28th Apr 2008 07:00
Advent Capital (Holdings) PLC28 April 2008 Advent Capital (Holdings) PLC ("Advent" or the "Company") Advent, the specialist Lloyd's insurer, today reports its results for the threemonths ended 31 March 2008. Key highlights • Loss before tax of £5.5 million (2007: profit £0.5 million). • First quarter result reflects industry's second worst ever quarter for single risk losses with estimated aggregate losses in excess of US$3.75 billion. • Prior years' claims reserve estimates virtually unchanged. • Gross premiums written, excluding the reinsurance to close premium, increased by 21.3% to £62.0 million (2007: £51.1 million). • Competitive market conditions continue within expectations. Financial summary Three months (unaudited) Year Year Year 2008 2007 2007 2006 2005 £'000 £'000 £'000 £'000 £'000 Gross premiums written 96,275 57,902 126,912 115,356 100,550 Net premiums written 74,592 42,510 106,199 88,201 62,949 Net premiums earned 56,033 22,083 95,984 81,694 65,070 Underwriting profit (loss) (6,438) (906) 20,912 21,064 (78,098) Profit (loss) before tax (5,524) 532 25,161 22,853 (74,185) Profit (loss) after tax (3,984) 353 19,192 16,011 (51,922) Return on equity (3.7%) 0.4% 21.6% 25.1% (68.4%) Three months (unaudited) Year Year Year 2008 2007 2007 2006 2005 £'000 £'000 £'000 £'000 £'000Per share amounts Earnings (loss)- basic and diluted (1.0p) 0.1p 4.7p 4.3p (30.3p) Dividend - - - - 2.75p Net assets 25.7p 22.3p 26.7p 21.9p 16.0p Net tangible assets 24.0p 20.0p 24.9p 19.9p 13.6p Operating ratios Claims ratio 100% 79% 50% 53% 191% Expense ratio 11% (1) 25% 28% 21% (2) 29% Combined ratio 111% (1) 104% 78% 74% (2) 220% Net notified loss ratio 10% 8% 32% 17% 134%(by year of account) (1) expense ratio of 30% and combined ratio of 130% excluding impact of RITCpremium (2) expense ratio of 30% and combined ratio of 83% excluding foreign exchangeprofit of £7.0 million Advent Capital (Holdings) PLCKeith Thompson 020 7743 8200Chief Operating Officer Trevor Ambridge 020 7743 8200Chief Financial Officer Neil Ewing 020 7743 8250Investor Relations Fox-Pitt Kelton Cochran Caronia WallerSimon Law 020 7763 6023Jonny Franklin-Adams 020 7763 6029 Pelham Public RelationsDamian Beeley 020 3178 2253Polly Fergusson 020 7743 6362 Financial Review For the three months ended 31 March 2008, the Company's loss before tax was £5.5million compared with a profit of £0.5 million for the first quarter of 2007.This quarter was the industry's second worst quarter on record for single riskproperty losses with estimated aggregate losses in excess of US$3.75 billion,after World Trade Centre losses recorded in third quarter of 2001. The Companyrecorded single risk property losses, net of reinsurance recoveries andreinstatement premiums, of £7.0 million in excess of business plan losses fromthese and other events. The results for the first quarter of 2008 reflect: • Underwriting loss of £2.4 million on the 2008 year of account after single risk property losses of £2.7 million from Severstal, BHP Billiton and other insureds over business plan losses on premiums earned in the quarter. In the absence of additional significant single risk property losses over the remaining three quarters of 2008, the Company would expect most of these losses to be contained within business plan loss ratios for the full year 2008. • Underwriting loss of £1.8 million on the 2007 year of account after single risk property losses of £4.0 million and reductions in ultimate premium estimates of £1.3 million on the commercial binders and Energy accounts. • Underwriting loss of £2.5 million on the 2006 and prior years of account from reductions in ultimate premium estimates and overall deterioration in the commercial binders account for the 2006 year of account of £1.6 million and new claims notifications on the 2005 hurricanes of £0.8 million. • Marginal deterioration in prior year claims of £0.2 million compared with adverse development of prior years' claims of £1.9 million in 2007. Loss per share was 1.0p for the first quarter of 2008 principally reflecting theimpact of single property risk losses, compared with a profit per share of 0.1pin 2007. For the three months ended 31 March 2008, the Company had an underwriting lossof £6.4 million and a combined ratio of 111.5% compared with an underwritingloss of £0.9 million and a combined ratio of 104.1% in 2007. Excluding thereinsurance to close (RITC) premium on the 2005 year of account of £34.2 million(2007: £6.8 million on the 2004 year of account), the combined ratio for thefirst three months of 2008 was 129.6% (2007: 105.7%) on net earned premium of£21.9 million. Underwriting Review For the three months ended 31 March 2008, gross premiums written, excluding theRITC premium, increased by 21.3% to £62.0 million from £51.1 million in 2007,reflecting the growth in premium income from Advent Re and the Company'sincreased share of Syndicate 780's capacity to 100% in 2008 from 83.7% in 2007.Advent Re wrote gross premiums of £4.0 million (US$8.0 million) in the firstquarter of 2008 up from £1.4 million (US$2.8 million) in 2007. For the three months ended 31 March 2008, net premiums written, excluding RITCpremium, increased by 11.0% to £40.3 million from £36.3 million in 2007,reflecting higher 2008 reinsurance costs of £20.8 million (2007: £14.5 million)on the purchase of additional reinsurance and lower deductibles (£3.4 million)and the Company's increased share of Syndicate 780's capacity (£2.8 million). For the three months ended 31 March 2008, net earned premiums, excluding RITCpremium, increased by 41.3% to £21.9 million from £15.5 million in 2007. Theincrease in net earned premiums resulted from the Company's increased share ofSyndicate 780's capacity and the change in business mix which had reduced netearned premiums in the first quarter of 2007. Insurance Segment Review 31 March 2008 Non-Marine Property Reinsurance Insurance Marine Syn 2 Total £'000 £'000 £'000 £'000 £'000 Gross premiums written 86,190 5,467 4,603 15 96,275 Net premiums written 70,147 3,053 1,338 54 74,592 Net premiums earned 47,302 4,914 3,763 54 56,033 Net claims incurred (46,373) (8,271) (1,662) 289 (56,017) Net underwriting result 929 (3,357) 2,101 343 16 Acquisition costs (1,981) (1,301) (1,016) (2) (4,300) Operating costs (1,765) (107) (90) (112) (2,074) Profit (loss) on exchange 27 2 1 (110) (80) Underwriting profit (loss) (2,790) (4,763) 996 119 (6,438) Claims ratio 98.0% 168.3% 44.2% (535.2%) 100.0% Acquisition costs 4.2% 26.5% 27.0% 3.7% 7.7% Operating costs 3.7% 2.2% 2.4% 207.4% 3.7% Profit on exchange (0.1%) - - 203.7% 0.1% Expense ratio 7.8% 28.7% 29.4% 414.8% 11.5% Combined ratio 105.8% 197.0% 73.6% (120.4%) 111.5% Adjusted combined ratioexcluding effect of RITCpremium 121.4% 197.0% 73.6% (119.6%) 129.6% 31 March 2007 Non-Marine Property Reinsurance Insurance Marine Syn 2 Total £'000 £'000 £'000 £'000 £'000 Gross premiums written 42,633 7,215 7,844 211 57,903 Net premiums written 31,899 5,054 5,364 193 42,510 Net premiums earned 13,618 5,489 2,783 193 22,083 Net claims incurred (11,381) (3,442) (3,338) 777 (17,384) Net underwriting result 2,237 2,047 (555) 970 4,699 Acquisition costs (1,441) (1,648) (644) (32) (3,765) Operating costs (1,251) (212) (230) (90) (1,783) Profit (loss) on exchange (43) (7) (9) 2 (57) Underwriting result (498) 180 (1,438) 850 (906) Claims ratio 83.6% 62.7% 119.9% (402.6)% 78.7% Acquisition costs 10.6% 30.0% 23.1% 16.6% 17.0% Operating costs 9.2% 3.9% 8.3% 46.6% 8.1% Profit on Exchange 0.3% 0.1% 0.3% (1.0)% 0.3% Expense ratio 20.1% 34.0% 31.7% 62.2% 25.4% Combined ratio 103.7% 96.7% 151.6% (340.4)% 104.1% Adjusted combined ratioexcluding effect of RITCpremium 106.7% 96.7% 151.6% (341.1)% 105.7% Non-Marine Reinsurance Syndicate 780 For the three months ended 31 March 2008, the Non-Marine Reinsurance account hadan underwriting loss of £2.8 million and combined ratio of 105.9% which wasnegatively impacted by single property risk losses, net of reinsurancerecoveries and reinstatement premiums, of £4.3 million. Excluding the RITCpremium, the combined ratio was 121.4% for the first quarter of 2008 (2007:106.7%). This compares with an underwriting loss of £0.5 million and combinedratio of 103.7% in 2007, principally from European Windstorm Kyrill losses of£1.3 million. The rating environment through 1 April 2008 was in line with our expectations.Rates for USA regional non coastal exposures were down 10% to 15% on average,while rates for coastal exposures were down 5% to 10%. Reinsurance rates forUSA nationwide insurers were generally down less at 5% to 10% reflecting tightercapacity available for multiple peril and zone exposures. International rateswere down approximately 5%. In general, the market has held firm on terms andconditions, particularly deductibles. Advent Re For the three months ended 31 March 2008, Advent Re had an underwriting profitof £0.3 million on 2007 policies which expired 31 March 2008. It wrote US$7.5million (£3.8 million) of premiums, net of brokerage in the first quarter, withall policies expiring on 31 December 2008. The risks written consist of Original Loss Warranty (OLW) policies for 43% ofpremiums written and traditional Ultimate Net Loss (UNL) policies for 57% ofpremiums written. The attachment points for the OLW's are in line with 2007and, while we anticipated a reduction in attachment points for 2008, this hasnot materialised to date. The attachment points for UNL policies are at asimilar market loss and modelled return periods as for the OLW policies,recognising that the return periods are derived from modelled data such that theattachment points are estimates in terms of the probability and size of themarket loss. No underwriting profit has been earned from the 2008 contracts as we maintainconservative loss ratios reflecting Advent Re's exposure to catastrophe risk andthe US hurricane season in particular. Property Insurance For the three months ended 31 March 2008, the Property Insurance account had anunderwriting loss of £4.8 million and combined ratio of 196.9% which wasnegatively impacted by single property risk losses, of £2.7 million andreductions in ultimate premium estimates and overall deterioration on the 2006and 2007 years of account. This compares with the underwriting profit of £0.2million, and combined ratio of 96.7% in 2007. UK and Australian property insurance rates have started to see modest increasesby up to 5% as a result of the 2007 Catastrophes. In all other territories,rates continue to be under pressure with USA small market pricing down 10% whilemiddle market business pricing is down by 15% to 20%. Managed larger riskaccounts are under more severe pressure and pricing reductions of 20% to 40% arenot uncommon. Marine For the three months ended 31 March 2008, the Marine account had an underwritingprofit of £1.0 million and a combined ratio of 73.5%, as the Energy accountcontinued to perform in accordance with expectations. This compares with theunderwriting loss of £1.4 million and combined ratio of 151.7% in 2007,principally due to the late advice of a Hurricane Rita energy claim of £2.2million. Rates for Gulf of Mexico exposures are generally expected to hold, althoughsmall rate reductions may occur, and retentions are under pressure. Pricingelsewhere has decreased by 10% to 15%. As with other areas, competition has putincreased pressure on terms and conditions and breadth of coverage. Syndicate 2 For the three months ended 31 March 2008, Syndicate 2 had an underwriting profitof £0.1 million compared with an underwriting profit of £0.9 million in 2007.The 2007 results reflected favourable development on 2001 and prior years'aviation and energy claims. Syndicate 780 - Net notified loss ratio at 3 months (excluding IBNR) Year of 1993 1994 1995 1996 1997 1998 1999 2000account% netnotified 0.6% 9.5% 0.3% 1.7% 1.6% 8.2% 5.1% 0.8% Year of 2001 2002 2003 2004 2005 2006 2007 2008account% netnotified 0.4% 0.1% 0.4% 3.6% 6.1% 0.1% 8.3% 10.0% The 2007 and 2008 ratios include the impact of the purchase of reinsurance on 1January. Historically the programme was purchased on 1 April. Excluding thiscost, the 2007 and 2008 ratios would have been 3.4% and 5.0% respectively. Catastrophe Exposure At 31 March 2008, the Company's consolidated exposure to any one of the majorLloyd's Realistic Disaster Scenarios (RDS), from Syndicate 780 and Advent Re, issummarised below: 31 March 2008 31 March 2008 1 January 1 January 2008 2008 Industry Loss Gross loss Net loss Gross loss Net lossCatastrophe Event US$bn £m £m £m £m Gulf of Mexico Windstorm 113 80.1 33.2 83.7 38.3USA North East Windstorm 74 67.0 29.4 72.6 35.2Los Angeles Earthquake 74 65.3 27.2 69.1 32.6European Windstorm 31 64.0 30.9 66.1 34.6Japan Earthquake 51 30.3 23.8 32.4 26.6 The Gulf of Mexico catastrophe event, before consideration of Syndicate 780 andAdvent Re's catastrophe margins, would result in an estimated after tax loss of£25.7 million or 24.6% of shareholders' equity (1 January 2008: £30.7 millionand 28.3% respectively). Expenses For the three months ended 31 March 2008, the operating expense ratio (excludingacquisition costs and foreign exchange gains) as a percentage of net earnedpremiums, excluding RITC and reinstatement premiums, was 10.1%, compared with11.7% in 2007, reflecting savings on reduced Lloyd's central charges. Investment Return For the three months ended 31 March 2008, the investment return increased to£3.2 million (2007: £2.9 million), reflecting an increase in the Company's cashand investments of £49.3 million since 31 March 2007, offset by sharply lowerinterest rates in the United States and falling interest rates in the UnitedKingdom. The Syndicate's US dollar investment portfolio duration has been maintainedshort, at approximately 0.3 years. It is wholly invested in government orgovernment guaranteed securities, with an overall return on US bonds of 1.1% forthe first quarter of 2008 (annualised return of 4.4%). Neither the syndicatesnor the Company invest in asset backed or mortgage backed securities (ABS andMBS), equities or derivatives. Certain overseas deposits managed by Lloyd's(over which the Company has no investment control) have invested in corporatebonds and ABS as referred to in note 5 to the financial statements. Advent Re's funds (included in corporate balances below) continued to beinvested mainly in short term US treasury bills held in trust accounts ascollateral for cedents' policy limits. The return for the first quarter of 2008was £0.2 million (annualised return of 2.4%) results from sharply lower USinterest rates. Our investment mix as at 31 March 2008 is shown below. 31 March 2008 31 December 2007 Syndicate Corporate Total TotalInvestment mix £'000 £'000 £'000 £'000 Government debtsecurities 119,820 123,650 243,470 219,654 Cash, cash equivalentsand other investments 24,600 20,076 44,676 47,150Total 144,420 143,726 288,146 266,804 The increase in cash and investments from £266.8 million at 31 December 2007 to£288.1 million at 31 March 2008 reflects the increase in the Company's share ofSyndicate 780's 2005 year of account assets reinsured into the 2006 year ofaccount. Capital Management 31 March 2008 31 December 2007 £'000 £'000Long term debt- subordinated 25,838 25,085- senior 22,266 22,262 48,104 47,347 Shareholders' equity 104,430 108,398 Debt to equity ratio 46% 44% Debt to total capital ratio 32% 30% Interest coverage (4 x) 7 x The Company continues to maintain its debt to total capital ratio below 35% inaccordance with its stated policy. 2008 Business Plan The first quarter is a key underwriting period for Syndicate 780 with premiumswritten of £71.7 million (£72.8 million at business plan exchange rates ofUS$1.92) down slightly from premiums written of £74.7 million in 2007 (£80.3million at business plan exchange rates of US$1.77). At business plan exchangerates, premiums written are slightly in excess of the premium income expected tobe written at this stage. Premiums written for the Reinsurance account wereahead of plan by a shortfall in the Property Insurance and Marine accounts.Given increasingly competitive market conditions in the insurance market, weexpect that Property Insurance and Marine premiums will be below plan for 2008. The premiums underwritten of £71.7 million consist of £49.6 million recognisedas premiums written in these interim statements and £22.1 million which is inrespect of "premiums written but unincepted" business, principally relating toProperty Insurance binders, where the premiums will be recognised as writtenover 2008. Outlook As expected, market conditions are increasingly competitive in our principallines of business affecting rates and premium signings, particularly in theProperty Insurance and Energy accounts. Our business plans for Syndicate 780 andAdvent Re reflected our expectation of softer market conditions albeit webelieve that underwriting profitability remains at attractive levels. Terms andconditions are holding, particularly in the Reinsurance account, despite pricingwhich has seen reductions of between 7.5% to 15%. Advent is well positioned in these competitive and challenging markets. Ourunderwriting business has lived through many challenges over the past 33 yearsand our experienced management and underwriting team is well prepared to operatein what is clearly a highly competitive pricing environment. We continue tomaintain our focus on underwriting profitability while remaining alert to thechanging business environment that our Lloyd's and Bermuda operations may haveto contend with. Brian F CaudleChairman 25 April 2008 CONSOLIDATED INCOME STATEMENTFor the three months ended 31 March 2008 Note Three months Year 2008 2007 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000IncomeGross premiums earned 4 26,609 21,648 113,400Reinsurance to close premium 34,246 6,785 6,698Reinsurance premium ceded 4 (4,822) (6,350) (24,114)Net premiums earned 4 56,033 22,083 95,984Investment income 5 3,154 2,916 13,141Other operating income 126 204 483Total Income 59,313 25,203 109,608 ExpensesClaims incurred 4 (23,394) (10,858) (41,121)Reinsurance to close claims 4 (34,246) (6,785) (6,698)Reinsurance recoveries 4 1,623 259 (614)Acquisition costs (4,300) (3,765) (18,921)Underwriting expenses (2,074) (1,783) (8,655)Profit (loss) on exchange (326) 251 868Corporate costs (1,031) (869) (4,748)Total Expenses (63,748) (23,550) (79,889) Operating Result (4,435) 1,653 29,719Interest on debt (1,089) (1,121) (4,558)Profit (loss) before tax (5,524) 532 25,161Tax 7 1,540 (179) (5,969)Profit (loss) for the periodattributable to ordinaryshareholders (3,984) 353 19,192 Earnings per ordinary share- Basic and diluted 6 (1.0p) 0.1p 4.7p CONSOLIDATED BALANCE SHEETAt 31 March 2008 Note 31 March 31 December 2008 2007 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000AssetsCash and cash equivalents 5 36,647 144,488 26,978Financial investments at fair value 5 251,499 94,289 239,826Other receivables 18,561 13,646 4,345Insurance and reinsurance assets - Reinsurers' share of outstanding claims 4 22,262 27,752 18,176 - Reinsurers' share of unearned premiums 4 17,918 13,499 1,058- Debtors arising from insurance and reinsurance operations 82,697 73,274 48,060Deferred tax asset 17,205 21,776 15,665Property and equipment 567 525 651Intangible assets 8 7,046 7,976 7,210Total assets 454,402 397,225 361,969 EquityShare capital 6 20,329 20,329 20,329Share premium account 60,662 60,662 60,662Capital redemption reserve 21,065 21,065 21,065Other reserves (2,650) (2,826) (2,666)Retained earnings (deficit) 5,024 (9,831) 9,008Total shareholders' equity 104,430 89,399 108,398 LiabilitiesInsurance and reinsurance liabilities - Outstanding claims 4 208,051 185,638 163,764 - Unearned premiums 4 66,559 53,791 31,136 - Creditors arising out of insurance and reinsurance operations 22,374 16,235 6,442Trade and other payables 4,884 4,808 4,882Long term debt 6 48,104 47,354 47,347Total liabilities 349,972 307,826 253,571 Total liabilities and shareholders' equity 454,402 397,225 361,969 CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the three months ended 31 March 2008 31 March 31 March 31 Dec 2008 2007 2007 Capital (unaudited) (unaudited) (audited) Share Share re-demption Other Retained capital premium reserve reserves earnings Total Total Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 January 20,329 60,662 21,065 (2,666) 9,008 108,398 88,986 88,986 Profit (loss) for the - - - - (3,984) (3,984) 353 19,192period Share based payments - - - 16 - 16 60 220 Balance at end of 20,329 60,662 21,065 (2,650) 5,024 104,430 89,399 108,398period CONSOLIDATED CASH FLOW STATEMENTFor the three months ended 31 March 2008 Note Three months Year 2008 2007 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Cash flows from operating activities 9 9,238 1,649 (117,799)Interest paid (1,134) (1,133) (4,563)Income tax - - 133 8,104 516 (122,229) Cash flows from investing activitiesInterest received 1,576 2,344 7,926Purchase of property and equipment (11) (26) (373) 1,565 2,318 7,553 Net increase (decrease) in cash and cash equivalents 9,669 2,834 (114,676)Cash and cash equivalents at 1 January 26,978 141,654 141,654Cash and cash equivalents at end of period 5 36,647 144,488 26,978 NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. BASIS OF PREPARATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS These interim consolidated financial statements should be read in conjunctionwith the Company's consolidated financial statements for the year ended 31December 2007 as set out on pages 41 to 79 of the 2007 Report and Accounts. These interim financial statements have been prepared using accounting policiesconsistent with International Financial Reporting Standards (IFRS) and inaccordance with International Accounting Standards (IAS) 34 Interim FinancialReporting. The policies utilised are also consistent with those set out onpages 46 to 49 of the Company's consolidated financial statements for the yearended 31 December 2007. Status of the interim financial statements The interim financial statements have been reviewed by the Company's auditorsPricewaterhouseCoopers LLP. These interim financial statements do notconstitute accounts as defined in section 240 of the Companies Act 1985 ("theAct"). The results for the year ended 31 December 2007 are based on the Company'sstatutory accounts which received an unqualified audit opinion from theCompany's auditors, and did not contain a statement under section 237(2) or (3)of the Act. The Company's Report and Accounts for the year ended 31 December2007 have been filed with the Registrar of Companies. 2. FOREIGN EXCHANGE RISK MANAGEMENT The principal exchange rates used in translating foreign currency assets,liabilities, income and expenditure in the preparation of these financialstatements were: 31 March 2008 31 March 2007 31 December 2007 Period Period Period Period Period Period average End average end average end rate rate rate rate rate rate US dollar 1.98 1.99 1.96 1.96 2.00 1.99Euro 1.32 1.25 1.49 1.47 1.46 1.36Canadian dollar 1.99 2.04 2.29 2.26 2.15 1.96 The Company had foreign exchange gains and losses which were recorded in theconsolidated income statement as follows: Three Three months months Year 2008 2007 2007 £'000 £'000 £'000Underwriting activities (80) (57) 937Corporate activities (246) 308 (69)Net gain (loss) (326) 251 868 At 31 March 2008, the Company's asset and liability positions in its majorforeign currencies were as follows: 31 March 2008 (unaudited) US$m £m CDN$m •m Total assets 501.3 181.5 24.6 12.2 Total liabilities (520.1) (69.0) (20.4) (12.9) Net assets (net liabilities) (18.8) 112.5 4.2 (0.7) 31 December 2007 (audited) US$m £m CDN$m •m Total assets 402.8 141.4 18.5 12.4 Total liabilities (384.9) (45.1) (13.2) (13.0) Net assets (net liabilities) 17.9 96.3 5.3 (0.6) On 4 April 2008, the Company bought US$10 million from sterling to reduce its USnet liability position. 3. OPERATING RESULTS Three Three months Months Year 2008 2007 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Underwriting profit Syndicate 780 - Non-MarineUnderwriting Year of Account2008 - open (2,423) - -2007 - open (1,791) (209) 12,6522006 - open (2,479) 1,296 2,2812005 and prior closed - (2,721) (258)Total Syndicate 780 (6,693) (1,634) 14,675 Syndicate 2 - MarineUnderwriting Year of Account2002 - run-off 120 (191) 912001 - run-off (1) 1,041 1,370Total Syndicate 2 119 850 1,461 Advent Re 136 (122) 4,944 Company level reinsurance - - (168) Underwriting (loss) profit (6,438) (906) 20,912 Managing AgencyAgency fees 12 149 237Recharges to Syndicates 114 55 246 126 204 483 OtherInvestment result 3,154 2,916 13,141Interest expense (1,089) (1,121) (4,558)Corporate costs (1,031) (869) (4,748)Corporate foreign exchange (loss) (246) 308 (69) Profit (loss) before tax (5,524) 532 25,161 4. INSURANCE RISK MANAGEMENT Insurance segment results The underwriting results of Advent Re are included in the Non-Marine Reinsurancesegment. Acquisition costs consisting of direct brokerage commissions, areallocated to each segment on a direct basis while operating costs, includingunderwriting costs, are allocated based on gross premiums written. For catastrophe exposed business, including multiple peril coverage, the Companyrecognises premiums as earned based on the underlying exposure to catastrophe.As a result, a greater proportion of premium income on catastrophe exposedbusiness is earned in the second half of the year when the company is exposed togreater risk of hurricane related losses. The reinsurance to close (RITC) premium and claims are included in the NonMarine Reinsurance segment and are valued at the RITC transaction date of 1January 2008. Subsequent movements in premiums and claims are reflected withinthe segments to which they relate within claims incurred and reinsurancerecoveries on the income statement. Non-Marine Property Re-insurance Insurance Marine Syndicate Total 2 £'000 £'000 £'000 £'000 £'000 Three months 2008 (unaudited)Gross premiums written 86,190 5,467 4,603 15 96,275Net premiums written 70,147 3,053 1,338 54 74,592Net premiums earned 47,302 4,914 3,763 54 56,033Net claims incurred (46,373) (8,271) (1,662) 289 (56,017)Acquisition costs (1,981) (1,301) (1,016) (2) (4,300)Operating expenses (1,765) (107) (90) (112) (2,074)Profit (loss) on exchange 27 2 1 (110) (80)Underwriting profit (loss) (2,790) (4,763) 996 119 (6,438)Combined ratio 105.9% 196.9% 73.5% (119.6%) 111.5% Non-Marine Property Re-insurance Insurance Marine Syndicate Total 2 £'000 £'000 £'000 £'000 £'000 Three months 2007 (unaudited)Gross premiums written 42,633 7,215 7,844 211 57,903Net premiums written 31,899 5,054 5,364 193 42,510Net premiums earned 13,618 5,489 2,783 193 22,083Net claims incurred (11,381) (3,442) (3,338) 777 (17,384)Acquisition costs (1,441) (1,648) (644) (32) (3,765)Operating expenses (1,251) (212) (230) (90) (1,783)Profit (loss) on exchange (43) (7) (9) 2 (57)Underwriting profit (loss) (498) 180 (1,438) 850 (906)Combined ratio 103.7% 96.7% 151.7% (341.4)% 104.1% Non-Marine Property Re-insurance Insurance Marine Syndicate Total 2 £'000 £'000 £'000 £'000 £'000Year 2007(audited)Gross premiums written 75,966 31,723 18,691 532 126,912Net premiums written 61,292 27,785 16,461 661 106,199Net premiums earned 57,862 24,358 13,103 661 95,984Net claims incurred (28,645) (14,499) (6,497) 1,208 (48,433)Acquisition costs (8,495) (7,431) (2,915) (80) (18,921)Underwriting expenses (4,899) (2,046) (1,204) (506) (8,655)Profit on exchange 456 191 112 178 937Underwriting profit 16,279 573 2,599 1,461 20,912Combined ratio 71.9% 97.6% 80.2% (120.9%) 78.2% Provision for claims (a) Net incurred claims Three Three months months Year 2008 2007 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Claims incurred - Gross paid claims 17,483 25,148 75,354 - Change in provision for claims 5,911 (14,290) (34,233) 23,394 10,858 41,121 Reinsurance Recoveries - Received (1,852) (5,828) (14,013) - Change in provision 229 5,569 14,627 (1,623) (259) (614)Reinsurance to close claims (net) 34,246 6,785 6,698Net incurred claims 56,017 17,384 48,433 (b) Outstanding claims and unearned premiums Unearned Claims Total Premiums outstanding £'000 £'000 £'000 GrossAt 1 January 2008 (audited) 31,136 163,764 194,900Exchange adjustments - (185) (185)Movement in provisions- current year 35,423 22,931 58,354- reinsurance to close claims gross - 38,561 38,561- prior year - 462 462- paid claims - (17,482) (17,482)At 31 March 2008 (audited) 66,559 208,051 274,610 Reinsurance amountAt 1 January 2008 (audited) 1,058 18,176 19,234Exchange adjustments - - -Movement in provisions- current year 16,860 1,487 18,347- reinsurance to close claims recoveries - 4,315 4,315- prior year - 136 136- paid recoveries - (1,852) (1,852)At 31 March 2008 (audited) 17,918 22,262 40,180 NetAt 31 March 2008 (unaudited) 48,641 185,789 234,430At 31 December 2007 (audited) 30,078 145,588 175,666At 31 March 2007 (unaudited) 40,292 157,886 198,178 For the three months ended 31 March 2008, adverse development in prior years'claims, net of reinsurance recoveries and reinstatement premiums, amounted to£0.2 million (2007: adverse development of £1.9 million). The net outstanding claims are further analysed between notified outstandingclaims and incurred but not reported claims (IBNR) below: 31 March 31 March 31 December 2008 2007 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Notified outstanding claims 125,149 113,148 101,901Claims incurred but not reported 60,640 44,738 43,687Claims outstanding 185,789 157,886 145,588 The breakdown of the gross and net outstanding claims by category of claims isset out below. 31 March 2008 31 March 2007 31 December 2007 (unaudited) (unaudited) (audited) Gross Net Gross Net Gross Net £'000 £'000 £'000 £'000 £'000 £'000 Large catastrophe provision 43,287 31,331 56,019 43,021 33,970 27,735All other short tail provisions 86,018 84,010 53,425 49,110 60,221 57,017Long-tail provisions (Casualty) 34,844 34,843 26,312 26,312 24,640 24,640Syndicate 2 provisions 43,902 35,605 49,882 39,443 44,933 36,196Total 208,051 185,789 185,638 157,886 163,764 145,588 Reinsurance recoverable At 31 March 2008, the Company's reinsurance recoverable on outstanding claimsamounted to £22.3 million, an increase of £4.1 million since 31 December 2007,with reinsurers with the following risk ratings by AM Best (or equivalent S&Prating in the absence of an AM Best rating): Risk Rating Reinsurance recoverable £'000 % A+ 10,900 49.0Lloyd's 2,688 12.1A 3,893 17.5A- 355 1.5Trust fund backed 1,642 7.4BBB or below and Non Rated 2,784 12.5 Total 22,262 100.0 Included in debtors arising from insurance and reinsurance operations are thefollowing reinsurer balances. Syndicate 780 Syndicate 2 Total £'000 £'000 £'000Fully performing 498 1,371 1,869Past due 40 499 539Impaired 4,408 6,700 11,108Provision for uncollectible reinsurance (3,249) (4,569) (7,818)Net 1,697 4,001 5,698 5. FINANCIAL RISK MANAGEMENT NET INVESTMENT INCOME Three Three months months Year 2008 2007 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Investment IncomeInterest 2,909 2,761 12,515Gain on sale of investments 130 43 325Unrealised gains on investments 253 165 772 3,292 2,969 13,612 Investment expenses and chargesInvestment management expenses (56) (24) (114)Loss on sale of investments (22) (16) (350)Unrealised losses on investments (60) (13) (7) (138) (53) (471)Net investment income 3,154 2,916 13,141 FINANCIAL INVESTMENTS 31 March 31 March 31 Dec 2008 2007 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Carrying Value Debt securities and other fixed income securities- Government and government guaranteed 243,470 65,119 219,654- Holdings in collective investment schemes 3,605 25,828 16,118- Syndicate overseas deposits 4,424 3,342 4,054 251,499 94,289 239,826 Purchase Price Debt securities and other fixed income securities- Government and government guaranteed 242,783 64,705 218,821- Holdings in collective investment schemes 3,605 25,828 16,118- Syndicates' overseas deposits 4,424 3,342 4,054 250,812 93,875 238,993 All debt securities and other fixed income securities are listed on recognisedstock exchanges. All financial investments are classified as fair value throughincome including short term fixed maturity securities. At 31 March 2008, Syndicate investments of £47.5 million (31 December 2007:£44.8 million) were held in US Situs and other regulatory deposits available forthe payment of claims in those jurisdictions and which are not available for thepayment of other claims and obligations. At 31 March 2008, Advent Re had pledged cash and investments of £22.1 million(31 December 2007: £23.0 million) as security for policy limits of contractswritten. CASH AND CASH EQUIVALENTS 31 31 31 March March December 2008 2007 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Corporate cash at bank 12,146 6,076 10,760Corporate funds held by Lloyd's 659 113,902 628Advent Re cash at bank 7,271 19,315 2,147Syndicates' cash at bank 1,505 4,624 5,448Syndicates' deposits with credit institutions 15,066 571 7,995Total cash and cash equivalents 36,647 144,488 26,978 Cash at bank was held with Royal Bank of Scotland and Barclays Bank, both ofwhich are rated AA by Standard & Poor's. The syndicates' overseas deposits (Joint Asset Trust Funds (JATF)) are managedby Lloyd's. The Company does not have the authority to ensure that itsinvestment policies are complied with. Lloyd's has advised the Company that ithas invested the JATF in: Company's share £'000US Government securities 3,006Corporate bonds rated AAA 313 AA 488 A 403Asset backed securities (ABS) 211Cash 3 4,424 Other than the above investments, over which the Company does not exerciseinvestment authority, the Company only invests in short term government andgovernment guaranteed securities. It does not invest in derivatives, MBS, ABS,equities or corporate bonds given current market conditions. 6. CAPITAL MANAGEMENT SHARE CAPITAL Authorised Allotted, Called-Up and Fully Paid 31 31 31 31 31 31 March March December March March December 2008 2007 2007 2008 2007 2007 £'000 £'000 £'000 £'000 £'000 £'000 Ordinary shares of 5p each 50,000 50,000 50,000 20,329 20,329 20,329(£000) Number of shares ('000s) 1,000,000 1,000,000 1,000,000 406,570 406,570 406,570 EARNINGS PER ORDINARY SHARE Three Three Months months Year 2008 2007 2007 (unaudited) (unaudited) (audited) Profit after tax for the period (£'000) (3,984) 353 19,192Weighted average number of shares in issue ('000s) 406,570 406,570 406,570Basic and diluted earnings per share (1.0p) 0.1p 4.7p Outstanding Issue date Due date Callable Interest rate Interest 31 March 31 March 31 debt (by the rate (31 2008 2007 December Company) March 2007 after 2008) £'000 £'000 £'000 Subordinated NotesUS$34 3/6/2005 3/6/2035 3/6/2010 3 month LIBOR + 6.59% 16,556 16,825 16,546million 3.90% €12 million 3/6/2005 3/6/2035 3/6/2010 3 month EURIBOR + 8.58% 9,282 7,910 8,539 3.85% 25,838 24,735 25,085Senior NotesUS$26 16/1/2006 15/1/2026 16/1/2011 3 month LIBOR + 7.19% 12,543 12,749 12,540million 4.50% US$20 15/12/2006 15/12/2026 15/12/2011 3 month LIBOR + 6.84% 9,723 9,870 9,722million 4.15% 22,266 22,619 22,262 Total Loan Notes at amortised cost and fair 48,104 47,354 47,347value Weighted average interest rate, period end 7.18% 9.22% 8.80% The Subordinated Notes rank on a winding-up of the Company in priority todistributions on all classes of share capital and rank pari passu with eachother but are subordinated in right of payment to the claims of allunsubordinated creditors of the Company (including, where applicable, allpolicyholders of the Syndicate). The Senior Notes rank on a winding-up of the Company in priority todistributions on all classes of share capital and subordinated loan notes, andrank pari passu with each other but are subordinated in right of payment to theclaims of all unsubordinated creditors of the Company (including, whereapplicable, all policyholders of the Syndicate). The Subordinated Notes and Senior Notes are listed on the Channel Islands StockExchange. LONG TERM INCENTIVE PLANS No grants have been made under the Company's Long Term Incentive Plan, ShareOption Plan and Share Incentive Plan which were approved at the Annual GeneralMeeting on 9 April 2008. During the first quarter of 2008, 450,000 options were cancelled under the 2005grants at 35p per share and 500,000 options were cancelled under the 2006 grantat 20p per share. FUNDS AT LLOYD'S (FAL) The Funds held by Lloyd's represent monies deposited with the Corporation ofLloyd's (Lloyd's) to support the Company's underwriting activities. These Fundsare subject to a Lloyd's deposit trust deed which gives Lloyd's the right toapply these monies in settlement of any claims arising from the Company'sunderwriting at Lloyd's. In addition to the Company's FAL of £101.5 million at 31 March 2008, a majorshareholder, Fairfax Financial Holdings Limited (Fairfax), has deposited FAL of£58.3 million at 31 March 2008 (£56.6 million at 31 December 2007) to supportthe Company's underwriting for the 2001 to 2005 underwriting years pursuant to aFunding Agreement dated 16 November 2000. Any underwriting profits arising fromthe business supported by the Fairfax FAL are receivable by the Company which isalso responsible for the payment of any losses arising. The FAL and the overseas deposits are not available for use by the Company forordinary cash flow purposes. When Syndicate 780's 2005 year of account is closed on 30 June 2008, theCompany's share of the cash call of £29.5 million will be paid from its existingFAL of £15.1 million, from pipeline profits of £13.1 million on the 2006 and2007 years of account and the balance of £1.3 million from holding company cash. 7. INCOME TAXES 31 31 31 December March March 2008 2007 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Analysis of charge in periodUK corporation tax on profit for the period - - -Adjustment in respect of prior periods - - (20)Foreign tax - - -Deferred tax (1,540) 179 5,989Total taxation (1,540) 179 5,969 8. INTANGIBLE FIXED ASSETS Purchased Purchased Capacity - Capacity - Goodwill on finite life indefinite Acquisition life Total £'000 £'000 £'000 £'000 Fair ValueAt 31 March 2008 (unaudited) 4,148 203 2,695 7,046At 31 December 2007 (unaudited) 4,148 367 2,695 7,210At 31 March 2007 (audited) 4,148 1,133 2,695 7,976 The consideration payable of £1.2 million to third party capital providers on 30June 2008 is a finite life asset and accordingly, is amortised to expenses asthe gross premium income is earned on the 2007 year of account to which thepayment relates. 9. RECONCILIATION OF PROFIT BEFORE TAX TO NET CASH INFLOW (OUTFLOW) FROM OPERATING ACTIVITIES Three Three Months months Year 2008 2007 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 (Loss) profit before tax (5,524) 532 25,161Movement in:- insurance and reinsurance receivables (55,582) (31,430) 15,801- other receivables (14,402) (4,952) 3,738- insurance and reinsurance payables 95,642 31,443 (22,879)- trade and other payables 38 (1,271) (1,014)Interest expense 1,089 1,122 4,558Investment result (1,382) (1,518) (6,489)Unrealised investment gains (losses) 193 150 765Net (purchase) sale of investments (11,866) 7,292 (138,861)Depreciation 95 63 284Amortisation of debt issue costs 6 20 22Amortisation of capacity 164 86 852Amortisation of share option costs 16 60 220Foreign exchange movements on financing 751 52 43 9,238 1,649 (117,799) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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