TIDMHUW
RNS Number : 4351G
Helios Underwriting Plc
30 May 2017
Helios Underwriting plc
("Helios" or the "Company")
Final results for the year ended 31 December 2016
Helios is pleased to announce its final results for the year
ended 31 December 2016
Highlights
-- Gross premium written during the period totalled GBP31.3m (2015: GBP21.5m)
-- Profits before impairment, goodwill and tax for the year of
GBP1,334,000 (2015: GBP753,000) 77% increase in profits
-- Earnings per share of 6.22p (restated 2015: 9.67p)
-- Helios retained capacity for 2017 open underwriting year GBP10.6m (2016: GBP9.8m)
-- 2014 underwriting year of account profit return on capacity
of 15.6% (2013 underwriting year: 14.2%)
-- Net proceeds from the issue of new shares - GBP5.7m
-- Recommended total dividend for this year of 5.5p per share (2015: 5.0p per share)
-- Adjusted net asset value per share - GBP1.96 per share (2015: GBP2.01 per share)
Summary Financial
Information
Year to 31st
December
2016 2015
GBP'000 GBP'000
Underwriting
profits 2,209 2,218
Other Income 904 476
Costs (1,778) (1,941)
--------- ---------
Profit for
the year before
impairment
and goodwill 1,334 753
--------- ---------
Profit before
tax 779 798
--------- ---------
Earnings per
share before
impairment
and goodwill 11.64p 8.00p
Earnings per
share 6.22p 9.67p
For further information please contact:
Helios
Nigel Hanbury - Chief Executive 020 7863 6655 /
nigel.hanbury@huwplc.com
Arthur Manners - Chief Financial Officer 07754 965 917
Stockdale Securities Limited
Robert Finlay 020 7601 6100
David Coaten
Chairman's statement
Positive results
Acquisition strategy continues to build the fund of
capacity.
Summary
-- Adjusted net asset value at GBP1.96 per share (2015: GBP2.01)
-- Three acquisitions in 2016 added GBP5.6m of capacity to 2016 underwriting year - 20% increase
-- Two acquisitions agreed in 2017 will add GBP2.4m of capacity
to 2017 underwriting year - an additional 7% increase
-- 5.5p per share total dividend payable (2015: 5.0p)
We have continued to implement our strategy of building the
portfolio of syndicate capacity.
Your Board is pleased to report a set of encouraging results for
2016 which reflects the continued progress in building the
portfolio of capacity on syndicates at Lloyd's to generate profits
for shareholders. The profits before goodwill and impairment for
the year were GBP1,334,000 (2015: GBP753,000), whilst the adjusted
net asset value of the Group is GBP1.96 per share (2015:
GBP2.01).
Underwriting profits from the two older underwriting years, the
"off-risk" years, made a good contribution but the 2016
underwriting year in its first 12 months recognised a loss.
Other income arising from fees from reinsurers and investment
income has increased this year. Total costs reduced to GBP1.8m as
the expenditure on protecting the portfolio using stop loss
reinsurance was rationalised.
Strategy
We have continued to implement our strategy of building the
portfolio of syndicate capacity. During 2016 the key developments
were the:
-- raising of GBP5.7m of new capital for the acquisition of
further limited liability vehicles ("LLVs") and enabling the
broadening of the shareholder base; and
-- GBP3.9m of the funds raised have been utilised to date.
Capacity acquired
During 2016 a further three corporate members were acquired that
increased the capacity for the 2014 to 2016 years of account, and a
further two corporate members have been bought since 31 December
2016. These companies have increased the capacity underwritten on
the 2014 to 2017 underwriting years as shown below.
Year of account - GBP'm
-----------------------------
2014 2015 2016 2017
----------------------------- ------ ------ ------ -----
Capacity at 1 January 2016 29.2 26.8 28.1 -
Acquired during 2016 6.3 5.4 5.6 -
----------------------------- ------ ------ ------ -----
Capacity at 31 December 2016 35.5 32.2 33.7 32.6
Acquired to date in 2017 - 2.2 2.2 2.4
----------------------------- ------ ------ ------ -----
Current total capacity 35.5 34.4 35.9 35.0
----------------------------- ------ ------ ------ -----
These five acquisitions in 2016 and 2017 to date were purchased
for a total consideration of GBP8.7m, of which GBP3.9m was
committed from the funds raised from shareholders.
Underwriting result
The calendar year underwriting profits for 2016 have been
generated from results recognised in the portfolio from the 2014 to
the 2016 underwriting years as follows:
Underwriting year contribution
Helios retained profits
2016 2015
Underwriting year GBP'000 GBP'000
----------------- -------- --------
2013 - 1,274
2014 1,661 939
2015 1,031 5
2016 (484)
----------------- -------- --------
2,208 2,218
--------------------------- --------
During 2016, the 2014 underwriting year mid--point estimate
increased from 8.7% return on capacity to a final result of 15.6%.
The overall return on capacity for 2014 benefited from the weaker
GBP/US$ exchange rate that weakened by 20% in 2016 and from below
average loss activity. The mid-point estimate for the 2015
underwriting year at 31 December 2016 was 8.2%. This mid-point
estimate for 2015 has improved to 9.8% with the release of updated
estimates.
The level of major claims for the whole of Lloyd's during 2016
at GBP2.1bn was the fifth highest since the turn of the century and
above the long-term average. These losses were incurred mainly as a
result of Hurricane Matthew, the earthquake in Japan in April 2016
and the Fort McMurray Wildfire in Canada.
Consequently, the 2016 underwriting year result in the first 12
months retained by Helios made a negative contribution mainly
arising from this claims experience. The underwriting environment
remains competitive and pressure to reduce underwriting terms and
conditions is prevalent within most classes of business.
Nevertheless, we would expect the 2016 underwriting year to be
profitable and early indications from the managing agents of the
syndicates in the portfolio are currently forecasting a mid-point
estimate of profit on capacity of 3.5%.
The underwriting results will remain exposed to movements in
GBP/US$ exchange rate due to significant underlying US$
exposure.
Other income
Helios generates fees from the quota share reinsurers,
investment income from the Group funds at Lloyd's and foreign
exchange gains.
2016 2015
GBP'000 GBP'000
-------------------------- --------
Fees from reinsurers 557 385
Investment income 347 91
--------------------- --- --------
Total other income 904 476
--------------------- --- --------
Fees and profit commission from reinsurers have increased as the
capital committed has risen to GBP13m and as the 2014/15 years are
recognising increased profits. The Group Funds at Lloyd's are
invested to produce consistent long-term returns.
Total costs
The costs of the Group comprise the operating expenses and the
cost of the stop loss protection bought to mitigate the downside
from large underwriting losses.
2016 2015
GBP'000 GBP'000
----------------------- --------
Pre-acquisition 63 200
Stop loss costs 248 407
Operating costs 1,467 1,334
---------------- ----- --------
Total costs 1,778 1,941
---------------- ----- --------
The reduction in the stop loss costs reflects the
rationalisation of the stop loss reinsurance policies acquired in
2016.
Adjusted net asset value per share
The Board views the adjusted net asset value per share ("ANAV")
as the key metric to measure the success of the Group. It measures
the combination of the net tangible asset value of Helios and the
current market value of the portfolio of syndicate capacity. The
building of a portfolio of participations on leading Lloyd's
syndicates remains the strategic objective of the Group.
2016 2015
GBP'000 GBP'000
------------------------------------------------ --------
Net tangible assets 11,787 7,912
Group letters of credit 1,922 1,447
Weighted average value of capacity 14,918 11,762
---------------------------------------- ------ --------
28,627 21,121
------------------------------------------------ --------
Shares in issue 14,604 10,495
Adjusted net asset value per share (GBP) 1.96 2.01
---------------------------------------- ------ --------
The issue of shares in the year to raise additional funds has
restricted the growth in ANAV per share. Previously the Board
relied on the Humphrey's valuation that approached the valuation in
a very similar way and the ANAV of GBP1.99 per share was published
last year.
Dividend
Following another successful year, the Board is pleased to
recommend that the final dividend remains the same as last year at
1.5p per share which, together with a special dividend of 4.0p per
share (2015: 3.5p), totals 5.5p per share (2015: 5.0p). The special
dividend equates to approximately 20% of the GBP3m cash released
from the 2014 year of account. These dividends will be payable to
shareholders on the register on 9 June 2017. If approved, the
dividend will be paid in a single payment on 7 July 2017.
Year ended 31 December
--------------- ------------------------------------------- -------
2016 2015 2014 Final Special Change
dividend dividend
--------------- ----- ----- ----- ---------- ---------- -------
2016: 2016:
Dividends (p) 5.5 5.0 5.1 1.5 4.0 +10%
2015: 2015:
1.5 3.5
2014: 2014:
1.5 3.6
--------------- ----- ----- ----- ---------- ---------- -------
Outlook
Our strategy of providing access to insurance exposures at
Lloyd's continues to develop. We see opportunities to both develop
access to syndicates at Lloyd's and to build on the structure for
participation by private capital.
Although the 2015 underwriting year is expected to produce a
good result, early indications for the 2016 underwriting year show
lower returns on capacity. We see lower expected profitability as
an opportunity to continue to build the portfolio of capacity by
purchasing LLUs at reduced prices.
Board
This is my final set of annual results as Chairman, and in the
years since we launched the Company in 2007 we have substantially
grown the portfolio of capacity and our financial strength. I am
delighted that Michael Cunningham is taking over the role of
Chairman.
Sir Michael Oliver
Non-executive Chairman
27 May 2017
Chief Executive's review
Continuing to grow
Maintaining the quality of the portfolio.
Highlights
-- 77% of the portfolio managed by leading managing agents at Lloyd's
-- Helios portfolio underwriting results for 2014 underwriting
year outperform Lloyd's average return on capacity by 4.7%
-- Helios cedes 70% of portfolio at the start of the underwriting year
-- Helios expects to retain over 50% of overall underwriting
result by the close of the underwriting year
Helios return on capacity is on average 3.6% higher than the
Lloyd's market over the last three closed years.
Nigel Hanbury
Chief Executive
Growth in capacity through acquisitions
The strategy of building a portfolio of underwriting capacity at
Lloyd's has continued through the purchase of further corporate
members. There remains a steady flow of vehicles for sale as
existing owners wish to cease underwriting due to a change of
circumstances. Since 1 January 2016 GBP7.9m of capacity has been
acquired. We remain selective on the purchases and have encountered
reticence from potential vendors as the prices offered do not match
their expectations. Premiums over the Humphrey's value are no
longer paid and as the soft market conditions are reflected in the
profits generated and auction values, we would expect discounts on
the Humphrey's value to increase.
Following the close of 2014 year of account, another very
profitable year, further vehicles are expected to be marketed as
the impact of the soft insurance market affects the future returns
to be generated by LLVs. We continue to expect resistance from
vendors regarding our value expectations. There remains a risk to
the implementation of our strategy if suitable vehicles are not
available at attractive prices.
Summary of acquisitions
--------------------------- -------------------------------------------------
Humphrey Premium
Cash Consideration Capacity value over
GBPm GBPm GBPm Humphrey
--------------------------- ------------------ -------- -------- ---------
Devon Underwriting Limited 1.1 1.2 1.0 115%
Nameco (No 346) Limited 3.7 3.3 3.4 109%
Pre-capital raise 4.8 4.5
Salviscount LLP 0.8 1.0 0.8 101%
Pooks Limited 0.9 0.8 0.9 98%
Charmac Underwriting 2.2 1.6 2.3 96%
--------------------------- ------------------ -------- -------- ---------
Post-capital raise 3.9 3.4
--------------------------- ------------------ -------- -------------------
Total since 1 January 2016 8.7 7.9
--------------------------- ------------------ -------- -------------------
Quality of portfolio
We continue to focus ruthlessly on the quality syndicates. So,
participations on weaker syndicates in acquired portfolios are sold
to maintain the overall quality. The six largest participations
with the leading managing agents at Lloyd's account for 77% of the
portfolio. These participations in syndicates managed by these
managing agents represent shares in the better managed businesses
at Lloyd's.
The underwriting results of the Helios portfolio have
consistently outperformed the Lloyd's market average. Helios'
average return on capacity over the last three closed years is
14.3% and is on average 3.69% higher than the average of the
Lloyd's market.
The combined ratio of the portfolio (before Helios corporate
costs) has been 5.79% lower on average over the last three calendar
years. These incremental returns demonstrate the diversity and the
breadth of underwriting expertise within the businesses comprising
the portfolio of syndicate capacity.
Helios current portfolio
Top six holdings by managing agent
2017 Helios 2017
portfolio Helios
capacity portfolio
Syndicate Managing agent GBP'000 % of total Largest class
--------- -------------------------------- ----------- ----------- -----------------------
510/557 Tokio Marine Kiln Syndicates Ltd 6,400 18 Composite/Non-marine XL
623/6107 Beazley Furlonge Ltd 5,695 16 Composite/Reinsurance
2791/6103 Managing Agency Partners Ltd 4,456 13 Composite/Reinsurance
33/6104 Hiscox Syndicates Ltd 4,457 13 Composite/Reinsurance
609 Atrium Underwriters Ltd 3,395 10 Composite
6117 Argo Managing Agency 2,628 7 Reinsurance
--------- -------------------------------- ----------- ----------- -----------------------
Sub-total 27,031 77
------------------------------------------- ----------- ----------- -----------------------
Other 8,010 23
------------------------------------------- ----------- ----------- -----------------------
Total 2017 Helios portfolio 35,041 100
------------------------------------------- ----------- ----------- -----------------------
Source: 2017 syndicate capacities sourced from Lloyd's.
Reinsurance quota share
The use of quota share reinsurance to provide access to the
Lloyd's underwriting exposures for reinsurers and private capital
has been expanded. The core of the panel of reinsurers remains XL
Group plc and Everest Reinsurance Bermuda Limited.
This reinsurance reduces the exposure of the portfolio and
assists in the financing of the underwriting capital. Helios will
seek to reinsure a significant proportion of the capacity at the
start of the underwriting year to mitigate the open-year
underwriting exposures. For corporate members acquired during the
year, a proportion of the "on-risk" capacity will be ceded to
reinsurers whilst the capacity on older years will be retained 100%
by Helios. Therefore, the proportion of the overall capacity that
Helios retains is expected to rise as further corporate members are
acquired in the future. The profits earned after the company has
been acquired will be recognised by Helios.
The table shows that the Helios retained capacity increases
significantly in years 2 and 3 as further corporate members are
acquired and the older years are not reinsured. Capacity on
underwriting years after 18 months of development is substantially
"off risk" as the underlying insurance contracts have mostly
expired. Therefore, the profits from the capacity on the older
years are retained 100% by Helios. The proportion of overall
capacity retained by Helios for the 2015 and 2016 underwriting
years is expected to increase to approximately 50% as further
corporate members are acquired.
Year of account - GBPm
----------------------------------- ----------------------------
2014 2015 2016 2017
----------------------------------- ------ ------ ----- -----
Helios capacity at outset 5.4 6.1 8.4 9.8
Retained capacity in year 1 2.5 4.6 2.4 0.7
Retained capacity in years 2 and 3 12.7 7.2 1.9 -
----------------------------------- ------ ------ ----- -----
Helios retained capacity 20.6 17.9 12.7 10.5
----------------------------------- ------ ------ ----- -----
% of off-risk capacity 62% 31% 15% -
----------------------------------- ------ ------ ----- -----
Ceded capacity at outset 12.7 14.3 19.7 22.8
Further capacity ceded to QS 2.2 2.2 3.5 1.7
----------------------------------- ------ ------ ----- -----
Total capacity ceded 14.9 16.5 23.2 24.5
----------------------------------- ------ ------ ----- -----
Current total capacity 35.5 34.4 35.9 35.0
----------------------------------- ------ ------ ----- -----
Helios share of total capacity 58% 52% 35% 30%
----------------------------------- ------ ------ ----- -----
Development of profit estimates
As Helios has no active involvement in the underwriting or
management of the syndicates on which it participates, it relies on
information on forecast profitability of the portfolio that is
released on a quarterly basis by the managing agents of the
syndicates. The managing agents have traditionally been
conservative in the estimation of the profitability of a year of
account, waiting until the development of the underlying reserves
for the claims can be assessed with greater certainty.
The capacity acquired on the "off-risk" years that is retained
100% by Helios contributes a significant part of the profits of the
Group. The chart below indicates that a significant proportion of
the improvement in the estimates of profitability of syndicates are
declared by the managing agents in the last 12 months to the close
of an underwriting year. Helios benefits from the conservative
nature of the managing agents.
Risk management
Helios continues to ensure that the portfolio is well
diversified across classes of businesses and managing agents at
Lloyd's.
The purchase of quota share reinsurance cedes 70% of the risk on
the younger or "on-risk" years, which have remained consistent for
the last three years. The market conditions continue to soften even
as the incidence of insured natural disasters and large loss events
have been above normal expectations in 2016. This has allowed the
insurance industry to generate adequate returns on capital and
thereby attract new capital to the industry.
There is today a strong consensus in the insurance industry that
the continued pressure on rates will have to slow shortly. It might
take a catastrophe, or series of catastrophes, on a very large
scale to materially turn the market for short--tail lines of
business. The high aggregation of coastal exposures in the US and
other developed markets is one reason why such massive dislocations
cannot be ruled out.
The biggest single risk faced by insurers arises from the
possibility of mispricing insurance on a large scale. This is
mitigated by the diversification of the syndicate portfolio and by
the depth of management experience within the syndicates that
Helios supports. These management teams have weathered multiple
market cycles and the risk management skills employed should reduce
the possibility of substantial under-reserving of previous-year
underwriting.
We assess the downside risk in the event of a major loss through
the monitoring of the aggregate net losses estimated by managing
agents to the catastrophe risk scenarios ("CRS") prescribed by
Lloyd's.
The individual syndicate net exposures will depend on the
business underwritten during the year and the reinsurance
protections purchased at syndicate level.
The aggregate exceedance probability ("AEPs") assess the
potential impact across the portfolio from either single or
multiple large losses with a probability of occurring greater than
once in a 30-year period.
In addition, Helios buys stop loss reinsurance that will
mitigate the impact of a significant loss to the portfolio.
For 2017, the scope of the stop loss cover has been rationalised
and terms have been included which will assist in funding a large
loss.
Capacity value
The value of the portfolio of the syndicate capacity remains the
major asset of the Group and an important factor in delivering
overall returns to shareholders. The adjusted net asset value
("ANAV"), being the value of the net tangible assets of the Group,
together with the current value of the portfolio capacity, is a key
management metric in determining growth in value to
shareholders.
The Board recognises that the average prices derived from the
annual capacity auctions managed by the Corporation at Lloyd's
could be subject to material change if the level of demand for
syndicate capacity reduces. Notwithstanding the average prices
derived from the auction process, each of the syndicates will have
a track record of trading profitability and generating cash.
The 2016 auctions valued the Helios portfolio at 31 December
2016 at GBP14.9m. Applying the 2015 auction average prices to the
same portfolio, the overall value was very similar at GBP14.9m.
There were variations in the prices achieved by individual
syndicates between the years.
The accounting policy requires an assessment of the carrying
value of each syndicate participation against the latest average
auction prices. The impairment charge for this year of GBP555,000
(2015: GBP63,000) results in a reduction in the fair value of the
syndicate capacity held on the balance sheet. The two syndicates
that mainly contributed to this impairment charge were Syndicate
2010 (Cathedral) and Syndicate 386 (QBE Liability). The excess
supply of capacity over demand for these participations at the last
auction, the Board believes, was due to circumstances peculiar to
each syndicate. Should the average auction prices for these two
syndicates exceed the current carrying value in the future; the
impairment charge could be reversed.
These movements in the carrying value of capacity have no impact
on cash flow.
For calculation of the ANAV, the carrying value of the capacity
in the balance sheet is replaced by the total current portfolio
value. Therefore, this impairment charge does not impact the ANAV
of the Group.
Capital position
The underwriting capital for the Helios portfolio is supplied as
follows:
2016 2015
Underwriting capital as at 31 December GBPm GBPm
--------------------------------------- ----- -----
Reinsurance panel 13.6 10.8
Helios own funds 4.1 3.9
Group letters of credit 1.9 1.4
--------------------------------------- ----- -----
Total 19.6 16.1
--------------------------------------- ----- -----
Helios has generated free cash of GBP3m in 2016 (2015: GBP1.8m)
from the distribution of its share of the final underwriting
profits of the 2014 underwriting year. These profits have assisted
in funding the recent acquisitions and will provide working capital
for the next 12 months.
Corporate, social and environmental responsibility
Helios aims to meet its expectations of its shareholders and
other stakeholders in recognising, measuring and managing the
impacts of its business activities.
As Helios manages a portfolio of Lloyd's syndicate capacity, it
has no direct responsibility for the management of those
businesses. Each managing agent has responsibility for the
management of those businesses, their staff and employment policies
and the environmental impact.
Therefore, the Board does not consider it appropriate to monitor
or report any performance indicators in relation to corporate,
social or environmental matters.
Sir Michael Oliver has been our Chairman since the Company was
created in 2007. Sadly he has decided that it is time to stand down
at this year's AGM in June. His experience and wise counsel was
invaluable when the Company was launched as a new spread
underwriting vehicle and has continued to be through all stages of
its development. I would like to take this opportunity to extend
our heartfelt gratitude to him and wish him well for the
future.
Nigel Hanbury
Chief Executive
26 May 2017
Lloyd's Advisers' report - Hampden Agencies
Outperformance by syndicates continues to be expected
Market conditions remain competitive despite early signs of
capacity withdrawals from some lines of business.
The underwriting results of the Helios portfolio of syndicates
have consistently outperformed the Lloyd's market average both on
an annually accounted basis measured by combined ratio and on a
three-year account basis, measured by return on underwriting
capacity.
The calendar year combined ratio of the portfolio (before Helios
corporate costs) was 94.6% in 2016 (2015: 83.4%). The Helios
portfolio continues to outperform the Lloyd's combined ratio, which
was 97.9% in 2016. The increase in the calendar year combined ratio
was driven in large part by a series of major losses. These losses
included Hurricane Matthew and wildfires at Fort McMurray in
Canada. Despite the major losses suffered during 2016, the 2016
three-year account is expected to remain profitable, although
property reinsurance remains on risk until 30 June 2017, while
other classes of business can be on risk until 31 December
2017.
Over the last three calendar years, the average combined ratio
of the Helios portfolio was 86.4%, outperforming Lloyd's by 5.7
percentage points a year. These incremental returns compared with
the Lloyd's market average demonstrate the quality of the
syndicates in the Helios portfolio. The chart below shows the
combined ratio of the Helios portfolio compared with Lloyd's for
the last three calendar years from 2014 to 2016.
With the closure of the 2014 account at 31 December 2016 the
Helios portfolio has outperformed Lloyd's for the sixth successive
three-year account result, reporting a profit of 15.6% on capacity
compared with the Lloyd's market average of 10.9% of capacity, an
outperformance of 4.7% of capacity. The chart below shows the
return on capacity of the Helios portfolio compared with Lloyd's
for the last two closed years from 2013 to 2014 and includes the
mid-point estimated results for the 2015 account at Q8.
Underwriting profitability is set to continue for the 2015
account with the mid-point estimate for the Helios portfolio at Q8
in 2015 being 8.1% of capacity compared with the Lloyd's market
average of 3.8% of capacity.
Global insured major losses, according to Swiss Re Sigma, were
the highest since 2012 at $54bn in 2016, up from $38bn in 2015 and
in line with the inflation adjusted annual average for the last ten
years of $53bn a year.
The largest insured loss in 2016 was the earthquake in Japan in
April, with claims of $4.9bn. The second costliest event was
Hurricane Matthew, which resulted in insured losses of $4bn in the
US and the Caribbean. Hurricane Matthew, made landfall in Haiti as
a Category 4 storm on 4 October 2016, before following the US
coastline for hundreds of miles until it made landfall again in
South Carolina on 8 October 2016 after causing storm surge, wind
and flood damage, beach erosion and infrastructure damage in
Florida through to North Carolina.
Hurricane Matthew was a reminder of the potential insurance and
reinsurance exposures from a major hurricane. Research by insurance
company Validus calculated that had Matthew tracked just 30 miles
to the west the insured loss could have been nearly ten times
greater than the actual loss at $38bn, while Lloyd's itself models
a Florida windstorm landing in Miami-Dade County with total insured
losses of $131bn. Insured losses of either magnitude would likely
have had a significant impact on catastrophe reinsurance rates.
Financial year results for 2016 reported by Lloyd's and its
competitors highlight the challenge in an average year for major
losses of producing an underwriting profit with limited support
from investment yields and declining prior year releases.
The insurance market in 2017
Market conditions remain the most competitive in Lloyd's since
the late 1990s when Lloyd's reported four consecutive years of
underwriting losses on a three-year account basis. So far in 2017,
the trend of rate reductions has continued in most classes of
business other than motor. There are signs that the level of rate
reductions is beginning to moderate both in insurance and
reinsurance classes, prompted in some cases by withdrawals of
capacity.
For 2017, Hampden has a target profit, excluding prior year loss
reserve development, of 0% to 5% of capacity assuming a long-term
average for catastrophe losses. Pure year profitability is becoming
increasingly dependent on major loss experience. The balance of
power continues to shift from net sellers of reinsurance to net
buyers of reinsurance, with the traditional reinsurance market
facing increasing competition from alternative capital. Guy
Carpenter calculates that alternative capital's market share of
global reinsurance capital has grown from 8% in 2008 to 19% in
2016.
The return expectations from many alternative capital investors
are modest. In a 2016 survey, Clear Path Analysis spoke to 108
institutional asset managers in Europe and the United States asking
what returns they looked for in Insurance Linked Securities. The
most frequent target return expected by over 30% of those surveyed
was in the range of 3% to 5%. Despite these modest return
expectations institutional investors continue to be attracted by
the low correlation of insurance returns to other financial
assets.
Syndicates in the Helios portfolio are adapting to current
market conditions by buying more reinsurance or retrocession
protection. The reinsurance cession ratio of the Helios portfolio
increased from 17.9% in 2015 to 20.2% in 2016. Part of the reason
for this increase was due to portfolio composition - on a
like-for-like basis the increase in the reinsurance cession ratio
was from 17.6% to 18.9%.
"Investment returns no longer provide a cushion to sub par
underwriting."
The rating environment
Property catastrophe reinsurance rates at 1 January 2017 have
now declined for five years in succession. Guy Carpenter's Global
Rate on Line Index reduced by 3.7% at 1 January 2017, compared with
reductions of 8.8% a year earlier.
Property and casualty insurance rates in the United States began
to decline during the first quarter of 2015. Rates have continued
to reduce for nine successive quarters with the Council of
Insurance Agents and Brokers reporting rate reductions averaging
2.5% in Q1 2017, although the quantum of rate reductions is showing
signs of moderating from reductions reported of 3.3% in Q4
2016.
The economy drives the property casualty insurance industry with
net written premiums, a proxy for demand, tracking nominal GDP
fairly well other than in "hard markets". For the full year 2016,
US nominal GDP grew by 2.9%, down from 3.7% in 2015. Net written
premium growth for all property/casualty insurers in the US was
2.8% for the first three quarters of 2016. Since the recession
ended in Q2 2009 the economic recovery measured by real GDP growth
has been muted compared with previous post-recession recoveries,
only growing faster than 3% (at an annual rate) in a calendar
quarter eight times out of 31 quarters and once in the last
ten.
Supply of capital at all-time highs
Good underwriting results continue to attract capital to both
the insurance industry and, in particular, the reinsurance industry
searching for yield. Much of this is "alternative capital" and
focused on reinsurance business through short-term structures such
as catastrophe bonds and collateralised reinsurance. During 2016
global reinsurer capital again reached a record high, according to
Aon Benfield, of $595bn, increasing by 5% at the 2015 year end.
Alternative capital grew by 13% to $81bn principally reflecting
additional deployment into collateralised reinsurance
structure.
The insurance cycle is a classic supply-led cycle where pricing
is driven more by changes in the supply of capital to the market
than changes in demand for insurance and reinsurance. The growth in
alternative capital has had a dramatic impact on pricing with Guy
Carpenter assessing rate decreases on reinsurance cover bought
through insurance-linked securities as high as 30% in the fourth
quarter of 2016, which compares with much more modest rate
reductions for global reinsurance at 1 January 2017 of 3.7%.
Global reinsurance capital has increased by 75% since 2008 while
insurance capital measured by the United States property and
casualty policyholders' surplus also reached a record high at the
end of 2016 of $701bn, an increase of 54% on 2008.
In current market conditions profit-orientated organic growth is
difficult and is the reason why many listed companies favour
capital management with excess capital being repaid to shareholders
through share buy-backs or special dividends. Capital repatriation
is a reflection of underwriting discipline with Beazley, Lancashire
and Hiscox ranked in the top four for capital repatriation out of
23 major reinsurers in the Aon Benfield Aggregate Report for 2016
measured by dividends and share buy-backs as a percentage of
opening equity. It is no coincidence that syndicates managed by
Beazley (Syndicate 623), Hiscox (Syndicate 33) and Lancashire
(Syndicate 2010) comprise in total 27.5% of the Helios syndicate
portfolio for 2017.
The investment environment
Declining bond yields in 2016 boosted investment returns with
the US ten-year treasury yield declining from 2.2% on average in
2015 to 1.8% in 2016. The yield on the US ten-year treasury has
been below 3% for over five years. As long as new money yields are
below the embedded yield (purchase price) of maturing bonds,
portfolio yields of insurers will continue to fall, putting upward
pressure on premium rates. Research from the Insurance Information
Institute suggests that US insurers at year-end 2016 were earning a
pre-tax new money yield of 1.6% compared with a pre-tax embedded
yield of 3.0% using the US-five year treasury note as a proxy for
new money yield.
The importance of conservative reserving
Bottom-line results in the current rating environment continue
to be reliant on conservative reserving, given Hampden's modest
forecast for pure year underwriting return on the 2017 account in a
range of 0% to 5% of capacity. We consider the Helios portfolio of
syndicates to be conservatively reserved overall with the last
three-year account closed result for 2014 including a prior release
of 4.0% of capacity from the 2013 and prior years. Going forward,
however, we see some moderation of reserve releases given that the
"hard market" years of 2002-2006 reserves on liability business
have now largely been distributed whilst market conditions have
been more competitive since 2007.
A continued focus on quality
Our focus in this market is to focus syndicate portfolios on
quality syndicates with key success characteristics, being
conservative reserving and a focus on profit rather than
growth.
The Helios portfolio for 2017 continues to provide a good spread
of business across managing agents and classes of business. The two
largest classes of business remain reinsurance at 26.0% (2016:
28.6%) and US dollar property insurance at 16.9% (2016: 17.7%)
shown in the first "doughnut" chart below.
The measure of quality assessed by Hampden is the grading we
assign each year to syndicates. Syndicates graded "D" are not
recommended for support while the four positive gradings range from
"AA" (excellent), "A" (very good), "B" (good), "C" (market
average).
Helios continues to focus its portfolio on the quality
syndicates which have traditionally outperformed the Lloyd's market
result to a greater degree in "soft market" conditions compared
with "hard market" conditions. The Helios portfolio split by
Hampden grading for 2017 contains 56% (2016: 55.6%) underwriting
capacity in syndicates graded "AA" and "A" by Hampden, as shown in
the second "doughnut" chart below.
Hampden Agencies
26 May 2017
Summary financial information
The information set out below is a summary of the key items that
the Board assesses in estimating the financial position of the
Group. Given the Board has no active role in the management of the
syndicates within the portfolio, the following approach is
taken.
A) It relies on the quarterly syndicate forecasts to assess its
share of the underlying profitability of the syndicates within the
portfolio.
B) It calculates the amounts due to/from the quota share
reinsurers in respect of their share of the profits/losses as well
as fees and commissions due.
C) An adjustment is made to exclude pre-acquisition profits on
companies bought in the year.
D) Costs relating to stop loss reinsurance and operating costs
are deducted.
Year to 31
December
------------------------------------------------ ------------------
2016 2015
GBP'000 GBP'000
------------------------------------------------ -------- --------
Underwriting profit 2,208 2,218
Other Income:
- fees from reinsurers 557 385
- investment income 347 91
------------------------------------------------ -------- --------
Total other income 904 476
Costs:
- pre-acquisition (63) (200)
- stop loss costs (248) (407)
- operating costs (1,467) (1,334)
------------------------------------------------ -------- --------
Total costs (1,778) (1,941)
Operating profit before goodwill and impairment 1,334 753
Goodwill on bargain purchase - 244
Impairment charge (555) (199)
Tax (66) 112
------------------------------------------------ -------- --------
Profit for the year 713 910
------------------------------------------------ -------- --------
Year to 31 December 2016
Helios
retained
capacity Total % earned
at profit in the
31 December Portfolio currently 2016 Helios
2016 mid-point estimated calendar profits
Underwriting year GBPm forecasts GBP'000 year GBP'000
------------------ ------------ ---------- ---------- --------- --------
2014 20.6 15.5% 3,193 52% 1,661
2015 16.1 8.2% 1,314 79% 1,031
2016 10.8 N/A (484)
------------------ ------------ ---------- -------------------------------
2,208
-----------------------------------------------------------------------------
Year to 31 December 2015
Helios
retained
capacity Total % earned
at profit in the
31 December Portfolio currently 2015 Helios
2015 mid-point estimated calendar profits
Underwriting year GBPm forecasts GBP'000 year GBP'000
------------------ ------------ ---------- ---------- --------- --------
2013 20.6 14.2% 2,925 44% 1,274
2014 14.3 8.9% 1,273 74% 939
2015 10.6 N/A 5
------------------ ------------ ---------- -------------------------------
2,218
-----------------------------------------------------------------------------
Summary balance sheet
See Note 26 for further information.
2016 2015
GBP'000 GBP'000
----------------------- -------- --------
Intangible assets 10,732 8,511
Funds at Lloyd's 4,083 3,894
Other cash 7,229 2,973
Other assets 3,480 1,231
----------------------- -------- --------
Total assets 25,524 16,609
----------------------- -------- --------
Deferred tax 3,581 3,172
Other liabilities 4,618 3,163
----------------------- -------- --------
Total liabilities 8,199 6,335
----------------------- -------- --------
Total syndicate equity 5,194 6,149
----------------------- -------- --------
Total equity 22,519 16,423
----------------------- -------- --------
Cash flow
Helios has generated GBP3.4m of cash in 2016 from the
distribution of the profits from the 2013 underwriting year.
Year Year
to to
31 December 31 December
2016 2015
Analysis of free working capital GBP'000 GBP'000
------------------------------------------------ ------------ ------------
Opening balance (free cash) 2,973 2,704
Income
Cash acquired on acquisition 413 977
Distribution of profits (net of tax retentions) 3,378 2,510
Transfers from Funds at Lloyd's 3,775 1,167
Other income 271 437
Proceeds from the issue of shares 5,722 -
Transfers from PTF accounts (early release) - 221
Expenditure
Operating costs (815) (775)
Reinsurance cost (237) (275)
Payments to QS reinsurers (741) -
Acquisition of LLVs (5,592) (2,316)
Transfers to Funds at Lloyd's (1,524) (1,351)
Tax (95) (5)
Dividends paid (299) (321)
------------------------------------------------ ------------ ------------
Closing balance 7,229 2,973
------------------------------------------------ ------------ ------------
Consolidated statement of comprehensive income
- Year ended 31 December 2016
Restated*
Year ended year ended
31 December 31 December
2016 2015
Note GBP'000 GBP'000
------------------------------------------------------------------------------- ------------ ------------
Gross premium written 6 31,307 21,511
Reinsurance premium ceded 6 (7,772) (5,582)
----------------------------------------------------------------------- ------ ------------ ------------
Net premium written 6 23,535 15,929
----------------------------------------------------------------------- ------ ------------ ------------
Change in unearned gross premium provision 7 (826) (162)
Change in unearned reinsurance premium provision 7 199 93
----------------------------------------------------------------------- ------ ------------ ------------
Net change in unearned premium provision 7 (627) (69)
----------------------------------------------------------------------- ------ ------------ ------------
Net earned premium 5,6 22,908 15,860
Net investment income 8 885 255
Other income 2,134 536
------------------------------------------------------------------------------- ------------ ------------
Revenue 25,927 16,651
------------------------------------------------------------------------------- ------------ ------------
Gross claims paid (13,355) (9,349)
Reinsurers' share of gross claims paid 2,472 1,650
------------------------------------------------------------------------------- ------------ ------------
Claims paid, net of reinsurance (10,883) (7,699)
------------------------------------------------------------------------------- ------------ ------------
Change in provision for gross claims 7 (3,826) 615
Reinsurers' share of change in provision for gross claims 7 1,904 (431)
----------------------------------------------------------------------- ------ ------------ ------------
Net change in provision for claims 7 (1,922) 184
----------------------------------------------------------------------- ------ ------------ ------------
Net insurance claims incurred and loss adjustment expenses 6 (12,805) (7,515)
----------------------------------------------------------------------- ------ ------------ ------------
Expenses incurred in insurance activities (10,819) (7,571)
Other operating expenses (969) (812)
------------------------------------------------------------------------------- ------------ ------------
Operating expenses 9 (11,788) (8,383)
----------------------------------------------------------------------- ------ ------------ ------------
Operating profit before goodwill and impairment 6 1,334 753
Goodwill on bargain purchase 21 - 244
Impairment of goodwill 13,21 - (136)
Impairment of syndicate capacity 13 (555) (63)
----------------------------------------------------------------------- ------ ------------ ------------
Profit before tax 779 798
Income tax (charge)/credit 10 (66) 112
----------------------------------------------------------------------- ------ ------------ ------------
Profit for the year 713 910
------------------------------------------------------------------------------- ------------ ------------
Other comprehensive income
Foreign currency translation differences - -
Income tax relating to the components of other comprehensive income - -
------------------------------------------------------------------------------- ------------ ------------
Other comprehensive income for the year, net of tax - -
------------------------------------------------------------------------------- ------------ ------------
Total comprehensive income for the year 713 910
------------------------------------------------------------------------------- ------------ ------------
Profit for the year attributable to owners of the Parent 713 910
------------------------------------------------------------------------------- ------------ ------------
Total comprehensive income for the year attributable to owners of the Parent 713 910
------------------------------------------------------------------------------- ------------ ------------
Earnings per share attributable to owners of the Parent
Basic and diluted 11 6.22p 9.67p
----------------------------------------------------------------------- ------ ------------ ------------
* Refer to Note 27 for details regarding the restatement of the
profit for the year 2015 as a result of a reclassification.
The profit attributable to owners of the Parent, the total
comprehensive income and earnings per share set out above are in
respect of continuing operations.
The notes are an integral part of these Financial
Statements.
Consolidated statement of financial position
- At 31 December 2016
Restated*
31 December 31 December
2016 2015
Note GBP'000 GBP'000
----------------------------------------------------------------------- ----------- ------------
Assets
Intangible assets 13 10,732 8,511
Financial assets at fair value through profit or loss 15 45,580 31,797
Reinsurance assets:
- reinsurers' share of claims outstanding 7 9,674 5,657
- reinsurers' share of unearned premium 7 2,548 1,501
Other receivables, including insurance and reinsurance receivables 16 30,243 20,427
Deferred acquisition costs 17 4,255 2,926
Prepayments and accrued income 187 144
Cash and cash equivalents 6,212 3,634
----------------------------------------------------------------------- ----------- ------------
Total assets 109,431 74,597
----------------------------------------------------------------------- ----------- ------------
Liabilities
Insurance liabilities:
- claims outstanding 7 50,087 32,985
- unearned premium 7 16,821 11,169
Deferred income tax liabilities 18 3,581 3,172
Other payables, including insurance and reinsurance payables 19 14,708 9,360
Accruals and deferred income 1,715 1,488
----------------------------------------------------------------------- ----------- ------------
Total liabilities 86,912 58,174
----------------------------------------------------------------------- ----------- ------------
Equity
Equity attributable to owners of the Parent:
Share capital 20 1,460 1,050
Share premium 20 15,399 9,901
Other reserves - -
Retained earnings 5,660 5,472
----------------------------------------------------------------------- ----------- ------------
Total equity 22,519 16,423
----------------------------------------------------------------------- ----------- ------------
Total liabilities and equity 109,431 74,597
----------------------------------------------------------------------- ----------- ------------
* Refer to Note 27 for details regarding the restatement of the
profit for the year 2015 and the other reserves, as a result of a
reclassification.
The Financial Statements were approved and authorised for issue
by the Board of Directors on 26 May 2017, and were signed on its
behalf by:
Nigel Hanbury
Chief Executive
The notes are an integral part of these Financial
Statements.
Consolidated statement of changes in equity
- Year ended 31 December 2016
Attributable to owners of the Parent
----------------------------------------------------------- ---- ---------------------------------------------------
Share Share Other Retained Total
capital premium reserves earnings equity
Consolidated Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------------------- ---- -------- --------- --------- --------- --------
At 1 January 2015 as originally reported 22 853 6,996 - 2,636 10,485
Effect of change in accounting policy (see note (i) below) 22 - - - 2,383 2,383
----------------------------------------------------------- ---- -------- --------- --------- --------- --------
At 1 January 2015 as restated 22 853 6,996 - 5,019 12,868
----------------------------------------------------------- ---- -------- --------- --------- --------- --------
Total comprehensive income for the year:
Profit for the year - as restated (see note (ii) below) - - - 910 910
Other comprehensive income, net of tax - as restated - - - - -
----------------------------------------------------------------- -------- --------- --------- --------- --------
Total comprehensive income for the year - - - 910 910
----------------------------------------------------------------- -------- --------- --------- --------- --------
Transactions with owners:
Dividends paid 12 - - - (457) (457)
Share issue 20 197 2,905 - - 3,102
----------------------------------------------------------- ---- -------- --------- --------- --------- --------
Total transactions with owners 197 2,905 - (457) 2,645
----------------------------------------------------------------- -------- --------- --------- --------- --------
At 31 December 2015 - as restated 1,050 9,901 - 5,472 16,423
----------------------------------------------------------------- -------- --------- --------- --------- --------
At 1 January 2016 as originally reported 1,050 9,901 121 5,351 16,423
Effect of reclassification (see note (ii) below) - - (121) 121 -
----------------------------------------------------------------- -------- --------- --------- --------- --------
At 1 January 2016 as restated 1,050 9,901 - 5,472 16,423
----------------------------------------------------------------- -------- --------- --------- --------- --------
Total comprehensive income for the year:
Profit for the year - - - 713 713
Other comprehensive income, net of tax - - - - -
----------------------------------------------------------------- -------- --------- --------- --------- --------
Total comprehensive income for the year - - - 713 713
----------------------------------------------------------------- -------- --------- --------- --------- --------
Transactions with owners:
Dividends paid 12 - - - (525) (525)
Share issue, net of transaction costs 20 410 5,498 - - 5,908
----------------------------------------------------------- ---- -------- --------- --------- --------- --------
Total transactions with owners 410 5,498 - (525) 5,383
At 31 December 2016 1,460 15,399 - 5,660 22,519
----------------------------------------------------------------- -------- --------- --------- --------- --------
(i) The retained earnings as at 1 January 2015 have been
restated to reflect the effects of the change in the Group's
accounting policy in accounting for intangible asset, syndicate
capacity (refer to Note 22).
(ii) The profit for the year 2015, the other comprehensive
income 2015 and the retained earnings as at 31 December 2015 have
been restated to reflect the effects of the reclassification of
foreign exchanges gains and losses, which were originally
recognised within the other comprehensive income, to be
reclassified and recognised in the underwriting profits in the
income statement (refer to Note 27).
The notes are an integral part of these Financial
Statements.
Consolidated statement of cash flows
- Year ended 31 December 2016
Restated*
Year ended Year ended
31 December 31 December
2016 2015
Note GBP'000 GBP'000
----------------------------------------------------------------------------------------- ------------ ------------
Cash flows from operating activities
Profit before tax 779 798
Adjustments for:
- interest received 8 (113) (60)
- investment income 8 (594) (926)
- goodwill on bargain purchase 21 - (244)
- impairment of goodwill 21 - 136
- profit on sale of intangible assets (94) (120)
- impairment of intangible assets 13 555 63
Changes in working capital:
- change in fair value of financial assets held at fair value through profit or loss 8 (256) 360
- (increase)/decrease in financial assets at fair value through profit or loss (6,825) 1,020
- (increase)/decrease in other receivables (3,848) 709
- increase in other payables 3,090 11
- net increase/(decrease) in technical provisions 8,361 (50)
----------------------------------------------------------------------------------------- ------------ ------------
Cash generated from operations 1,055 1,697
----------------------------------------------------------------------------------------- ------------ ------------
Income tax paid (15) 166
----------------------------------------------------------------------------------------- ------------ ------------
Net cash inflow from operating activities 1,040 1,863
----------------------------------------------------------------------------------------- ------------ ------------
Cash flows from investing activities
Interest received 113 60
Investment income 594 926
Purchase of intangible assets 13 (6) (2)
Proceeds from disposal of intangible assets 137 24
Acquisition of subsidiaries, net of cash acquired (4,723) (2,521)
----------------------------------------------------------------------------------------- ------------ ------------
Net cash outflow from investing activities (3,885) (1,513)
----------------------------------------------------------------------------------------- ------------ ------------
Cash flows from financing activities
Net proceeds from issue of ordinary share capital (i) 5,722 -
Dividends paid to owners of the Parent 12 (299) (321)
------------------------------------------------------------------------------------- ------------ ------------
Net cash inflow/(outflow) from financing activities 5,423 (321)
----------------------------------------------------------------------------------------- ------------ ------------
Net increase in cash and cash equivalents 2,578 29
Cash and cash equivalents at beginning of year 3,634 3,605
----------------------------------------------------------------------------------------- ------------ ------------
Cash and cash equivalents at end of year 6,212 3,634
----------------------------------------------------------------------------------------- ------------ ------------
* Refer to Note 27 for details regarding the restatement of the
profit for the year as a result of a reclassification.
(i) Net proceeds from issue of ordinary share capital excludes
shares issued via a script dividend of GBP226,000 and accrued
expenses incurred of GBP40,000.
Cash held within the syndicates' accounts is GBP2,163,000 (2015:
GBP1,411,000) of the total cash and cash equivalents held at the
year end of GBP6,212,000 (2015: GBP3,634,000). The cash held within
the syndicates' accounts is not available to the Group to meet its
day-to-day working capital requirements.
Cash and cash equivalents comprise cash at bank and in hand.
The notes are an integral part of these Financial
Statements.
Notes to the financial statements
- Year ended 31 December 2016
1. General information
The Company is a public limited company listed on AIM. The
Company was incorporated in England, is domiciled in the UK and its
registered office is 40 Gracechurch Street, London EC3V 0BT. The
Company participates in insurance business as an underwriting
member at Lloyd's through its subsidiary undertakings.
2. Accounting policies
The principal accounting policies adopted in the preparation of
the Group and Parent Company Financial Statements (the "Financial
Statements") are set out below. These policies have been
consistently applied to all the years presented, unless otherwise
stated.
Change in accounting policy effected in the comparative year
As of 1 January 2015 the Group changed its accounting policy for
the accounting for intangible assets, syndicate capacity. The new
accounting policy has been applied retrospectively and first
reflected in the Financial Statements of the year ended 31 December
2015. For details of this change, refer to this accounting policy
as disclosed further below and Note 22.
Basis of preparation
The Financial Statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as endorsed by
the European Union ("EU"), IFRS Interpretations Committee ("IFRIC")
interpretations and those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
No statement of comprehensive income is presented for Helios
Underwriting plc, as a Parent Company, as permitted by Section 408
of the Companies Act 2006.
The Financial Statements have been prepared under the historical
cost convention as modified by the revaluation of financial assets
at fair value through profit or loss. A summary of the principal
Group accounting policies is set out below.
The preparation of Financial Statements in conformity with IFRS
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
Financial Statements and the reported amounts of revenues and
expenses during the reporting year. Although these estimates are
based on management's best knowledge of the amounts, events or
actions, actual results may ultimately differ from these
estimates.
The Group participates in insurance business through its Lloyd's
member subsidiaries. Accounting information in respect of syndicate
participations is provided by the syndicate managing agents and is
reported upon by the syndicate auditors.
Going concern
The Group and the Company have net assets at the end of the
reporting period of GBP22,519,000 and GBP29,888,000
respectively.
The Company's subsidiaries participate as underwriting members
at Lloyd's on the 2014, 2015 and 2016 years of account and they
have continued this participation since the year end on the 2017
year of account. This underwriting is supported by Funds at Lloyd's
totalling GBP6,006,000 (2015: GBP5,341,000), letters of credit
provided through the Group's quota share reinsurance agreements
totalling GBP13,642,000 (2015: GBP9,378,000) and solvency credits
issued by Lloyd's totalling GBP837,000 (2015: GBP3,645,000).
The Directors have a reasonable expectation that the Group and
the Company have adequate resources to meet their underwriting and
other operational obligations for the foreseeable future.
Accordingly, they continue to adopt the going concern basis of
accounting in preparing the annual Financial Statements.
International Financial Reporting Standards
Adoption of new and revised standards
During the current year the Group and the Company adopted all
the new and revised IFRS, amendments and interpretations that are
relevant to its operations and are effective for accounting periods
beginning on 1 January 2016. These are set out below and did not
have a material impact on the accounting policies of the Group and
the Company:
-- Amendments to IAS 27: Equity Method in Separate Financial
Statements, issued on 12 August 2014 (effective 1 January
2016).
-- Amendments to IFRS 10, IFRS 12 and IAS 28: Investment
Entities - Applying the Consolidation Exception, issued on 18
December 2014 (effective 1 January 2016).
-- Amendments to IAS 1: Disclosure Initiative, issued on 18
December 2014 (effective 1 January 2016).
-- Annual improvements to IFRSs 2012-2014 Cycle, issued on 25
September 2014 (effective 1 January 2016).
-- Amendments to IAS 16 and IAS 38: Clarification of Acceptable
Methods of Depreciation and Amortisation, issued on 12 May 2014
(effective 1 January 2016).
-- Amendments to IFRS 11: Accounting for Acquisitions of
Interests in Joint Operations, issued on 6 May 2014 (effective 1
January 2016).
-- Amendments to IAS 16 and IAS 41: Bearer Plants, issued on 30
June 2014 (effective 1 January 2016).
-- Amendments to IAS 19: Defined Benefit Plans Employee
Contributions, issued on 21 November 2013 (effective 1 February
2015).
-- Annual Improvements to IFRSs 2010-2012 Cycle, issued on 12
December 2013 (effective 1 February 2015).
New standards, amendments and interpretations not yet
adopted
At the date of authorisation of these Financial Statements, the
following standards, amendments and interpretations were in issue
but not yet effective:
(i) Adopted by the EU
-- IFRS 9 "Financial Instruments", issued on 24 July 2014 (effective 1 January 2018).
-- IFRS 15 "Revenue from Contracts with Customers", issued on 27
May 2014, including amendments to IFRS 15, issued on 11 September
2015 (effective 1 January 2018).
(ii) Not adopted by the EU
Standards:
-- IFRS 14 "Regulatory Deferral Accounts", issued on 30 January 2014 (effective 1 January 2016).
-- IFRS 16 "Leases", issued on 13 January 2016 (effective 1 January 2019).
Amendments:
-- Amendments to IFRS 10 and IAS 28: Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture,
issued on 11 September 2014 (effective date postponed
indefinitely).
-- Amendments to IAS 12: Recognition of Deferred Tax Assets for
Unrealised Losses, issued on 19 January 2016 (effective 1 January
2017).
-- Amendments to IAS 7: Disclosure Initiative, issued on 29
January 2016 (effective 1 January 2017).
-- Clarifications to IFRS 15 "Revenue from Contracts with
Customers", issued on 12 April 2014 (effective 1 January 2018).
-- Amendments to IFRS 12: Classification and Measurement of
Share-based Payment Transactions, issued on 20 June 2016 (effective
1 January 2018).
-- Amendments to IFRS 4: Applying IFRS 9 "Financial Instruments"
with IFRS 4 "Insurance Contracts", issued on 12 September 2016
(effective 1 January 2018).
-- Annual Improvements to IFRS Standards 2014-2016 Cycle, issued
on 8 December 2016 (effective 1 January 2018).
-- IFRIC Interpretation 22 Foreign Currency Transactions and
Advance Consideration, issued on 8 December 2016 (effective 1
January 2018).
-- Amendments to IAS 40: Transfers of Investment Property,
issued on 8 December 2016 (effective 1 January 2018).
Principles of consolidation, business combinations and
goodwill
(a) Consolidation and investments in subsidiaries
The Group Financial Statements incorporate the Financial
Statements of Helios Underwriting plc, the Parent Company, and its
directly and indirectly held subsidiaries being Hampden Corporate
Member Limited, Nameco (No. 365) Limited, Nameco (No. 605) Limited,
Nameco (No. 321) Limited, Nameco (No. 917) Limited, Nameco (No.
229) Limited, Nameco (No. 518) Limited, Nameco (No. 804) Limited,
Halperin Underwriting Limited, Bernul Limited, Dumasco Limited,
Nameco (No. 311) Limited, Nameco (No. 402) Limited, Updown
Underwriting Limited, Nameco (No. 507) Limited, Nameco (No. 76)
Limited, Kempton Underwriting Limited, Devon Underwriting Limited,
Nameco (No. 346) Limited, Helios UTG Partner Limited, Nomina No 035
LLP, Nomina No 342 LLP, Nomina No 380 LLP, Nomina No 372 LLP and
Salviscount LLP (Note 4).
The Financial Statements for all of the above subsidiaries are
prepared for the year ended 31 December 2016 under UK GAAP.
Consolidation adjustments are made to convert the subsidiary
Financial Statements prepared under UK GAAP to IFRS so as to align
accounting policies and treatments.
No income statement is presented for Helios Underwriting plc as
permitted by Section 408 of the Companies Act 2006. The profit
after tax for the year of the Parent Company was GBP2,539,000
(2015: GBP7,819,000).
Subsidiaries are entities over which the Group has the power to
govern the financial and operating policies generally accompanying
a shareholding or partnership participation of more than one half
of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered
when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are deconsolidated from
the date that control ceases.
Intra-group transactions, balances and unrealised gains on
intra-group transactions are eliminated.
In the Parent Company's Financial Statements, investments in
subsidiaries are stated at cost and are reviewed for impairment
annually or when events or changes in circumstances indicate the
carrying value to be impaired.
(b) Business combinations and goodwill
The Group uses the acquisition method of accounting to account
for the acquisition of subsidiaries. The cost of an acquisition is
measured as the fair value of the assets given, equity instruments
issued and liabilities incurred or assumed at the date of exchange.
Acquisition costs are expensed as incurred.
The excess of the cost of acquisition over the fair value of the
Group's share of the identifiable net assets acquired is
capitalised and recorded as goodwill. Following initial
recognition, goodwill is measured at cost less accumulated
impairment losses. Goodwill is tested for impairment annually or if
events or changes in circumstances indicate that the carrying value
may be impaired and recognised directly in the consolidated income
statement. If the cost of acquisition is less than the fair value
of the net assets of the subsidiary acquired, the difference is
recognised directly in the consolidated income statement as a
bargain purchase.
Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as Nigel Hanbury.
Foreign currency translation
Items included in the Financial Statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates (the "functional
currency"). The Financial Statements are presented in thousands of
Pounds Sterling, which is the Group's functional and presentational
currency.
Foreign currency transactions and non-monetary assets and
liabilities, including deferred acquisition costs and unearned
premiums, are translated into the functional currency using annual
average rates of exchange prevailing at the time of the transaction
as a proxy for the transactional rates. The translation difference
arising on non-monetary asset items is recognised in the
consolidated income statement.
Certain supported syndicates have non-Sterling functional
currencies, any exchange movement that they would have reflected in
other comprehensive income as a result of this has been included
within profit before tax to be consistent with the Group's policy
of using Sterling as the functional currency.
Monetary items are translated at period-end rates; any exchange
differences arising from the change in rates of exchange are
recognised in the consolidated income statement of the year.
Underwriting
Premiums
Gross premium written comprises the total premiums receivable in
respect of business incepted during the year, together with any
differences between booked premiums for prior years and those
previously accrued, and includes estimates of premiums due but not
yet receivable or notified to the syndicates on which the Group
participates, less an allowance for cancellations. All premiums are
shown gross of commission payable to intermediaries and exclude
taxes and duties levied on them.
Unearned premiums
Gross premium written is earned according to the risk profile of
the policy. Unearned premiums represent the proportion of gross
premium written in the year that relates to unexpired terms of
policies in force at the end of the reporting period calculated on
a time apportionment basis having regard, where appropriate, to the
incidence of risk. The specific basis adopted by each syndicate is
determined by the relevant managing agent.
Deferred acquisition costs
Acquisition costs, which represent commission and other related
expenses, are deferred over the period in which the related
premiums are earned.
Reinsurance premiums
Reinsurance premium costs are allocated by the managing agent of
each syndicate to reflect the protection arranged in respect of the
business written and earned.
Reinsurance premium costs in respect of reinsurance purchased
directly by the Group are charged or credited based on the annual
accounting result for each year of account protected by the
reinsurance.
Claims incurred and reinsurers' share
Claims incurred comprise claims and settlement expenses (both
internal and external) occurring in the year and changes in the
provisions for outstanding claims, including provisions for claims
incurred but not reported ("IBNR") and settlement expenses,
together with any other adjustments to claims from previous years.
Where applicable, deductions are made for salvage and other
recoveries.
The provision for claims outstanding comprises amounts set aside
for claims notified and IBNR. The amount included in respect of
IBNR is based on statistical techniques of estimation applied by
each syndicate's in-house reserving team and reviewed, in certain
cases, by external consulting actuaries. These techniques generally
involve projecting from past experience the development of claims
over time to form a view of the likely ultimate claims to be
experienced for more recent underwriting, having regard to
variations in the business accepted and the underlying terms and
conditions. The provision for claims also includes amounts in
respect of internal and external claims' handling costs. For the
most recent years, where a high degree of volatility arises from
projections, estimates may be based in part on output from the
rating and other models of the business accepted, and assessments
of underwriting conditions.
The reinsurers' share of provisions for claims is based on
calculated amounts of outstanding claims and projections for IBNR,
net of estimated irrecoverable amounts, having regard to each
syndicate's reinsurance programme in place for the class of
business, the claims experience for the year and the current
security rating of the reinsurance companies involved. Each
syndicate uses a number of statistical techniques to assist in
making these estimates.
Accordingly, the two most critical assumptions made by each
syndicate's managing agent as regards claims provisions are that
the past is a reasonable predictor of the likely level of claims
development and that the rating and other models used, including
pricing models for recent business, are reasonable indicators of
the likely level of ultimate claims to be incurred.
The level of uncertainty with regard to the estimations within
these provisions generally decreases with time since the underlying
contracts were exposed to new risks. In addition, the nature of
short-tail risks, such as property where claims are typically
notified and settled within a short period of time, will normally
have less uncertainty after a few years than long-tail risks, such
as some liability business where it may be several years before
claims are fully advised and settled. In addition to these factors
if there are disputes regarding coverage under policies or changes
in the relevant law regarding a claim this may increase the
uncertainty in the estimation of the outcomes.
The assessment of these provisions is usually the most
subjective aspect of an insurer's accounts and may result in
greater uncertainty within an insurer's accounts than within those
of many other businesses. The provisions for gross claims and
related reinsurance recoveries have been assessed on the basis of
the information currently available to the directors of each
syndicate's managing agent. However, ultimate liability will vary
as a result of subsequent information and events and this may
result in significant adjustments to the amounts provided.
Adjustments to the amounts of claims provisions established in
prior years are reflected in the Financial Statements for the
period in which the adjustments are made. The provisions are not
discounted for the investment earnings that may be expected to
arise in the future on the funds retained to meet the future
liabilities. The methods used, and the estimates made, are reviewed
regularly.
Quota share reinsurance
Under the Group's quota share reinsurance agreements, 70% of the
2014, 2015 and 2016 underwriting year of insurance exposure is
ceded to the reinsurers. Amounts payable to the reinsurers are
included within "reinsurance premium ceded" in the consolidated
income statement of the year and amounts receivable from the
reinsurers are included within "reinsurers share of gross claims
paid" in the consolidated income statement of the year.
Unexpired risks provision
Provision for unexpired risks is made where the costs of
outstanding claims, related expenses and deferred acquisition costs
are expected to exceed the unearned premium provision carried
forward at the end of the reporting period. The provision for
unexpired risks is calculated separately by reference to classes of
business that are managed together, after taking into account
relevant investment return. The provision is made on a
syndicate-by-syndicate basis by the relevant managing agent.
Closed years of account
At the end of the third year, the underwriting account is
normally closed by reinsurance into the following year of account.
The amount of the reinsurance to close premium payable is
determined by the managing agent, generally by estimating the cost
of claims notified but not settled at 31 December, together with
the estimated cost of claims incurred but not reported ("IBNR") at
that date and an estimate of future claims handling costs. Any
subsequent variation in the ultimate liabilities of the closed year
of account is borne by the underwriting year into which it is
reinsured.
The payment of a reinsurance to close premium does not eliminate
the liability of the closed year for outstanding claims. If the
reinsuring syndicate were unable to meet any obligations, and the
other elements of Lloyd's chain of security were to fail, then the
closed underwriting account would have to settle any outstanding
claims.
The Directors consider that the likelihood of such a failure of
the reinsurance to close is extremely remote and consequently the
reinsurance to close has been deemed to settle the liabilities
outstanding at the closure of an underwriting account. The Group
will include its share of the reinsurance to close premiums payable
as technical provisions at the end of the current period and no
further provision is made for any potential variation in the
ultimate liability of that year of account.
Run-off years of account
Where an underwriting year of account is not closed at the end
of the third year (a "run-off" year of account) a provision is made
for the estimated cost of all known and unknown outstanding
liabilities of that year. The provision is determined initially by
the managing agent on a similar basis to the reinsurance to close.
However, any subsequent variation in the ultimate liabilities for
that year remains with the corporate member participating therein.
As a result, any run-off year will continue to report movements in
its results after the third year until such time as it secures a
reinsurance to close.
Net operating expenses (including acquisition costs)
Net operating expenses include acquisition costs, profit and
loss on exchange and other amounts incurred by the syndicates on
which the Group participates.
Acquisition costs, comprising commission and other costs related
to the acquisition of new insurance contracts, are deferred to the
extent that they are attributable to premiums unearned at the end
of the reporting period.
Investment income
Interest receivable from cash and short-term deposits and
interest payable are accrued to the end of the period.
Dividend income from financial assets at fair value through
profit or loss is recognised in the income statement when the
Group's right to receive payments is established.
Syndicate investments and cash are held on a pooled basis, the
return from which is allocated by the relevant managing agent to
years of account proportionate to the funds contributed by the year
of account.
Other operating expenses
All expenses are accounted for on an accruals basis.
Intangible assets: syndicate capacity
Syndicate capacity is an intangible asset which represents costs
incurred in the Corporation of Lloyd's auctions in order to acquire
rights to participate on syndicates' years of account.
At the individual subsidiary company level, the syndicate
capacity is stated at cost, less any provision for impairment at
initial recognition, and amortised on a straight line basis over
the useful economic life, which is estimated to be five years (up
to 2014: estimated to be seven years). No amortisation is charged
until the following year when underwriting commences in respect of
the purchased syndicate participation.
At the consolidation level, the Group's accounting policy for
the year 2014 was consistent with the accounting policy of the
subsidiaries as described above. As of 1 January 2015, the Group
changed its accounting policy for accounting for the intangible
asset, syndicate capacity, as set out below:
The syndicate capacity represents the cost of purchasing the
Group's participation in the combined syndicates. The capacity is
capitalised at cost in the statement of financial position. It has
an indefinite useful life and is carried at cost less accumulated
impairment. It is annually tested for impairment for each syndicate
by reference to the weighted average value at Lloyd's auctions and
expected future profit streams to be earned by those syndicates in
which the Group participates and provision is made for any
impairment in the consolidated income statement.
This change in accounting policy was applied retrospectively as
if the new policy had always been in place. The effects of this
change are disclosed in Note 22.
Financial assets
(a) Classification
The Group classifies its financial assets in the following
categories: at fair value through profit or loss, and loans and
receivables. The classification depends on the purpose for which
the financial assets were acquired. Management determines the
classification of its financial assets at initial recognition. The
Group does not make use of the held-to-maturity and
available-for-sale classifications.
(i) Financial assets at fair value through profit or loss
All financial assets at fair value through profit or loss are
categorised as designated at fair value through profit or loss upon
initial recognition because they are managed and their performance
is evaluated on a fair value basis in accordance with the Company's
documented investment strategy. Information about these financial
assets is provided internally on a fair value basis to the Group's
key management.
The Group's investment strategy is to invest and evaluate their
performance with reference to their fair values. Assets in this
category are classified as current assets if expected to be settled
within 12 months; otherwise, they are classified as
non-current.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They are classified as current assets, except for
maturities greater than 12 months after the reporting period. The
latter ones are classified as non-current assets.
The Group's loans and receivables comprise "other receivables,
including insurance and reinsurance receivables" and "cash and cash
equivalents".
The Parent Company's loans and receivables comprise "other
receivables" and "cash and cash equivalents".
(b) Recognition, derecognition and measurement
Regular purchases and sales of financial assets are recognised
on the trade date, being the date on which the Group commits to the
purchase or sale of the asset. Financial assets are derecognised
when the right to receive cash flows from the financial assets has
expired or are transferred and the Group has transferred
substantially all its risks and rewards of ownership.
Financial assets at fair value through profit or loss are
initially recognised at fair value and transaction costs incurred
expensed in the income statement.
Loans and receivables are initially recognised at fair value
plus transaction costs and are subsequently carried at amortised
cost less any impairment losses.
Fair value estimation
The fair value of financial assets at fair value through profit
or loss which are traded in active markets is based on quoted
market prices at the end of the reporting period. A market is
regarded as active if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing
service or regulatory agency and those prices represent actual and
regular occurring market transactions on an arm's length basis. The
quoted market price used for financial assets at fair value through
profit or loss held by the Group is the current bid price.
The fair value of financial assets at fair value through profit
or loss that are not traded in an active market is determined by
using valuation techniques. These valuation techniques maximise the
use of observable market data where it is available and rely as
little as possible on entity-specific estimates.
Unrealised gains and losses arising from changes in the fair
value of the financial assets at fair value through profit or loss,
are presented in the income statement within "net investment
income".
The fair values of short-term deposits are assumed to
approximate to their book values. The fair values of the Group's
debt securities have been based on quoted market prices for these
instruments.
(c) Impairment
The Group assesses at the end of each reporting period whether
there is objective evidence that a financial asset or group of
financial assets is impaired. A financial asset or a group of
financial assets is impaired and impairment losses are incurred
only if there is objective evidence of impairment as a result of
one or more events that occurred after the initial recognition of
the asset (a 'loss event') and that loss event (or events) has an
impact on the estimated future cash flows of the financial asset or
group of financial assets that can be reliably estimated.
Asset carried at amortised cost
For loans and receivables, the amount of the loss is measured as
the difference between the asset's carrying amount and the present
value of the estimated future cash flows (excluding future credit
losses that has not been incurred) discounted at the financial
asset's original effective interest rate. The carrying amount of
the asset is reduced and the amount of the loss is recognised in
profit or loss. If a loan has a variable interest rate, the
discount rate for measuring any impairment loss is the current
effective interest rate determined under the contract. As a
practical expedient, the Group may measure impairment on the basis
of an instrument's fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised (such as an
improvement in the debtor's credit rating), the reversal of the
previously recognised impairment loss is recognised in profit or
loss.
Cash and cash equivalents
For the purposes of the statements of cash flows, cash and cash
equivalents comprise cash and short-term deposits at bank.
Current and deferred tax
The tax expense for the period comprises current and deferred
tax. Tax is recognised in the income statement, except to the
extent that it relates to items recognised in other comprehensive
income or directly in equity, in which case tax is also recognised
in other comprehensive income or directly in equity,
respectively.
Current tax
The current income tax charge is calculated on the basis of the
tax laws enacted at the balance sheet date in the countries where
the Company and its subsidiaries operate and generate taxable
income. Management establishes provisions when appropriate, on the
basis of amounts expected to be paid to the tax authorities.
Deferred tax
Deferred tax is provided in full, using the balance sheet
liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the
Financial Statements.
However, if the deferred tax arises from initial recognition of
an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither
accounting nor taxable profit or loss, it is not accounted for.
Deferred tax is determined using tax rates (and laws) that have
been enacted or substantively enacted by the end of the reporting
period and are expected to apply when the related deferred income
tax asset is realised or the deferred income tax liability is
settled.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profits will be available against
which the temporary differences can be utilised.
Other payables
These present liabilities for services provided to the Group
prior to end of the financial year which are unpaid. These are
classified as current liabilities, unless payment is not due within
12 months after the reporting date. They are recognised initially
at their fair value and subsequently measured at amortised cost
using the effective interest method.
Share capital and share premium
Ordinary shares are classified as equity.
The difference between the fair value of the consideration
received and the nominal value of the share capital issued is taken
to the share premium account. Incremental costs directly
attributable to the issue of shares or options are shown in equity
as a deduction, net of tax, from proceeds.
Dividend distribution policy
Dividend distribution to the Company's shareholders is
recognised in the Group's and the Parent Company's Financial
Statements in the period in which the dividends are approved by the
Company's shareholders.
3. Segmental information
Nigel Hanbury is the Group's chief operating decision-maker. He
has determined its operating segments based on the way the Group is
managed, for the purpose of allocating resources and assessing
performance.
The Group has three segments that represent the primary way in
which the Group is managed, as follows:
-- syndicate participation;
-- investment management; and
-- other corporate activities.
Other
Syndicate Investment corporate
participation management activities Total
Year ended 31 December 2016 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- -------------- ----------- ----------- --------
Net earned premium 24,302 - (1,394) 22,908
Net investment income 663 222 - 885
Other income 643 - 1,491 2,134
Net insurance claims and loss adjustment expenses (12,805) - - (12,805)
Expenses incurred in insurance activities (10,422) - (397) (10,819)
Other operating expenses 884 - (1,853) (969)
Goodwill on bargain purchase - - - -
Impairment of goodwill - - - -
Impairment of syndicate capacity (see Note 13) - - (555) (555)
-------------------------------------------------- -------------- ----------- ----------- --------
Profit before tax 3,265 222 (2,708) 779
-------------------------------------------------- -------------- ----------- ----------- --------
Other
Syndicate Investment corporate
participation management activities Total
Restated year ended 31 December 2015* GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- -------------- ----------- ----------- --------
Net earned premium 17,257 - (1,397) 15,860
Net investment income 250 5 - 255
Other income 144 - 392 536
Net insurance claims and loss adjustment expenses (7,515) - - (7,515)
Expenses incurred in insurance activities (7,178) - (393) (7,571)
Other operating expenses 35 - (847) (812)
Goodwill on bargain purchase - - 244 244
Impairment of goodwill - - (136) (136)
Impairment of syndicate capacity (see Note 13) - - (63) (63)
-------------------------------------------------- -------------- ----------- ----------- --------
Profit before tax 2,993 5 (2,200) 798
-------------------------------------------------- -------------- ----------- ----------- --------
* Refer to Note 27 for details of the restatement of the profit
for the year 2015 as a result of a reclassification.
The Group does not have any geographical segments as it
considers all of its activities to arise from trading within the
UK.
No major customers exceed 10% of revenue.
Net earned premium within 2016 other corporate activities
totalling GBP1,394,000 (2015: GBP1,397,000 - 2013, 2014 and 2015
year of account) presents the 2014, 2015 and 2016 years of account
net Group quota share reinsurance premium payable to Hampden
Insurance Guernsey PCC Limited - Cell 6. This net quota share
reinsurance premium payable is included within "reinsurance premium
ceded" in the consolidated income statement of the year.
4. Operating profit before goodwill and impairment
Underwriting year of account*
--------------------- --------------------------------------------- ------------ ------------ ---------- --------
2014 Pre- Corporate Other
Year ended 31 and prior 2015 2016 Sub-total acquisition reinsurance corporate Total
December 2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Gross premium written 250 3,521 30,131 33,902 (2,595) - - 31,307
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Reinsurance ceded 26 (487) (6,244) (6,705) 575 (1,394) (248) (7,772)
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Net premium written 276 3,034 23,887 27,197 (2,020) (1,394) (248) 23,535
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Net earned premium 1,679 11,986 12,676 26,341 (1,791) (1,394) (248) 22,908
Other income 1,566 543 82 2,191 (76) 557 347 3,019
Net insurance claims
incurred and loss
adjustment expenses 990 (6,196) (8,680) (13,886) 1,081 - - (12,805)
Operating expenses (1,300) (4,169) (5,575) (11,044) 723 - (1,467) (11,788)
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Operating profit
before goodwill and
impairment 2,935 2,164 (1,497) 3,602 (63) (837) (1,368) 1,334
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Quota share
adjustment (1,274) (1,133) 1,013 (1,394) - 1,394 - -
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Operating profit
before goodwill and
impairment after
quota share
adjustment 1,661 1,031 (484) 2,208 (63) 557 (1,368) 1,334
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
* The underwriting year of account results represent the Group's
share of the syndicates' results by underwriting year of account
before corporate member level reinsurance and members' agents
charges.
Underwriting year of account**
--------------------- ------------ ------------ ---------- --------
2013 Pre- Corporate Other
Restated year ended and prior 2014 2015 Sub-total acquisition reinsurance corporate Total
31 December 2015* GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Gross premium written (25) 2,362 21,331 23,668 (2,157) - - 21,511
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Reinsurance ceded (123) (353) (3,723) (4,199) 421 (1,397) (407) (5,582)
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Net premium written (148) 2,009 17,608 19,469 (1,736) (1,397) (407) 15,929
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Net earned premium 712 9,092 9,475 19,279 (1,615) (1,397) (407) 15,860
Other income 246 147 15 408 (90) 382 91 791
Net insurance claims
incurred and loss
adjustment expenses 1,414 (4,190) (5,468) (8,244) 726 3 - (7,515)
Operating expenses (706) (3,160) (3,962) (7,828) 779 - (1,334) (8,383)
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Operating profit
before goodwill and
impairment 1,666 1,889 60 3,615 (200) (1,012) (1,650) 753
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Quota share
adjustment (392) (950) (55) (1,397) - 1,397 - -
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
Operating profit
before goodwill and
impairment after
quota share
adjustment 1,274 939 5 2,218 (200) 385 (1,650) 753
--------------------- ---------- --------- --------- ----------- ------------ ------------ ---------- --------
* The underwriting year of account results represent the Group's
share of the syndicates' results by underwriting year of account
before corporate member level reinsurance and members' agents
charges.
** Refer to Note 27 for details of the restatement of the profit
for the year 2015 as a result of a reclassification.
Pre-acquisition relates to the element of results from the new
acquisitions before they were acquired by the Group.
5. Net investment income
Year ended Year ended
31 December 31 December
2016 2015
GBP'000 GBP'000
---------------------------------------------------------------------------------------- ------------
Investment income 594 926
Realised losses on financial assets at fair value through profit or loss (19) (327)
Unrealised gain/(losses) on financial assets at fair value through profit or loss 256 (360)
Investment management expenses (59) (44)
Bank interest 113 60
---------------------------------------------------------------------------------- ---- ------------
Net investment income 885 255
---------------------------------------------------------------------------------- ---- ------------
6. Operating expenses (excluding goodwill and amortisation)
Year ended Year ended
31 December 31 December
2016 2015
GBP'000 GBP'000
-------------------------------------------------------------------------------------- ------------
Expenses incurred in insurance activities:
Acquisition costs 7,052 5,119
Change in deferred acquisition costs (49) (128)
Administrative expenses 3,528 2,476
Other 288 104
------------------------------------------------------------------------------ ------ ------------
10,819 7,571
-------------------------------------------------------------------------------------- ------------
Other operating expenses:
Exchange differences (16) 35
Directors' remuneration 312 195
Acquisition costs in connection with the new subsidiaries acquired in the year 100 91
Professional fees 443 405
Administration and other expenses 10 17
Auditors' remuneration:
- audit of the Parent Company and Group Financial Statements 31 30
- audit of subsidiary company Financial Statements 35 19
- under provision of prior year audit fee 34 -
- audit related assurance services 20 20
------------------------------------------------------------------------------ ------ ------------
969 812
-------------------------------------------------------------------------------------- ------------
Operating expenses 11,788 8,383
------------------------------------------------------------------------------ ------ ------------
The Group has no employees other than the Directors of the
Company.
Details of the Directors' remuneration are disclosed below:
Year ended Year ended
31 December 31 December
2016 2015
Directors' remuneration GBP GBP
------------------------ ------------ ------------
Sir Michael Oliver 20,000 20,000
Jeremy Evans 15,000 15,000
Michael Cunningham 15,000 15,000
Andrew Christie 15,000 15,000
Arthur Manners 118,000 -
Nigel Hanbury 129,000 130,050
------------------------ ------------ ------------
Total 312,000 195,050
------------------------ ------------ ------------
The Chief Executive, Nigel Hanbury and the Finance Director
Arthur Manners have a bonus incentive scheme in addition to their
basic remuneration. The above figures for Nigel Hanbury and Arthur
Manners include an accrual for the year of GBP50,000 each (2015:
GBP63,000 for Nigel Hanbury only) in respect of this scheme. No
other Directors derive other benefits, pension contributions or
incentives from the Group. At 31 December 2016 no share options
were held by the Directors (2015: nil).
7. Earnings per share
Basic earnings per share is calculated by dividing the net
profit attributable to ordinary equity holders of the Company after
tax by the weighted average number of ordinary shares outstanding
during the period.
Diluted earnings per share is calculated by dividing the net
profit attributable to ordinary equity holders of the Company by
the weighted average number of ordinary shares outstanding during
the year, plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
The Group has no dilutive potential ordinary shares.
Earnings per share has been calculated in accordance with IAS 33
"Earnings per share".
The earnings per share and weighted average number of shares
used in the calculation are set out below:
Restated
Year ended year ended
31 December 31 December
2016 2015
------------------------------------------------------------------------------------------------ ------------
Profit for the year after tax attributable to ordinary equity holders of the parent GBP713,000 GBP910,000
------------------------------------------------------------------------------------ ---------- ------------
Weighted average number of ordinary shares in issue 11,463,456 9,411,794
------------------------------------------------------------------------------------ ---------- ------------
Basic and diluted earnings per share 6.22p 9.67p
------------------------------------------------------------------------------------ ---------- ------------
The basic and diluted earnings per share as originally reported
for the year ended 31 December 2015 was 8.38p, based on profit for
the year after tax attributable to ordinary shareholders as
originally reported of GBP789,000. The weighted average number of
shares in issue for the year ended 31 December 2015 remained
unchanged. Refer to Note 27 for details regarding the
restatement.
8. Intangible assets
Restated*
syndicate
Goodwill capacity Total
GBP'000 GBP'000 GBP'000
--------------------------------------------- ---------- ---------
Cost
At 1 January 2015 - 6,592 6,592
Additions 136 2 138
Disposals - (61) (61)
Impairment (136) - (136)
Acquired with subsidiary undertakings - 2,265 2,265
-------------------------------------- ----- ---------- ---------
At 31 December 2015 - 8,798 8,798
-------------------------------------- ----- ---------- ---------
At 1 January 2016 - 8,798 8,798
Additions 493 6 499
Disposals - (87) (87)
Impairment - - -
Acquired with subsidiary undertakings - 2,364 2,364
-------------------------------------- ----- ---------- ---------
At 31 December 2016 493 11,081 11,574
-------------------------------------- ----- ---------- ---------
Impairment
At 1 January 2015 - 224 224
Impairment for the year - 63 63
Disposals - - -
-------------------------------------- ----- ---------- ---------
At 31 December 2015 - 287 287
-------------------------------------- ----- ---------- ---------
At 1 January 2016 - 287 287
Impairment for the year - 555 555
Disposals - - -
-------------------------------------- ----- ---------- ---------
At 31 December 2016 - 842 842
-------------------------------------- ----- ---------- ---------
Net book value
As at 31 December 2014 - 6,368 6,368
As at 31 December 2015 - 8,511 8,511
-------------------------------------- ----- ---------- ---------
As at 31 December 2016 493 10,239 10,732
-------------------------------------- ----- ---------- ---------
* Refer to Note 22 for the details regarding the restatement of
the syndicate capacity as a result of the change of the accounting
policy for intangibles - syndicate capacity.
Note 21 sets out the details of the entities acquired by the
Group during the year, the fair value adjustments and the goodwill
arising.
9. Financial statements
The financial information set out in this announcement does not
constitute statutory accounts but has been extracted from the
Group's Financial Statements which have not yet been delivered to
the Registrar. The Group's annual report will be posted to
shareholders shortly and further copies will be available from the
Company's registered office: 40 Gracechurch Street, London EC3V 0BT
and on the Company's website www.huwplc.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKADQPBKDBPB
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May 30, 2017 02:01 ET (06:01 GMT)
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