29th Oct 2007 07:01
Advent Capital (Holdings) PLC29 October 2007 Advent Capital (Holdings) PLC ("Advent" or the "Company") Advent, the specialist Lloyd's insurer, today reports its results for the ninemonths ended 30 September 2007. Key highlights • Profit before tax of £12.9 million (2006: £12.6 million). • Profit before tax and foreign exchange profit up 50% to £12.3 million from £8.2 million in 2006. • Foreign exchange profit of £0.6 million (2006: £4.4 million), reflecting the Company's matched foreign currency position since August 2006. • Gross premiums written of £115.6 million (2006: £105.9 million). • Net notified loss ratio, excluding IBNR, for Syndicate 780's 2007 year of account of 24% at 30 September 2007 (2006: 12%). • Improvement in prior years' reserves of £2.3 million for the first nine months of 2007. • Net loss estimates for the 2005 hurricanes remain stable. • Non USA catastrophe losses, net of reinsurance recoveries and reinstatement premiums, of £8.9 million for 2007. • With approximately 75% of premiums written in US dollars, the weak US dollar continues to negatively impact premiums and earnings in 2007. • One time tax charge of £1.4 million from the future reduction in the UK corporation tax rate from 30% to 28% recorded in the second quarter of 2007. • Financial summary As of 1 January 2007, the Company adopted IFRS for the first time withapplication effective as at 1 January 2006. Comparatives have been restated toan IFRS basis. Nine months (unaudited) Year Year Year 2007 2006 2006 2005 2004 Restated Restated Restated Restated £'000 £'000 £'000 £'000 £'000 Gross premiums written 115,552 105,903 115,356 100,550 74,749 Net premiums written 95,296 77,694 88,201 62,949 63,734 Net premiums earned 69,941 61,053 81,694 65,070 69,221 Underwriting profit (loss) 9,100 8,551 21,064 (78,098) (846) Profit (loss) before tax 12,875 12,624 22,853 (74,185) 5,173 Profit (loss) after tax 7,818 8,853 16,011 (51,922) 3,360 Return on equity 8.8% 13.9% 25.1% (68.4%) 6.4% Nine months (unaudited) Year Year Year 2007 2006 2006 2005 2004 Restated Restated Restated Restated £'000 £'000 £'000 £'000 £'000Per share amounts Earnings (loss) - basic and diluted 1.9p 2.4p 4.3p (30.3p) 3.2pDividend - - - 2.75p 2.75p Net assets 23.8p 19.6p 21.9p 16.0p 50.5p Net tangible assets 22.0p 17.8p 19.9p 13.6p 45.4p Operating ratios Claims ratio 60% 67% 53% 191% 74% Expense ratio 27%* 19%* 21% 29% 29% Combined ratio 87% 86% 74% 220% 103% Notified loss ratio 24% 12% 17% 134% 62% (by year of account) * 28% and 27% excluding foreign exchange profit of £0.6 million and £4.7million respectively Advent Capital (Holdings) PLCKeith Thompson 020 7743 8200Chief Operating Officer Trevor Ambridge 020 7743 8200Chief Financial Officer Neil Ewing 020 7743 8250Investor Relations Numis Securities LimitedStuart Skinner 020 7260 1314Tom Booth 020 7260 1208Charles Farquhar 020 7260 1233 Pelham Public RelationsCharles Vivian 020 7743 6672Polly Fergusson 020 7743 6362 Financial Review For the nine months ended 30 September 2007, the Company's profit before tax was£12.9 million compared with £12.6 million for the first nine months of 2006.Excluding foreign exchange profits of £0.6 million for 2007 (2006: £4.4million), the Company's profit before tax and foreign exchange profit increasedby 50% to £12.3 million for the first nine months of 2007 from £8.2 million in2006. Results for the first nine months of 2007 reflect: • Improved underwriting profit, excluding foreign exchange profit of £0.7 million (2006: £4.7 million), of £8.4 million, after aggregate claims incurred, net of reinsurance recoveries and reinstatement premiums, on European Windstorm Kyrill, Australian storms and UK floods (2007 Catastrophes) of £8.9 million, up from an underwriting profit of £3.8 million in 2006. • A reduction in foreign exchange profit of £3.8 million resulting from the Company's policy of matching its foreign currency position on a monthly basis since August 2006. • Net improvement in prior year's claims of £2.3 million compared with adverse development of prior years' claims of £5.9 million in 2006. • Weaker US dollar with an average rate of US$1.99/£ down from an average rate of US$1.82/£ in 2006, an 9.3% decrease, which has adversely affected gross and net premiums, of which approximately 75% are written in US dollars, and underwriting profit. For the nine months ended 30 September 2007, profit after tax was £7.8 millionafter a one time tax expense of £1.4 million resulting from the future reductionin the UK corporation tax rate from 30% to 28% recorded in the second quarter of2007, compared with profit after tax of £8.9 million in 2006. Earnings per share were 1.9p for the first nine months of 2007 compared with2.4p in 2006, reflecting the issue of 37 million shares in December 2006. For the nine months ended 30 September 2007, the Company had an underwritingprofit of £9.1 million and a combined ratio of 87.0% compared with anunderwriting profit of £8.6 million and a combined ratio of 86.0% in 2006.Excluding foreign exchange profits of £0.7 million and £4.7 million in 2007 and2006 respectively, the Company had an adjusted underwriting profit of £8.4million and an adjusted combined ratio of 88% for the first nine months of 2007compared with an adjusted underwriting profit of £3.8 million and an adjustedcombined ratio of 93.7% in 2006. These underwriting results reflect: • A slower premium earnings pattern in the 2007 underwriting year resulting from the changes in Syndicate 780's business mix, as expected, compared to the first nine months of 2006. • For the nine months ended 30 September 2007, the 2007 underwriting year had an underwriting profit of £3.1 million, down from the underwriting profit of £10.5 million on the 2006 underwriting year for the first nine months of 2006, reflecting 2007 Catastrophes net losses of £7.1 million. • The 2006 underwriting year had an underwriting profit of £3.3 million after absorbing £1.7 million of 2007 Catastrophes net losses. • The 2005 and prior underwriting years had an underwriting profit of £1.7 million, principally resulting from a £2.3 million foreign exchange profit reflecting the impact of the weaker US dollar on the 2005 hurricane losses. • Advent Re had no underwriting profit or loss on premiums earned of £3.3 million (US$6.6 million) as it continues to book conservative loss ratios on its catastrophe exposed business. • For the nine months ended 30 September 2007, there was a net improvement in prior years' claims, net of reinstatement premiums, of £2.3 million compared with adverse development of £5.9 million in the first nine months of 2006. Underwriting Review For the nine months ended 30 September 2007, gross premiums written increased by9.1% to £115.6 million from £105.9 million in 2006, reflecting the growth inpremium income from Advent Re and Advent's increased share of Syndicate 780'scapacity for the 2007 year of account, partially offset by the impact of theweaker US dollar. Advent Re has written gross premiums of £6.3 million (US$12.4million) for 2007. For the nine months ended 30 September 2007, net premiums written increased by22.7% to £95.3 million from £77.7 million in 2006, principally due to Syndicate780's reduced reinsurance spend for the 2007 year of account of £23.5 million(at syndicate level at an average rate of exchange of $1.99/£) compared with£35.6 million for the 2006 year of account (at syndicate level at an averagerate of exchange of $1.82/£). For the nine months ended 30 September 2007, net earned premiums increased by14.6% to £69.9 million from £61.1 million in 2006 which principally reflects theincrease in net earned premiums on prior underwriting years, excluding RITC andreinstatement premiums, to £19.7 million for the first nine months of 2007 from£10.9 million in 2006. Insurance Segment Review 30 September 2007 Non-Marine Property Reinsurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000 Gross premiums written 69,604 23,143 18,209 4,596 115,552 Net premiums written 55,133 19,357 16,039 4,767 95,296 Net premiums earned 38,840 17,293 9,873 3,935 69,941 Net claims incurred (26,467) (8,884) (6,056) (815) (42,221) Net underwriting result 12,373 8,409 3,817 3,120 27,720 Acquisition costs (5,368) (5,315) (2,082) (646) (13,411) Operating costs (3,542) (1,178) (927) (234) (5,881) Profit on Exchange 405 135 106 27 672 Underwriting profit 3,868 2,051 914 2,267 9,100 Claims ratio 68.1% 51.4% 61.3% 20.7% 60.4% Acquisition costs 13.8% 30.7% 21.1% 16.4% 19.2% Operating costs 9.1% 6.8% 9.4% 5.9% 8.4% Profit on Exchange (1.0%) (0.8%) (1.1%) (0.7%) (1.0%) Expense ratio 21.9% 36.8% 29.4% 21.7% 26.6% Combined ratio 90.0% 88.1% 90.7% 42.4% 87.0% Adjusted combined ratioexcluding profit on exchange 91.0% 88.9% 91.8% 43.1% 88.0% 30 September 2006 Non-Marine Property Reinsurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000 Gross premiums written 70,945 19,170 14,284 1,504 105,903 Net premiums written 49,927 15,483 10,924 1,360 77,694 Net premiums earned 41,786 11,071 6,932 1,264 61,053 Net claims incurred (28,382) (6,450) (4,366) (1,560) (40,758) Net underwriting result 13,404 4,621 2,566 (296) 20,295 Acquisition costs (6,025) (3,354) (1,587) (216) (11,182) Operating costs (3,544) (958) (714) (75) (5,291) Profit on Exchange 3,168 856 638 67 4,729 Underwriting profit 7,003 1,165 903 (520) 8,551 Claims ratio 67.9% 58.3% 63.0% 123.4% 66.8% Acquisition costs 14.4% 30.2% 22.9% 17.1% 18.3% Operating costs 8.5% 8.7% 10.3% 5.9% 8.6% Profit on Exchange (7.6%) (7.7%) (9.2%) (5.3%) (7.7%) Expense ratio 15.3% 31.2% 24.0% 17.7% 19.2% Combined ratio 83.2% 89.5% 87.0% 141.1% 86.0% Adjusted combined ratioexcluding profit on exchange 90.8% 97.2% 96.2% 146.4% 93.7% Non Marine Reinsurance Syndicate 780 As major loss events have continued at a low level in 2007, pricing pressure hasincreased for the US Account. Pricing levels remain attractive, albeit belowthe high points reached in late 2006, with the market reluctant to over commitcapacity to areas with significant catastrophe exposure. More importantly,terms, conditions and deductibles are holding, which help to protect marginsagainst attritional claims. The non USA account has experienced a series of losses arising from the 2007Catastrophes, the effect of which has been to increase renewal prices foraccounts which experienced claims; otherwise, small price reductions continuewith terms and conditions holding. For the nine months ended 30 September 2007, the Non Marine Reinsurance accounthad an underwriting profit of £3.9 million and a combined ratio of 90.0% whichwas negatively impacted by 2007 Catastrophes net losses, of £7.2 million. Theunderwriting profit of £7.0 million in 2006 principally resulted from a foreignexchange profit of £3.2 million and the absence of attritional catastrophelosses. Advent Re For the nine months ended 30 September 2007, Advent Re wrote US$11.5 million ofpremiums, net of brokerage, with US$7.8 million relating to policies whichexpire on 31 December 2007 and US$3.7 million relating to policies which expireon 31 March 2008. Advent Re has written aggregate limits of US$30 million for USA earthquake andwind losses, US$20 million for European losses and US$15 million for Japaneselosses. The risks written consist of Original Loss Warranty (OLW) policies for27% of premiums written and traditional Ultimate Net Loss (UNL) policies for 73%of premiums written. The attachment points for the OLW's are in line with planof US$20 billion for USA Wind, US$15 billion for USA and Japanese quake andUS$10 billion for European losses. The attachment points for UNL policies areat a similar 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 these contracts as we maintainconservative loss ratios reflecting Advent Re's exposure to catastrophe risk andthe US hurricane season in particular. Property Insurance Prior to recent flood losses, the UK account had been experiencing steady pricereductions. There are now signs that this trend is reversing but it is stilltoo early to determine how far it will go. Pricing outside the UK continues tosoften with the larger accounts coming under the most pressure. For the nine months ended 30 September 2007, the Property Insurance account hadan underwriting profit of £2.1 million and a combined ratio of 88.1% which wasnegatively impacted by 2007 Catastrophes net losses, of £1.7 million. For thenine months ended 30 September 2006, the Property Insurance account had anunderwriting profit of £1.2 million, which included a foreign exchange profit of£0.9 million, and a combined ratio of 89.5%. Marine For Gulf of Mexico energy exposures, pricing remains unchanged with capacity inshort supply. Sub limits and aggregate catastrophe exposure caps remain in forceand margins are attractive. Elsewhere, pricing is softening with furtherreductions of up to 10% experienced in the third quarter. Pricing for marineexposures is turning down as the impact of losses in the early part of 2007 fadehowever terms and conditions remain firm at present. For the nine months ended 30 September 2007, the Marine account had anunderwriting profit of £0.9 million and a combined ratio of 90.7%, unchangedfrom 2006 (which included a foreign exchange profit of £0.7 million) and acombined ratio of 87.0%. The 2007 underwriting result was impacted by adeterioration of £2.2 million on Hurricane Rita energy claims in the firstquarter of 2007. Other For the nine months ended 30 September 2007, the Other account had anunderwriting profit of £2.3 million a significant improvement from theunderwriting loss of £0.5 million in 2006. Syndicate 2 had an underwritingprofit of £1.5 million principally arising from a favourable development on 2001and prior years' aviation and energy claims compared with an underwriting lossof £1.0 million in 2006. Syndicate 780 - Net notified loss ratio at 9 months (excluding IBNR) Year of 1993 1994 1995 1996 1997 1998 1999 2000account% netnotified 9.9% 18.7% 9.5% 17.6% 14.0% 27.3% 30.6% 20.1% Year of 2001 2002 2003 2004 2005 2006 2007account% netnotified 32.4% 4.9% 9.1% 22.9% 20.8% 11.7% 23.6% The net notified loss ratio of 23.6% includes notified losses from the 2007Catastrophes of 12.6%. Catastrophe Exposure At 30 September 2007, Syndicate 780's exposure to any one of the major Lloyd'sRealistic Disaster Scenarios (RDS) is summarised below compared with the 2007business plan: Florida Gulf of USA North East European Wind Japan Quake Los Angeles Wind Mexico Wind Quake Industry loss Scenario $111 bn $108 bn $71 bn $31.5 bn $52 bn $78 bn Estimated net lossas % of capacity 2007 Plan 16% 19% 19% 16% 9% 16% 30 Sept 2007 14% 17% 18% 15% 11% 14% 2008 Plan 16% 19% 19% 19% 13% 17% The RDS at 30 September 2007 are in line with 2007 business plan guidelinesexcept for Japanese quake, where the Syndicate increased its writing of Japanesebusiness as part of its diversification away from US catastrophe events. ForSyndicate 780's 2008 business plan, the RDS reflect the Company's continuingstrategy of managing its significant catastrophe exposures within Lloyd'sguidelines. Expenses For the nine months ended 30 September 2007, the operating expense ratio(excluding acquisition costs and foreign exchange gains) was 8.4%, compared with8.6% in of 2006, reflecting the higher earned premium in 2007. Investment Return For the nine months ended 30 September 2007, the investment return increased to£9.7 million (2006: £9.5 million), reflecting an increase in the Company's cashand investments and a stable interest rate environment in the United States. The Syndicate's US dollar investment portfolio duration has been maintainedshort, between 0.49 and 0.86 years. It is now wholly invested in government orgovernment guaranteed securities, with an overall return on US bonds of 4.2%(annualised return of 5.6%). Neither the syndicates nor the Company invest inasset backed or mortgage securities (ABS and MBS), equities or derivatives.Certain overseas deposits managed by Lloyd's (over which the Company has noinvestment control) have invested in corporate bonds, MBS and ABS as referred toin note 5 to the financial statements. The corporate Funds at Lloyd's of £94 million were reinvested in short termgovernment and government guaranteed securities during August 2007, to furtherreduce the Company's exposure to bank credit risk in current credit marketconditions. Advent Re's funds (included in corporate cash and cash equivalents below)continued to be invested in short term US treasury bills held in trust accountsas collateral for cedants' policy limits. The return achieved for the ninemonths ended 30 September 2007 was £1.6 million an for annualised return of4.6%. Our investment mix as at 30 September 2007 is shown below. 30 September 30 September 31 2007 2006 December 2006 (Restated) (Restated) Syndicate Corporate Total Total TotalInvestment mix £'000 £'000 £'000 £'000 £'000 Government debt 93,676 108,233 201,909 80,419 78,838securities Cash and cashequivalents 28,062 25,331 53,393 159,767 164,547 Total 121,738 133,564 255,302 240,186 243,385 The increase in cash and investments from £243.4 million at 31 December 2006 to£255.3 million at 30 September 2007 includes the receipt of the 2004 year ofaccount losses and positive cash flows from the 2006 and 2007 years of accountsexceeding declining payments on 2004/2005 hurricane claims. Capital Management 30 September 31 2007 December 2006 £'000 £'000 Long term debt - subordinated 24,261 24,675 - senior 21,709 22,607 45,970 47,282 Shareholders' funds 96,968 88,986 Debt to equity ratio 47% 53% Debt to total capital ratio 32% 35% Interest coverage 4.8 x 7.4 x The Company continues to maintain its debt to total capital ratio below 35% inaccordance with its stated policy. 2008 Business Plans and Outlook Syndicate 780 The 2008 Business Plan of Syndicate 780 reflects a projected gross premiumincome target of £114.3 million at Lloyd's Premium Income Monitoring (PIM)exchange rates of US$1.92/£1.00 and a reduction in capacity to £135 million from£150.6 million for the 2007 year of account. Key components of the 2008 Plan compared with the 2007 year of account Plan andforecast premium income (net of brokerage commission) are set out below at PIMand current rates of exchange: 2007 2007 2008 2008 Plan Forecast Plan PlanExchange rate $1.77/£ $2.04/£ $1.92/£ $2.04/£ ReinsuranceTreaty 43.2 39.0 40.3 38.8Assumed 12.2 15.6 12.9 12.4Marine 2.6 1.9 2.2 2.1Aviation 1.0 0.6 1.1 1.1Casualty and other 2.8 3.5 3.1 3.0 61.8 60.6 59.6 57.4 InsuranceProperty 40.7 32.2 36.5 35.1Energy 20.7 17.0 16.0 15.1Cargo and other 6.0 0.5 0.8 0.8Personal Accident 1.3 1.3 1.4 1.3 68.7 51.0 54.7 52.3 130.5 111.6 114.3 109.7 Advent's share 109.2 93.4 114.3 109.7 (2007 YOA - 83.7%) (2008 YOA - 100%) For the 2007 year of account, forecast premium income of £111.6 million is 15%below plan reflecting: • A 9% reduction arising from the weaker US dollar compared with Lloyd's PIM rates. Approximately 75% of the Syndicate's premiums are written in US dollars. • The difficulty in developing new lines of business of Cargo, War and Terrorism in the face of the determination of existing players to maintain their shares; and • A shortfall in growth in the Property Insurance and Energy accounts given increasing competition as companies seek to diversify their business. Syndicate 780's 2008 Business Plan reflects an expected softening in pricing,terms and conditions in light of the absence of major catastrophes to date,particularly in the United States. The 2008 Plan's return on capacity is 18.5%(before change in managing agency fees) net of a margin for catastrophe lossesof 18% of capacity. Based on the 30 September 2007 exchange rate of US$2.04/£, the Company's 100%share of Syndicate 780's gross premium income for the 2008 year of account of£109.7 million is a 17% increase from its 83.7% share of forecast gross premiumincome for the 2007 year of account of £93.4 million with the increase incapacity to 100% for 2008 more than offsetting the effects of the weaker USdollar and expected market conditions. Advent Re We will continue with the development of Advent Re in 2008 with the ultimateobjective of building a reinsurance platform similar in size and scale toSyndicate 780. On the basis that there are no major catastrophes before yearend, Advent Re expects to write gross premium income, before brokerage, of US$15million to US$20 million including traditional property reinsurance and alimited amount of casualty reinsurance in addition to the retro business itwrote in 2007. Outlook The insurance and reinsurance markets continue to undergo significant change asparticipants react to the increased involvement of capital markets in thesecuritisation of insurance risk, the geographical dynamics for the placement ofreinsurance business and increasing mergers and acquisitions in the Lloyd'smarket as Bermudan reinsurers seek to diversify their business and deploy excesscapital in a competitive market. Market conditions have been favourable in 2007 in our principal lines ofbusiness with increased competition affecting rates and premium signings. Thenumber of smaller catastrophes outside of the US are not expected to affectpricing significantly while the absence of major US catastrophes to date islikely to result in further pressure on pricing, terms and conditions going into2008. We have seen some signs that "sidecar" reinsurance capacity in excess ofUS$800 million will not be renewed for 2008 although it is still too early toassess the potential impact of this withdrawal of capacity on reinsurancemarkets. Our business plans for Syndicate 780 and Advent Re reflect ourexpectation of softer market conditions albeit we believe that underwritingprofitability remains at attractive levels. Advent is well placed to take advantage of market opportunities through its longestablished Lloyd's platform and its trading platform in Bermuda. We will bealert to opportunities in the market place under the leadership of ourexperienced underwriting team while maintaining underwriting discipline in theface of increased competition for business. Brian F Caudle Chairman 26 October 2007 CONSOLIDATED INCOME STATEMENT For the nine months ended 30 September 2007 Note Nine months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000IncomeGross premiums written 4 115,552 105,903 115,356Net premiums written 4 95,296 77,694 88,201Net premiums earned 4 69,941 61,053 81,694Investment income 5 9,725 9,462 12,681Other operating income 388 601 1,054Total Income 80,054 71,116 95,429 ExpensesNet claims incurred 4 (42,221) (40,758) (43,073)Acquisition costs (13,411) (11,182) (17,666)Operating expenses (5,881) (5,291) (6,882)Profit on exchange 610 4,446 4,041Other corporate costs (2,922) (3,081) (5,436)Total Expenses (63,825) 55,866 (69,016) Operating Result 16,229 15,250 26,413Interest on debt (3,354) (2,626) (3,560)Profit before tax 12,875 12,624 22,853Tax 7 (5,057) (3,771) (6,842)Profit for the periodattributable to equityshareholders 7,818 8,853 16,011 Earnings per ordinary share- Basic and diluted 6 1.9p 2.4p 4.3p CONSOLIDATED BALANCE SHEET At 30 September 2007 Note 30 September 31 December 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000AssetsCash and cash equivalents 5 53,393 159,767 164,547Financial investments 5 201,909 80,419 78,838Other receivables 6,695 16,169 9,520Insurance and reinsurance assets - Reinsurers' share of outstanding claims 4 19,051 42,141 33,317 - Reinsurers' share of unearned premiums 4 8,495 15,496 4,457- Debtors arising from insurance and reinsurance operations 63,552 59,807 45,321Deferred tax asset 16,748 25,625 21,654Property and equipment 556 501 562Intangible assets 8 7,557 6,843 8,062Total assets 377,956 406,768 366,278 EquityShare capital 6 20,329 18,481 20,329Share premium account 60,662 53,527 60,662Capital redemption reserve 21,065 21,065 21,065Other reserves (2,722) (2,918) (2,886)Retained earnings (deficit) (2,366) (17,342) (10,184)Total shareholders' equity 96,968 72,813 88,986 LiabilitiesInsurance and reinsurance liabilities - Outstanding claims 4 170,079 229,989 193,101 - Unearned premiums 4 53,715 46,076 24,322 - Creditors arising out of insurance andreinsurance operations 8,154 16,299 6,798Trade and other payables 3,070 2,703 5,789Long term debt 6 45,970 38,888 47,282Total liabilities 280,988 333,955 277,292 Total liabilities and shareholders' equity 377,956 406,768 366,278 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the nine months ended 30 September 2007 Capital 30 Sept 30 Sept 2006 31 Dec Share Share redemption Other Retained 2007 (unaudited) 2006 capital premium reserve reserves earnings (unaudited) (unaudited) Total Total Restated Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 January 20,329 60,662 21,065 (2,886) (10,184) 88,986 34,581 34,581 Profit for the period - - - - 7,818 7,818 8,853 16,011 Proceeds from issue ofshares - - - - - - 29,268 38,251 Share based payments - - - 164 - 164 111 143 Balance at end of 20,329 60,662 21,065 (2,722) (2,366) 96,968 72,813 88,986period CONSOLIDATED CASH FLOW STATEMENT For the nine months ended 30 September 2007 Note Nine months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000 Cash flows from operating activities 9 (111,814) 6,846 (5,954)Interest received 4,230 4,427 4,206Interest paid (3,380) (2,541) (3,427)Net taxation received - 151 150Net cash flows from operating activities (110,964) 8,883 (5,025) Cash flows from investing activitiesNet purchased tangible fixed assets (190) (261) (421)Purchase of syndicate capacity - (1,499) (1,499)Net cash flows from investing activities (190) (1,760) (1,920) Cash flows from financing activitiesIssue of ordinary share capital - 30,000 39,582Share issue expenses - (732) (1,331)Issue of loan notes - 15,073 25,277Loan note issue expenses - (453) (792)Net cash flows from financing activities - 43,888 62,736 Net increase (decrease) in cash and cash (111,154) 51,011 55,791equivalentsCash and cash equivalents at beginning of period 164,547 108,756 108,756Cash and cash equivalents at end of period 5 53,393 159,767 164,547 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 2006 as set out on pages 40 to 75 of the 2006 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 Company adopted IFRS in preparation of its interim consolidated financialstatements for the three months ended 31 March 2007, with effective applicationfrom 1 January 2006. Accordingly, the comparative financial informationpresented has been restated to an IFRS basis. As required upon the adoption ofIFRS, note 10 sets out the reconciliations of the balance sheets at 1 January2006 (the opening IFRS balance sheet) and at 31 December 2006 (the last UK GAAPbalance sheet) and the profit for the year ended 31 December 2006 between IFRSand UK GAAP, together with explanations for the changes made. Accounting policies With the exception of the specific accounting policies listed below, theaccounting policies applied under IFRS are unchanged from the accountingpolicies applied under UK GAAP in the preparation of the Company's consolidatedfinancial statements for the year ended 31 December 2006 and which are set outon pages 46 to 49 of the 2006 Report and Accounts. The application of IFRS has changed the format and presentation of the primaryfinancial statements resulting in some terminology changes. The profit and lossaccount which was previously classified between a technical account and anon-technical account under UK GAAP has been renamed as the Income Statementunder IFRS with no further reference to the technical or non-technical account. Financial investments The Company currently holds short term government or government guaranteedsecurities. Accordingly, all financial investments have been classified as "fair value through income" on the basis that short term assets are bought withthe intention to resell. Purchases and sales of investments are recognised onthe trade date, being the date at which a commitment to buy or sell the assethas been made. Investments are initially recognised at fair value, and aresubsequently re-measured at fair value based upon quoted bid prices. Changes tothe fair value are included in the income statement for the period in which theyarise. If the Company decides to purchase long term fixed income or equity securities,management expects that these securities will be classified as "held for sale"with any changes in fair value being included as a separate component ofshareholders' equity as "Unrealised gain or loss on investments, net of tax"during the period in which they arise. Foreign currency translation All monetary assets and liabilities expressed in foreign currencies aretranslated into sterling at the closing rates of exchange at the balance sheetdate. Non-monetary assets and liabilities, including unearned premiums anddeferred acquisition costs, are translated into sterling at historic rates ofexchange. Foreign currency transactions are translated at the average rate ofexchange during the year. Assets and liabilities of foreign subsidiaries are translated at the period endexchange rate. Exchange differences arising from the retranslation of suchassets and liabilities are recorded as a separate component of shareholders'equity in the "Currency Translation Account". To the extent that such netassets have been effectively hedged by the Company's long term debt as is thecase with the Company's investment in Advent Re, any currency differences on theretranslation of the long term debt are also recorded in equity. Other foreignexchange gains or losses are reported in the Income Statement. Hedging Transactions are classified as hedging transactions when the followingconditions for hedge accounting can be met: • there is a formal designation and documentation of the hedging relationshipand the Company's risk management objective and strategy for undertaking thehedge; • the hedge is expected to be highly effective in achieving offsetting changesin fair value attributable to the hedged risk, consistent with the originallydocumented risk management strategy for that hedging relationship; and • the effectiveness of the hedge can be reliably measured. Cash and cash equivalents Cash at bank, short term bank deposits and any highly liquid short terminvestments with a maturity date of 90 days or less at the date of purchase thatare generally not subject to risk of changes in fair value are categorised asCash and Cash Equivalents in the balance sheet at fair value. Intangible assets Purchased capacity Purchased syndicate capacity is considered to have an indefinite life and, assuch, is not subject to annual amortisation, but is reviewed annually for anyimpairment in value. Any such impairment will be charged to the incomestatement in the period during which it is identified. The purchased syndicate capacity has been initially recognised at cost andsubjected to an impairment review. The carrying value is the original cost lessaccumulated impairment losses. 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. Goodwill The goodwill is included on the basis of deemed cost which is considered to bethe carrying value under UK GAAP at the date of transition to IFRS, less anysubsequent impairment losses. These unaudited interim consolidated financial statements have been prepared inaccordance with the accounting policies set out above and do not include alldisclosures required for statutory accounts. In management's opinion, thefinancial statements include all disclosures necessary for the fair presentationof the Company's interim results. Conversion to IFRS Since IFRS became mandatory for fully listed public companies in 2005, UK GAAPhas converged with IFRS such that the only adjustment relates to theamortisation of indefinite life intangible assets and goodwill. In accordancewith IAS 38, 'Intangible Assets', all intangible assets with an indefinite lifeare no longer amortised, but are subject to an annual impairment review. Thedirectors, having regard to currently available information, consider that thenet book value of the intangible assets at 1 January 2006 represents therecoverable amount. The effect of this change in accounting policy, in respectof purchased capacity, has been to increase net earnings for the year ended 31December 2006 by £0.1 million, while opening retained earnings as of 1 January2006 are unchanged. For goodwill, as permitted on the first time adoption of IFRS, the Company haschosen to not restate the historical merger basis of combination for AdventUnderwriting to an acquisition basis as the transaction occurred prior to 31March 2004. Any subsequent business combinations will be accounted for underthe acquisition method. The effect of the change in accounting policy forgoodwill has been to increase net earnings for the year ended 31 December 2006by £0.5 million, while opening retained earnings as of 1 January 2006 areunchanged. Under UK GAAP, Deposits with Credit Institutions, which are of a short termnature, were included as part of Investments. IAS 7 'Cash Flow Statements',defines cash equivalents as short term, highly liquid investments that aresubject to insignificant risk of change in value and are readily convertible tocash. As a result, these assets are now included in 'Cash and Cash Equivalents'on the balance sheet resulting in a reclassification of £1.6 million fromInvestments to Cash and Cash Equivalents on the IFRS balance sheet at 31December 2006. 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 2006 are based on the Company's UKGAAP statutory accounts. These accounts have subsequently been converted toIFRS as set out above and in note 10. The IFRS comparatives have not beensubject to audit. The UK GAAP accounts received an unqualified audit opinionfrom the Company's auditors, and did not contain a statement under section 237(2) or (3) of the Act. The Company accounts for the year ended 31 December 2006have 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 accounts were: 30 September 2007 30 September 2006 31 December 2006 Period Period Period Period Period Period average End average end average end rate rate rate rate rate rate US dollar 1.99 2.04 1.82 1.87 1.84 1.96Euro 1.48 1.43 1.46 1.47 1.47 1.48Canadian dollar 2.20 2.02 2.06 2.08 2.09 2.28 The Company had foreign exchange gains and losses which were recorded in theconsolidated income statement as follows: Nine Nine months 2007 months 2006 Year 2006 £'000 £'000 £'000 Underwriting activities 672 4,729 6,991Corporate activities (62) (283) (2,950)Net gain 610 4,446 4,041 At 30 September 2007, the Company's asset and liability positions in its majorforeign currencies were as follows: 30 September 2007 (unaudited) US$m £m CDN$m •m Total assets 454.5 134.4 24.4 12.4 Total liabilities (446.8) (45.6) (14.6) (12.9) Net assets (net liabilities) 7.7 88.8 9.8 (0.5) 31 December 2006 (unaudited) US$m £m CDN$m •m Total assets 467.5 109.4 20.2 12.3 Total liabilities (434.7) (41.3) (9.9) (13.4) Net assets (net liabilities) 32.8 68.1 10.3 (1.1) 3. BUSINESS SEGMENT Nine Nine months Months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Underwriting profit Syndicate 780 - Non MarineUnderwriting Year of Account2007 - open 3,069 - -2006 - open 3,341 10,497 20,3752005 - open 1,669 (937) 1,5242004 and prior closed - 7 (706)Total Syndicate 780 8,079 9,567 21,193 Syndicate 2 - MarineUnderwriting Year of Account2002 - run-off (154) (322) 992001 - run-off 1,663 (694) (228)Total Syndicate 2 1,509 (1,016) (129) Advent Re operating costs (488) - - Managing AgencyAgency fees 207 262 301Recharged to Syndicates 181 339 753 388 601 1,054 OtherInvestment income 9,725 9,462 12,681Interest on debt (3,354) (2,626) (3,560)Corporate expenses (2,922) (3,081) (5,436)Corporate foreign exchange loss (62) (283) (2,950) Profit before tax 12,875 12,624 22,853 4. INSURANCE RISK MANAGEMENT Insurance segment results The underwriting results of Advent Re are included in the Non Marine Reinsurancesegment from 1 January 2007, the date it commenced writing business. The Othersegment includes the results of Syndicate 2. Acquisition costs consisting ofdirect brokerage commissions, are allocated to each segment on a direct basiswhile operating costs, including underwriting costs, are allocated based ongross premiums written. For catastrophe exposed business, including multiple peril coverage, the Companyrecognises premium 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. Non-Marine Property Re-insurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000 Nine months 2007 (unaudited)Gross premiums written 69,604 23,143 18,209 4,596 115,552Net premiums written 55,133 19,357 16,039 4,767 95,296Net premiums earned 38,840 17,293 9,873 3,935 69,941Net claims incurred (26,467) (8,884) (6,056) (814) (42,221)Acquisition costs (5,368) (5,315) (2,082) (646) (13,411)Operating expenses (3,542) (1,178) (927) (234) (5,881)Profit on exchange 405 135 106 26 672Underwriting profit 3,868 2,051 914 2,267 9,100Combined ratio 90.0% 88.1% 90.7% 42.4% 87.0% Non-Marine Property Re-insurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000 Nine months 2006 (unaudited,restated)Gross premiums written 70,945 19,170 14,284 1,504 105,903Net premiums written 49,927 15,483 10,924 1,360 77,694Net premiums earned 41,786 11,071 6,932 1,264 61,053Net claims incurred (28,382) (6,450) (4,366) (1,560) (40,758)Acquisition costs (6,025) (3,354) (1,587) (216) (11,182)Operating expenses (3,544) (958) (714) (75) (5,291)Profit on exchange 3,168 856 638 67 4,729Underwriting profit (loss) 7,003 1,165 903 (520) 8,551Combined ratio 83.2% 89.5% 87.0% 141.1% 86.0% Non-Marine Property Re-insurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000 Year 2006 (unaudited, restated)Gross premiums written 73,104 26,422 14,129 1,701 115,356Net premiums written 52,599 22,621 11,205 1,776 88,201Net premiums earned 54,639 15,963 9,378 1,714 81,694Net claims incurred (25,837) (8,947) (7,857) (432) (43,073)Acquisition costs (9,259) (5,663) (2,365) (379) (17,666)Operating expenses (4,361) (1,576) (843) (102) (6,882)Profit on exchange 4,430 1,601 856 104 6,991Underwriting profit (loss) 19,612 1,378 (831) 905 21,064Combined ratio 64.1% 91.4% 108.9% 47.2% 74.2% Provision for claims (a) Net incurred claims Nine Nine months months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Paid claims - Gross amount 59,699 128,390 157,141 - Reinsurers' share (13,010) (56,544) (61,475) 46,689 71,846 95,666 Change in provision for claims - Gross amount (17,845) (77,003) (105,387) - Reinsurers' share 13,377 45,915 52,794 (4,468) (31,088) (52,593)Net incurred claims 42,221 40,758 43,073 (b) Outstanding claims Unearned Claims Total Premiums outstanding £'000 £'000 £'000 GrossAt 1 January 2007 (unaudited) 24,322 193,101 217,423Exchange adjustments - (5,176) (5,176)Movement in provisions- current year 29,393 44,818 74,211- prior year - (2,965) (2,965)- paid claims - (59,699) (59,699)At 30 September 2007 (unaudited) 53,715 170,079 223,794 Reinsurance amountAt 1 January 2007 (unaudited) 4,457 33,317 37,774Exchange adjustments - (889) (889)Movement in provisions- current year 4,038 1,217 5,255- prior year - (1,584) (1,584)- paid recoveries - (13,010) (13,010)At 30 September 2007 (unaudited) 8,495 19,051 27,546 NetAt 30 September 2007 (unaudited) 45,220 151,028 196,248At 31 December 2006 (unaudited) 19,865 159,784 179,649At 30 September 2006 (unaudited) 30,580 187,848 218,428 For the nine months ended 30 September 2007, improvement in prior years claims,net of reinstatement premiums, amounted to £2.3 million (2006: adversedevelopment of £5.9 million). The net claims outstanding are further analysed between notified outstandingclaims and incurred but not reported claims (IBNR) below: 30 30 31 September September December 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Notified outstanding claims 104,313 135,623 114,654Claims incurred but not reported 46,715 52,225 45,130Claims outstanding 151,028 187,848 159,784 The breakdown of the gross and net claims reserves by category of claims is setout below. 30 September 2007 30 September 2006 31 December 2006 (unaudited) (unaudited) (unaudited) Gross Net Gross Net Gross Net £'000 £'000 £'000 £'000 £'000 £'000 Large catastrophe provisions, 39,136 32,099 88,832 61,402 66,308 44,800recently incurredAll other short tail provisions 60,794 57,716 57,996 57,337 50,372 49,647Long-tail provisions (Casualty) 24,615 24,615 25,543 25,543 24,311 24,311Syndicate 2 provisions 45,534 36,598 57,618 43,566 52,110 41,026Total 170,079 151,028 229,989 187,848 193,101 159,784 Reinsurance recoverable At 30 September 2007, the Company's reinsurance recoverable on outstandingclaims amounted to £19.1 million, a decrease of £14.2 million since 31 December2006, with reinsurers with the following risk ratings by AM Best (or equivalentS&P rating in the absence of an AM Best rating): Risk Rating Reinsurance recoverable £'000 % A+ 9,794 52Lloyd's 1,057 6A 4,802 25A- 272 1Trust fund backed 1,914 10BBB or below and Non Rated 1,212 6 Total 19,051 100 Included in other debtors are the following reinsurer balances. Syndicate 780 Syndicate 2 Total £'000 £'000 £'000Due on paid losses 2,914 8,489 11,403Provision for uncollectible reinsurance - (3,976) (3,976) Net 2,914 4,513 7,427 The total provision for uncollectible reinsurance amounted to £4.2 million at 30September 2007 (£4.3 million at 31 December 2006), of which £4.0 million was inrespect of paid losses (£3.9 million at 31 December 2006) and £0.2 million wasin respect of outstanding losses (£0.4 million at 31 December 2006). 5. FINANCIAL RISK MANAGEMENT NET INVESTMENT INCOME Nine Nine months months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Investment IncomeIncome 9,176 9,082 12,092Gain on sale of investments 314 381 504Unrealised gains on investments 462 381 517 9,952 9,844 13,113 Investment expenses and chargesInvestment management expenses (62) (78) (105)Loss on sale of investments (56) (210) (281)Unrealised losses on investments (109) (94) (46) (227) (382) (432)Net investment income 9,725 9,462 12,681 FINANCIAL INVESTMENTS Nine Nine Months months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Fair Value Debt securities and other fixed income securities- government and government guaranteed 201,909 80,419 75,930- corporate and other - - 2,908- asset backed securities - - - 201,909 80,419 78,838 Purchase Price Debt securities and other fixed income securities- government and government guaranteed 201,213 79,835 75,490- corporate and other - - 2,976- asset backed securities - - - 201,213 79,835 78,466 All financial investments are held by the Company's managed syndicates. Alldebt securities and other fixed income securities are listed on recognised stockexchanges. All financial investments are classified as fair value throughincome including short term fixed maturity securities. CASH AND CASH EQUIVALENTS 30 September 30 September 31 December 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000 Corporate cash at bank 22,577 7,710 5,541Corporate funds held by Lloyd's 424 116,128 113,541Advent Re cash at bank 2,330 - 19,132Syndicates' cash at bank 18,792 32,232 21,195Syndicates' overseas deposits 3,426 3,697 3,539Syndicates' deposits with credit institutions 5,844 - 1,599Total cash and cash equivalents 53,393 159,767 164,547 During the quarter ended 30 September 2007, the Company converted its corporatefunds held by Lloyd's (FAL) from Lloyd's-managed pooled money market funds intoshort term government and government guaranteed investments. 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 1,788Mortgage backed securities (MBS) 260Corporate bonds rated AAA 319 AA 550 A 277Asset backed securities (ABS) 129Cash 103 3,426 Lloyd's has also engaged in securities lending in the JATF as a result of whichit has an investment in commercial paper of Mainsail II, currently in default,of which the Company's share is approximately £35,000. 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 30 30 31 30 30 31 September September December September September December 2007 2006 2006 2007 2006 2006 £'000 £'000 £'000 £'000 £'000 £'000 Ordinary shares of 5p each 50,000 50,000 50,000 20,329 18,481 20,329(£000) Number of shares ('000s) 1,000,000 1,000,000 1,000,000 406,570 369,609 406,570 EARNINGS PER ORDINARY SHARE Nine Nine Months months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated Profit after tax for the period (£'000) 7,818 8,853 16,011Weighted average number of shares in issue 406,570 366,862 369,579Basic and diluted earnings per share 1.9p 2.4p 4.3p LONG TERM DEBT 30 September 30 September 31 December 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 US$34 million due 3 June 2035 16,140 17,627 16,821Euro 12 million due 3 June 2035 8,121 7,905 7,854 Total subordinated notes 24,261 25,532 24,675 US$26 million due 15 January 2026 12,227 13,356 12,742US$20 million due 15 December 2026 9,482 - 9,865 Total senior notes 21,709 13,356 22,607 Total loan notes 45,970 38,888 47,282Weighted average interest rate 9.25% 9.07% 9.19% The Company's US$34 million and Euro 12 million aggregate principal amount ofunsecured subordinated notes (the "USD Subordinated Notes" and "EuroSubordinated Notes" respectively) are due 3 June 2035 and are callable by theCompany at any time, in whole or in part, after 3 June 2010. The notes bear interest at 3 month EURIBOR plus 3.85% for the Euro SubordinatedNotes (8.64% at 30 September 2007) and 3 month USD Libor plus 3.9% for the USDSubordinated Notes (9.13% at 30 September 2007). Payment of interest may, atthe option of the Company, be deferred for up to 20 consecutive quarters. 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 Company's senior loan notes of US$26 million, (the "Senior Notes tranche 1")are due 15 January 2026 and are callable by the Company at any time, in whole orin part, after 16 January 2011. The Senior Notes tranche 1 bear interest at 3month USD Libor plus 4.5% (9.73% at 30 September 2007). The Company's senior loan notes of US$20 million (the "Senior Notes tranche 2")are due 15 December 2026 and are callable by the Company at any time, in wholeor in part, after 15 December 2011. The Senior Notes tranche 2 bear interest at3 month USD Libor plus 4.15% (9.38% at 30 September 2007). The Senior Notes tranche 1 and the Senior Notes tranche 2 rank on a winding-upof the Company in priority to distributions on all classes of share capital andsubordinated loan notes, and rank pari passu with each other but aresubordinated in right of payment to the claims of all unsubordinated creditorsof the Company (including, where applicable, all policyholders of theSyndicate). The Subordinated Notes and Senior Notes are listed on the Channel Islands StockExchange. 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 £100.8 million at 30 September 2007, a majorshareholder, Fairfax Financial Holdings Limited (Fairfax), has deposited FAL of£53.2 million at 30 September 2007 (£65.5 million at 31 December 2006) tosupport the Company's underwriting for the 2001 to 2005 underwriting yearspursuant to a Funding Agreement dated 16 November 2000. Any underwritingprofits arising from the business supported by the Fairfax FAL are receivable bythe Company which is also responsible for the payment of any losses arising. On29 June 2007, Lloyd's released £9.8 million of Fairfax FAL concurrent with theclosure of Syndicate 780's 2004 year of account. The FAL and the overseas deposits are not available for use by the Company forordinary cash flow purposes. The Company paid its share of Syndicate 780's cash call on the 2004 year ofaccount of £19.4 million from its FAL on 29 June 2007 and received an interimprofit distribution on the 2006 year of account of £10.8 million which is heldin holding company cash available to pay the remaining 2005 year of accountlosses in June 2008. 7. INCOME TAXES 30 30 31 September September December 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000 Analysis of charge in periodUK corporation tax - 182 -Overseas taxation - - (718)Deferred tax 5,057 3,589 7,560Total taxation 5,057 3,771 6,842 Effective 26 June 2007, the UK government: a) Repealed section 107 on the disclaimer of reserves with transitionalrules that allow a final disclaimer of reserves for the year ending 31 December2007, and which is capped at 10% of the net technical reserves at that date. b) Made legislative changes to Lloyd's specific tax rules to ensure thattrading losses transfer between companies under common control. As a result,Advent Capital Limited's trading losses resulting from the closure of the 2005and prior years of account should be transferable to Advent Capital (No. 3)Limited and will be available for offset against its own future trading profitsfrom the 2006 and subsequent years of account. c) Reduced the corporate tax rate from 30% to 28% resulting in a £1.4million tax charge in the second quarter of 2007. These tax changes significantly reduce the uncertainty referred to in note 6 ofthe 2006 Report and Accounts relating to the period over which the Company wouldhave the technical ability to recover 2005 and prior tax losses. 8. INTANGIBLE FIXED ASSETS Goodwill Purchased on Acquisition Capacity Total £'000 £'000 £'000 Fair ValueAt 30 September 2007 (unaudited) 4,148 3,409 7,557At 31 December 2006 (unaudited, restated) 4,148 3,914 8,062At 30 September 2006 (unaudited, restated) 4,148 2,695 6,843 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. The accounting treatment of intangible assets is discussed further in Note 10. 9. RECONCILIATION OF PROFIT BEFORE TAX TO NET CASH INFLOW (OUTFLOW) FROM OPERATING ACTIVITIES Nine Nine Months months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Profit before tax 12,875 12,624 22,853Movement in:- insurance and reinsurance receivables (8,003) 47,208 81,557- other receivables 2,677 (3,237) 5,148- insurance and reinsurance payables 7,727 (72,971) (141,114)- trade and other payables (2,846) (862) 1,856Debt interest 3,354 2,626 3,560Investment income (4,081) (5,232) (6,747)Unrealised investment return 436 287 (470)Net (purchase) sale of investments (123,508) 28,318 30,656Depreciation 701 810 909Amortisation of debt issue costs 16 42 69Amortisation of share option costs 166 111 143Foreign exchange movements on financing (1,328) (2,878) (4,374) (111,814) 6,846 (5,954) 10. RECONCILIATION OF BALANCE SHEET AND INCOME STATEMENTS PREPARED UNDERIFRS TO THOSE PREVIOUSLY PREPARED UNDER UK GAAP The table below sets out the changes, as discussed in note 1, to the reportedprofit for the year ended 31 December 2006 and a reconciliation of the balancesheet at 31 December 2006. There is no change to reserves at 31 December 2005. Reported Adjustment for Adjustment to Reported under UK GAAP intangible recoverable under IFRS asset amount amortisation £'000 £'000 £'000 £'000 Profit after tax 15,352 1,656 (997) 16,011Purchased capacity 3,773 1,138 (997) 3,914Goodwill 3,630 518 - 4,148Total assets 365,619 1,656 (997) 366,278Total shareholders equity 88,327 1,656 (997) 88,986Total liabilities and shareholders 365,619 1,656 (997) 366,278equity In accordance with IFRS, the book value of goodwill at the date of transition toIFRS has been used as fair value. The original cost of capacity has beenreviewed and impaired to the value shown in the balance sheet. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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