3rd Quarter Results

29th Oct 2008 07:00



Advent Capital (Holdings) PLC

("Advent" or the "Company")

Advent, the specialist Lloyd's insurer, today reports its results for the nine months ended 30 September 2008.

Key highlights 

  Financial summary 

	Nine months (unaudited)
	2008	2007	Year  2007	Year 2006	Year 2005
	£'000	£'000	£'000	£'000	£'000
Gross premiums written	183,083	115,552	126,912	115,356	100,550
Net premiums written	151,420	95,296	106,199	88,201	62,949
Net premiums earned	122,117	69,941	95,984	81,694	65,070
Underwriting profit (loss)	1,149	9,100	20,912	21,064	(78,098)
Profit (loss) before tax	(1,857)	12,875	25,161	22,853	(74,185)
Profit (loss) after tax	26	7,818	19,192	16,011	(51,922)
Return on equity	0.0%	8.8%	21.6%	25.1%	(68.4%)

	Nine months (unaudited)
	2008	2007 Restated	Year 2007 Restated	Year 2006 Restated	Year 2005 Restated
Per share amounts (1)
Earnings (loss) - basic and diluted	0.1p	19.2p	47.2p	43.3p	(30.3p)
Dividend	12.5p	-	-	-	27.5p
Net assets	254p	238p	267p	219p	160p
Net tangible assets	237p	220p	249p	199p	136p

Operating ratios
Claims ratio	80% (2)	59%	49%	44%	197%
Expense ratio	19% (2)	28%	29%	30%	23%
Combined ratio	99% (2)	87%	78%	74%	220%
Net notified loss ratio	32%	24%	32%	17%	134%
(by year of account)

(1)  per share amounts restated for the share consolidation of 10 old ordinary shares of 5p each for 1 new ordinary share of 50p each on 23 June 2008

(2) claims ratio of 72%, expense ratio of 27% and combined ratio of 99% excluding impact of reinsurance to close (RITC) premium

  

Advent Capital (Holdings) PLC
Keith Thompson		020 7743 8200
Chief Operating Officer
Trevor Ambridge Chief Financial Officer		020 7743 8200
Neil Ewing Investor Relations		020 7743 8250
Fox-Pitt Kelton Cochran Caronia Waller
Simon Law		020 7663 6023
Jonny Franklin-Adams		020 7663 6029
Pelham Public Relations
Polly Fergusson		020 7743 6362
Damian Beeley		020 3178 2253

  Financial Review

For the nine months ended 30 September 2008, the Company's loss before tax was £1.9 million compared with a profit of £12.9 million for the first nine months of 2007.  

For the nine months ended 30 September 2008, the Company incurred:

The results for the nine months of 2008 reflect:

Underwriting loss of £7.9 million from the 2008 year of account after 2008 Hurricane Losses of £17.1 million and single risk property losses of £4.3 million. The catastrophe margin has been fully utilised at 30 September 2008 whereas there was unutilised catastrophe margins at 30 September 2007 and 2006 when there were no major catastrophes.

Underwriting profit of £2.1 million from the 2007 year of account after single risk property losses of £6.9 million, principally recorded in the first quarter of 2008.

Underwriting profit of £1.7 million from the 2006 and prior years of account primarily due to improvements in prior years' claims of £2.0 million (2007: £2.3 million).

The Company's earnings per share of 0.1p for the first nine months of 2008 reflects the 2008 Hurricane Losses, compared with restated earnings per share of 19.2p in 2007 when there were no major catastrophes.

For the nine months ended 30 September 2008, the Company had an underwriting profit of £1.1 million and a combined ratio of 99.1% compared with an underwriting profit of £9.1 million and a combined ratio of 87.0% in 2007.  Excluding the RITC premium from the 2005 year of account of £34.2 million (2007: £6.8 million from the 2004 year of account), the combined ratio for the first nine months of 2008 was 98.7% on net earned premium of £87.9 million (2007: 85.7% on net earned premium of £62.8 million).

 

Underwriting Review

For the nine months ended 30 September 2008, gross premiums written, excluding the RITC premium, increased by 32.8% to £144.5 million from £108.8 million in 2007, reflecting the Company's increased share of Syndicate 780's capacity to 100% in 2008 from 83.7% in 2007 (£23.6 million) and premium growth (£12.1 million).  

Similarly, excluding the RITC premium, net premiums written increased by 31.5% to £117.2 million from £89.1 million in 2007, and net premiums earned increased by 40.0% to £87.9 million from £62.8 million in 2007.

Insurance Segment Review

	30 September 2008
	Non-Marine	Property
	Reinsurance	Insurance	Marine	Syn 2	Total
	£'000	£'000	£'000	£'000	£'000
Gross premiums written	130,563	28,692	23,334	494	183,083
Net premiums written	107,869	23,732	19,244	575	151,420
Net premiums earned	86,892	21,709	12,941	575	122,117
Net claims incurred	(71,270)	(18,560)	(7,287)	(466)	(97,583)
Acquisition costs	(7,431)	(6,093)	(3,379)	(74)	(16,977)
Operating costs	(3,746)	(1,268)	(1,031)	(363)	(6,408)
Underwriting profit (loss)	4,445	(4,212)	1,244	(328)	1,149
Claims ratio	82.0%	85.5%	56.3%	81.0%	80.0%
Acquisition costs	8.6%	28.1%	26.1%	12.9%	13.9%
Operating costs	4.3%	5.8%	8.0%	63.0%	5.2%
Expense ratio	12.9%	33.9%	34.1%	75.9%	19.1%
Combined ratio	94.9%	119.4%	90.4%	156.9%	99.1%
Adjusted combined ratio excluding effect of RITC premium	91.6%	119.4%	90.4%	156.9%	98.7%

  

	30 September 2007 (Restated)
	Non-Marine	Property
	Reinsurance	Insurance	Marine	Syn 2	Total
	£'000	£'000	£'000	£'000	£'000
Gross premiums written	73,236	24,249	17,703	364	115,552
Net premiums written	58,773	20,465	15,532	526	95,296
Net premiums earned	41,657	18,243	9,515	526	69,941
Net claims incurred	(27,765)	(9,282)	(5,907)	1,405	(41,549)
Acquisition costs	(6,369)	(5,598)	(2,056)	(55)	(14,078)
Operating costs	(3,082)	(1,020)	(745)	(367)	(5,214)
Underwriting result	4,441	2,343	807	1,509	9,100
Claims ratio	66.6%	50.9%	62.1%	(267.0)%	59.4%
Acquisition costs	15.3%	30.7%	21.6%	10.4%	20.1%
Operating costs	7.4%	5.6%	7.8%	69.7%	7.5%
Expense ratio	22.7%	36.3%	29.4%	80.1%	27.6%
Combined ratio	89.3%	87.2%	91.5%	(186.9)%	87.0%
Adjusted combined ratio excluding effect of RITC premium	87.5%	87.2%	91.5%	(186.9)%	85.7%

Non-Marine Reinsurance

For the nine months ended 30 September 2008, the Non-Marine Reinsurance account had an underwriting profit of £4.4 million and combined ratio of 94.9% after the 2008 Hurricane Losses and single risk property losses, net of reinsurance recoveries and reinstatement premiums, of £19.0 million and partially offset by the release of earned catastrophe margins of £10.5 million and profit on exchange of £5.9 million from the impact of the stronger US dollar on underwriting income.  This compares with an underwriting profit of £4.4 million and combined ratio of 89.3% in 2007 after attritional catastrophe losses from European Windstorm Kyrill, Australian storms and UK floods of £7.2 million. Excluding the RITC premium, the combined ratio was 91.6% for the first nine months of 2008 (2007: 87.5%).

Advent Re

For the nine months ended 30 September 2008, Advent Re had an underwriting profit of £5.5 million, with the release of its unutilised catastrophe margins against the 2008 Hurricane Losses. PCS reported insured loss estimates at 30 September 2008 of US$1.9 billion for Hurricane Gustav and US$8.1 billion for Hurricane Ike. Advent Re does not expect any losses under its contracts with attachment points for its OLW's at US$20 billion for onshore property losses and the UNL policies are underwritten with the intention of responding to similar levels of market loss as the OLW policies, recognising that this is modelled data and the attachment points are estimates in terms of the probability and size of the market loss.  Advent Re wrote US$13.2 million (£6.8 million) of premiums, net of brokerage, in the first nine months of 2008, up from US$11.5 million (£5.8 million) in 2007, with 72% of policies expiring on 31 December 2008 and 28% of policies expiring in the first half of 2009. The risks written consist of Original Loss Warranty (OLW) policies for 38% of premiums written and traditional Ultimate Net Loss (UNL) policies for 62% of premiums written.

Property Insurance

For the nine months ended 30 September 2008, the Property Insurance account had an underwriting loss of £4.2 million and combined ratio of 119.4% after 2008 Hurricanes Losses of £3.2 million and single risk property losses, net of reinsurance recoveries, of £3.8 million. This compares with an underwriting profit of £2.3 million and combined ratio of 87.2% in 2007.

Marine

For the nine months ended 30 September 2008, the Marine account had an underwriting profit of £1.2 million and a combined ratio of 90.4%, after 2008 Hurricanes Losses of £2.7 million. This compares with an underwriting profit of £0.8 million and combined ratio of 91.5% in 2007, which included a late advice of a Hurricane Rita energy claim of £2.2 million in the first quarter of 2007.

Syndicate 2

Syndicate 2 had an underwriting loss of £0.3 million for the nine months ended 30 September 2008 due to a new claims advice on the 1999 year of account received in the second quarter. The 2007 underwriting profit of £1.5 million reflected favourable development on 2001 and prior years' aviation and energy claims.

Advent Underwriting Limited is considering the closure of the 2001 and 2002 years of account and is continuing to consult with all syndicate capital providers to establish whether this is achievable.

Syndicate 780 - Net notified loss ratio at nine months (excluding IBNR)

Year of account	1993	1994	1995	1996	1997	1998	1999	2000
% net notified	10.0%	19.4%	9.4%	18.0%	13.9%	27.1%	30.5%	20.3%
Year of account	2001	2002	2003	2004	2005	2006	2007	2008
% net notified	33.2%	5.1%	9.2%	23.7%	20.3%	11.5%	22.6%	32.3%

The 2008 net notified loss ratio of 32.3% reflects the high frequency of single risk property losses and attritional catastrophe losses in 2008 with notified losses on the 2008 Hurricanes of only US$7.3 million. The 2007 net notified loss ratio included incurred losses on Kyrill, Australian storms and UK floods.

 

Catastrophe Exposure

At 30 September 2008, the Company's consolidated exposure to any one of the major Lloyd's Realistic Disaster Scenarios (RDS), from Syndicate 780 and Advent Re, is summarised below:

	Industry	30 Sept 2008	30 Sept 2008	1 January 2008	1 January 2008
	Loss	Gross loss	Net loss	Gross loss	Net loss
Catastrophe Event	US$bn	£m	£m	£m	£m
Gulf of Mexico Windstorm	113	105.6	48.4	83.7	38.3
USA North East Windstorm	74	85.9	40.9	72.6	35.2
Los Angeles Earthquake	74	78.2	41.0	69.1	32.6
European Windstorm	31	69.4	35.9	66.1	34.6
Japan Earthquake	51	50.5	32.7	32.4	26.6

The Gulf of Mexico catastrophe event, before consideration of any Syndicate 780 or Advent Re catastrophe margins, would result in an estimated after tax loss of £39.5 million or 38.2% of shareholders' equity (1 January 2008: £30.7 million and 28.3% respectively). The increase resulted from Advent Re having written its planned US catastrophe exposure in the first and second quarters and the impact of the stronger US dollar on Syndicate 780's US catastrophe exposure.

The 2008 Hurricane Loss estimates were within the Company's expectations based on modelled losses using AIR catastrophe software which we adjusted for estimated Hurricane Ike losses in Ohio and the Caribbean which were not included in the AIR modelled losses. Non modelled offshore energy losses were based on the identification of specific rigs damaged or lost. For Hurricane Ike, the net loss estimates are just below or at the Company's attachment points for the reinsurance programmes of the Non-Marine Reinsurance and Property Insurance accounts and partially into the Energy account's reinsurance programme. Any deterioration in the Hurricane Ike loss estimates is expected to be largely contained within the Company's reinsurance programmes.

Expenses

For the nine months ended 30 September 2008, the underwriting expense ratio (excluding acquisition costs) as a percentage of net earned premiums, (excluding RITC), was 7.3%, compared with 9.2% in 2007, reflecting savings on reduced Lloyd's central charges and the increase in net premiums earned. 

The Company incurred one-time advisory and legal fees of £1.0 million (included within corporate costs) in connection with Fairfax Financial Holdings Ltd's offer to buy all of the Company's shares.

The corporate foreign exchange loss arises due to the impact of the movement in exchange rates on corporate level net currency liabilities, including long term debt.

Investment Return

For the nine months ended 30 September 2008, the investment return decreased to £8.8 million (2007: £9.7 million), reflecting the lower interest rates in the United States and the United Kingdom, offset by an increase in the Company's cash and investments of £75.7 million since 30 September 2007.

The Syndicate's US dollar investment portfolio duration has been maintained short, at approximately 0.7 years. It is wholly invested in government or government guaranteed securities, with an overall return on US bonds of 2.2% for the first nine months of 2008 (annualised return of 3.0%). Neither the syndicates nor the Company invest in asset backed or mortgage backed securities (ABS and MBS), corporate bonds, equities or derivatives. Certain overseas deposits managed by Lloyd's (over which the Company has no investment control) have invested in corporate bonds and ABS as referred to in note 5 to the financial statements. 

Advent Re's funds (included in corporate balances below) continued to be invested mainly in short term US treasury bills held in trust accounts as collateral for cedents' policy limits.  The investment return for the first nine months of 2008 was 1.5% (annualised return of 2.0%) reflecting sharply lower US interest rates.

Our investment mix as at 30 September 2008 is shown below.

			30 September  2008	31 December 2007
	Syndicate	Corporate	Total	Total
Investment mix	£'000	£'000	£'000	£'000
Government debt securities	185,450	122,859	308,309	219,654
Cash and cash equivalents	4,829	8,606	13,435	26,978
Overseas deposits and money market funds	9,264	-	9,264	20,172
Total	199,543	131,465	331,008	266,804

The increase in cash and investments to £331.0 million at 30 September 2008 from £266.8 million at 31 December 2007 reflects the increase in the Company's share of Syndicate 780's 2005 year of account assets reinsured into the 2006 year of account and the collection of Syndicate 780's outstanding losses on the closure of the 2005 year of account from third party names.

Capital Management

		30 September  2008		31 December 2007
		£'000		£'000
Long term debt - subordinated - senior		27,652 24,922		25,085 22,262
		52,574		47,347
Shareholders' equity		103,430		108,398
Debt to equity ratio		51%		44%
Debt to total capital ratio		34%		30%
Interest coverage		0.4 x		7 x

The Company continues to maintain its debt to total capital ratio below 35% in accordance with its stated policy. The increase in long term debt to £52.6 million at 30 September 2008 from £47.3 million at 31 December 2007 results from the stronger US dollar against sterling.

For the nine months ended 30 September 2008, the average weighted interest rate on the Company's debt was 8.37%, down from 8.80% for 2007. The interest rate on the Company's US dollar debt is based on a weighted average of 4.16% above 3 month US dollar LIBOR and resets quarterly with the next interest reset dates in December.

The Company's long term debt has no financial or other covenants, other than the payment of interest quarterly and principal on maturity. Interest on the Company's subordinated debt of £27.7 million can be deferred and not paid for up to five years, without creating an event of default. The long term debt has maturities of £25.8 million in 2026 and £28.5 million in 2035. The debt is callable only at the Company's option after five years from date of issue.

2008 Business Plan Update

At Lloyd's Premium Income Monitoring (PIM) rates of exchange, total premiums for the 2008 year of account are expected to be in excess of £122 million. Premiums written for the Reinsurance account were ahead of plan by £13.3 million reflecting the syndicate's focus on developing its non USA catastrophe exposed business with premiums written in excess of plan of £4.2 million and an increase of £3.2 million in the US catastrophe book.

Premiums written for the Property Insurance account are below plan by £2.6 million reflecting increasingly competitive market conditions in the insurance market. Premiums written for the Marine account are in line with plan at £17.2 million.

2009 Business Plan

The initial 2009 Business Plan of Syndicate 780 was submitted to Lloyd's in July 2008 and had forecast gross premium income (net of brokerage commission) of £117 million, at PIM rates of exchange. It remained focused on existing lines of business and was based on the assumption that, in the absence of any major catastrophes, there would be continued downward pressure in pricing with an average price reduction of approximately 10% on the underwriting portfolio.

Given the frequency of market losses for the first nine months of 2008 culminating in Hurricanes Gustav and Ike, the initial plan has now been reviewed in terms of pricing expectations in certain lines of business but with no changes in the exposure to peak catastrophe zones. The revised 2009 business plan submitted to Lloyd's on 17 October 2008 has forecast gross premium income of £127.8 million. The plan is projecting flat pricing over the underwriting portfolio but with more significant price increases in the offshore energy account and catastrophe exposed accounts which are experiencing losses for the 2008 Hurricanes.

Advent is in discussion with Lloyd's about the revised plan which requires their approval. The key components of the revised 2009 year of account Plan compared with the 2008 year of account Plan and forecast premium income (net of brokerage commission) are set out below at PIM and rates of exchange at 30 September 2008:

		2008		2008		2009		2009
		Plan		Forecast		Plan		Plan
Exchange rate		$1.92/£		$1.78/£		$1.99/£		$1.78/£
Reinsurance
Treaty		40.3		51.8		52.3		56.3
Assumed		12.9		18.2		14.9		15.8
Marine		2.2		2.4		2.3		2.5
Aviation		1.1		1.1		1.2		1.3
Casualty and other		3.1		4.3		8.1		8.4
		59.6		77.8		78.8		84.3

Insurance
Property		36.5		32.9		28.9		31.0
Energy		16.0		17.8		16.2		17.9
Cargo and other		0.8		0.8		0.9		1.0
Personal Accident		1.4		1.4		3.0		3.1
		54.7		52.9		49.0		53.0
		114.3		130.7		127.8		137.3
Increase (decrease)				14.3%		(2.2%)		5.0%

Advent Re

At this time Advent Re is considering plans for 2009 given the changing reinsurance market.

Outlook

Syndicate 780's 2009 business plan reflects our expectation of firmer market conditions following the 2008 Hurricanes and higher frequency of property and attritional catastrophe losses we experienced in 2008. The turmoil in world equity and credit markets has also adversely affected several major reinsurance companies and has eroded investment returns for many other insurance and reinsurance companies. We believe that this should help to harden market conditions as reinsurers and insurers alike seek to achieve better underwriting returns.

Our 2009 business plan for Syndicate 780 seeks to build on our strengths in Treaty Reinsurance and Property Insurance Markets with the continuing development of the worldwide non USA catastrophe exposed business while building balance and diversity across the rest of the portfolio if we can do so at an underwriting profit.

Advent has withstood its first significant test since Hurricanes Katrina, Rita and Wilma and the business model we adopted from 2006 is now demonstrating our ability to withstand major events. We believe we are in good shape:

We have an established and experienced underwriting team.

We have a conservative investment portfolio consisting of government and government guaranteed securities.

We have had favourable development in prior years' claims reserves.

Our hurricane loss estimates are within our expectations.

We do not have to refinance our long term debt which matures in 2026 and 2035.

Advent is well positioned in these difficult and uncertain times. Our underwriting business has lived through many challenges over the past 33 years and our experienced management and underwriting team is well prepared to take advantage of any opportunities that arise while maintaining our focus on underwriting profitability.

Brian F Caudle

Chairman

28 October 2008

  CONSOLIDATED INCOME STATEMENT

For the nine months ended 30 September 2008 

	Note		Nine months				Year
			2008		2007		2007
			(unaudited)		(unaudited)		(audited)
					Restated		Restated
			£'000		£'000		£'000
Income
Gross premiums earned			105,174		79,442		113,400
Reinsurance to close premium			34,246		6,157		6,698
Reinsurance premium ceded			(17,303)		(15,658)		(24,114)
Net premiums earned	4		122,117		69,941		95,984
Investment income	5		8,771		9,725		13,141
Other operating income			373		388		483
Total Income			131,261		80,054		109,608
Expenses
Claims incurred	4		(66,110)		(34,465)		(40,184)
Reinsurance to close claims	4		(34,246)		(6,157)		(6,698)
Reinsurance recoveries	4		2,773		(927)		(614)
Acquisition costs			(16,977)		(14,078)		(18,921)
Underwriting expenses			(6,408)		(5,214)		(8,655)
Corporate foreign exchange loss			(4,731)		(62)		(69)
Corporate costs			(4,388)		(2,922)		(4,748)
Total Expenses			(130,087)		(63,825)		(79,889)
Operating Result			1,174		16,229		29,719
Interest on debt			(3,031)		(3,354)		(4,558)
Profit (loss) before tax			(1,857)		12,875		25,161
Tax	7		1,883		(5,057)		(5,969)
Profit for the period attributable to ordinary shareholders			26		7,818		19,192
Earnings per ordinary share
- Basic and diluted	6		0.1p		19.2p		47.2p

  CONSOLIDATED BALANCE SHEET

At 30 September 2008

	Note		30 September				31 December
			2008		2007		2007
			(unaudited)		(unaudited)		(audited)
					Restated
			£'000		£'000		£'000
Assets
Cash and cash equivalents	5		13,435		33,743		26,978
Financial investments at fair value	5		317,573		221,559		239,826
Other receivables			3,637		6,695		4,345
Insurance and reinsurance assets
- Reinsurers' share of outstanding claims	4		20,306		19,051		18,176
- Reinsurers' share of unearned premiums	4		11,103		8,495		1,058
- Debtors arising from insurance and reinsurance operations			87,097		63,552		48,060
Deferred tax asset			17,548		16,748		15,665
Property and equipment			451		556		651
Intangible assets	8		6,882		7,557		7,210
Total assets			478,032		377,956		361,969
Equity
Share capital	6		20,329		20,329		20,329
Share premium account			60,662		60,662		60,662
Capital redemption reserve			21,065		21,065		21,065
Other reserves			(2,578)		(2,722)		(2,666)
Retained earnings (deficit)			3,952		(2,366)		9,008
Total shareholders' equity			103,430		96,968		108,398
Liabilities
Insurance and reinsurance liabilities
- Outstanding claims	4		237,283		170,079		163,764
- Unearned premiums	4		70,484		53,715		31,136
- Creditors arising out of insurance and reinsurance operations			11,951		8,154		6,442
Trade and other payables			2,310		3,070		4,882
Long term debt	6		52,574		45,970		47,347
Total liabilities			374,602		280,988		253,571
Total liabilities and shareholders' equity			478,032		377,956		361,969

  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the nine months ended 30 September 2008

	Share capital	Share premium	Capital re-demption reserve	Other reserves	Retained earnings	30 Sept 2008 (unaudited)  Total	30 Sept 2007 (unaudited) Total	31 Dec  2007 (audited) 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 for the period	-	-	-	-	26	26	7,818	19,192
Dividends Share based payments	- -	- -	- -	- 88	(5,082) -	(5,082) 88	- 164	- 220
Balance at end of period	20,329	60,662	21,065	(2,578)	3,952	103,430	96,968	108,398

  CONSOLIDATED CASH FLOW STATEMENT

For the nine months ended 30 September 2008

	Note		Nine months				Year
			2008		2007		2007
			(unaudited)		(unaudited)		(audited)
					Restated
			£'000		£'000		£'000
Cash flows from operating activities	9		(9,698)		(108,571)		(117,799)
Interest paid			(3,052)		(3,380)		(4,563)
Income tax			-		-		133
			(12,750)		(111,951)		(122,229)
Cash flows from investing activities
Interest received			4,345		4,230		7,926
Purchase of property and equipment			(56)		(190)		(373)
			4,289		4,040		7,553
Cash flows from financing activities
Dividends paid			(5,082)		-		-
Net increase (decrease) in cash and cash equivalents			(13,543)		(107,911)		(114,676)
Cash and cash equivalents at 1 January			26,978		141,654		141,654
Cash and cash equivalents at end of period	5		13,435		33,743		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 conjunction with the Company's consolidated financial statements for the year ended 31 December 2007 as set out on pages 41 to 79 of the 2007 Report and Accounts.

These interim financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) and in accordance with International Accounting Standards (IAS) 34 Interim Financial Reporting.  The policies utilised are also consistent with those set out on pages 46 to 49 of the Company's consolidated financial statements for the year ended 31 December 2007, except for the reclassification of profit on exchange noted below.

Cash and cash equivalents at 30 September 2007 have been restated consistent with their presentation in the 2007 Report and Accounts to include in financial investments certain syndicate overnight sweep cash accounts where the custodian and manager had invested aggregate underlying deposits in longer term investments.

The Company has reclassified the profit on exchange arising from the revaluation of claims denominated in foreign currencies from operating expenses to net claims incurred representing a more appropriate presentation of this movement.

Status of the interim financial statements

The interim financial statements have been reviewed by the Company's auditors PricewaterhouseCoopers LLP. These interim financial statements do not constitute accounts as defined in section 240 of the Companies Act 1985 ("the Act").

The results for the year ended 31 December 2007 are based on the Company's statutory accounts which received an unqualified audit opinion from the Company'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 December 2007 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 financial statements were:

	30 September 2008				30 September 2007				31 December 2007
	Period		Period		Period		Period		Period		Period
	average		end		average		end		average		end
	rate		rate		rate		rate		rate		rate
US dollar	1.95		1.78		1.99		2.04		2.00		1.99
Euro	1.28		1.27		1.48		1.43		1.46		1.36
Canadian dollar	1.98		1.90		2.20		2.02		2.15		1.96

The Company had foreign exchange gains and losses which were recorded in the consolidated Income Statement as follows:

	Nine  months 2008		Nine  months 2007		Year 2007
	£'000		£'000		£'000
Underwriting - net claims incurred	7,864		672		937
Corporate activities	(4,731)		(62)		(69)
Net gain	3,133		610		868

The Company's policy is that it is not in the business of taking or speculating on foreign currency risk. Its objective is to match each major currency position (US$, £, CDN$ and Euro), including its share of the underlying assets and liabilities of its managed syndicates. Monthly, the Company reviews its consolidated foreign currency balance sheet, prepared in its principal currencies, including its share of the assets and liabilities of its managed syndicates. Action is taken to reduce or mitigate foreign currency mismatches through the purchase or sale of the appropriate currencies.

At 30 September 2008, the Company's asset and liability positions in its major foreign currencies were as follows:

	30 September 2008 (unaudited)
	US$m	£m	CDN$m	€m
Total assets	524.4	162.7	25.1	11.8
Total liabilities	(540.2)	(56.5)	(18.9)	(12.7)
Net assets (net liabilities)	(15.8)	106.2	6.2	(0.9)

	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)

The Company has designated US$58.3 million of its long term debt as a hedge of its net investment in Advent Re at 30 September 2008 (31 December 2007: US$ 49.4 million).  3. OPERATING RESULTS

	Nine months		Nine  months		Year
	2008		2007		2007
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Underwriting profit
Syndicate 780 - Non-Marine
Underwriting Year of Account
2008 - open	(7,873)		-		-
2007 - open	2,144		3,069		12,652
2006 - open	1,720		3,341		2,281
2005 and prior closed	-		1,669		(258)
Total Syndicate 780	(4,009)		8,079		14,675
Syndicate 2 - Marine
Underwriting Year of Account
2002 - run-off	570		(154)		91
2001 - run-off	(898)		1,663		1,370
Total Syndicate 2	(328)		1,509		1,461
Advent Re	5,486		(488)		4,944
Company level reinsurance	-		-		(168)
Underwriting profit	1,149		9,100		20,912
Managing Agency
Agency fees	35		207		237
Recharges to Syndicates	338		181		246
	373		388		483
Other
Investment result	8,771		9,725		13,141
Interest expense	(3,031)		(3,354)		(4,558)
Corporate costs	(3,375)		(2,922)		(4,748)
Fairfax offer - related costs	(1,013)		-		-
Corporate foreign exchange (loss)	(4,731)		(62)		(69)
Profit (loss) before tax	(1,857)		12,875		25,161

4. INSURANCE RISK MANAGEMENT 

Insurance segment results

The underwriting results of Advent Re are included in the Non-Marine Reinsurance segment. Acquisition costs consisting of direct brokerage commissions, are allocated to each segment on a direct basis while operating costs, including underwriting costs, are allocated based on gross premiums written.

For catastrophe exposed business, including multiple peril coverage, the Company recognises premiums as earned based on the underlying exposure to catastrophe. As a result, a greater proportion of premium income on catastrophe exposed business is earned in the second half of the year when the company is exposed to greater risk of hurricane related losses.

The reinsurance to close (RITC) premium and claims are included in the Non Marine Reinsurance segment and are valued at the RITC transaction date of 1 January 2008. Subsequent movements in premiums and claims from the RITC are reflected in the segments to which they relate in claims incurred and reinsurance recoveries on the income statement.

	Non-Marine		Property
	Re-insurance		Insurance		Marine		Syndicate 2		Total
	£'000		£'000		£'000		£'000		£'000
Nine months 2008 (unaudited)
Gross premiums written	130,563		28,692		23,334		494		183,083
Net premiums written	107,869		23,732		19,244		575		151,420
Net premiums earned	86,892		21,709		12,941		575		122,117
Net claims incurred	(71,270)		(18,560)		(7,287)		(466)		(97,583)
Acquisition costs	(7,431)		(6,093)		(3,379)		(74)		(16,977)
Operating expenses	(3,746)		(1,268)		(1,031)		(363)		(6,408)
Underwriting profit (loss)	4,445		(4,212)		1,244		(328)		1,149
Combined ratio	94.9%		119.4%		90.4%		156.9%		99.1%

	Non-Marine		Property
	Re-insurance		Insurance		Marine		Syndicate 2		Total
	£'000		£'000		£'000		£'000		£'000
Nine months 2007 (unaudited, restated)
Gross premiums written	73,236		24,249		17,703		364		115,552
Net premiums written	58,773		20,465		15,532		526		95,296
Net premiums earned	41,657		18,243		9,515		526		69,941
Net claims incurred	(27,765)		(9,282)		(5,907)		1,405		(41,549)
Acquisition costs	(6,369)		(5,598)		(2,056)		(55)		(14,078)
Operating expenses	(3,082)		(1,020)		(745)		(367)		(5,214)
Underwriting profit (loss)	4,441		2,343		807		1,509		9,100
Combined ratio	89.3%		87.2%		91.5%		(186.9)%		87.0%

	Non-Marine		Property
	Re-insurance		Insurance		Marine		Syndicate 2		Total
	£'000		£'000		£'000		£'000		£'000
Year 2007 (audited, restated)
Gross premiums written	75,966		31,723		18,691		532		126,912
Net premiums written	61,292		27,785		16,461		661		106,199
Net premiums earned	57,862		24,358		13,103		661		95,984
Net claims incurred	(28,189)		(14,308)		(6,385)		1,030		(47,496)
Profit on exchange	456		191		112		178		937
Acquisition costs	(8,495)		(7,431)		(2,915)		(80)		(18,921)
Underwriting expenses	(4,899)		(2,046)		(1,204)		(506)		(8,655)
Underwriting profit	16,279		573		2,599		1,461		20,912
Combined ratio	71.9%		97.6%		80.2%		(120.9%)		78.2%

  

Provision for claims

(a) Net incurred claims	Nine months		Nine months		Year
	2008		2007		2007
	(unaudited)		(unaudited)		(audited)
			Restated		Restated
	£'000		£'000		£'000
Claims incurred
- Gross paid claims	59,120		59,699		75,354
- Change in provision for claims	14,854		(24,562)		(34,233)
- Profit on exchange	(7,864)		(672)		(937)
	66,110		34,465		40,184
Reinsurance Recoveries
- Received	(2,752)		(13,010)		(14,013)
- Change in provision	(21)		13,937		14,627
	(2,773)		927		614
Reinsurance to close claims (net)	34,246		6,157		6,698
Net incurred claims	97,583		41,549		47,496

(b) Outstanding claims and unearned premiums	Unearned		Claims		Total
	Premiums		outstanding
	£'000		£'000		£'000
Gross
At 1 January 2008 (audited)	31,136		163,764		194,900
Exchange adjustments			20,104		20,104
Movement in provisions
- current year	39,348		75,574		114,922
- reinsurance to close claims			38,561		38,561
- prior year			(1,600)		(1,600)
- paid claims			(59,120)		(59,120)
At 30 September 2008 (unaudited)	70,484		237,283		307,767
Reinsurance amount
At 1 January 2008 (audited)	1,058		18,176		19,234
Exchange adjustments			2,109		2,109
Movement in provisions
- current year	10,045		2,752		12,797
- reinsurance to close claims recoveries			4,316		4,316
- prior year			21		21
- paid recoveries			(7,068)		(7,068)
At 30 September 2008 (unaudited)	11,103		20,306		31,409
Net
At 30 September 2008 (unaudited)	59,381		216,977		276,358
At 31 December 2007 (audited)	30,078		145,588		175,666
At 30 September 2007 (unaudited)	45,220		151,028		196,248

For the nine months ended 30 September 2008, improvement in prior years' claims, net of reinsurance recoveries and reinstatement premiums, amounted to £2.0 million (2007: improvement of £2.3 million).

 

The net outstanding claims are further analysed between notified outstanding claims and incurred but not reported claims (IBNR) below:

	30 Sept		30 Sept		31 December
	2008		2007		2007
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Notified outstanding claims	133,826		104,313		101,901
Claims incurred but not reported	83,151		46,715		43,687
Claims outstanding	216,977		151,028		145,588

The breakdown of the gross and net outstanding claims by category of claims is set out below.

	30 September 2008 (unaudited)				30 September 2007 (unaudited)				31 December 2007 (audited)
	Gross		Net		Gross		Net		Gross		Net
	£'000		£'000		£'000		£'000		£'000		£'000
Large catastrophe provisions	59,194		47,511		39,136		32,099		33,970		27,735
All other short tail provisions	95,434		94,580		60,794		57,716		60,221		57,017
Long-tail provisions (casualty)	37,944		37,944		24,615		24,615		24,640		24,640
Syndicate 2 provisions	44,711		36,942		45,534		36,598		44,933		36,196
Total	237,283		216,977		170,079		151,028		163,764		145,588

Large catastrophe provisions include Hurricanes Gustav and Ike (2008 Hurricanes) and the 2004 and 2005 Hurricanes.

Reinsurance recoverable

At 30 September 2008, the Company's reinsurance recoverable on outstanding claims amounted to £20.3 million, an increase of £2.1 million since 31 December 2007, with reinsurers with the following risk ratings by AM Best (or equivalent S&P rating in the absence of an AM Best rating):

Risk Rating		Reinsurance recoverable
		£'000		%
A+		8,124		40.0
Lloyd's		2,958		14.6
A		4,042		19.9
A-		1,970		9.7
Trust fund backed		1,569		7.7
BBB or below and Non rated		1,643		8.1
Total		20,306		100.0

Included in debtors arising from insurance and reinsurance operations are the following reinsurer balances.

		Syndicate 780		Syndicate 2				Total
		£'000		£'000			£'000
Fully performing		247		471			718
Past due		2		379			381
Impaired		4,805		7,851			12,656
Provision for uncollectible reinsurance		(3,545)		(4,677)			(8,222)
Net		1,509		4,024			5,533

  5. FINANCIAL RISK MANAGEMENT

NET INVESTMENT INCOME	Nine  months		Nine months		Year
	2008		2007		2007
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Investment Income
Interest	8,660		9,176		12,515
Gain on sale of investments	331		314		325
Unrealised gains on investments	979		462		772
	9,970		9,952		13,612
Investment expenses and charges
Investment management expenses	(140)		(62)		(114)
Loss on sale of investments	(559)		(56)		(350)
Unrealised losses on investments	(500)		(109)		(7)
	(1,199)		(227)		(471)
Net investment income	8,771		9,725		13,141

FINANCIAL INVESTMENTS	30 September 2008		30 September 2007		31 December 2007
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Carrying Value
Debt securities and other fixed income securities
- Government and government guaranteed	308,309		201,910		219,654
- Holdings in collective investment schemes	4,225		16,223		16,118
- Syndicate overseas deposits	5,039		3,426		4,054
	317,573		221,559		239,826
Purchase Price
Debt securities and other fixed income securities
- Government and government guaranteed	306,891		201,213		218,821
- Holdings in collective investment schemes	4,225		16,223		16,118
- Syndicates' overseas deposits	5,039		3,426		4,054
	316,155		220,862		238,993

All debt securities and other fixed income securities are listed on recognised stock exchanges. All financial investments are classified as fair value through income including short term fixed maturity securities. 

The syndicates' overseas deposits (Joint Asset Trust Funds (JATF)) are managed by Lloyd's. The Company does not have the authority to ensure that its investment policies are complied with. Lloyd's has advised the Company that it has invested the JATF in:

		Company's share £'000
US Government securities		2,788
Corporate bonds rated AAA		1,465
AA		475
A		183
Asset backed securities (ABS)		114
Cash		14
			5,039

Other than the above investments, over which the Company does not exercise investment authority, the Company only invests in short term government and government guaranteed securities. It does not invest in derivatives, MBS, ABS, equities or corporate bonds given current market conditions.

At 30 September 2008, Syndicate investments of £58.3 million (31 December 2007: £44.8 million) were held in US Situs and other regulatory deposits available for the payment of claims in those jurisdictions and which are not available for the payment of other claims and obligations.

At 30 September 2008, Advent Re had pledged cash and investments of £31.7 million (31 December 2007: £23.0 million) as security for policy limits of contracts written.

CASH AND CASH EQUIVALENTS	30  September		30  September		31  December
	2008		2007		2007
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Corporate cash at bank	4,264		22,577		10,760
Corporate funds held by Lloyd's	93		424		628
Advent Re cash at bank	4,249		2,330		2,147
Syndicates' cash at bank	4,521		2,568		5,448
Syndicates' deposits with credit institutions	308		5,844		7,995
Total cash and cash equivalents	13,435		33,743		26,978

Cash at bank was held with Royal Bank of Scotland and Barclays Bank. These banks are rated AA- and AA respectively by Standard & Poor's (S&P). The Barclays rating was given a "negative watch" by S&P on 17 September 2008.

6. CAPITAL MANAGEMENT

SHARE CAPITAL	Authorised						Allotted, Called-Up and Fully Paid
	30  September		30  September		31  December		30  September		30 September		31  December
	2008		2007		2007		2008		2007		2007
	£'000		£'000		£'000		£'000		£'000		£'000
Ordinary shares of 5p each (£000)	-		50,000		50,000		-		20,329		20,329
Ordinary shares of 50p each (£000)	50,000		-		-		20,329		-		-
Number of shares ('000s)	100,000		1,000,000		1,000,000		40,657		406,570		406,570

On 23 June 2008, the Company's ordinary shares of 5p each were consolidated on a ratio of 1 new ordinary share of 50p each for 10 old ordinary shares of 5p each approved by shareholders at the Annual General Meeting. Outstanding shares, as options and per share amounts have been retroactively restated to present the comparative information on a consistent basis.

EARNINGS PER ORDINARY SHARE	Nine  Months		Nine  months		Year
	2008		2007		2007
	(unaudited)		(unaudited)		(audited)
			Restated		Restated
Profit after tax for the period (£'000)	26		7,818		19,192
Weighted average number of shares in issue ('000s)	40,657		40,657		40,657
Basic and diluted earnings per share	0.1p		19.2p		47.2p

Outstanding debt	Issue date	Due date	Callable (by the Company) after	Interest rate	Interest rate (30 Sept 2008)	30 Sept  2008 £'000	30  Sept 2007 £'000	31  Dec 2007 £'000
Subordinated Notes
US$34 million	3/6/2005	3/6/2035	3/6/2010	3 month LIBOR + 3.90%	6.68%	18,515	16,140	16,546
€12 million	3/6/2005	3/6/2035	3/6/2010	3 month EURIBOR + 3.85%	8.80%	9,137	8,121	8,539
						27,652	24,261	25,085
Senior Notes
US$26 million	16/1/2006	15/1/2026	16/1/2011	3 month LIBOR + 4.50%	7.28%	14,045	12,227	12,540
US$20 million	15/12/2006	15/12/2026	15/12/2011	3 month LIBOR + 4.15%	6.93%	10,877	9,482	9,722
						24,922	21,709	22,262
Total Loan Notes at amortised cost and fair value						52,574	45,970	47,347
Weighted average interest rate, period end						8.37%	9.25%	8.80%

The Loan Notes have no financial covenants other than the payment of interest and principal on maturity. In the case of the Subordinated Notes, interest can be deferred for up to 5 years without creating an event of default. The Notes can be called at the sole option of the Company five years after the date of issue and are non-callable by the holders.

The Subordinated Notes rank on a winding-up of the Company in priority to distributions on all classes of share capital and rank pari passu with each other but are subordinated in right of payment to the claims of all unsubordinated creditors of the Company (including, where applicable, all policyholders of the Syndicate).

The Senior Notes rank on a winding-up of the Company in priority to distributions on all classes of share capital and subordinated loan notes, and rank pari passu with each other but are subordinated in right of payment to the claims of all unsubordinated creditors of the Company (including, where applicable, all policyholders of the Syndicate).

The Subordinated Notes and Senior Notes are listed on the Channel Islands Stock Exchange.

The Company also has a US$50 million Barclays bank facility at Syndicate level, maturing on 30 April 2009. The facility, if utilised, would be secured by eligible premiums receivable and amounts due from reinsurers and would be used to fund gross loss payments or US Situs fund deposits until such time as the receivable amounts are collected from insureds or reinsurers.

LONG TERM INCENTIVE PLANS

During the first nine months of 2008, 67,500 options were cancelled under the 2005 grants at 350p per share and 75,000 options were cancelled under the 2006 grant at 200p per share.

On 29 September 2008, the Share Incentive Plan was implemented with the initial purchase of 44,184 shares on the open market for £85,000 cash. 

On 30 September 2008, the Company issued 740,985 options to purchase ordinary shares of 50p each at an exercise price of 190p per share. The options vest on 30 September 2011 and are exercisable until 30 September 2018.

On 30 September 2008, the Company made grants under its Long Term Incentive Plan of 1,383,303 nil cost options to buy ordinary shares of 50p each. The shares vest as to 30% of the initial grant if the Company's average return on equity exceeds 15% for the three year period from 2008 to 2010 rising to 100% if the average return on equity during the three year period reaches 20% or over.

FUNDS AT LLOYD'S (FAL)

The Funds held by Lloyd's represent monies deposited with the Corporation of Lloyd's (Lloyd's) to support the Company's underwriting activities. These Funds are subject to a Lloyd's deposit trust deed which gives Lloyd's the right to apply these monies in settlement of any claims arising from the Company's underwriting at Lloyd's.

In addition to the Company's FAL of £91.6 million at 30 September 2008, a major shareholder, Fairfax Financial Holdings Limited (Fairfax), has deposited FAL of £16.3 million at 30 September 2008 (£56.6 million at 31 December 2007) to support the Company's underwriting for the 2001 to 2005 underwriting years pursuant to a Funding Agreement dated 16 November 2000. With the closure of Syndicate 780's 2005 year of account, £41.7 million of Fairfax's FAL was released on 16 July 2008 leaving £16.3 million to support Syndicate 2's open years of account. Any underwriting profits arising from the business supported by the Fairfax FAL are receivable by the Company which is also responsible for the payment of any losses arising.

The FAL and the overseas deposits are not available for use by the Company for ordinary cash flow purposes.

In June 2008, the Company paid its share of the loss on Syndicate 780's 2005 year of account 2008 £29.1 million (at distribution rates of exchange) which was settled from existing FAL funds (£15.2 million), profit distributions on the 2006 and 2007 years of accounts (£12.6 million) and holding company cash of £1.3 million.

7. INCOME TAXES

	30  September		30  September		31 December
	2008		2007		2007
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Analysis of charge in period
UK corporation tax on profit for the period	-		-		-
Adjustment in respect of prior periods	-		-		(20)
Deferred tax	(1,883)		5,057		5,989
Total taxation	(1,883)		5,057		5,969

8. INTANGIBLE FIXED ASSETS

	Goodwill on Acquisition		Purchased Capacity - finite life		Purchased Capacity - indefinite life		Total
	£'000		£'000		£'000		£'000
Fair Value
At 30 September 2008 (unaudited)	4,148		39		2,695		6,882
At 31 December 2007 (audited)	4,148		367		2,695		7,210
At 30 September 2007 (unaudited)	4,148		714		2,695		7,557

The consideration paid to third party capital providers of £1.2 million on 30 June 2008 is a finite life asset and accordingly, is amortised to expenses as the gross premium income is earned on the 2007 year of account to which the payment relates.

9.  RECONCILIATION OF PROFIT BEFORE TAX TO NET CASH

INFLOW (OUTFLOW) FROM OPERATING ACTIVITIES

	Nine Months		Nine Months		Year
	2008		2007		2007
	(unaudited)		(unaudited)		(audited)
			Restated
	£'000		£'000		£'000
Profit (loss) before tax	(1,857)		12,875		25,161
Movement in:
- insurance and reinsurance receivables	(51,212)		(8,003)		15,801
- other receivables	32		2,677		3,738
- insurance and reinsurance payables	118,376		7,727		(22,879)
- trade and other payables	(2,560)		(2,846)		(1,014)
Interest expense	3,031		3,354		4,558
Investment result	(3,659)		(4,081)		(6,489)
Unrealised investment gains	480		436		765
Net purchase of investments	(78,227)		(120,265)		(138,861)
Depreciation	255		701		284
Amortisation of debt issue costs	18		16		22
Amortisation of capacity	328		-		852
Amortisation of share option costs	88		166		220
Foreign exchange movements on financing	5,209		(1,328)		43
	(9,698)		(108,571)		(117,799)

ENDQRTEAKEPAFNPFFE

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