Final Results

NEWS RELEASE

4 March 2015 For immediate release

Novae Group plc

Preliminary results for the year ended 31 December 2014

Novae Group plc ("Novae" or "the Group"), the specialist insurance group, today announces its preliminary results for the year ended 31 December 2014.

· Gross written premium of £638.5 million (2013: £590.3 million)

· 13% growth in gross written premium at constant rates of exchange

· Claims ratio improved to 49.1% (2013: 52.4%)

· Combined ratio of 91.0% (2013: 90.3%)

· Net investment income of £14.3 million (2013: £11.1 million)

· Profit before tax and foreign exchange of £52.4 million (2013: £54.2 million)

· Net asset value per share of 527.6p (2013: 498.1p)

· Final dividend of 18.2p per share (2013: 16.5p per share)

· Special dividend of 20.0p per share (2013: 20.0p per share)

Matthew Fosh, Group Chief Executive, today said:

"The Group has again performed strongly, achieving record premiums, an improved claims ratio, and making good progress operationally. Opportunities for profitable growth remain for those with the agility to navigate a challenging market environment. We continue to invest in the business, to attract talented people and to develop new ideas, all of which are maintaining and building the Group's momentum." 

There will be a presentation for analysts only at 11.00 am today in the Auditorium, Lloyd's Register of Shipping, 71 Fenchurch Street, London EC3M 4HH. Invitees are requested to go to the Main Entrance of 71 Fenchurch Street where they will be provided with a pre-prepared pass.

For further information:

Matthew Fosh/Charles Fry : Novae Group plc 020 7903 7300

David Haggie/Rebecca Young : Haggie Partners 020 7562 4444

Chairman's statement

Novae has reported a good set of results for 2014. The business has delivered a strong underwriting performance, strengthened its financial position and has progressed a number of operational and structural initiatives during the year. The management team remains focused on delivering consistent returns to shareholders, and for the third consecutive year, I am pleased to find myself writing a Chairman's statement following an excellent performance.

Gross written premium of £638.5 million is the highest in the Group's history. Targeted expansion across a number of key underwriting classes delivered strong organic growth of 13% at constant rates of exchange. Underwriting discipline remains paramount and it is extremely pleasing to report that this growth was delivered alongside an improved net claims ratio of 49.1% and further increasing reserves above actuarial best estimate. Profit before tax and foreign exchange of £52.4 million is the second highest in the Group's history, despite the continued challenging environment for investment returns.

Overall pre-tax profits were £62.6 million, including gains on foreign exchange of £10.2 million. This generates earnings per share of 79.0p and a return on equity of 15.5%. The Board continues to pursue a progressive dividend policy and is pleased to propose a final dividend of 18.2p per share taking the total dividend for the year to 24.8p per share, an increase of 10.2%. We continue to manage our surplus capital position and the strong performance in 2014 has led the Board to announce its intention to pay a special dividend of 20.0p for the second consecutive year.

Strong operational progress has also been achieved in 2014. At the beginning of the year, the business restructured into three operating divisions: Property, Casualty and Marine, Aviation & Political Risks ("MAP"). The main aims of this change were to improve visibility around performance of our major classes of business, assist in the development of new sub-classes, facilitate more efficient reinsurance buying and support organic growth. We are pleased with the progress made to date and are already starting to see the benefits of this change, as evidenced by the strong underwriting performance in the year. In September, we also announced our intention to establish a presence in Bermuda. This will not only provide access to new business opportunities, but will also deliver efficiencies through the use of intra-group reinsurance arrangements. I am delighted with the progress made with this initiative and we have now received all necessary regulatory approvals.

The Group continues to improve its broader Enterprise Risk Management framework as evidenced by the recruitment of Reeken Patel as Chief Risk Officer and Alexandra Moon as Group General Counsel. The new governance structure introduced in the year has delivered greater efficiency, agility and scalability while maintaining an effective balance between control, communication, risk and compliance.

Our industry is faced with a developing regulatory environment. Lloyd's minimum standards, the Solvency II regime and the FCA's conduct risk agenda have all been areas of focus for the business in 2014. We are wholly supportive of, and committed to, a regulatory environment that positions Lloyd's and London at the forefront of strong governance and client efficacy. I remain hopeful that an appropriate balance between regulation and innovation will be found. In particular, we hope that all our regulators work together to remove any overlap that may arise in their activities.

The trading environment continues to present challenges for insurers. Surplus capital and increased competition are consistent themes and the consolidation of the wholesale broking market provides a further threat. As the market becomes polarised between those with significant capital resources and those able to offer niche products, differentiation, combined with expert market knowledge, is key to success. Our continued focus on underwriting expertise and dynamic capital management leaves the Group well positioned and agile enough to respond accordingly.

We continue to invest in our people and have made a number of senior underwriting hires during the year in addition to promoting talent from within the Group. I would like to take this opportunity to welcome all those who have joined us and congratulate those taking up new roles.

In November 2014, Jeremy Adams announced he would be stepping down from the Board at the end of the year and retiring from the Group in April 2015. Jeremy has served as a director since 2004 and on behalf of the Board I would like to thank him for the invaluable contribution he has made to the Group. He has been a key member of the senior team which has put Novae in its current position of strength.

At the end of 2015, two of our Group Board non-executives, Sir Bryan Carsberg and David Henderson, will retire. We are progressing with the search for their successors.

Last year I concluded my Chairman's statement highlighting the challenges the industry faced going into 2014, citing rating pressures and low investment returns. As we enter 2015, these challenges remain. I also expressed my confidence in our strategy and the ability of the whole team to deliver it. Our strong performance in the year is testament to that confidence.

Opportunities for profitable growth remain for those with the agility and fleetness of foot to respond to the needs of brokers and insureds. Novae's relative size is a positive and the business is well placed to develop and thrive.

John Hastings-Bass

Chairman

4 March 2015

DIVIDEND AND FINANCIAL TIMETABLE

Ex-dividend date: 23 April 2015

Record date: 24 April 2015

Annual General Meeting: 13 May 2015

Final dividend of 18.2p per ordinary share payable: 15 May 2015

Special dividend of 20.0p per ordinary share payable: 15 May 2015

Chief executive's statement

I am delighted to report another strong set of results for the Group. In 2014, we achieved record gross written premium, our lowest loss ratio since 2006, a strengthening of reserves and increased capital headroom. We have also continued to invest in the business, attracting new talent and making significant progress on a number of operational initiatives.

Our performance in 2014 is as a result of a significant amount of hard work and dedication. I would like to thank everyone at Novae for their efforts and commitment and our trading partners for their ongoing help and support.

This active management of the portfolio is a key feature of our strategy and helped contribute to an improved claims ratio of 49.1% (2013: 52.4%), our best performance since 2006.

The acquisition cost ratio increased to 26.5% (2013: 24.1%), partly as a result of the change in business mix. Overall the underwriting contribution of £43.3 million (2013: £48.9 million) produced a strong combined ratio of 91.0% (2013: 90.3%), the second lowest since I took over as Chief Executive.

The environment for investment return remained challenging in 2014, although we increased our return over the previous year. A net return of £14.3 million (2013: £11.1 million) represents a return on average invested assets of 1.2% (2013: 0.9%).

Overall, the business delivered strong growth with basic earnings per share increasing by 58 per cent to 79.0p (2013: 50.2p) and tangible net asset value per share increasing by six per cent to 522.0p (2013: 491.1p).

Delivering on our strategy

Our aim is to be an innovative specialty insurer, delivering excellence in product and service. We seek to achieve this through the combination of expert underwriting, consistent performance and dynamic capital management, which are the three pillars of our strategy. I am extremely pleased with the progress we have made in developing each of these during 2014.

Expert underwriting is about developing specialty knowledge and capability. Central to the success of this pillar of our strategy is the recruitment and retention of the very best underwriters, with strong track records and deep rooted trading relationships. It was extremely rewarding to see our underwriting expertise recognised within the industry, with the UK & European Property unit winning 'Underwriting Team of the Year' at the Insurance Day awards, and our Marine Liability unit head Darren Carr being shortlisted for Young Underwriter of the Year.

Consistent performance seeks to ensure that there is a resilience and reliability to the returns which the Group achieves given the stated risk appetite. This involves optimising the diversity of the underwriting portfolio and ensuring that our Enterprise Risk Management ("ERM") strategy is aligned to and integrated with strategic decision-making. We also seek to take a prudent approach to reserving and expense management. Substantial progress was made on each of these elements during 2014, further diversifying our underwriting portfolio, managing our operating cost base growth to 4% while growing the business by 13%, and increasing our reserve strength.

Dynamic capital management seeks to optimise the efficiency of how capital is funded and deployed across the business. Good progress was made in this area in 2014, restructuring our reinsurance buying and redeploying capital within the business to areas where risk adjusted returns were more attractive. We have also strengthened our capital position increasing the surplus over our regulatory capital requirement to 36% (2013: 27%).

Proactive management of this surplus capital is another key objective of Dynamic Capital Management and we are proposing a special dividend of 20.0p per ordinary share (2013: 20.0p). This is in addition to a proposed increased final dividend of 18.2p per ordinary share (2013: 16.5p).

Investing in talent

During 2014, we continued to invest in the business, making a number of senior hires across the organisation.

Reeken Patel joined us as Chief Risk Officer, bringing significant insight, knowledge and experience to the Group's ERM strategy. We have also made a number of hires across our underwriting divisions. In addition to the new Cyber unit, we increased our international property capabilities, making experienced hires in direct & facultative and delegated underwriting.

This investment continued into the beginning of 2015 with two new appointments to our Executive Committee. Robert Patten has joined as Head of our Casualty Division and Alexandra Moon as Group General Counsel. Both Bob and Alex have significant expertise in their respective fields and we are delighted that they have chosen Novae as the next place to further their careers.

In addition to bringing in new talent, we also made a number of senior promotions. Jonathan Butcher and Robert Forster have recently been promoted to Chief Executive of Novae Syndicates Limited and Group Chief Underwriting Officer respectively. Stuart Heath has taken up the role of Divisional Head of Property and John Owen was appointed Divisional Head of Marine, Aviation & Political Risk. We have also promoted Darren Carr, John Stonehill and Richard Lamb to unit heads of Marine, UK & European Property Facilities and Credit & Political respectively. It is particularly satisfying to be able to promote from within, demonstrating the strength and depth of talent that we have at Novae.

Excited as I am by the number of new and talented faces joining our team, the past year has also seen the retirement of a long standing colleague. Jeremy Adams has been a board member since 2004 and I would like to extend my personal thanks for his hard work, support and insight over that time and for the invaluable contribution he has made to Novae. For his role in helping steer the business towards its position of strength and build the potential it now enjoys, Jeremy deserves particular recognition.

Operational and structural enhancements

In addition to investing in the team, we have made good progress on a number of initiatives which will improve the business and enhance returns.

In September we announced our intention to establish a Bermuda presence, which will provide us with access to new business opportunities and forms a part of our ongoing strategic growth plans. We have subsequently started to build this operation, including opening an office in Hamilton and relocating Philippe Chevereau to the island. All relevant regulatory approvals have now been obtained and HMRC have confirmed in writing that any profits arising in the Bermudan Lloyd's coverholder and on the planned intra-group reinsurance should not be subject to UK corporation tax.

During 2014, we also undertook a comprehensive review of our investment strategy. As a consequence, BlackRock has been appointed as the Group's principal investment manager and we are delighted to be working with them to design and implement an optimal asset allocation for the business. It is our expectation that we will be able to increase investment return, while maintaining a similar level of market risk within the portfolio.

Looking forward to 2015

At our interim announcement, I talked about headwinds facing the industry. These headwinds continue to manifest themselves in the form of a softening market, low investment returns, increasing regulatory burden and an uncertain outlook for the global economy. However, there remain opportunities for profitable growth for those with agility and expertise, and we believe we have both.

I also talked about our own corporate tailwinds, being improvements specific to our business that leave me optimistic about our future, regardless of market conditions. We are already capitalising on these tailwinds and enter 2015 with the confidence that Novae will continue to make progress.

Matthew Fosh

Group Chief Executive

4 March 2015

Operating & financial review

1 Other items comprise other non-underwriting expenses, finance costs, foreign exchange movements and other income

2 Claims ratio is net claims divided by net earned premium for the year. Expense ratio is acquisition costs and total operating expenses including non-recurring items divided by net earned premiums. The expense ratio does not include foreign exchange movements or finance costs. Combined ratio is the total of the claims ratio and expense ratio

Group profit after tax of £50.2 million (2013: £31.6 million) generated a return on average shareholders' funds of 15.5% (2013: 10.4%) including foreign exchange gains of £10.2 million (2013: losses of £11.4 million). Net investment income increased to £14.3 million (2013: £11.1 million) as the investment environment remained challenging. Net tangible asset value per share increased by 30.9 pence to 522.0p (2013: 491.1p).

Gross written premium for the year ended 31 December 2014 was £638.5 million (2013: £590.3 million), an increase of 8.2% and 13.5% at constant rates of exchange.

Underpinning the strong new business growth was pro-active management of the portfolio as the Group allocated capital to classes of business offering the most attractive returns. This has resulted in particularly strong performance from the Marine, Aviation & Political Risk ("MAP") Division, which reported growth of 28.1% or 34.9% at constant rates of exchange. Growth was also achieved in the Property Division with strong growth in the facilities units, offset by reductions in a number of classes, most notably Agriculture. Overall, Property grew by 3.9% on 2013 or 9.1% at constant rates of exchange. There was a net reduction in premiums in the Casualty division in the year of 6.8% or 2.9% at constant rates of exchange. The majority of this reduction came from international liability, professional indemnity and motor business, in part offset by growth from the new Cyber unit.

Net earned premium for the year was £483.2 million (2013: £502.2 million). The year on year decrease of 3.8% (an increase of 1.0% at constant rates of exchange) reflects the timing difference between new business being written and earned and increased reinsurance spend.

During the year the Group purchased additional outwards protection, most notably for the property reinsurance catastrophe programme. The increase in outwards reinsurance spend also reflects the participation of third party capital, introduced in 2012, on all open years of account.

Gross claims incurred were £284.8 million (2013: £339.9 million). These were offset by reinsurance recoveries of £47.5 million (2013: £76.9 million). Net claims incurred were £237.3 million (2013: £263.0 million) producing a net claims ratio of 49.1% (2013: 52.4%) based on net earned premiums of £483.2 million (2013: £502.2 million).

Attritional claims totalled £259.0 million (2013: £273.7 million), equating to an attritional claims ratio of 53.6% (2013: 54.5%), reflecting positive risk selection and the proactive repositioning of the portfolio. This improved performance, against the backdrop of a more challenging rating environment, is testament to disciplined underwriting that has been employed by the Group.

Industry estimates of insured losses in respect of natural catastrophes were approximately US $31 billion, which was the lowest in the last four years and significantly below the 10 year average estimated at US $58 billion. Consequently, as with last year, 2014 should be considered a relatively benign year for insured natural catastrophe losses, from which the Group incurred losses of £9.6 million contributing 2.0% to the 2014 claims ratio. The majority of these losses arose from adverse winter weather in the UK and US. This compares to £10.6 million and 2.1% in 2013, which was impacted by weather events in the UK and Europe in addition to flood events in Canada and Australia.

In its assessment of the valuation of insurance liabilities, the Board targets a probability of sufficiency of net reserves of 70 to 80 per cent and a margin over actuarial best estimate of 5 to 10 per cent. Reserve releases contributed 6.5% to the overall claims ratio in the year (2013: 4.2%) and the margin held over actuarial best estimate increased to 9.3% or £73.4 million (2013: 8.9%, £71.0 million).

Acquisition costs for the year were £128.0 million (2013: £120.8 million) with an acquisition cost ratio of 26.5% (2013: 24.1%). The increase is as a result of a change in business mix, with a higher proportion of business now arising from delegated underwriting arrangements and a reduction in the level of reinsurance underwritten.

The environment for investment return remained challenging with ongoing macroeconomic factors once again contributing to a weak performance for fixed income investment portfolios. Investment income for the year was £14.3 million (2013: £11.1 million), equivalent to a total return, net of investment management fees, of 1.2% (2013: 0.9%) on average invested assets of £1,206.1 million (2013: £1,220.3 million).

Novae held investment assets and cash of £1,250.4 million at 31 December 2014 (2013: £1,210.3 million) primarily in government and high grade corporate bonds. Novae has a modest exposure to high yield and emerging market debt through pooled strategic bond fund arrangements. Exposure to sub-investment grade debt, being those assets rated BB and lower, was 0.8% (2013: 1.1%) of investment assets.

The Group continues to review its appetite to investment risk and has recently undertaken a comprehensive review of its investment strategy, evaluating opportunities to enhance yield on the portfolio without introducing undue risk or volatility. It is anticipated that the Group will be able to increase investment return while maintaining a similar level of risk within the portfolio.

The profile of the Group's investment portfolio is as follows:

The investment portfolio can be analysed by rating as follows:

At 31 December 2014 the average duration across the Group's investment portfolio was 0.9 years (2013: 1.0 years).

Tax

Novae's tax charge for the year was £12.4 million (2013: £11.2 million). The Group continues to hold tax losses to utilise against future taxable profits. The carrying value of the Group's deferred tax asset is £9.2 million (2013: £18.7 million) valued at the enacted rate of 20% included in the Finance Act 2013.

The Group has established operations in Bermuda during the year, with one consequence of this being an anticipated reduction in the Group's effective tax rate from 2015.

Novae's operating structure consists of a single underwriting platform at Lloyd's. The majority of regulatory capital is required to support the Group's corporate member with a small requirement relating to the managing agency and service company.

Novae determines its regulatory capital requirement by reference to the Individual Capital Assessment ("ICA") regime applicable to all (re)insurers in accordance with Lloyd's and Prudential Regulation Authority ("PRA") regulations. Although the ICA regime is still in place, Lloyd's, in anticipation of the forthcoming implementation of the European-wide Solvency II regime, has required Novae to develop its own Internal Model to determine the regulatory solvency capital of its underwriting corporate member. Novae has used its Internal Model to calculate the ultimate Solvency Capital Requirement ("uSCR") necessary to support its underwriting business plans since 2012. The uSCR is intended to provide equivalent policyholder protection to the ICA. In turn the uSCR assessment is increased to meet Lloyd's higher financial strength rating objectives to produce a member level Economic Capital Assessment ("ECA").

The corporate member is then required to satisfy the capital test at coming into line dates in June and November each year. Novae is also required to maintain continuous capital assessment and advise both the PRA and Lloyd's should its capital position deteriorate.

The table below sets out the Group's sources and uses of capital:

1 Pipeline profits represent the Group's share of undistributed syndicate profits available for "Funds at Lloyd's" provision

2 Headroom stated is exclusive of any distributions subsequent to the balance sheet date

The Group's available capital for 2015 includes letters of credit held as collateral under quota share reinsurance arrangements underwritten by two large international reinsurers.

During the year the Group renewed and increased the letter of credit facility with Lloyds Banking Group to US $76.0 million (2013: US $60.0 million) until December 2015. The facility is uncollateralised and in addition to an undrawn revolving credit facility of £30.0 million (2013: £30.0 million), which is available until December 2015.

Novae's participation on Syndicate 2007 is shown below. For the 2013 and 2014 years of account additional capital was provided by two direct corporate member participants on a limited tenure basis. The Group's participation for the 2015 year of account is 100%.

Property division

Novae's property division insures a diverse mix of insurance and reinsurance risks worldwide, with a particular focus on the UK, Europe and the US. The division accounted for 40.6% of gross written premium in 2014 (2013: 42.3%) and comprises of ten units, grouped into three sub divisions: Property Insurance, Property Reinsurance and Agriculture & Livestock.

Within Property Reinsurance there are three units, writing international property per risk, US property catastrophe and international property catastrophe. The combined property reinsurance portfolio accounts for 26.7% (2013: 29.6%) of the division and 10.8% (2013: 12.5%) of the Group's gross written premium for 2014.

Novae has a significant presence in Lloyd's writing agriculture reinsurance, which accounts for 16.5% (2013: 22.6%) of the division and 6.7% (2013: 9.5%) of the Group. The Agriculture RI unit writes a worldwide book of reinsurance covering all insurance classes and product types including crop, livestock, forestry and aquaculture.

The property insurance portfolio has strong expertise in UK non-standard residential and the US excess & surplus lines market. This portfolio represents 53.5% (2013: 43.1%) of the division and 21.7% (2013: 18.2%) of the Group's gross written premium for 2014. The division's success was recognised in the year with the UK & European unit named "Underwriting Team of the Year" at the 2014 Insurance Day awards.

During the year the division increased its capabilities and market presence in property insurance with the establishment of two new underwriting units to write international open market and binding authority business. Both underwriting units will be led by new senior underwriting hires who bring a significant amount of industry knowledge and whose experience will benefit the division and wider Group as a whole.

Gross written premium grew by 3.9% during the year to £259.2 million (2013: £249.4 million) representing growth of 9.1% at constant rates of exchange. Growth in the US Property Facilities and UK & European Property units was particularly strong at 52.8% and 37.6% respectively at constant rates of exchange. Well established trading relationships within existing markets allowed both units to increase participation on selected risks and pursue new business opportunities where market conditions remained favourable.

Increased competition and a soft rate environment for international property treaty business led the division to reduce its exposure in this class. Growth of 10.7% in the US property treaty unit offset some of this reduction as capital was redeployed to support a significant new facility arrangement complementary to its existing portfolio.

The agriculture reinsurance portfolio was repositioned during the year with the team electing not to renew a number of significant quota share arrangements. On a constant currency basis gross written premium reduced by 17.1%.

Claims experience was favourable, in particular given the absence of any significant catastrophe events, and the net claims ratio improved to 45.4% (2013: 47.0%). Increased acquisition cost ratio to 29.1% (2013: 24.0%) contributed to an overall combined ratio of 83.4% (2013: 79.0%). The increased acquisition costs were as a result of the changing business mix in the division, principally the reduction in agriculture reinsurance and the increases in the UK & European and US Facilities insurance units.

On a risk adjusted basis, rates on property renewals were down 3% in 2014. Experience across the division varied, with rate increases averaging 2% on US excess and surplus lines business in the first half of the year before returning to a flat position towards the end of 2014. Rates remained unchanged overall for UK & European property insurance business and for most international territories, supported in certain classes by increases on a number of specific accounts.

Rates on property reinsurance lines were down, with US Property catastrophe renewals in June and July falling 18% and 10% respectively. This followed reductions of 14% at the beginning of the year. Novae's international catastrophe reinsurance book fared better as the Group was able to adjust the portfolio to avoid the worst of the market reductions with the overall adverse rate movement on renewals of 5%.  

The Group's Casualty division is made up of nine underwriting units grouped into three sub-divisions insuring a range of specialty liability, general liability and motor and casualty reinsurance risks. The division accounted for 24.0% (2013: 27.8%) of the Group's gross written premium for the year.

Within specialty liability Novae has a strong market presence in financial institutions business, which represented 19.3% (2013: 19.8%) of the division's gross written premium for the year. The unit has built up a globally diversified portfolio over a number of years with a specific focus on the UK, US, Australia and Canada and covers a range of risks including private banks, wealth managers and central institutions.

During 2014, the division improved its offering in specialty classes with the establishment of a Cyber unit. This unit has grown during the year with new hires made to support the existing unit head and leaves Novae well positioned in this growing class of business. The unit underwrites a range of risks including business interruption, cyber terrorism, identity theft and reputational risk.

The division's general liability units represented 36.5% (2013: 38.8%) of the division and 8.7% (2013: 10.8%) of the Group's gross written premium in 2014. The units write a number of risks on a primary and excess of loss basis encompassing a range of industries worldwide including hotels, manufacturing utilities and telecommunications. 

Novae's offering in Casualty reinsurance covers non-proportional treaty reinsurance across a number of classes and territories and also includes a book of motor reinsurance business centred on the UK market. The two units within this sub-division combined represent 10.3% (2013: 8.4%) of the division's gross written premium for 2014.

Gross written premium in the division was £153.0 million (2013: £164.2 million) a reduction of 6.8% or 2.9% at constant rates of exchange.

Responding to increased competition and a soft rating environment, the division reduced its exposure across a number of classes. The most significant reductions were experienced in the International Liability and Motor Insurance units with reductions of 28.2% and 21.2% respectively.

This pro-active portfolio management enabled the division to deploy capital to units experiencing more favourable underwriting conditions with growth in the General Liability RI and UK Liability units of 13.2% and 12.2%.

The net claims ratio of 64.3% (2013: 73.7%) was an improvement on last year although this also reflects some adverse claims experience during the year. The division strengthened reserves in professional indemnity and international liability classes in line with management's prudent approach to reserving. This strengthening offset some of the favourable reserve development in the Financial Institutions unit. The division produced a combined ratio of 99.5% (2013: 107.7%) with a small reduction in the acquisition cost ratio offset by the currency mismatch between net earned premium and operating expenses.

Casualty renewal rates were down one per cent on a risk-adjusted basis. General liability reinsurance rates declined by 13% and Novae's motor excess of loss reinsurance book experienced a declining rate environment (-2%) having experienced increases in 2013. Professional indemnity and financial institutions insurance business continued to be broadly unchanged overall, with rate decreases balanced out by increases on loss-affected business.

Gross written premium in the MAP division was £226.3 million (2013: £176.7 million) representing growth of 28.1% or 34.9% at constant rates of exchange. The division continues to harness and demonstrate market leading capabilities across a number of classes with growth achieved in all units across the division.

Despite the competitive trading environment the marine liability unit continues to perform strongly achieving growth of 42.5% at constant rates of exchange. New hires in the division have supported this growth and enabled the unit to develop. The Energy unit also performed strongly achieving growth of 42.8% at constant rates of exchange.

The division continues to display significant expertise and capability in credit and political risks, which has enabled the division to attract profitable growth opportunities despite heightened competition in the market. Significant growth was seen in the Political Risk and Political Violence units of 30.7% and 28.6% respectively with all other political and credit units achieving growth of at least 10% on a constant currency basis.

In line with experience across other divisions, the net claims ratio of 41.9% (2013: 36.8%) benefitted from a low level of catastrophe claims. The loss ratio in 2013 included favourable reserve development on aviation business, which was not repeated in 2014 and belies the overall improvement in the attritional loss ratio. The division did experience some losses from the tragic Malaysian Airline flights MH370 and MH17 and SEWOL Korean Ferry Accident. The division's exposure to these losses remains in line with expectations.

Pressure on rates was felt across the board in marine, aviation and political risk lines, with a decrease of 5% for the division as a whole. Offshore energy rates suffered falls under the burden of abundant capacity and competition from market facilities with decreases of 10% early in the year gathering pace in the second half to leave the book down 12% overall. Aviation rates finished the year down 8% despite a brief improvement following the industry-wide losses in the first half of the year. Marine War rates were also down 8%, with Liability rates falling 5% on a risk-adjusted basis and Hull rates down 2% following last year's increases.

Rates on political risks business were down 10% overall on a risk-adjusted basis as competitive pressures weighed on rates and international tensions escalated. Credit insurance fared better finishing the year unchanged overall, and credit & surety reinsurance rate decreases were contained at 3%. Widespread market softening in political violence rates was countered by restructuring a number of key programmes to leave the political violence book down 5% overall, but rates on kidnap & ransom business suffered decreases in the region of 20%.

Consolidated income statement

for the year ended 31 December 2014

Consolidated statement of comprehensive income

for the year ended 31 December 2014

Consolidated balance sheet

as at 31 December 2014

These financial statements were approved by the Board of Directors on 4 March 2015 and were signed on its behalf by:

John Hastings-Bass Charles Fry

Chairman Chief Financial Officer

Consolidated statement of changes in equity

for the year ended 31 December 2014

Consolidated cash flow statement

for the year ended 31 December 2014

Notes to the financial statements

1. Significant Accounting Policies

Novae Group plc (the "Company") is a company incorporated in England and Wales.

The consolidated financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRS") on a going concern basis.

The Company has elected to prepare its financial statements in accordance with UK GAAP; its balance sheet is presented in the audited Annual Report. The financial statements of the parent company have been prepared in accordance with the provisions of Section 396 of the Companies Act 2006. No individual profit and loss account is presented for the Company, as permitted by Section 408 of the Act.

The accounting policies set out below have been applied to the Group consistently for all periods presented in these consolidated financial statements unless otherwise stated.

1.1. Revised and new reporting standards

As a result of IFRS 10 (consolidated financial statements), with a date of initial application of 1 January 2014, the Group has changed its accounting policy for determining whether it has control over and consequently whether it consolidates its investees. IFRS 10 introduces a new control model that focuses on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns.

In accordance with the transitional provisions of IFRS 10, the Group reassessed the control conclusion, including a review of relationships influencing the Group's subsidiaries and other related parties for its investees at 1 January 2014. The Group has not changed any of its control conclusions in respect of any investments in subsidiaries. As the Lloyds syndicate do not carry out business in their own right, they are not considered entities and therefore fall outside the scope of IFRS 10. The syndicate structure, used by underwriters at Lloyd's, is a means for the spreading of risk where each investor provides separate and distinct collateral of its own, and has several and direct liability for losses rather than joint and several liability. The Group's consolidation conclusion in respect of its syndicate remains unchanged from previous periods. Therefore, there is no impact on the profit or loss for the current or prior year or on equity reported. There is also no impact on the total assets or liabilities in the comparative period.

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2014.

> IFRS10: Consolidated financial statements;

> IFRS 11: Joint arrangements;

> IFRS 12: Disclosure of interests in other entities;

> IAS 27: Amendment: Separate financial statements;

> IAS 28: Amendment: Investments in associates and joint ventures;

> IAS 32: Amendment: Offsetting financial assets and financial liabilities;

> IAS 36: Amendment: Recoverable amount disclosures for non financial assets;

> IAS 39: Amendment: Novation of derivatives and continuation of hedge accounting;

> IFRIC 21: Levies.

The adoption of the above standards did not result in a material impact on the financial statements of the Group.

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or after 1 July 2014, and have not been applied in preparing these financial statements. The group does not plan to adopt these standards early; instead it will apply them from their effective dates as determined by their dates of EU endorsement. The Group is still reviewing the impact of the upcoming standards to determine their impact:

> IFRS 9: Financial instruments (1 January 2018);

> IFRS 10: Amendment: Sale or contribution of assets between an investor and its associate or joint venture (1 January 2016);

> IFRS 11: Amendment: Accounting for acquisitions on interests in joint operations (1 January 2016);

> IFRS 14: Regulatory deferral accounts (1 January 2016);

> IFRS 15: Revenue from contracts with customers (1 January 2017);

> IAS 1: Amendment: Disclosure Initiative (1 January 2016);

> IAS 16: Amendment: Clarification of acceptable methods of depreciation and amortisation (1 January 2016);

> IAS 19: Amendment: Defined benefit plans (1 July 2014)*;

> IAS 27: Amendment: Equity method in separate financial statements (1 January 2016);

> IAS 28: Amendment: Sale or contribution of assets between an investor and its associate or joint venture (1 January 2016);

> IAS 38: Amendment: Clarification of acceptable methods of depreciation and amortisation (1 January 2016);

> annual improvement to IFRSs - 2010-2012 cycle (1 July 2014)*;

> annual improvement to IFRSs - 2011-2013 cycle (1 July 2014)*;

> annual improvement to IFRSs - 2012-2014 cycle (1 January 2016)*.

* standards that have been endorsed by the EU

2. Segmental information

Segmental information is presented in respect of reportable segments. This is based on the Group's management and internal reporting structure and represents the level at which financial information is reported to the Executive Committee, being the chief operating decision maker as defined by IFRS 8.

Segment results, assets and liabilities include items that can be allocated on a reasonable basis. Unallocated items comprise certain employee incentive costs, foreign exchange movements, insurance working capital and the deferred tax asset.

As reported in the 2013 Report and Accounts, from 2014 the Group's underwriting has been managed in three trading divisions: Property, Casualty and Marine, Aviation & Political Risk ("MAP"). In accordance with IFRS 8, Operating Segments, the Group now considers the three divisions to be the reportable segments of the Group.

As a consequence of the change in reportable segments, the corresponding operating results and ratios for 2013 have been re-presented on a comparable basis. There is no impact to the overall profit before tax or the net asset value of the Group for prior periods.

2a. Segmental income statement

(1) Items unallocated by segment include certain employee incentive and Group costs, foreign exchange movements, non-recurring items, financing costs and amortisation charges

2b. Segmental balance sheet

2c. Geographical information

The following table shows the distribution of the Group's consolidated gross written premium by area of risk:

2d. Other information

No customer represents more than 10% of the Group's gross written premium.

3. Earnings and net assets per share

a) Basic earnings per share

(1) Net of shares held in the employee benefit trust, which are earmarked for the Group's LTIP and deferred bonuses payable in shares.

b) Diluted earnings per share

Diluted earnings per share are calculated adjusting the weighted average number of shares outstanding to assume conversion of all potentially dilutive shares. Novae's potentially dilutive shares relate to LTIP awards/deferred bonuses payable in shares. The number of potential shares is calculated with reference to the current date as though it were the vesting date, excluding shares held by the employee benefit trust earmarked for these awards.

c) Net assets and net tangible assets per share

Net assets and net tangible assets per share are calculated on the number of shares in issue (excluding shares held by the employee benefit trust and earmarked for the Group's LTIPs and deferred bonuses payable in shares) at 31 December 2014.

4. Net investment income

5. Dividends per share

A final dividend of 18.2p and a special dividend of 20.0p per ordinary share are payable on 15 May 2015 to shareholders on the register on 24April 2015. The ex-dividend date is 23 April 2015. These financial statements do not provide for these dividends as a liability.

6. Foreign exchange

Profit for the year includes a foreign exchange gain of £11.6 million (2013: loss of £4.9 million) on non-monetary items; comprising deferred acquisition costs and gross and ceded unearned premium.

Principal exchange rates (versus sterling) applied are as follows:

7. Income taxes

8. Reinsurance contracts

9. Financial assets

The Group has entered into long treasury five and ten year futures as part of efficient portfolio management to reduce risk within its fixed income portfolios. Margin call accounts are maintained daily to mark to market levels.

The market value of the derivative holdings was less than 0.01% of total financial assets.

With the exception of unlisted preference shares, all financial assets are held at fair value through profit or loss and are measured using quoted prices in active markets or direct/indirect inputs based on observable market data. The unlisted preference shares held by the Group at the period end are held at cost, which is deemed to be the fair value of the investment at the balance sheet date.

10. Financial instruments

The table analyses recurring fair value measurement for financial assets and liabilities. The fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to the valuation techniques used. The different levels are defined as follows:

Level 1 - fair values measured using quoted prices (unadjusted) in active markets for identical instruments

Level 2 - fair values measured using directly or indirectly observable inputs or other similar valuation techniques for which all significant inputs are based on observable market data

Level 3 - fair values measured using valuation techniques for which all significant inputs are not based on observable market data

The fair value of the Group's financial assets is based on prices provided by investment managers who obtain market data from numerous independent pricing services. The pricing services used by the investment manager obtain actual transaction prices for securities that have quoted prices in active markets.

During the period there were no significant transfers in either direction between Level 1 and Level 2 of the fair value hierarchy, or Level 2 and Level 3 of the fair value hierarchy.

Level 3 valuation techniques and significant unobservable inputs

In August 2013, the Group invested in an unlisted insurance agency. Equity in the entity is not traded in an active market and as such there is no observable market data. The fair value of this asset is deemed to be the initial cost including related transaction fees.

This fair value is tested at each balance sheet date using a discounted cash flow forecast and impairments recognised where necessary. There are several variables on which this forecast is reliant, which include, but are not limited to, discount factor, premium growth and return of capital invested.

In addition to this, periodic management accounts are reviewed by management to mitigate any credit risk in the investment and ensure its ability to pay the coupon rate on the preference shares

In this table, premiums earned during the year include the effects of the third party quota share and foreign exchange movements which are presented separately in the consolidated income statement.

Claims development tables are shown on an underwriting year basis; these set out the development of claims over time on a gross and net of reinsurance basis (without any adjustment for any impact from changes to projected premiums). These claims are shown on an ultimate basis for each successive development year at the 100% ownership level. Balances have been translated at exchange rates prevailing at 31 December 2014 in all cases.

The Group's definition of reserve releases has been broadened to include reserve movements emerging on all but the youngest underwriting year. In order to show the claims development tables on a consistent basis with this definition, certain elements of the tables have been re-presented.