses. This decision was driven by the weakness in
Sterling against the US dollar. To effect this, Brit purchased
Sterling in the spot and forward market. The effect of this
derivative contract, US$ 0.4 m gain (2018: US$2.2m loss), is
recognised within the underwriting result, but excluded from the
combined ratio.
The allocation of operating expenses within the Consolidated
Income Statement and the Segmental Information is as follows:
Disclosure of operating expenses 2019 2018
US$m US$m
Acquisition costs 150.6 116.2
Other insurance related expenses 105.5 100.5
------ ------
Total insurance related expenses 256.1 216.7
Other operating expenses 20.3 20.0
Total operating expenses 276.4 236.7
Other income
Other income totalled US$45.9 m (2018: US$10.6m), as set out
below.
Other income 2019 2018
US$m US$m
Fee and commission income (Note 1) 45.6 14.0
Change in value of parent company shares (Note
2) 0.3 (3.4)
------ ------
Total other income 45.9 10.6
------ ------
Note 1: Total fee and commission income is included within our
underwriting result and our combined and expense ratios.
Note 2: Change in value of parent company shares is included
within our corporate result.
Fees and commissions generated by the Group's underwriting
management activities have continued to increase in 2019, totalling
US$45.6m, an increase of 225.7% (2018: US$14.0m/68.7%). Of the
increase, US$28.0m was generated by Ambridge, consolidated for the
first time during 2019
(Losses)/gains on other financial liabilities
The statement of financial position of the Group includes
liabilities representing third party investors' share in structured
undertakings consolidated by the Group. These structured
undertakings are Sussex Capital, Versutus II and an equity UCITS.
Changes in the value of these liabilities during a year are
recorded in the Group's consolidated income statement as 'gains on
other financial liabilities', as follows:
(Losses)/gains on other financial liabilities 2019 2018
US$m US$m
Underwriting vehicle related (Note 1) (2.6) 4.9
Investment vehicle related (Note 2) (7.9) 12.5
------- ------
Total gains on other financial liabilities (10.5) 17.4
------- ------
Note 1: Allocated to the Group's underwriting result as it
represents the third party share of the underwriting result.
Note 2: Allocated to the Group's investment result as it
represents the third party share of the investment result.
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$148.1m or 3.6% (2018:
negative US$82.1m/2.0%). This result is analysed below:
Investment return 2019 2018
US$m US$m
Income 87.3 75.5
Realised (losses)/gains (51.9) 39.6
Unrealised gains/(losses) 134.8 (203.4)
------- --------
Investment return before fees 170.2 (88.3)
Investment management fees (11.7) (12.9)
------- --------
Investment return net of fees 158.5 (101.2)
Investment related derivative return (2.8) 0.1
Third party investors share of investment return
(Note 1) (7.9) 12.5
Return on associated undertakings 0.3 6.5
------- --------
Total return 148.1 (82.1)
------- --------
Total return 3.6 % (2.0)%
------- --------
Note 1: Accounting rules require Brit to consolidate the return
on a UCITS which has third party investors. This adjustment
eliminates the third party share of that return included in
'Investment return net of fees'. This amount is included in the
Group's consolidated income statement within 'Gains on other
financial liabilities'.
Return on invested assets
(net of fees)
Year %
--------------
2019 3.6
--------------
2018 (2.0)
--------------
2017 4.9
--------------
2016 2.6
--------------
2015 0.1
--------------
The higher yields as we entered 2019 benefited fixed income
returns, giving a total portfolio income return for the year of US$
87.3m . The fall in yields over 2019, as the US Federal Reserve cut
rates three times, also boosted our unrealised gains from fixed
income to US$22.4m (2018: unrealised loss $12.5m). We continue to
seek out opportunities to increase the yield on the portfolio where
appropriate opportunities arise, including diversifying into
securities with a yield component, such as property funds.
The equity portfolio also performed strongly in 2019, despite
bouts of volatility during the year, as global indices responded to
each downturn with a more sustained upswing and along the way kept
setting record highs. Unrealised gains from equity for the year
totalled US$129.7m (2018: loss of $169.9m), with most of our
holdings seeing a reversal of the losses recorded in 2018. However,
t he return on funds was negative for the year, with a loss of
US$17.8m, the majority of which is unrealised.
The return on cash has also been solid over the year. Our
approach to management of cash during the year has (and continues
to be) to limit the amount of operational cash held within bank
accounts and to maximise the amounts held within short term
government bills and money market instruments such as commercial
paper, avoiding where possible exposure to European paper where the
yield is negative.
At 31 December 2019, the running yield (expressed as yield as a
percentage of invested assets) of our total portfolio was 1.5%
(2018: 2.3%). This has decreased over 2019 in line with the
decrease in base rates in the US and continues to represent a
challenging environment for insurance groups.
Our share of our associated undertakings' net profit was US$0.3m
(2018: US$6.5m) .
-- Camargue Underwriting Managers Proprietary Limited, a leading
managing general underwriter of a range of specialised insurance
products and specialist liability solutions in South Africa in
which Brit holds a 50% share, contributed US$0.6m to this return
(2018: US$0.6m) .
-- Sutton Special Risk Inc. , a leading Canada-based managing
general underwriter specialising in Accident & Health business
in which Brit acquired a 49% share on 8 January 2019 , contributed
US$0.7m to this return; and
-- Ambridge Partners LLC, a leading managing general underwriter
of Transactional Insurance, Complex Management Liability Insurance
and Intellectual Property Insurance, in which Brit held a 50% share
until 18 April 2019, returned US$( 1.0) m ( 2018: +US$5.9m). On 18
April 2019, following Brit's acquisition of the remaining 50% of
Ambridge, Ambridge became a 100% subsidiary of the Group and ceased
to be an associated undertaking. For the year, Ambridge generated a
positive return for the Group.
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$3.3m in 2019 (2018:
loss of US$9.1m), 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$14.0m (2018: loss of
US$12.7m ), 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 movements in the US dollar which
gave rise to a gain on our long Canadian dollar and short Euro
positions, partly offset by a loss on our short Sterling
position;
-- Losses of US$15.2m (2018: gains of US$8.4 m) 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; and
-- Gains of US$4.5m (2018: losses of US$4.8m), 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
2019 comprises the un-wind of the credit carried on the balance
sheet at 31 December 2018 (US$2.5m), plus the debit balance
established during 2019 (US$2.0m).
The allocation of the FX result within the Consolidated Income
Statement is as follows:
Foreign exchange gains and (losses) 2019 2018
US$m US$m
Net change in unearned premium provision - non-monetary
FX effect 3.4 1.9
Acquisition costs - non-monetary FX effect (1.7) (0.8)
Net foreign exchange gains/(losses) - non-monetary
(Note 1) 2.8 (5.9)
------- -------
4.5 (4.8)
------- -------
Net foreign exchange gains/(losses) - monetary
(Note 1) 14.0 (12.7)
Return on derivative contracts - FX related instruments
(Note 2) (15.2) 8.4
------- -------
(1.2) (4.3)
------- -------
Total gain/(loss) 3.3 (9.1)
------- -------
Note 1: The sum of these two amounts, US$16.8m, is the 'Net
foreign exchange gains' figure per the Consolidated Income
Statement (2018: US$18.6m 'Net foreign exchange losses').
Note 2: Excludes the gain of US$0.4m (2018: loss of US$2.2m) on
the derivative contract entered into to effectively hedge the
Sterling proportion of the Group's expenses.
Tax
Our tax on ordinary activities for 2019 resulted in a tax charge
of US$6.4m (2018: tax credit US$23.8m), based on a group profit
before tax of US$186.3m (2018: loss before tax of US$190.3m).
The Group is liable to taxes on its corporate income in a number
of jurisdictions where its companies carry on business, most
notably the UK, Australia and the US. Corporate profits and losses
in Bermuda are exempt from tax. The tax charge is calculated in
each legal entity across the Group and then consolidated.
Therefore, the Group effective rate is sensitive to the location of
taxable profits and is a composite tax rate reflecting the mix of
tax rates in those jurisdictions.
The 2019 Group rate varies from the weighted average rate in
those jurisdictions due to a number of factors, the principal
factors being unrecognised deferred tax assets of US$2.4m in
respect of undeclared Lloyd's syndicate year of account losses and
a prior year credit of US$1.2m in respect of 2018 US tax. The rate
is further influenced by the impact of exempt income, such as
dividend income, and by non-UK taxes arising in our Lloyd's
syndicates.
Financial position and capital strength
Overview
Our business is underwritten principally 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 2019 our adjusted net tangible
assets totalled US$1,150.4m (2018: US$992.9m). At 31 December 2019,
following a capital injections from Fairfax in 2019 of US$70.6m,
Group capital resources totalled US$1,576.6m which equated to
128.4% of our Group capital requirement. During the period, our
capital requirements increased from US$1,081.1m to US$1,227.7m,
primarily reflecting movements in interest rates.
Brit has in place a US$450m revolving credit facility (RCF),
expiring on 31 December 2022. Under our capital policy we have
identified a maximum of US$250.0m (2018: US$250.0m) of this
facility to form part of our capital resources, with the balance
available for liquidity funding. At 31 December 2019, the cash
drawings on the facility were US$140.0m (2018: US$8.0m) and a
US$80.0m uncollateralised letter of credit (LoC) was in place (31
December 2018: US$80.0m/uncollateralised) to support our
underwriting activities. At the date of this report, cash drawings
had reduced to US$65.0m and the US$80.0m uncollateralised LoC
remained in place.
At 31 December 2019, our gearing ratio was 29.9% (2018:
22.0%).
Asset allocation
Brit's invested assets (financial investments, investments in
associates, cash and cash equivalents and derivative contracts) at
31 December 2019 were US$4,182.2m (31 December 2018:
US$4,009.6m).
Our asset allocation, on both a look-through basis and statutory
disclosure basis, is set out in the tables below:
31 December 2019 Total
invested
assets
Statutory basis (look-through)
Equity Debt Specialised Cash and Associated Investment
securities securities investment cash undertakings Derivatives
funds equivalents (net)
US$m US$m US$m US$m US$m US$m US$m
------------- --------------- ----------- ------------- ------------ ---------------
Government
Look-through debt
basis securities - 1,611.8 9.7 - - - 1,621.5
Corporate debt
securities - 1,339.2 2.2 - - - 1,341.4
Structured products - 0.1 18.2 - - - 18.3
Equity securities 403.9 - 242.7 - 19.4 - 666.0
Alternative investments - - 8.5 - - - 8.5
Cash and cash
equivalents - - 5.1 520.1 - - 525.2
Investment related
derivatives - - (0.8) - - 2.1 1.3
------------ ---------------
Total invested
assets (statutory) 403.9 2,951.1 285.6 520.1 19.4 2.1 4,182.2
------------- --------------- ----------- ------------- ------------ ---------------
31 December 2018 Total
invested
assets
(look
Statutory basis through)
Equity Debt Specialised Cash and Associated Investment
securities securities investment cash undertakings Derivatives
funds equivalents (net)
US$m US$m US$m US$m US$m US$m US$m
------------- --------------- --------------- ------------- -------------- ---------------
Government
Look-through debt
basis securities - 1,577.1 0.2 - - - 1,577.3
Corporate debt
securities - 935.9 - - - - 935.9
Structured products - 0.1 16.7 - - - 16.8
Equity securities 575.8 - 29.5 - 43.0 - 648.3
Alternative investments - - 8.7 - - - 8.7
Cash and cash
equivalents - - 1.1 818.2 - - 819.3
Investment related
derivatives - - - - - 3.3 3.3
-------------- ---------------
Total invested
assets (statutory) 575.8 2,513.1 56.2 818.2 43.0 3.3 4,009.6
------------- --------------- --------------- ------------- -------------- ---------------
The portfolio's tactical positioning remained broadly consistent
in 2019, with a short duration position to protect against the
impact of rising rates. For the allocation to credit risk, the
exposure is primarily defensive, focused on short duration, high
quality, investment grade non-cyclical companies. Equity
allocations are invested in a portfolio of both listed and private
(non-listed) equities and funds.
The assets remain primarily invested in cash and fixed income
securities (2019: US$3,488.1m or 83.4% of the portfolio; 2018:
US$3,332.5m or 83.1% of the portfolio). The fixed income portfolio
is short dated, with a majority allocation to government bills.
Corporate bonds represent 32.1% (2018: 23.3%) of the total
portfolio with 1.9pps (2018: 2.2pps) of this figure being below
investment grade.
The exposure to equities and funds has remained broadly
consistent over 2019 (2019: US$692.8m or 16.6% of the portfolio;
2018: US$675.0m/16.8%).
The duration of our portfolio at 31 December 2019 was 1.1 years
(2018: 0.9 years), which is shorter than the duration of our
liabilities. US rates fell significantly across the curve over
2019, although some relief was felt towards the end of the year as
the US Federal Reserve messaged the last of three rate cuts in the
final quarter of the year.
At 31 December 2019, 81.1% of our invested assets were
investment grade quality (2018: 82.5%).
Outlook
Looking ahead, a number of indicators give us increased cause
for optimism. The market continues to harden and 2020 is expected
to mark the third consecutive year of rate increases after years of
decline. This presents a real opportunity for profitable
growth.
However, there are still many challenges facing our market:
-- The frequency of major events and magnitude of the resulting
claims, with 2019's experience following on from those of 2017 and
2018, the most costly back-to-back years on record;
-- The impact of medium loss events, with commentators
attributing an increase in the frequency and severity of such
events to climate change and other factors such as population
growth and increasing insured values;
-- Further pressures on attritional ratios continue, largely
driven by the soft market years of 2017 and 2018 and by social
inflation in the US Casualty market;
-- The cost of doing business in the London market remains
elevated. The market needs to become more efficient in processing
and work with distribution partners to become more competitive in
local markets;
-- Despite the welcome withdrawal of some capacity, available
capacity continues to exceed demand;
-- In a number of markets where we operate, we see increasing
competition from local carriers; and
-- We continue to face political and economic uncertainty and
challenges. 2019 saw continued volatility in financial markets and
experienced weakening growth, recession fears, falling yields,
heightened tension around international trade and loose monetary
policy. These trends show no signs of abating as we go into 2020
and the resulting outlook for the investment market continues to be
challenging.
We believe our financial strength, ownership model, underwriting
discipline and our clear strategy focused on leadership, innovation
and distribution, uniquely position us to respond to the challenges
of today's market and to benefit from opportunities as they
arise.
-- Preserving a strong financial position is critical to the
long-term success of an insurance business. Our balance sheet
remains strong as we maintain our 'conservative best estimate'
reserving policy which provides us with a secure foundation . We
also benefit from the financial strength of our parent, Fairfax,
and from our relationships with our capital partners supporting
Syndicate 2988 and the Sussex vehicles.
-- We also continue to take action to improve our performance
and maintain our underwriting discipline and rigorous risk
selection criteria in all areas of the business.
-- Leadership - We strive to provide direction and authority
within our business and to our industry. We are supportive of the
Future at Lloyd's Blueprint and are proud to have worked with
Lloyd's to be the first Lloyd's Syndicate to use ILS capacity to
back our capital at Lloyd's, a landmark achievement.
-- Innovation - Our purpose is to help our clients and partners
thrive in an uncertain world and drive the industry forward in
terms of products, services and technology, and innovation is at
the heart of our strategy. BritX, our new innovation team led by
our newly appointed Head of Innovation, was launched in 2019 to
create real change and action. It is aimed at targeting
opportunities to disrupt our market and has identified a number of
opportunities of real potential.
-- Distribution - Our strategy is to deliver our products to our
customers in a more efficient manner. This includes increased
digital distribution and positioning ourselves closer to our
customers. We have an established local distribution platform in
the US, our largest market, and now have an established Bermuda
operation, which houses Brit Re (our captive reinsurer and A rated
reinsurance carrier), Sussex Re (our ILS vehicle) and BGSB (our
reinsurance service company).
In 2019, we successfully launched our e-trading portal,
initially focussing on US Cyber business. This initiative presents
Brit with the opportunity to access business previously not
available to the London Market, the ability to reduce expenses
significantly and the potential to grow our most profitable
segments, working with our distribution partners.
We are ready to face the future with optimism.
Principal risks and uncertainties
Risk Management Framework
Brit delivers shareholder value by actively seeking and
accepting risk within agreed limits. Risk management within Brit is
a continuous process that links directly to the organisation's
business and risk management strategies and the associated Board
risk tolerances.
Brit's Risk Management Framework (RMF) applies a consistent
methodology and structure to how risks are identified, measured,
managed and monitored. This process enables us to protect
policyholders and maximise shareholder value by ensuring the risk
and capital implications of business strategy are well
understood.
The RMF has the following key elements:
-- Identification: Risk events, risks and relevant controls are
identified and classified. This is a continuous process which
considers any emerging and existing risks.
-- Measurement: Risks are assessed and quantified and controls
are evaluated. This is done through a combination of stochastic
modelling techniques, stress and scenario analysis, reverse stress
testing and qualitative assessment using relevant internal and
external data.
-- Management: The information resulting from risk
identification and measurement is used to improve how the business
is managed.
A key part of the RMF is the setting of risk tolerances and risk
appetite. Risk tolerances are set by the Board and represent the
maximum amount of risk Brit is willing to accept to meet its
strategic objectives. Risk appetite is set by management and
reflect the maximum amount of risk that Brit wishes to take in the
current market environment. The actual amount of risk taken is
monitored against the tolerances and appetites on an ongoing
basis.
The RMF, including the risk tolerances and appetite, reflects
Brit's strategy and seeks to ensure that risk is accepted in the
areas which are expected to maximise shareholder value whilst
continuing to protect policyholders against extreme events. The
process applies to both the Brit Group and to the individual
underwriting entities (such as Lloyd's syndicates).
The risk management team, led by the Chief Risk Officer (CRO),
ensures that Brit operates within the risk tolerance level approved
by the Board. This includes the assessment of the new strategic
initiatives and principal risks and uncertainties faced by the
business as detailed below. All Brit staff are involved in ensuring
there is an appropriate culture which promotes the identification
and management of risk.
Risk Governance
The Board is responsible for overseeing our risk management and
internal control systems, which management is responsible for
implementing.
Brit maintains a strong risk governance framework using Risk
Oversight Committees and Audit Committees whose membership consists
of independent non-executive Directors. The Risk Oversight
Committees monitor and review the risk profile and the
effectiveness of all risk management activities and, in particular,
monitor adherence to agreed risk limits. Our Internal Audit
function provides assurance to the Risk Oversight Committees, Audit
Committees and Boards, while external experts are regularly used
for independent assessments.
Brit operates a three lines of defence model for governing risk.
Within the first line of defence individual risk committees monitor
day-to-day risk control activities. The risk management function,
as a second line of defence, provides oversight over business
processes and sets out policies and procedures. Internal Audit, as
a third line of defence, provides independent assurance and
monitors the effectiveness of the risk management processes.
Key risks
The RMF categorises the risks to Brit as follows:
-- Overarching risk: strategic, earnings and solvency; 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 - pricing Emerging experience is inconsistent
with the assumptions and pricing models
used.
--------------------------- ---------------------------------------------
Underwriting - catastrophe Premiums are insufficient to 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 by
risk changes in economic variables, such
as interest rates, bond yields, equity
returns, credit spreads, credit ratings.
--------------------------- ---------------------------------------------
Operational and People Failure to attract, motivate and retain
group key Directors, senior underwriters,
senior management and other key personnel,
on whom our future success is substantially
dependent.
--------------------------- ---------------------------------------------
Emerging risks
Brit undertakes a formal emerging risk review annually with the
results reported to the Risk Oversight Committee and included in
the ORSA report. The review is an important part of the risk
identification aspect of the RMF and includes horizon scanning of
the internal and external risk environment to identify potential
new or developing risks to Brit. These risks can then be included
in the risk register and managed appropriately as required.
The emerging risk review has previously identified risks such as
the United Kingdom's exit from the EU (Brexit) and cyber risk.
These risks have been managed throughout their development and are
now monitored as part of the business as usual risk management
process.
Climate change related financial risks
Climate change is a key example of a developing risk identified
as part of Brit's emerging risk review, and the potential impact to
the insurance industry is an area of focus for the market and the
regulators. The risks to insurers may include the potential
increase in the frequency and severity of weather-related natural
catastrophes, for example, hurricanes and wildfires. Brit is
managing the risks associated with climate change in line with the
RMF and is responding to the latest regulatory guidance in this
area. This will continue to be an area of management and risk
committee focus.
United Kingdom's exit from the EU (Brexit)
We have continued to work to minimise the impact of Brexit on
Brit and our clients. While direct European business is not
material for Brit, we have continued to monitor and evaluate the
associated risks and have implemented the processes and business
changes required to write business onto Lloyd's new Brussels-based
European insurance company (LBS), of which we are fully
supportive.
The known work required is complete and our new processes are
operational. We commenced writing business via LBS in the fourth
quarter of 2018, for risks incepting on or after 1 January 2019.
The placement process is more onerous than for non-European
business, however, the solution in place is the most effective
approach given that the UK will potentially lose its passporting
rights.
Following the UK's exit from the EU on 31 January 2020,
significant uncertainties remain surrounding the UK's future
relationship with the EU, with potentially unknown economic and
political implications for the UK. We continue to monitor
developments closely.
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 2019 or
2018, but is derived from those accounts. Statutory accounts for
2018 have been delivered to the Registrar of Companies and the
statutory accounts for 2019 will be delivered following the
Company's annual general meeting. The auditor has reported on those
accounts; its 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 2019 are expected to
be available on the Company's website no later than 12 March 2020.
An announcement will be made when they are available.
The preliminary results were approved by the Board on 12
February 2020.
Responsibility statement of the Directors
The Directors confirm that, to the best of their knowledge:
-- The consolidated financial statements, contained within the
2019 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 2019 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 Group Chief Financial Officer
12 February 2020 12 February 2020
Consolidated Income Statement
For the year ended 31 December 2019
Year ended Year ended
31 December 31 December
2019 2018
US$m US$m
-------------------------------------------------- -------------- -----------------
Gross premiums written
Less premiums ceded to reinsurers 2,293.5 2,239.1
Premiums written, net of reinsurance (637.3) (756.7)
---------------------------------------------------- -------------- -----------------
1,656.2 1,482.4
Gross amount of change in provision for unearned
premiums
Reinsurers' share of change in provision
for unearned premiums (43.8) (34.4)
Net change in provision for unearned premiums 29.5 20.0
Earned premiums, net of reinsurance (14.3) (14.4)
1,641.9 1,468.0
-------------------------------------------------- -------------- -----------------
Investment return
Return on derivative contracts 158.5 (101.2)
Gain on business combination (17.6) 6.3
Other income 10.2 -
(Losses)/gains on other financial liabilities 45.9 10.6
Net foreign exchange gains (10.5) 17.4
Total revenue 16.8 -
1,845.2 1,401.1
-------------------------------------------------- -------------- -----------------
Expenses
Claims incurred:
Claims paid:
Gross amount
Reinsurers' share (1,366.6) (1,345.5)
Claims paid, net of reinsurance 509.1 407.3
---------------------------------------------------- -------------- -----------------
(857.5) (938.2)
Change in the provision for claims:
Gross amount
Reinsurers' share 83.2 (290.0)
Net change in the provision for claims (140.2) 361.2
---------------------------------------------------- -------------- -----------------
(57.0) 71.2
Claims incurred, net of reinsurance
Acquisition costs (914.5) (867.0)
Other operating expenses (595.2) (573.0)
Net foreign exchange losses (125.8) (120.5)
Total expenses excluding finance costs - (18.6)
(1,635.5) (1,579.1)
-------------------------------------------------- -------------- -----------------
Operating profit/(loss)
209.7 (178.0)
Finance costs
Share of net profit of associates (23.7) (18.8)
Profit/(loss) on ordinary activities before
tax 0.3 6.5
Tax (charge)/income 186.3 (190.3)
Profit/(loss) for the year (6.4) 23.8
Gross premiums written 179.9 (166.5)
---------------------------------------------------- -------------- -----------------
All profits/(losses) arise from continuing operations.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
Year ended Year ended
31 December 31 December
2019 2018
US$m US$m
--------------------------------------------------- -------------- -----------------
Profit/(loss) attributable to owners of the
parent 179.9 (166.5)
Other comprehensive income
Items not to be reclassified to profit or
loss in subsequent periods:
Actuarial (losses)/gains on defined benefit
pension scheme (4.7) 3.8
Deferred tax gain/(loss) relating to actuarial
(losses)/gains on defined benefit pension
scheme 6.4 (0.6)
Items that may be reclassified to profit
or loss in subsequent periods:
Change in unrealised foreign currency translation
losses on foreign operations 3.7 (6.1)
Total other comprehensive income 5.4 (2.9)
----------------------------------------------------- -------------- -----------------
Total comprehensive income recognised for
the year 185.3 (169.4)
----------------------------------------------------- -------------- -----------------
Consolidated Statement of Financial Position
At 31 December 2019
31 December 31 December
2019 2018
US$m US$m
---------------------------------------- -------------- --------------
Assets
Intangible assets 192.6 104.4
Property, plant and equipment 67.9 17.4
Deferred acquisition costs 243.6 244.1
Investments in associated undertakings 19.4 43.0
Reinsurance contracts 1,628.1 1,699.8
Employee benefits 51.9 53.1
Deferred taxation 41.1 56.1
Current taxation 11.4 8.3
Financial investments 3,640.6 3,145.1
Derivative contracts 15.7 17.4
Insurance and other receivables 1,240.2 1,008.8
Cash and cash equivalents 520.1 818.2
Total assets 7,672.6 7,215.7
------------------------------------------- -------------- --------------
Liabilities and Equity
Liabilities
Insurance contracts 5,266.1 5,274.1
Borrowings 316.2 174.9
Other financial liabilities 75.5 241.8
Provisions 3.5 2.2
Current taxation 1.2 1.4
Derivative contracts 14.2 14.1
Insurance and other payables 676.0 422.2
Total liabilities 6,352.7 6,130.7
------------------------------------------- -------------- --------------
Equity
Called up share capital 7.0 6.8
Share premium 505.5 435.1
Capital redemption reserve 1.0 1.0
Foreign currency translation reserve (86.4) (89.7)
Retained earnings 892.8 731.8
Total equity attributable to owners
of the parent 1,319.9 1,085.0
------------------------------------------- -------------- --------------
Total liabilities and equity 7,672.6 7,215.7
------------------------------------------- -------------- --------------
These financial statements were approved by the Board of
Directors on 12 February 2020 and were signed on its behalf by:
Matthew Wilson Mark Allan
Group Chief Executive Officer Group Chief Financial Officer
Consolidated Statement of Cash Flows
For the year ended 31 December 2019
Year ended Year ended
31 December 31 December
2019 2018
US$m US$m
---------------------------------------------- -------------- --------------
Cash flows from operating activities
Cash used in operations (467.0) (822.2)
Tax received/(paid) 0.6 (25.6)
Interest received 70.1 45.1
Dividends received 5.3 11.4
Net cash outflows from operating activities (391.0) (791.3)
------------------------------------------------ -------------- --------------
Cash flows from investing activities
Purchase of intangible assets (5.2) (6.4)
Purchase of property, plant and equipment (4.9) (1.4)
Acquisition of subsidiary undertaking (31.1) (15.5)
Acquisition of associated undertaking (13.0) -
Dividends from associated undertaking 0.5 3.7
Net cash outflows from investing activities (53.7) (19.6)
------------------------------------------------ -------------- --------------
Cash flows from financing activities
Proceeds from issue of shares 70.6 436.3
Drawdown/(repayment) on revolving credit
facility 132.0 (37.0)
Purchase of class A shares for cancellation - (252.9)
Purchase of shares for share-based payment
schemes (25.0) (11.2)
Interest paid (14.5) (12.7)
Dividends paid (20.6) (58.6)
Net cash inflows from financing activities 142.5 63.9
------------------------------------------------ -------------- --------------
Net decrease in cash and cash equivalents (302.2) (747.0)
Cash and cash equivalents at beginning of
the year 818.2 1,571.6
Effect of exchange rate fluctuations on cash
and cash equivalents 4.1 (6.4)
-------------- --------------
Cash and cash equivalents at the end of the
year 520.1 818.2
------------------------------------------------ -------------- --------------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Foreign
Called up Capital currency
share Share redemption translation Retained Total
capital premium reserve reserve earnings equity
US$m US$m US$m US$m US$m US$m
---------- ---------- ------------- ------------- ---------- --------
At 1 January 2019 6.8 435.1 1.0 (89.7) 731.8 1,085.0
---------------------------------------- ---------- ---------- ------------- ------------- ---------- --------
Total comprehensive income recognised - - - 3.7 181.6 185.3
Recycling of foreign exchange losses
upon
acquisition of Ambridge - - - (0.4) - (0.4)
Issuance of share capital 0.2 70.4 - - - 70.6
Dividend - - - - (20.6) (20.6)
---------------------------------------- ---------- ---------- ------------- ------------- ---------- --------
At 31 December 2019 7.0 505.5 1.0 (86.4) 892.8 1,319.9
---------------------------------------- ---------- ---------- ------------- ------------- ---------- --------
Foreign
Called up Capital currency
share Share redemption translation Retained Total
capital premium reserve reserve earnings equity
US$m US$m US$m US$m US$m US$m
----------- ----------- --------------- --------------- ---------- --------
At 1 January 2018 6.4 - 0.2 (83.6) 1,207.3 1,130.3
---------------------------------- ----------- ----------- --------------- --------------- ---------- --------
Total comprehensive income
recognised - - - (6.1) (163.3) (169.4)
Share-based payments - - - - (0.7) (0.7)
Issuance of share capital 1.2 435.1 - - - 436.3
Repurchase of class A shares - - - - (252.9) (252.9)
Cancellation of share capital (0.8) - 0.8 - - -
Dividend - - - - (58.6) (58.6)
---------------------------------- ----------- ----------- --------------- --------------- ---------- --------
At 31 December 2018 6.8 435.1 1.0 (89.7) 731.8 1,085.0
---------------------------------- ----------- ----------- --------------- --------------- ---------- --------
Nature and Purpose of Group Reserves
Share premium: The balance represents the difference between the price at which shares are issued and
their nominal value, less any distributions made from this account.
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 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 news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BSGDDSBBDGGX
(END) Dow Jones Newswires
February 14, 2020 02:00 ET (07:00 GMT)
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