1st Mar 2005 07:02
BRIT Insurance Holdings PLC01 March 2005 Part 2 30 Consolidated cash flow statement (i) Scope of consolidated cash flow statement The consolidated cash flow statement excludes syndicate cash flows and cash heldwithin Lloyd's Premium Trust Funds on behalf of some of the Group's underwritingsubsidiaries. (ii) Reconciliation of operating profit to net cash inflow from operating activities 31 December 31 December 2004 2003 (restated) £'000 £'000 Profit before tax on ordinary activities 102,469 77,566(Profit)/loss on sale of fixed assets (205) 844(Profit) on disposal of subsidiary undertakings - (1,920)Depreciation of fixed assets and related exchange adjustments 3,125 2,179Amortisation of goodwill 8,101 6,488Amortisation of loan stock and loan notes issue costs 279 250Charges in respect of employee share schemes 1,038 221Amortisation of syndicate capacity 1,734 1,919Increase in debtors (149,384) (72,837)Increase/(decrease) in creditors 8,807 (13,303)Increase in provisions 307,053 223,395Foreign exchange rate movements on financing items (475) -Realised and unrealised investment gains (15,315) (2,767)Share of operating profit in associated undertakings,net of goodwill amortisation (577) (219)Interest payable 2,758 4,600 Net cash inflow from operating activities 269,408 226,416 (iii) Movement in opening and closing portfolio investments net of financing 31 December 31 December 2004 2003 £'000 £'000 Net cash (outflow)/inflow for the year (36,743) 41,819Cash flow - portfolio investments 264,388 221,421 Movement arising from cashflows 227,645 263,240Changes in market value and currencies 15,315 2,767Other changes 478 106,992 Total movement in portfolio investments net of financing 243,438 372,999Portfolio at 1 January 953,380 580,381 Portfolio at 31 December 1,196,818 953,380 (iv) Movement in cash and portfolio investments At Cash Changes to Other At 1 January flow market value changes 31 December 2004 £'000 and currencies £'000 2004 £'000 £'000 £'000 Cash at bank and in hand 75,845 (36,743) - - 39,102Deposits with credit institutions 60,047 67,391 (324) - 127,114 Total cash 135,892 30,648 (324) 166,216 Fixed income investments 600,437 213,620 (7,016) - 807,041Variable income investments 70,920 (21,591) (11) - 49,318Protected funds 1,383 - 18 - 1,401Equities 144,748 4,968 22,648 478 172,842 Total portfolio investments 817,488 196,997 15,639 478 1,030,602 Total cash and portfolio investments 953,380 227,645 15,315 478 1,196,818Bank borrowings (15,000) (3,221) - - (18,221) Total cash and portfolio investments, 938,380 224,424 15,315 478 1,178,597net of debt (v) Net cash outflow on portfolio investments Year ended 31 December 2004 Year ended 31 December 2003 Purchases Sales Net cash Purchases Sales Net cash £'000 £'000 flow £'000 £'000 flow £'000 £'000 Deposits with credit 81,379 13,988 67,391 26,589 - 26,589institutionsFixed income investments 1,720,608 1,506,988 213,620 1,619,256 1,491,080 128,176Variable income investments - 21,591 (21,591) 25,547 7,030 18,517Protected funds - - - - 8,336 (8,336)Equities 28,736 23,768 4,968 90,880 34,405 56,475 1,830,723 1,566,335 264,388 1,762,272 1,540,851 221,421 31 Pensions The Group has the following pension schemes in operation: (i) Brit Group Services Limited - defined benefit pension scheme For some of the employees of Brit Group Services Limited, the Group operates afunded pension scheme providing benefits for its employees based on finalpensionable emoluments. The assets of the Scheme are held in a separate trusteeadministered fund. The most recent completed actuarial valuation of the Schemewas carried out as at 31 July 2003 by a professionally qualified actuary usingthe projected unit method. At this date, the market value of the assets amounted to £52,500,000 which, onan ongoing funding basis, covered 86% of the benefits that had accrued tomembers after allowing for expected future increases in earnings. The assumptions which have the most significant effect on the results of thevaluation are those relating to the rate of return on investments and the ratesof increase in salaries and pension. For the purposes of Statement of StandardAccounting Practice 24 "Accounting for Pension Costs" ("SSAP 24") it was assumedthat investment returns in excess of salary growth would be 3.2% pa and thatinvestment returns in excess of present and future pension increases would be3.1% pa. The actuarially calculated deficit is being amortised over the average remainingservice of the active members with each annual deficit contribution increasingwith pay. The employer has been making contributions at the rate of 24.8% of pensionablesalaries from 1 January 2004 to 18 May 2004 and 24.7% thereafter to the end ofthe year. In addition it has been making an annual lump sum contribution of£390,000 since 1 January 2004. The pension cost charge represents contributions payable by the Group to theScheme and amounted to £1,940,000 (2003: £1,691,000). At 31 December 2004 no contributions were payable to the Scheme (2003: £nil). Financial Reporting Standard 17 "Retirement Benefits" ("FRS 17") disclosures While the Group continues to account for pension costs in accordance withStatement of Standard Accounting Practice 24 "Accounting for Pension Costs",under FRS 17 transitional disclosures are required as at 31 December 2004 usingthe different measurement basis prescribed by the Standard. None of theinformation set out in a) to g) below is reflected in the primary statements ofthe Group for the year ended 31 December 2004. a) Composition of the scheme The results of the formal actuarial valuation as at 31 July 2003 were updated tothe accounting date by an independent qualified actuary in accordance with thetransitional arrangements of FRS 17. As required by FRS 17, the value of thedefined benefit liabilities has been measured using the projected unit method. The following table sets out the key FRS 17 assumptions used for the scheme. Thetable also sets out as at the accounting date the fair value of assets, abreakdown of the assets into the main asset classes, the present value of theFRS 17 liabilities and the deficit of assets below the FRS 17 liabilities (whichequals the Gross pension liability). 31 31 December 31 December December 2003 2002 2004 % % % Retail Price Index inflation 2.90 2.80 2.30Discount rate 5.30 5.40 5.60Pension increases in payment 2.70 2.60 2.30General salary increases 4.90 4.80 4.30 The assets in the scheme and the expected long-term rates of return were: 31 December 2004 31 December 2003 31 December 2002 Expected Value Expected Value Expected Value return £'000 return £'000 return £'000 % % % Equities 7.50 43,367 7.70 48,741 7.40 37,906Bonds 5.30 8,248 5.40 4,316 5.60 5,537Gilts 4.60 8,853 4.80 2,411 4.40 2,733Cash 4.50 278 4.60 1,187 4.00 1,862 Total market value of assets 60,746 56,655 48,038Present value of liability (79,216) (72,171) (58,401) Deficit in the scheme (18,470) (15,516) (10,363) Gross pension liability (18,470) (15,516) (10,363)Related deferred tax asset at 30% 5,541 4,655 3,109 Net pension liability (12,929) (10,861) (7,254) Under FRS 17, the scheme would be represented on the balance sheet at 31December 2004 as a liability of £18,470,000 (2003: £15,516,000), which amountsto £12,929,000 net of deferred tax (2003: £10,861,000). Notes: (1) Figures have been estimated, where necessary. (2) Contributions were paid at the rate of 24.8% of pensionable salaries from 1January 2004 to 18 May 2004 and 24.7 % thereafter to the end of the year. Inaddition a lump sum contribution of £390,000 was also made to the Scheme duringthe year. (3) The Scheme closed to new entrants with effect from 4 October 2001. Underthe projected unit method the current service cost will increase as the membersof the scheme approach retirement. b) Analysis of the amounts to be charged to operating profit (for illustrativepurposes only) 31 December 31 December 2004 2003 £'000 £'000 Employer's part of current service cost 2,207 2,059Vested past service cost - 125Curtailment - (306) Total operating charge 2,207 1,878 c) Analysis of the amount to be credited to other finance income (forillustrative purposes only) 31 December 31 December 2004 2003 £'000 £'000 Expected return on pension scheme assets 4,134 3,273Interest on pension scheme liabilities (3,888) (3,249) Net return - credit 246 24 d) Analysis of amount recognised in the Statement of Total Recognised Gains andLosses (for illustrative purposes only) 31 December 31 December 2004 2003 £'000 £'000 Actual return less expected return on pension scheme assets 571 6,428Experience losses arising on the scheme liabilities (843) (2,499)Changes in assumptions underlying the present value of scheme liabilities (2,666) (8,965) Actuarial loss recognised in the Statement of Total Recognised Gains and (2,938) (5,036)Losses e) Movement in scheme deficit during the year (for illustrative purposes only) 31 December 31 December 2004 2003 £'000 £'000 Deficit in scheme at beginning of the year (15,516) (10,363)Movement in year: Current service cost (total) (2,207) (2,059) Aggregate contributions 1,945 1,737 Past service costs (vested and non-vested) - (125) Curtailment - 306 Other finance income 246 24 Actuarial loss recognised in the Statement of Total Recognised Gains and (2,938) (5,036) Losses Deficit in scheme at end of the year (18,470) (15,516) f) History of experience gains and losses (for illustrative purposes only) 31 December 31 December 31 December 2004 2003 2002 £'000 £'000 £'000 Difference between expected and actual return on scheme assets: Amount - gain / (loss) 571 6,428 (15,155) Percentage of scheme assets 1% 11% 32%Experience gains and losses on scheme liabilities Amount - gain / (loss) (843) (2,499) 190 Percentage of the present value of the scheme liabilities (1%) (3%) 0%Total amount recognised in the Statement of Total Recognised Gains and Losses Amount - (loss) (2,938) (5,036) (17,058) Percentage of the present value of the scheme liabilities (4%) (7%) (29%) g) Reserves note (for illustrative purposes only) 31 December 31 December 2004 2003 £'000 £'000 Profit and loss reserve excluding pension liability 160,341 (23,625)Pension reserve (12,929) (10,861) Profit and loss reserve 147,412 (34,486) (ii) Brit Group Services Limited - Defined Contribution Stakeholder Scheme From 5 October 2001, Brit Group Services Limited has operated a definedcontribution stakeholder pension scheme. The assets of the scheme are heldseparately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Group to thefund and amounted to £1,974,000 (2003: £1,035,000). At 31 December 2004 no contributions were payable to the fund (2003: £nil). (iii) Brit Group Services Limited - Funded Unapproved Retirement BenefitsScheme ("FURBS") Brit Group Services Limited also operates a defined contribution FURBS, intowhich additional contributions are paid in respect of certain employees. Theassets of the scheme are held separately from those of the Company in anindependently administered fund. The pension cost charge represents contributions payable by the Company to thefund and amounted to £52,000 (2003: £72,000). At 31 December 2004, contributions amounting to £30,000 (2003: £72,000) werepayable to the fund and are included in creditors. (iv) Brit Insurance Limited For Brit Insurance Limited employees, the Group operates a defined contributionpension scheme. The assets of the scheme are held separately from those of theCompany in an independently administered fund. The pension cost chargerepresents contributions payable by the Company to the fund and amounted to£16,000 (2003: £63,000). At 31 December 2004, no contributions were payable tothe fund (2003: £nil). (v) PRI Management Limited PRI Management Limited operated a defined contribution pension scheme. Duringthe year, all members of this scheme transferred to the Brit Group ServicesLimited defined contribution stakeholder scheme. The assets of the scheme are held separately from those of the Company in anindependently administered fund. The pension cost charge representscontributions payable by the Company to the fund and amounted to £53,000 (2003for the period following acquisition: £173,000). At 31 December 2004, no contributions were payable to the fund (2003: £9,000). 32 Long-Term incentive schemes There are three active schemes and five closed schemes, details of which are setout below: Active Schemes (i) Brit All Employee Share Ownership Plan ("the ESOP") Approved by members at the Annual General Meeting on 20 June 2001, the ESOPcomprises a Trust Deed and Rules establishing an All Employee Share OwnershipScheme which was approved by the Inland Revenue, pursuant to the Finance Act2000. All eligible employees of the Company and participating subsidiaries areentitled to participate subject to various detailed provisions. An independentTrustee holds all shares purchased under the plan and dividends are payable onshares held in the Trust. Pursuant to the ESOP, the Board may award free sharesor give employees the opportunity to acquire partnership shares or make an awardof matching shares to those employees who have invested in partnership shares orrequire or allow employees to reinvest dividends paid on their plan shares infurther dividend shares. An aggregate of 167,500 free shares were awarded on 20 October 2004 to 335members of staff, including certain executive Directors, (each of whom wereawarded 500 shares each) at a cost per share of 70.75p each. Since the launch ofthe ESOP, all participating employees have had the opportunity to subscribe forpartnership shares on a monthly basis and to be awarded matching shares. Freeshares are held in trust for a three year qualifying period and matching sharesfor five years. As at 31 December 2004, the Trust held 511,500 free shares, 364,622 matchingshares and 733,048 partnership shares with a total nominal value of £402,293 anda market value, based on mid-market value of the Company's shares at close ofbusiness on 31 December 2004, as shown in the Official List of the London StockExchange of £1,267,221. This equates to 0.17% of the Company's issued sharecapital as at 31 December 2004. As at 31 December 2004, the Trust held 784,622 free and matching shares with amarket value of £617,890 which has not yet vested unconditionally in employees.All of these shares have been conditionally gifted to employees subject toreaching the relevant qualifying period. (ii) Brit Executive Share Option Scheme 2003 ("the ESOS") The ESOS was approved by shareholders on 18 June 2003 and comprises of twoparts, namely the 'Approved' part, which has been approved by the InlandRevenue, and the 'Unapproved' part, which is intended to be used primarily whereexecutives have more than £30,000 worth of outstanding Approved options. The price per share payable upon exercise of an option will not be less than thehigher of the average of the middle-market quotations of a share on the LondonStock Exchange on the three dealing days immediately prior to the grant date,provided that no such dealing day falls prior to the date on which the Companylast announced its results for any period and the nominal value of a share(unless the option is expressed to relate only to existing shares). Further details of the operation of the ESOS are disclosed in the Directors'Remuneration Report. Outstanding options granted at nil cost under the ESOS are as follows: Date of grant Number of Number of Subscription Date from which Expiry date employees shares under price per 25p exercisable including option share (pence) Directors 3 Nov 03 77 7,919,215 76.92 3 Nov 06 2 Nov 1318 Oct 04 103 5,932,105 78.50 18 Oct 07 17 Oct 144 Nov 04 1 22,930 78.50 4 Nov 07 3 Nov 14 (iii) Brit Performance Share Plan 2003 ("the PSP") The PSP was approved by shareholders on 18 June 2003 and details of itsoperation are disclosed in the Directors' Remuneration Report. Awards will be satisfied by the transfer of shares from the Company's employeebenefit trust which may acquire shares for this purpose either by subscribingfor new shares or by buying shares in the market. The trustees have waivedtheir entitlement to dividends on any shares acquired. As at 31 December 2004,the employee benefit trust held 8,876,136 ordinary 25p shares (including sharesin respect of the Brit Long Term Incentive Plan 1999 referred to in Note 32(viii)) which represented 0.91% of the issued share capital of the Company as at31 December 2004. Awards have been made under the PSP as follows: Date of grant Number of Number of Value of shares Latest vesting employees shares at date of date including grant £ Directors 3 Nov 03 54 4,659,894 3,459,971 2 May 0718 Oct 04 57 3,894,477 2,755,343 17 Apr 08 Closed Schemes (iv) Brit 1998 Approved Executive Share Option Scheme ("the Approved Scheme") The Approved Scheme is a discretionary share option scheme approved by theInland Revenue. Following shareholder approval of the ESOS in 2003, no furthergrants of options will be made under the Approved Scheme. Options granted underthe Approved Scheme were subject to performance criteria at the discretion ofthe Board and are generally exercisable between three and ten years from thedate of grant. Outstanding options granted at nil cost under this scheme are as follows: Date of grant Number of Number of Subscription Date from which Expiry date employees shares under price per 25p exercisable including option share (pence) Directors 6 Dec 99 3 99,688 80.25 6 Dec 02 5 Dec 098 Jun 00 1 38,710 77.50 8 Jun 03 7 Jun 1020 Nov 00 9 162,164 74.00 20 Nov 03 19 Nov 107 Jun 01 22 308,377 113.50 7 Jun 04 6 Jun 1127 May 02 1 28,368 70.50 27 May 05 26 May 126 Feb 03 9 111,562 75.50 6 Feb 06 5 Feb 13 (v) Brit 1998 Approved Executive Share Option Scheme - Part B (formerly WrenApproved Share Option Scheme 1998) This is a discretionary share option scheme approved by the Inland Revenue.Options granted under this scheme were not subject to performance criteria andare generally exercisable between three and ten years from date of grant. Alloption holders accepted rollover terms granting them options over shares in theCompany on 21 September 1999. It is not expected that any future options willbe granted under this scheme. Outstanding options granted at nil cost under this scheme are as follows: Date of grant Number of Number of Subscription Date from which Expiry date employees shares under price per 25p exercisable including option share (pence) Directors 10 Sep 98 16 397,557 112.00 10 Sep 01 9 Sep 08 (vi) Brit 1998 Unapproved Executive Share Option Scheme ("The Unapproved Scheme") The Unapproved Scheme is a discretionary share option scheme not approved by theInland Revenue. Following shareholder approval of the ESOS in 2003, no furthergrants of options will be made under the Unapproved Scheme. Options grantedunder this scheme were subject to performance criteria determined by the Boardand are generally exercisable between three and ten years from the date ofgrant. Outstanding options granted at nil cost under this scheme are as follows: Date of grant Number of Number of Subscription Date from which Expiry date employees shares under price per 25p exercisable including option share (pence) Directors 10 Sep 98 2 799,999 142.50 10 Sep 01 9 Sep 086 Dec 99 6 1,575,000 80.25 6 Dec 02 5 Dec 0924 May 00 2 550,000 66.00 24 May 03 23 May 1020 Nov 00 4 705,000 74.00 20 Nov 03 19 Nov 107 Jun 01 1 125,000 113.50 7 Jun 04 6 Jun 1131 May 02 37 2,497,550 70.50 31 May 05 30 May 1231 May 02 8 2,460,000 70.83 31 May 05 30 May 125 Jun 02 10 635,500 70.50 5 Jun 05 4 Jun 1223 Oct 02 3 1,353,913 62.50 23 Oct 05 22 Oct 124 Nov 02 2 839,844 64.00 4 Nov 05 3 Nov 1215 Jan 03 1 240,000 78.00 15 Jan 06 14 Jan 13 (vii) Brit 1998 Unapproved Executive Share Option Scheme - Part B (formerly WrenUnapproved Share Option Scheme 1998) This is a discretionary share option scheme not approved by the Inland Revenue.Options granted under this scheme were subject to performance criteria (otherthan those granted on 18 May 1998) determined by the board of Wren Limited.Options are generally exercisable between three and ten years from the date ofgrant (with the exception of those granted on 18 May 1998). All option holdersaccepted rollover terms granting them options over shares in the Company on 21September 1999. It is not expected that any future options will be grantedunder this scheme. Outstanding options granted at nil cost under this scheme are as follows: Date of grant Number of Number of Subscription Date from which Expiry date employees shares under price per 25p exercisable including option share (pence) Directors 18 May 98 1 319,365 119.00 22 Dec 00 17 May 0814 Aug 98 1 117,500 130.50 14 Aug 01 13 Aug 08 (viii) Brit Long Term Incentive Plan 1999 ("the LTIP") Following shareholder approval of the PSP in 2003, no further awards will bemade under the LTIP. The LTIP was controlled by the Remuneration Committee, which set performancetargets in respect of all allocations. The LTIP was established under adiscretionary employee benefit trust set up for the provision of benefits andassistance to employees of the Company and its subsidiaries. Further details ofthe trust are disclosed above. Outstanding awards made under the LTIP are as follows: Date of grant Number of Number of Value of shares Latest vesting employees shares at date of date including grant Directors 18 Dec 01 1 67,030 50,000 31 Dec 04 33 Related party transactions (i) Directors' interests in share capital The interests of the Directors who held office as at 31 December 2004 and theirfamilies in the ordinary shares of 25p each of the Company are as follows: Held at 31 December 2004 Held at 31 December 2003* Shares Options PSP/LTIP Shares Options PSP/LTIP Dane Douetil 934,734 2,220,767 668,301 828,875 1,806,744 462,613Neil Eckert 6,034,086 2,143,399 894,064 5,830,727 1,601,993 491,055Matthew Scales 255,603 1,612,332 644,588 115,577 1,230,166 496,780 Clive Coates 190,000 - - 100,000 - -Peter Hazell - - - - - -Glyn MacAulay 40,000 - - 40,000 - -Don McCrickard 40,000 - - 40,000 - -Anthony Townsend 352,538 - - 352,538 - -Michael Smith 10,000 - - 10,000 - - * or date of appointment All Directors' interests in the ordinary shares of the Company are beneficial.Neil Eckert and Anthony Townsend are also interested in 456,761 and 47,543 unitsof 8.5% Convertible Unsecured Subordinated Loan Stock 2008 respectively (2003:456,761 and 47,543 respectively). No other Director held any interest in the 8.5% Convertible UnsecuredSubordinated Loan Stock 2008 as at 31 December 2004 and no Director held anyinterest in any other group company. As at 25 February 2005, the Employee Share Ownership Trust was interested in1,669,362 ordinary 25p shares in which the Directors who are employees aredeemed to be interested by virtue of section 324 of the Companies Act 1985 (seeNote 32 of the financial statements). As at 25 February 2005, the employee benefit trust held 8,876,136 ordinary 25pshares in which the Directors who are employees are deemed to be interested byvirtue of section 324 of the Companies Act 1985 (see Note 32 of the financialstatements). (ii) Directors' interests in transactions Jo Welman is a shareholder in The Equity Partnership Limited ('EPL'). EPL'ssubsidiaries, EPIC Asset Management Limited and EPIC Special InvestmentsLimited, have entered into certain investment management agreements with theGroup and, accordingly, Jo Welman is interested in these contracts. Details ofthese contracts are set out in part (iv) below. Jo Welman resigned as anon-executive Director of the Group on 27 May 2004. (iii) Loans As at the balance sheet date, Brit Insurance Holdings PLC had a loan of£8,100,000 outstanding made to Ri3K Limited, a 77.2% owned subsidiary. This amount has been fully provided for in the books of the Company. With effect from 1 January 2005 interest will be charged on outstanding balancesat an annual rate of 3% above the prevailing three month LIBOR rate. As at the balance sheet date, Brit Insurance Holdings PLC had a loan of £652,000outstanding made to The Equity Partnership Limited, a 40.9% owned associatedcompany. Interest is charged on outstanding balances at an annual rate of 2% above theprevailing six month LIBOR rate. (iv) Trading The Equity Partnership Limited, EPIC Asset Management Limited and EPIC SpecialInvestments Limited During the year, the Group traded with The Equity Partnership Limited ("EPL"),an associated undertaking 40.9% owned by Brit Insurance Holdings PLC and withEPIC Asset Management Limited ("EPAM") and EPIC Special Investments Limited("ESI"), subsidiaries of EPL. Brit Insurance Holdings PLC charged EPL £250,000 (2003: £186,000) in respect ofoperational office costs. EPL, EPAM and ESI also have an agreement with Brit Group Services Limited("BGS"), a 100% subsidiary of Brit Insurance Holdings PLC, whereby BGS payscertain expenses on behalf of these companies which it then recovers in full.The total of all of these costs amounted to £3,359,000 (2003: £2,863,000), ofwhich £524,000 (2003: £782,000) was outstanding at the balance sheet date. EPL also traded during the year with The Equity Partnership Investment CompanyPLC ("EPIC"), a company with a 29.9% holding in EPL. Brit Insurance Holdings PLCowns 34.7% of the ordinary share capital of EPIC. EPIC purchased investmentmanagement services from EPL amounting to £652,000 (2003: £699,000). As at the balance sheet date the amounts owed in relation to these servicesamounted to £115,000 (2003: £114,000). EPAM and ESI are Investment Managers regulated by the Financial ServicesAuthority and provided the following services to Brit Insurance Holdings PLC andits subsidiaries: EPAM Commenced Fund value Fees charged Fees outstanding As at during 2004 As at As at 31 Dec 31 Dec 31 Dec 2004 2004 2003 £ £ £Investment Advisory: Brit Insurance Holdings PLC 2001 103,548 9,775 - £m % £ £Investment Management: Brit Syndicates Limited 2001 666 0.18 102,862 89,400Brit Insurance Holdings PLC 2002 - 0.15/0.125* - 3,300Masthead Insurance Underwriting Limited 2002 186 0.15/0.125* 19,690 19,800Brit Insurance Limited 2002 514 0.15/0.125* 54,562 31,300Brit Insurance (UK) Limited 2004 142 0.15/0.125* 15,073 - * On 1 October 2004, EPAM reduced its annual fee from 0.15% to 0.125%. ESI Commenced Fund value Fees charged Fees outstanding As at 31 during 2004 As at As at Dec 2004 31 Dec 31 Dec 2004 2003 £m % £ £Investment Management: Brit Syndicates Limited 2003 5 1.5 6,218 6,820Brit Syndicates Limited 2003 14 1 11,921 10,946Brit Insurance Holdings PLC 2003 1 1 673 1,873Masthead Insurance Underwriting Limited 2003 6 1 5,513 4,580Brit Insurance Limited 2003 12 1.5 15,837 11,569Brit Insurance Limited 2003 29 1 24,383 26,718Brit Insurance Limited 2004 1 2 996 -Brit Insurance (UK) Limited 2003 8 1 7,152 6,567 Ebix Inc The Group entered into various software and service agreements with Ebix Inc, acompany in which Brit Insurance Holdings PLC owns 32.0% of the common stock. Thecost of these contracts in 2004 was £1,941,323 (2003: £1,100,551). £nil (2003:£29,268) was outstanding at the year end. 34 Contingent liabilities (i) Lloyd's (a) Company Lloyd's has a floating guarantee over the assets of Brit Insurance Holdings PLC. (b) Group If any of the corporate member subsidiaries fails to meet any of its Lloyd'sobligations, after having called on the Group under its guarantees, then: (a) Lloyd's will be entitled to require the other corporate member subsidiariesto cease or reduce their underwriting; and/or (b) having regard to the fact that the Central Fund or the New Central Fund maybe applied to discharge the obligations of the defaulting corporate member subsidiary, Lloyd's will be entitled to requireeach of the other corporate member subsidiaries to make contributions to theNew Central Fund up to the amount of their respective net profits held from timeto time in Premium Trust Funds, sufficient to reimburse the Central Fund or theNew Central Fund in full for any payment made on behalf of the defaultingmember. At the date of signing these financial statements the Group is not aware of anycorporate member subsidiary failing to meet its Lloyd's obligations. On 26 November 1999, there was a reorganisation of the Group such that: (i) all underwriting at Lloyd's is now conducted through one corporate membersubsidiary; and (ii) all investments and assets supporting the underwriting at Lloyd's are heldin one subsidiary, being Masthead Insurance Underwriting Limited ('Masthead'). A number of agreements were entered into in order to achieve this. A deed of charge was entered into by Masthead with Lloyd's to support theunderwriting activities of all corporate member subsidiaries within the BritInsurance Holdings PLC Group. Masthead entered into deeds of covenant withLloyd's to cover the run-off liabilities of these corporate members. It alsoentered into guarantees with respect to interavailable funds of £118,738,728. Asat 31 December 2004 the value of these funds was £85,250,775 (2003:£86,807,120). Lloyd's has the right to retain the income on charged investments, although itis not expected to exercise this right unless it considers there to be a riskthat one or more of the covenants might need to be called and, if called, mightnot be honoured in full. The parent company, Brit Insurance Holdings PLC, has given an indemnity toLloyd's, of up to £63,333,500, in the event that Masthead fails to meet itsobligations. The directors do not consider this to be likely. (ii) Bank borrowings As detailed in Note 20, Brit Insurance Holdings PLC had an overdraft facilitywith Barclays Bank PLC at 31 December 2004. The lender has the following security under the terms of the facility which haspriority over those provided to Lloyd's: (a) A debenture which includes a fixed charge over assets including the sharesheld by Brit Insurance Holding PLC in Masthead Insurance Underwriting Limitedand Brit Underwriting Group Limited and a floating charge over the remainingassets of the Company. (b) A memorandum of deposit whereby Brit Underwriting Group Limited hasdeposited its shares in Brit Insurance Limited. (iii) Letters of Credit At 31 December, 2004 Brit Insurance Limited had in place a Letter of Credit ("LOC") facility for US $100,000,000 with Barclays Bank PLC (2003: US$100,000,000). This facility supports the underwriting of US reinsurance business. LOCs issuedwill be collateralised by a mixture of cash, money market funds and governmentsecurities. At 31 December 2004 the company had issued and collateralised US$4,600,000 of LOCs (2003: US $4,500,000). 35. Financial information and posting of accounts The financial information set out above does not constitute the Company'sstatutory accounts for the year ended 31 December 2003 or 2004, but is derivedfrom those accounts. Statutory accounts for 2003 have been delivered to theRegistrar of Companies and those for 2004 will be delivered in due course. Theauditor has reported on those accounts; the auditor's reports were unqualifiedand did not contain statements under Section 237 (2) or (3) of the Companies Act1985. The audited Annual Report and Accounts for 2004 are expected to be postedto shareholders by no later than 16 March 2005. Copies of the Report may beobtained from that date by writing to the Company Secretary, Brit InsuranceHoldings PLC, 55 Bishopsgate, London, EC2N 3AS. The Annual General Meeting ofthe Company will be held at the same address at 10am on 19 April 2005. ThePreliminary Results were approved by the Board on 28 February 2005. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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