Half Yearly Report

RNS Number : 5869Q

Novae Group PLC

05 August 2010

 

 

5 August 2010

For immediate release

 

Novae Group plc

 

Interim results for the six months ended 30 June 2010

 

Highlights

 

Novae Group plc ("Novae"), the specialist insurance group, today announces its interim results for the six months ended 30 June 2010. Highlights:

Profit before tax and foreign exchange movement on non-monetary items: £13.6 million (H1 2009: loss of £2.1 million)

Operating profit before tax and foreign exchange movement on non-monetary items: £18.2 million (H1 2009: loss of £5.1 million)

Gross written premium: £333.4 million, up 51% (H1 2009: £220.3 million)

Net premium revenue: £189.9 million, up 31% (H1 2009: £145.4 million)

Investment return: £16.4 million, up 50% (H1 2009: £10.9 million)

Earnings per share: 14.9p (H1 2009: 14.6p loss per share)

Interim dividend per share: 3.3p, up 10% (H1 2009: 3.0p per share)

Net assets per share: 441.9p, up 1% (December 2009: 436.2p per share)

Net tangible assets per share: 429.4p, up 2% (December 2009: 422.7p per share)

 

Matthew Fosh, Chief Executive, today said:

 

"Novae has delivered a good result given a challenging marketplace for underwriting. Premium growth has been disciplined and focussed in new areas of underwriting. The market experienced a significant number of major losses in the first half although rating in many areas remains weak. Nevertheless, we have had another strong period of investment return and remain on-track to deliver on the strategic priorities identified last December."

 

There will be a presentation for analysts at 9.00 a.m. today in Room 713, Gallery 7 of the Lloyd's Building, One Lime Street, London EC3M 7HA. Invitees only are requested to go to the Main Entrance of Lloyd's where they will be provided with a pass.

 

For further information:

Matthew Fosh, Novae Group plc 020 7903 7300

Nick Miles, M:Communications 020 7920 2330

 

Introduction to Novae

 

Novae is a risk-taking insurance business operating at Lloyd's via Syndicate 2007 managed by Novae Syndicates Limited ("NSL"). Novae has a diversified mix of business consisting of 29 specialist underwriting units. Syndicate 2007 is rated A2 (Good) by Moody's and also benefits from the ratings given to Lloyd's. Novae is based in London and has been listed on the London Stock Exchange since 1998.

 

Interim results statement

 

Financial results

 

Operating profit before foreign exchange gain on non-monetary items was £18.2 million (H1 2009: loss of £5.1 million). Profit before tax was £14.9 million (H1 2009: loss of £18.5 million) and earnings per share were 14.9p (H1 2009: loss of 14.6p).

 

The combined ratio in the first half, calculated on an earned premium basis, was 100.8% (H1 2009: 110.5%). This was made up of a claims ratio of 63.3% and an expense ratio of 37.5% (H1 2009: 69.0% and 41.5% respectively).

 

The yield on short duration investment grade bonds and cash remains at very low levels. Nonetheless, Novae's investment assets made an important contribution to profitability. Investment return in the period was £16.4 million (H1 2009: £10.9 million).

 

Financing costs were £4.6 million (H1 2009: £3.0 million credit, being a £4.7 million underlying charge more than offset by a realised gain of £7.7 million on the buy back for cancellation of an element of the Group's 2017 Subordinated Notes). Assuming no material changes in the second half, the Board currently expects financing costs for the year as a whole to be around £9 million.

 

Net assets per share as at 30 June 2010 were 441.9p (December 2009: 436.2p). Net tangible assets per share were 429.4p (December 2009: 422.7p).

 

Improving Novae's return on equity

 

In December 2009 Novae announced a series of specific steps the Group was taking to improve its return on equity. Set out below is the progress that Novae has achieved in each area by 30 June 2010.

 

NICL surplus capital

 

Novae remains committed to extracting surplus capital from NICL, its FSA authorised insurance company. NICL's audited net assets at 31 December 2009 were £107.7 million and the regulatory capital deployed to support its business at that date was around £40 million. NICL's surplus capital as at 31 December 2009 was therefore over £60 million.

 

The Group's preferred solution for unlocking the surplus capital is through the transfer to the Group's ongoing Lloyd's business of renewal rights to the NICL book of business followed by a Court-sanctioned transfer of NICL reserves under Part VII of the Financial Services and Markets Act ("Part VII transfer"). NICL's renewal rights have already been successfully transferred to the Group's Lloyd's business and the High Court will consider the application for the Part VII transfer at a hearing in September. Subject primarily to the outcome of this hearing, the Board expects the Part VII transfer process to complete shortly after the hearing. An announcement setting out the basis and timing of any consequential return of capital to shareholders is expected to be made by the end of the year.

 

Reinsurance savings

 

In December 2009 the Group indicated that it would aim to reduce its outwards reinsurance spend, measured on a consistent basis, by £10 million in 2010, rising to £12.5 million in 2011 and £15 million in 2012. The Group is on target to achieve its 2010 objective.

 

Cost savings

 

In December 2009 Novae announced that it was seeking annualised pre-tax cost savings of £2.0 million by 2011. By June 2010 the Group had achieved annualised cost savings of £0.8 million. The Group is on target at the interim stage and expects to achieve further cost savings in the second half.

 

Underwriting performance

 

Segmental reporting

 

Up to and including the financial year ended 31 December 2009, Novae reported under IFRS 8 through four ongoing operating segments: Specialty, Property, Liability and Aviation & Marine.

 

As a result of the Group's expansion and development since 2006, Novae announced in its April 2010 interim management statement that the Board had concluded that the most appropriate business segmentation through which to manage the Group is between property/short-tail and liability/long-tail. These two ongoing segments therefore form the basis of Novae's financial reporting and comparative information for earlier periods has been restated accordingly. The discontinued units continue to be reported separately.

 

Novae's first half business mix, measured in terms of gross written premium, was 55% property/short-tail and 45% liability/long-tail. Based on the Board's current assessment for the balance of 2010, the split for the year as a whole is expected to be around 50% property/short-tail and 50% liability/long-tail.

 

Overall performance

 

First half operating profits before foreign exchange movement on non-monetary items were £18.2 million (H1 2009: loss of £5.1 million). This includes reserve releases from the 2007 and prior years of £11.1 million.

 

Although Novae saw an improvement in claims experience over the comparable period of the previous year, for the Lloyd's market generally the first half of 2010 was characterised by a higher than usual number of large loss events. Notwithstanding large loss frequency and low investment returns, the rating environment in the period remained competitive. The renewal book generated a rate increase of 1% on a whole account basis.

 

At 30 June 2010 the Group's aggregate level of net claims reserves was £46.8 million or 6.8% higher than the total derived from a class-by-class assessment of best estimate liabilities (December 2009: £41.6 million or 6.6%).

 

Underwriting risk appetite

 

Novae's underwriting risk appetite is set by its Willingness to Lose ("WTL"), or the maximum financial effect net of reinsurance and reinstatement premiums from particular modelled events. The Group Board sets Novae's overall risk appetite which is managed on a day-to-day basis by the Board of the Group's Lloyd's managing agency.

 

Under the WTL framework underwriting risk appetite is capped at $120 million for the most severe scenarios modelled; for monitoring purposes this is translated into sterling at £1:$1.50 and thus represents a peak risk appetite of £80 million for potentially market changing loss events. This limit is set by reference to the Group's expected current year profits, being the first layer of loss absorbency, and its equity capital base. In effect, the Board is prepared to tolerate the erosion of around 20% of its equity base from a market changing loss event. The Group's current assessment of the likely net loss from these realistic disaster scenarios is below the maximum WTL.

 

Property/short-tail

 

The property/short-tail segment produced a profit of £14.8 million despite some well-publicised loss events (H1 2009: loss of £12.3 million).

 

The majority of the Group's increase in premium income is in the property/short-tail segment. This principally reflects the formation of Novae Re in the second half of 2009. Elsewhere, the Group continues to take a disciplined approach to growth in premium income.

 

There was a strong recovery in the underwriting performance of the Group's credit business following a difficult 2009. CIFS, the UK trade credit unit, enjoyed a particularly strong turn-around. Combined with the profitability of the political and credit unit, this part of the Group made a valuable contribution to segmental performance.

 

Novae's exposure to major loss events was within the Group's loss appetite for such events. This was key to delivering the segment's profit. Novae's assessment of the likely cost of its exposure to the February earthquake in Chile has fallen to under $10 million (compared to an estimate of $10-15 million included in the Group's April Interim Management Statement). A similar impact arose from the Deepwater Horizon rig loss in April (spread across the two segments). Other high profile industry loss events including windstorm Xynthia, Australian hailstorms and the Haiti earthquake have had a relatively modest effect.

 

Both the property and energy/marine components of this segment made a profit. The contribution of the US property units, both reinsurance and direct, was notable. There was a useful first time contribution to profit from Novae Re based on gross written premium to 30 June 2010 of £57.3 million (with a further £20.2 million in the liability/long-tail segment).

 

Liability/long-tail

 

Against the background of a challenging operating environment the liability/long-tail segment achieved a profit of £8.8 million (H1 2009: profit £13.4 million).

 

The Group has continued with its cautious approach to reserving financial institutions business. Novae's professional indemnity, management liability and medical malpractice units have again reported good profits.

 

The UK general liability unit (which writes on an occurrence form basis) produced a strong profit. In the first half of 2010 this was supplemented by a useful contribution from the Group's international casualty unit formed in 2007.

 

Marine liability business was affected by the Deepwater Horizon rig loss but still made a profit for the period. Aviation RI showed a pronounced improvement over the first half of 2009 but still had to contend with significant loss activity including two major hanger losses, at Dulles (February) and Jeddah (June), and the Air Afriqiyah loss at Tripoli in May.

 

Investment performance

 

Investment return in the first half was £16.4 million, equivalent to a 3.1% annualised return on average invested assets of £1,058.1 million (H1 2009: £10.9 million, 2.0% and £1,011.1 million respectively).

 

Novae has had one of the best investment performances of its peer group since 2007; this has been achieved with a low overall level of volatility. During the first half the Group benefitted from its conservative asset allocation policy and a further bond market rally as redemption yields on short duration Gilts and US Treasuries declined still further. Investment return in the first half is flattered as a result, and the Board's estimate for return for the year as a whole is around 2.0%. As a result, investment income in the second half is expected to be lower than the first half.

 

The profile of the Group's investment portfolio at 30 June 2010 was as follows:

 

Investment type	30 June 2010 £m	30 June 2009 £m
Corporate and supranational issuers	449.5	200.1
Cash	251.6	289.2
Government bonds and bills	175.7	226.3
Government agencies	95.3	75.8
Lloyd's overseas deposits	83.1	79.5
Certificates of deposit and floating rate notes	12.7	140.2
Total	1,067.9	1,011.1

 

Investment assets can be analysed by rating as follows:

 

S&P rating equivalent	30 June 2010		30 June 2009
	%	£m	%	£m
AAA rated	46	493.5	37	371.5
AA rated	16	166.3	10	102.3
A+ or better rated	5	57.2	3	25.7
BBB+ or better rated	-	3.5	-	2.4
Total bond portfolio	67	720.5	50	501.9
Cash/unrated	25	264.3	42	429.7
Total managed portfolios	92	984.8	92	931.6
Lloyd's overseas deposits	8	83.1	8	79.5
Total	100	1,067.9	100	1,011.1

 

Novae has no exposure to sovereign debt issued by Portugal, Italy, Ireland, Greece or Spain.

 

As at 30 June 2010 the overall duration of the segregated portfolios was 1.2 years (H1 2009: 1.8 years). The investment assets were held as to 49% in sterling, 35% in US dollars and 16% in other currencies (H1 2009: 52%, 34% and 14% respectively).

 

 

Expenses

 

The expense charge for the first half was £71.3 million, made up of acquisition costs of £44.3 million and operating costs of £27.0 million (H1 2009: £60.4 million, £34.9 million and £25.5 million respectively).

 

Acquisition costs of £44.3 million represent 23.3% of net earned premium. The acquisition cost ratio over recent periods compares as follows:

 

	30 June 2010 £m	30 June 2009 £m	30 June 2008 £m
Acquisition costs	44.3	34.9	29.8
Net earned premium	189.9	145.4	125.9
Acquisition cost ratio (%)	23.3%	24.0%	23.7%

 

The Group's operating costs in the first half of 2010 may be analysed as follows:

 

Expense type	30 June 2010 £m	30 June 2009 £m
Pre-bonus employee costs	13.8	10.7
IT costs	2.5	1.8
Establishment costs	1.7	1.4
Legal and professional costs	1.0	1.0
Other costs	1.4	1.1
Core costs	20.4	16.0
Lloyd's and other regulatory costs	6.1	5.4
Bonus and equity incentive charges	6.3	5.8
Amortisation of intangible assets	0.7	0.6
Total cost base	33.5	27.8
Deferral/claims handling adjustments	(5.9)	(1.5)
Syndicate ownership adjustments	(0.6)	(0.8)
Operating expenses	27.0	25.5

 

The principal movements in operating costs between the first half of 2010 and the comparative period in 2009 reflect continuing investment in and development of the business, as follows:

 

Operating costs in the period ended 30 June 2010
	£m	£m
H1 2009 core cost base		16.0
Increase in IT costs	0.7
Other movements net of cost savings	0.6
Cost movements on a like-for-like basis		1.3
Novae Re		2.6
Other new teams (European property & PA and marine RI)		0.5
H1 2010 core cost base		20.4

 

 

Novae's operating cost ratio, expressed as a percentage of net earned premium, has developed as follows:

 

	30 June 2010 £m	30 June 2009 £m	30 June 2008 £m
Operating costs	27.0	25.5	27.6
Net earned premium	189.9	145.4	125.9
Operating cost ratio (%)	14.2%	17.5%	21.9%

 

Currency assets and liabilities

 

Novae is exposed to foreign currency risk. Its principal exposure is to the US dollar, which accounted for 42% of gross written premiums in the first half. 39% of gross written premiums arise in sterling, 10% in euros and the balance in other currencies including the Canadian and Australian dollar and Japanese yen.

 

IFRS requires non-monetary items to be carried at historical exchange rates rather than at closing rates as for monetary items. Non-monetary items comprise unearned premiums, reinsurers' share of unearned premiums and deferred acquisition costs.

 

During the first half of 2010 the US dollar appreciated against sterling, resulting in a non-monetary gain of £1.3 million. The exchange rate was £1:$1.61 at 31 December 2009; this had moved to £1:$1.50 at 30 June 2010.

 

Discontinued units

 

The discontinued units are made up of liability reinsurance, healthcare and third party liability written across Syndicates 1241 and 1007.

 

Syndicates 1241 and 1007 continue to run off in line with the Board's expectations, with the population of lead claims (in relation to both discontinued units and other business) from 2002 and prior down to 1,139 at 30 June 2010 (December 2009: 1,314; December 2005: 6,117). This represents a reduction of 81% in the population of lead claims over the past four and a half years. Novae's share of gross claims reserves accounted for by the discontinued units has fallen to £80.3 million or 7% of the Group's overall gross claims reserves:

 

	30 June 2010 £m	30 June 2009 £m	31 December 2009 £m
Property/short tail	168.7	147.7	133.9
Liability/long tail	850.1	775.7	801.8
Continuing	1,018.8	923.4	935.7
Discontinued units	80.3	117.0	101.1
Total	1,099.1	1,040.4	1,036.8

 

The Group's participations on Syndicates 1241 and 1007 currently require capital support of around £40 million. This capital is not generating an appropriate risk-adjusted return for the Group and Novae continues to explore options to restructure its 2002 and prior underwriting to eliminate this drag on performance.

 

Tax

 

The Group's tax charge in the first half was £4.1 million (H1 2009: £8.0 million credit), representing 28% of profit before tax. The deferred tax asset held on the balance sheet at 30 June 2010 is £42.5 million (December 2009: £45.3 million). Utilisation of these deferred tax losses means that no significant cash tax is payable.

 

No credit has been taken for capital losses of £45.8 million (December 2009: no credit, capital losses of £45.8 million).

 

Interim dividend

 

The Board has declared an interim dividend of 3.3p per share (H1 2009: 3.0p per share). This will be paid on 4 October 2010 to shareholders on the register on 10 September 2010.

 

Board

 

Following the Annual General Meeting on 29 April 2010 Allan Nichols resigned from the Board of Novae. As mentioned in the annual report, Allan's move allows Novae to move towards compliance with the requirements on board composition set out in the UK Corporate Governance Code. He will in all other respects continue in his same executive role as underwriting review director.

 

Principal risks 

The principal risks that face the Group are described in the risk disclosure section in the 2009 Annual Report (pages 74 to 89). There have been no changes to the principal risks during the six months ended 30 June 2010.

 

Outlook

 

For 2010 as a whole the Board continues to expect rating to be broadly similar to that in 2009 and evidence so far this year supports that view. Despite significant loss experience across the market as a whole, there is little evidence thus far of any general change to the rating environment. A market-turning event has not yet emerged and thus positive rating momentum is limited to classes that have suffered significant loss experience.

 

The underwriting outcome for the year will be dependent upon loss activity in the second half of the year. This includes the scale and incidence of landfall of hurricanes in the Gulf of Mexico.

 

Risk free returns from short duration sterling and dollar bonds have fallen further in the first half. This has led to capital gains and a strong overall performance in the period. However, the economic effect is to benefit the first half of 2010 at the expense of subsequent reporting periods. Investment return in the second half is likely to be lower, producing a return for the year as a whole of around 2.0%.

 

Against the challenges of underwriting and investment markets, there are company-specific actions which the Group is taking and which will leave Novae well-placed to deliver on its strategic objectives and to enhance return on equity.

 

Matthew Fosh

Group Chief Executive

5 August 2010

 

 

Responsibility statement of the directors in respect of the half-yearly financial report

 

We confirm that to the best of our knowledge:

the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU

the interim management report includes a fair review of the information required by:

 (a) section 4.2.7 of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year

(b) section 4.2.8 of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so

By order of the Board

 

 

M J Turvey

Secretary

5 August 2010

 

Condensed consolidated statement of comprehensive income

for the six months ended 30 June 2010

 

		Six months ended 30 June	Six months ended 30 June	Year ended 31 December
		2010	2009	2009
	Note	£m	£m	£m
Gross premium revenue	4	241.9	199.9	389.1
Less premium ceded to reinsurers	4	(52.0)	(54.5)	(85.5)
Net premium revenue		189.9	145.4	303.6
Investment income	5	16.4	10.9	31.0
Fees and commission income		0.7	1.8	1.1
Total revenue (net of premium ceded to reinsurers)		207.0	158.1	335.7
Gross claims incurred		(167.6)	(128.5)	(243.5)
Reinsurers' share of claims incurred		47.4	28.2	48.8
Net claims incurred		(120.2)	(100.3)	(194.7)
Policy acquisition costs		(44.3)	(34.9)	(70.8)
Operating expenses	6	(27.0)	(25.5)	(52.9)
Net foreign exchange gains/(losses)	7	4.0	(18.9)	(12.1)
Operating profit/(loss)		19.5	(21.5)	5.2
Financing (costs)/credit	8	(4.6)	3.0	(1.0)
Profit/(loss) before income taxes		14.9	(18.5)	4.2
Underlying profit/(loss) before income taxes and gain/(loss) on non-monetary items		13.6	(2.1)	17.7
Notional currency gain/(loss) on non-monetary items	7	1.3	(16.4)	(13.5)
Income taxes	9	(4.1)	8.0	22.2
Profit/(loss) for the period attributable to shareholders		10.8	(10.5)	26.4
Earnings/(losses) per share Basic earnings/(losses) per share	10	14.9p	(14.6)p	36.8p
Diluted earnings/(losses) per share	10	14.8p	(14.6)p	36.1p

 

The profit attributable to shareholders includes all comprehensive income.

 

Condensed consolidated balance sheet

as at 30 June 2010

 

		30 June	30 June	31 December
		2010	2009	2009
	Note	£m	£m	£m
Assets
Intangible assets		9.0	10.4	9.7
Property, plant and equipment		1.6	1.2	1.1
Deferred acquisition costs		50.6	37.6	32.7
Deferred tax assets	11	42.5	29.5	45.3
Reinsurance contracts	12	423.5	421.2	388.7
Insurance and other receivables		305.5	184.6	177.3
Financial assets	13	733.2	642.4	736.7
Cash and cash equivalents	14	334.7	368.7	296.7
Total assets		1,900.6	1,695.6	1,688.2
Liabilities
Insurance contracts	15	(1,372.5)	(1,241.0)	(1,210.0)
Financial liabilities, due after one year
- Loan notes	16	(24.0)	(20.5)	(22.4)
- Subordinated notes	16	(69.3)	(68.9)	(69.1)
Insurance and other payables, due within one year		(116.0)	(83.2)	(73.0)
Insurance and other payables, due after one year		-	(2.3)	-
Total liabilities		(1,581.8)	(1,415.9)	(1,374.5)
Net assets		318.8	279.7	313.7
Shareholders' equity
Share capital	17	73.2	73.2	73.2
Share premium		67.1	67.1	67.1
Merger reserve		69.6	69.6	69.6
Retained earnings		108.9	69.8	103.8
Total shareholders' equity		318.8	279.7	313.7
Net asset value per share	10	441.9p	389.0p	436.2p
Net tangible asset value per share	10	429.4p	374.6p	422.7p

 

These financial statements were approved by the Board of Directors on 5 August 2010 and were signed on its behalf by:

 

 

J P Hastings-Bass	O R P Corbett
Chairman	Group Finance Director

 

 

 

Condensed consolidated statement of changes in equity

for the six months ended 30 June 2010

 

Six months ended 30 June 2010

	Share capital	Share premium	Merger reserve	Retained earnings	Total
	£m	£m	£m	£m	£m
Profit for the period	-	-	-	10.8	10.8
Decrease in share-based payment reserve	-	-	-	(2.6)	(2.6)
Transactions with owners recorded directly in equity:
- Acquisition of treasury shares, net of LTIP shares vested	-	-	-	2.7	2.7
- Dividends paid (note 18)	-	-	-	(5.8)	(5.8)
Net increase in equity	-	-	-	5.1	5.1
As at 31 December 2009	73.2	67.1	69.6	103.8	313.7
As at 30 June 2010	73.2	67.1	69.6	108.9	318.8

 

 

Six months ended 30 June 2009

	Share capital	Share premium	Merger reserve	Retained earnings	Total
	£m	£m	£m	£m	£m
Loss for the period	-	-	-	(10.5)	(10.5)
Increase in share-based payment reserve	-	-	-	0.4	0.4
Transactions with owners recorded directly in equity:
- Acquisition of treasury shares, net of LTIP shares vested	-	-	-	(2.4)	(2.4)
- Dividends paid (note 18)	-	-	-	(8.3)	(8.3)
Net decrease in equity	-	-	-	(20.8)	(20.8)
As at 31 December 2008	73.2	67.1	69.6	90.6	300.5
As at 30 June 2009	73.2	67.1	69.6	69.8	279.7

 

 

 

 

Year ended 31 December 2009

	Share capital	Share premium	Merger reserve	Retained earnings	Total
	£m	£m	£m	£m	£m
Profit for the period	-	-	-	26.4	26.4
Decrease in share-based payment reserve	-	-	-	(1.1)	(1.1)
Transactions with owners recorded directly in equity:
- Acquisition of treasury shares, net of LTIP shares vested	-	-	-	(1.6)	(1.6)
- Dividends paid (note 18)	-	-	-	(10.5)	(10.5)
Net increase in equity	-	-	-	13.2	13.2
As at 31 December 2008	73.2	67.1	69.6	90.6	300.5
As at 31 December 2009	73.2	67.1	69.6	103.8	313.7

 

 

Condensed consolidated cash flow statement

for the six months ended 30 June 2010

 

		Six months ended 30 June	Six months ended 30 June	Year ended 31 December
		2010	2009	2009
		£m	£m	£m
Profit/(loss) before income taxes		14.9	(18.5)	4.2
Adjustments for non-cash items and items separately disclosed
- Foreign exchange on investment assets		(36.8)	79.6	56.0
- Financing costs/(credit)		4.6	(3.0)	1.0
- Amortisation charge		0.7	0.6	1.3
- Investment income		(16.4)	(10.9)	(31.0)
- Depreciation charge		0.6	0.4	1.0
- Employee equity incentives		1.2	2.6	4.0
Changes in operating assets and liabilities
- Change in insurance contract liabilities		162.5	(36.3)	(67.3)
- Change in insurance receivables		(113.7)	0.4	9.3
- Change in other receivables		(10.4)	0.1	10.2
- Change in deferred acquisition costs		(17.9)	(6.5)	(1.6)
- Change in reinsurance contract assets		(34.8)	(11.0)	21.5
- Change in insurance and other payables		51.1	25.9	7.0
- Change in market value of loan notes		1.6	(0.8)	1.1
- Change in market value of financial assets		2.5	8.0	8.3
- Income taxes paid		(1.8)	-	(0.5)
- Other non-cash movements		2.6	(3.2)	0.4
Net cash from operating activities		10.5	27.4	24.9
Cash flows from investing activities
- Purchase of tangible fixed assets		(1.1)	(0.5)	(1.0)
- Purchase of intangible fixed assets		-	(4.5)	(2.3)
- Interest received		10.9	11.9	12.9
- Purchase of financial assets		(673.8)	(927.6)	(1,796.6)
- Proceeds from sale of financial assets		694.8	716.6	1,504.3
Net cash from/(used in) investing activities		30.8	(204.1)	(282.7)
Cash flows from financing activities
- Acquisition of treasury shares		(6.4)	(7.7)	(9.7)
- Redemption of subordinated notes		-	(13.0)	(13.0)
- Interest paid		(6.6)	(8.1)	(8.7)
- Dividends paid		(5.8)	(8.3)	(10.5)
Net cash used in financing activities		(18.8)	(37.1)	(41.9)
Net increase/(decrease) in cash and cash equivalents		22.5	(213.8)	(299.7)
Opening cash and cash equivalents		296.7	622.5	622.5
Effect of exchange rate changes on cash and cash equivalents		15.5	(40.0)	(26.1)
Closing cash and cash equivalents		334.7	368.7	296.7

 

 

 

Notes to the interim financial information

 

1) Significant accounting policies

 

The unaudited interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, and on the basis of the accounting policies set out in the annual report of Novae Group plc for the year ended 31 December 2009.

 

The consolidated financial statements include the results of Novae Group plc and all its subsidiary undertakings made up to the same accounting date.

 

The financial information contained in these interim results does not constitute statutory accounts of Novae within the meaning of Section 435 of the Companies Act 2006. Statutory accounts for Novae Group plc for the year ended 31 December 2009 have been delivered to the Registrar of Companies. The auditors have reported on the accounts, their report was unqualified and did not constitute a statement under Section 498 (2) or (3) of the Companies Act 2006.

 

Basis of preparation

 

The financial statements are presented in pounds sterling unless otherwise stated. They have been prepared under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or loss.

 

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. The results of these factors allow judgements to be made regarding the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Uncertainties exist where current valuations are dependent on estimates of future results. This applies to the share based payment charge and financial assets and liabilities held at fair value. The accounting policies have been applied consistently to all periods presented in this report.

 

The Group's greatest area of uncertainty relates to insurance contract liabilities (see note 15).

 

The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

Revised and new reporting standards

 

No revised disclosures and measurements have been required as a result of new or amended international standards and interpretations that the Group had not previously chosen to adopt in preparing the financial statements for the year ended 31 December 2009.

 

2) Segmental information

 

The Group's operating segments are organised into similar product and service types. The Board is the Group's chief operating decision maker. This is due to the Board being the ultimate decision maker for future resource allocation to the Group's underwriting segments. Monthly management information is reported to the Board on a segmental basis to aid its assessment of the Group's performance.

 

Segment results, assets and liabilities include items that can be allocated on a reasonable basis. Unallocated items comprise insurance working capital, central items and the deferred tax asset.

 

During the period, the Group revised its internal reporting structure. The operating segments have been revised to reflect this (with the comparatives restated accordingly). The Group comprises the following operating segments:

 

(i) Property/short-tail

 

This segment consists of:

both direct insurance and reinsurance of property in the USA and internationally (including the UK)

engineering and agriculture reinsurance accounts

marine units (energy, hull, reinsurance, specie & cargo and war)

political and credit units

bloodstock

(ii) Liability/long-tail

 

This segment consists of:

occurrence-form risks: a UK general liability account, both public and employers' liability risks, international general liability, marine liability business and a motor account. In addition, a new liability/motor reinsurance unit has been established

specialty lines relating to financial institutions, professional indemnity, medical malpractice, management liability and special situations

aviation reinsurance

(iii) Discontinued units

 

This segment is primarily made up of liability reinsurance (or casualty treaty) accounts and also includes smaller healthcare and third party liability units. The Group withdrew from these classes prior to 2002 and they have subsequently been reported separately to management. This does not represent a discontinued business analysis for IFRS 5 purposes.

 

 

b) Segmental statement of comprehensive income

 

The segment results for the six months ended 30 June 2010 are as follows:

 

	Property/ short-tail   £m	Liability/ long-tail   £m	Discontinued units   £m	Total reportable segments £m	Unallocated by segment   £m		Total     £m
Gross written premium	183.2	149.6	0.6	333.4	-		333.4
Gross premium revenue	110.7	130.6	0.6	241.9	-		241.9
Net premium revenue	92.0	98.1	(0.2)	189.9	-		189.9
Net claims incurred	(48.4)	(69.6)	(2.2)	(120.2)	-		(120.2)
Investment income	3.6	11.3	1.5	16.4	-		16.4
Fees and commission income	-	-	-	-	0.7		0.7
Policy acquisition costs	(23.0)	(21.2)	(0.1)	(44.3)	-		(44.3)
Operating expenses	(9.4)	(9.8)	(0.2)	(19.4)	(7.6)		(27.0)
Net foreign exchange gains	-	-	-	-	4.0		4.0
Operating profit/(loss)	14.8	8.8	(1.2)	22.4	(2.9)		19.5
Financing costs	-	-	-	-	(4.6)		(4.6)
Profit/(loss) before income taxes	14.8	8.8	(1.2)	22.4	(7.5)		14.9
Income taxes	-	-	-	-	(4.1)		(4.1)
Profit/(loss) after income taxes	14.8	8.8	(1.2)	22.4	(11.6)		10.8
Included within operating expenses are:
Depreciation	0.3	0.3	-	0.6	-		0.6

 

 

The segment results for the six months ended 30 June 2009 are as follows:

 

	Property/ short-tail   £m	Liability/ long-tail   £m	Discontinued units   £m	Total reportable segments £m	Unallocated by segment   £m		Total     £m
Gross written premium	109.2	111.0	0.1	220.3	-		220.3
Gross premium revenue	78.4	121.4	0.1	199.9	-		199.9
Net premium revenue	58.8	86.4	0.2	145.4	-		145.4
Net claims incurred	(50.8)	(50.7)	1.2	(100.3)	-		(100.3)
Investment income	2.5	6.5	1.3	10.3	0.6		10.9
Fees and commission income	-	-	-	-	1.8		1.8
Policy acquisition costs	(16.2)	(18.7)	-	(34.9)	-		(34.9)
Operating expenses	(6.6)	(10.1)	(0.3)	(17.0)	(8.5)		(25.5)
Net foreign exchange losses	-	-	-	-	(18.9)		(18.9)
Operating profit/(loss)	(12.3)	13.4	2.4	3.5	(25.0)		(21.5)
Financing credit	-	-	-	-	3.0		3.0
Profit/(loss) before income taxes	(12.3)	13.4	2.4	3.5	(22.0)		(18.5)
Income taxes	-	-	-	-	8.0		8.0
Profit/(loss) after income taxes	(12.3)	13.4	2.4	3.5	(14.0)		(10.5)
Included within operating expenses are:
Depreciation	0.2	0.2	-	0.4	-		0.4

 

The segment results for the year ended 31 December 2009 are as follows:

	Property/ short-tail   £m	Liability/ long-tail   £m	Discontinued units   £m	Total reportable segments £m	Unallocated by segment   £m		Total     £m
Gross written premium	165.6	215.5	3.0	384.1	-		384.1
Gross premium revenue	163.0	223.1	3.0	389.1	-		389.1
Net premium revenue	131.5	169.1	3.0	303.6	-		303.6
Net claims incurred	(81.8)	(106.2)	(6.7)	(194.7)	-		(194.7)
Investment income	5.3	19.5	2.0	26.8	4.2		31.0
Fees and commission income	-	-	-	-	1.1		1.1
Policy acquisition costs	(33.6)	(37.3)	0.1	(70.8)	-		(70.8)
Operating expenses	(13.6)	(21.7)	(0.3)	(35.6)	(17.3)		(52.9)
Net foreign exchange losses	-	-	-	-	(12.1)		(12.1)
Operating profit/(loss)	7.8	23.4	(1.9)	29.3	(24.1)		5.2
Financing costs	-	-	-	-	(1.0)		(1.0)
Profit/(loss) before income taxes	7.8	23.4	(1.9)	29.3	(25.1)		4.2
Income taxes	-	-	-	-	22.2		22.2
Profit/(loss) after income taxes	7.8	23.4	(1.9)	29.3	(2.9)		26.4
Included within operating expenses are:
Depreciation	0.3	0.7	-	1.0	-		1.0

 

 

c) Segmental balance sheet analysis

 

Relevant balance sheet captions are deemed to be attributable to the business segments as follows (investment assets comprise financial assets, cash and cash equivalents):

 

As at 30 June 2010	Property/short-tail	Liability/ long-tail	Discontinued units	Total reportable segments	Unallocated  by segment	Total
	£m	£m	£m	£m	£m	£m
Reinsurers' share of claims outstanding	59.2	294.6	14.9	368.7	-	368.7
Investment assets	235.8	719.7	104.1	1,059.6	8.3	1,067.9
Other assets	-	-	-	-	464.0	464.0
Total assets	295.0	1,014.3	119.0	1,428.3	472.3	1,900.6
Gross provision for claims outstanding	168.7	850.1	80.3	1,099.1	-	1,099.1
Other liabilities	-	-	-	-	482.7	482.7
Shareholders' funds	-	-	-	-	318.8	318.8
Total liabilities	168.7	850.1	80.3	1,099.1	801.5	1,900.6

 

As at 30 June 2009	Property/short-tail	Liability/ long-tail	Discontinued units	Total reportable segments	Unallocated  by segment	Total
	£m	£m	£m	£m	£m	£m
Reinsurers' share of claims outstanding	44.1	295.2	26.6	365.9	-	365.9
Investment assets	215.4	638.7	115.4	969.5	41.6	1,011.1
Other assets	-	-	-	-	318.6	318.6
Total assets	259.5	933.9	142.0	1,335.4	360.2	1,695.6
Gross provision for claims outstanding	147.7	775.7	117.0	1,040.4	-	1,040.4
Other liabilities	-	-	-	-	375.5	375.5
Shareholders' funds	-	-	-	-	279.7	279.7
Total liabilities	147.7	775.7	117.0	1,040.4	655.2	1,695.6

 

 

 

As at 31 December 2009	Property/short-tail	Liability/ long-tail	Discontinued units	Total reportable segments	Unallocated  by segment	Total
	£m	£m	£m	£m	£m	£m
Reinsurers' share of claims outstanding	29.5	308.4	22.4	360.3	-	360.3
Investment assets	199.8	737.0	75.0	1,011.8	21.6	1,033.4
Other assets	-	-	-	-	294.5	294.5
Total assets	229.3	1,045.4	97.4	1,372.1	316.1	1,688.2
Gross provision for claims outstanding	133.9	801.8	101.1	1,036.8	-	1,036.8
Other liabilities	-	-	-	-	337.7	337.7
Shareholders' funds	-	-	-	-	313.7	313.7
Total liabilities	133.9	801.8	101.1	1,036.8	651.4	1,688.2

 

3) Seasonality of interim operations

 

Within a financial year, the Group's underwriting income is not recognised on a straight line basis. This is due to a number of factors.

 

Gross written premium is recognised on the inception of insurance contracts. For many classes of business these have historically been weighted towards the first half of the year.

 

Certain of the Group's underwriting units (primarily property reinsurance and energy) are exposed to major risk events, such as US windstorms. The US hurricane season runs from June to November, which means that the Group may experience large losses in the second half of the year. Conversely, in years without a major event, the loss ratio is likely to be lower in the second half.

 

Premium revenue is earned separately for each insurance contract in line with the risk exposure profile. This means that for some catastrophe exposed contracts, the majority of income is recognised in the second half of the year.

 

Movements in foreign exchange rates also affect seasonality. This effect is accentuated as the Group's catastrophe exposed units primarily transact business in US dollars.

 

This seasonality can be assessed by reviewing the following performance measures:

 

	Gross written premium			Claims ratio			Net premium revenue
	H1	H2	Total	H1	H2	Total	H1	H2	Total
	£m	£m	£m	%	%	%	£m	£m	£m
2005	129.2	115.1	244.3	35.3	93.2	69.4	111.4	159.2	270.6
2006	146.6	134.6	281.2	53.0	39.0	46.3	114.8	106.0	220.8
2007	173.3	159.7	333.0	47.7	58.3	53.7	96.8	124.2	221.0
2008	186.0	163.0	349.0	51.9	76.6	64.6	125.9	132.5	258.4
2009	220.3	163.8	384.1	69.0	59.7	64.1	145.4	158.2	303.6

 

 

 

4) Premium revenue

	Six months ended	Six months ended	Year ended
	30 June	30 June	31 December
	2010	2009	2009
	£m	£m	£m
Gross written premium	333.4	220.3	384.1
Change in the gross provision for unearned premiums	(91.5)	(20.4)	5.0
Gross premium revenue	241.9	199.9	389.1
Outward reinsurance premiums	(72.4)	(78.2)	(86.1)
Change in reinsurers' share of provision for unearned premiums	20.4	23.7	0.6
Premium ceded to reinsurers	(52.0)	(54.5)	(85.5)
Net premium revenue	189.9	145.4	303.6

 

5) Investment income

 

	Six months ended	Six months ended	Year ended
	30 June	30 June	31 December
	2010	2009	2009
	£m	£m	£m
Interest income on financial assets designated at fair value through the income statement	15.0	11.5	28.6
Net fair value gains/(losses)	1.8	(0.3)	3.2
Investment management expenses	(0.4)	(0.3)	(0.8)
	16.4	10.9	31.0

 

6) Operating expenses

 

	Six months ended	Six months ended	Year ended
	30 June	30 June	31 December
	2010	2009	2009
	£m	£m	£m
Underwriting expenses	19.4	17.0	35.6
Distribution company expenses	-	1.3	-
Central expenses	7.6	7.2	17.3
	27.0	25.5	52.9

 

 

7) Foreign exchange

 

The net foreign exchange gains and losses for the period comprise the following amounts:

	Six months ended	Six months ended	Year ended
	30 June	30 June	31 December
	2010	2009	2009
	£m	£m	£m
Foreign exchange gains/(losses) (excluding non-monetary items)	2.7	(2.5)	1.4
Foreign exchange gains/(losses) on non-monetary items	1.3	(16.4)	(13.5)
Net foreign exchange gains/(losses)	4.0	(18.9)	(12.1)

 

The Board believes that the pattern of profits from year to year can be confusing if it is considered without separation of the notional foreign exchange gain/(loss) on non-monetary items. This is because IFRS requires different treatments of:

1) The unearned premium reserve, reinsurers' share of unearned premium reserve and deferred acquisition costs, which are treated as non-monetary items and carried at historical exchange rates; and

2) Investment assets and claims reserves, which are treated as monetary items and translated at closing exchange rates

 

Therefore the underlying profit before the notional foreign exchange gain/(loss) on non-monetary items is stated on the face of the statement of comprehensive income.

 

Principal exchange rates applied are as follows:

	Six months ended 30 June 2010		Six months ended		Year ended
			30 June 2009		31 December 2009
	Period	Period	Period	Period	Year	Year
	average	end	average	end	average	end
US dollar	1.53	1.50	1.50	1.65	1.57	1.61
Euro	1.15	1.22	1.12	1.17	1.12	1.13
Canadian dollar	1.58	1.59	1.80	1.91	1.78	1.69

 

 

8) Financing costs/(credit)

 

	Six months ended	Six months ended	Year ended
	30 June	30 June	31 December
	2010	2009	2009
	£m	£m	£m
Cost of 2017 subordinated notes	3.1	3.8	6.9
Cost of 2034 loan notes	0.8	0.7	1.3
Other financing	0.7	0.2	0.5
	4.6	4.7	8.7
Less: gain on purchase and cancellation of 2017 subordinated notes	-	(7.7)	(7.7)
	4.6	(3.0)	1.0

 

 

9) Income taxes

 

	Six months ended	Six months ended	Year ended
	30 June	30 June	31 December
	2010	2009	2009
	£m	£m	£m
Current tax expense:
Current period	-	1.3	2.9
Overseas tax expense:
Current period	1.3	-	-
Deferred tax (see note 11):
Deferred tax asset de-recognised/(recognised)	2.8	(9.3)	(25.1)
Total income tax expense/(credit)	4.1	(8.0)	(22.2)
Reconciliation of effective tax rate:
Profit/(loss) before income taxes	14.9	(18.5)	4.2
Income tax at the standard UK corporation tax rate (28%) (June 2009: 28%; December 2009: 28%)	4.2	(5.2)	1.2
Effect of disallowable expenditure/timing differences	2.8	(10.2)	1.7
Effect of tax losses de-recognised/(recognised)	(2.9)	7.4	(25.1)
	4.1	(8.0)	(22.2)

 

10) Earnings, net assets and net tangible assets per share

 

Basic earnings per share

 

The calculation of earnings per share of 14.9p (June 2009: losses of 14.6p; December 2009: earnings of 36.8p) is based on a profit attributable to equity shareholders of the parent company of £10.8 million (June 2009: loss of £10.5 million; December 2009: profit of £26.4 million) and on 72.4 million shares (June 2009: 71.9 million shares; December 2009: 71.8 million shares), being the weighted average number of shares in issue (excluding shares held by the Employee Benefit Trust which are earmarked for the Group's Long Term Incentive Plan ("LTIP") and deferred bonuses payable in shares) during the period ended 30 June 2010.

 

Diluted earnings per share

Diluted earnings per share are calculated by 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.

 

 

	Six months ended	Six months ended	Year ended
	30 June 2010	30 June 2009	31 December 2009
	£m	£m	£m
Profit/(loss) used to determine diluted earnings per share	10.8	(10.5)	26.4
Weighted average number of shares in issue (millions) excluding treasury shares	72.4	71.9	71.8
Adjustments for LTIPs and deferred bonuses payable in shares (millions)	0.6	2.0	1.3
Weighted average number of shares for diluted earnings per share	73.0	73.9	73.1
Diluted earnings/(losses) per share (pence per share)	14.8p	(14.6)p	36.1p

 

The dilutive impact on shares is excluded when it decreases the loss per share in accordance with IAS 33 Earnings per share.

 

 

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 which are earmarked for the Group's LTIPs and deferred bonuses payable in shares) at 30 June 2010.

 

 

	Six months ended	Six months ended	Year ended
	30 June 2010	30 June 2009	31 December 2009
	£m	£m	£m
Net assets	318.8	279.7	313.7
Intangible assets	(9.0)	(10.4)	(9.7)
Net tangible assets	309.8	269.3	304.0
Number of shares in issue (millions) excluding treasury shares	72.1	71.9	71.9
Net asset value per share	441.9p	389.0p	436.2p
Net tangible asset value per share	429.4p	374.6p	422.7p

 

 

 

11) Deferred tax

	30 June	30 June	31 December
	2010	2009	2009
	£m	£m	£m
Recognised deferred tax assets
Temporary differences	2.6	2.4	14.0
Underwriting profits earned and taxed in future periods	(6.4)	(3.7)	(10.6)
Unutilised tax losses	46.3	30.8	41.9
	42.5	29.5	45.3
Unrecognised deferred tax assets
Trading losses - 28% (2009: 28%) of gross unrecognised losses	-	24.5	-

 

The Emergency Budget on 22 June 2010 announced that the UK corporation tax rate will reduce from 28% to 24% over a period of four years from 1 April 2011. These changes will only be recognised when they are substantially enacted and will have the effect of reducing the deferred tax asset.

 

The Group also has accumulated gross capital losses of £45.8 million. No asset has been recognised in respect of these losses.

 

12) Reinsurance contracts

	30 June	30 June	31 December
	2010	2009	2009
	£m	£m	£m
Reinsurance contracts	423.5	421.2	388.7
Less: reinsurers' share of provisions for unearned premium	(54.8)	(55.3)	(28.4)
Reinsurers' share of claims outstanding	368.7	365.9	360.3
Less: reinsurers' share of provision for losses incurred but not reported ("IBNR")	(125.4)	(97.4)	(87.0)
Balance	243.3	268.5	273.3
Being:
Recoveries on claims notified not yet due	246.7	272.4	281.2
Provision for bad debt	(3.4)	(3.9)	(7.9)
Net recoveries on claims notified not yet due	243.3	268.5	273.3

 

13) Financial assets

	30 June	30 June	31 December
	2010	2009	2009
	£m	£m	£m
Fixed interest securities	733.2	642.1	736.7
Equities	-	0.3	-
	733.2	642.4	736.7
Financial assets comprise:
Syndicate	329.9	293.2	333.8
Corporate	403.3	349.2	402.9
	733.2	642.4	736.7

All financial assets are listed and they are all held at fair value through profit or loss.

 

14) Cash and cash equivalents

	30 June	30 June	31 December
	2010	2009	2009
	£m	£m	£m
Cash	251.6	289.2	218.4
Overseas deposits	83.1	79.5	78.3
	334.7	368.7	296.7

 

Of the total cash and cash equivalents £264.2 million (June 2009: £291.0 million; December 2009: £259.7 million) is held by the syndicates in Premium Trust Funds to meet policyholder liabilities and £16.2 million (June 2009: £1.8 million; December 2009: £2.6 million) is held by Novae's service company subsidiary on behalf of policyholders.

 

15) Insurance contract liabilities

 

		30 June 2010
	£m	£m	£m
	Gross	Reinsurance	Net
Unearned premiums	273.4	54.8	218.6
IBNR	451.1	125.4	325.7
Notified claims	648.0	243.3	404.7
Total insurance liabilities	1,372.5	423.5	949.0

 

		30 June 2009
	£m	£m	£m
	Gross	Reinsurance	Net
Unearned premiums	200.6	55.3	145.3
IBNR	345.2	97.4	247.8
Notified claims	695.2	268.5	426.7
Total insurance liabilities	1,241.0	421.2	819.8

 

		31 December 2009
	£m	£m	£m
	Gross	Reinsurance	Net
Unearned premiums	173.2	28.4	144.8
IBNR	353.4	87.0	266.4
Notified claims	683.4	273.3	410.1
Total insurance liabilities	1,210.0	388.7	821.3

 

 

Claims development tables

	2002 & prior	2003	2004	2005	2006	2007	2008	2009	2010	Total
Underwriting year	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Gross claims: Estimate of ultimate gross claims:
- at end of underwriting year	2,596.5	219.2	273.3	311.4	185.6	257.3	328.1	253.9
- one year later	3,121.2	221.8	259.8	289.9	172.2	252.9	376.8
- two years later	3,346.0	201.6	259.9	266.5	170.7	237.4
- three years later	3,560.2	184.8	258.2	258.1	157.7
- four years later	3,566.1	179.9	229.0	261.4
- five years later	3,575.7	168.4	217.1
- six years later	3,621.1	161.4
- seven years later	3,612.7
- position at 30 June 2010	3,587.3	159.1	215.5	259.3	169.7	236.7	386.5	283.7	348.5
Gross claims paid
- at end of underwriting year	1,382.7	4.9	13.1	28.7	3.9	9.3	20.2	7.5
- one year later	1,758.9	38.5	68.0	110.5	21.7	54.9	93.2
- two years later	2092.9	67.4	127.5	161.0	50.3	96.4
- three years later	2,400.7	87.5	149.7	198.4	80.3
- four years later	2,628.6	107.5	175.7	213.5
- five years later	2,895.3	118.8	181.1
- six years later	3,014.3	123.6
- seven years later	3,139.7
- position at 30 June 2010	3,217.4	126.3	185.8	218.0	84.1	114.7	118.3	30.4	0.6
Gross ultimate claims reserve	369.9	32.8	29.7	41.3	85.6	122.0	268.2	253.3	347.9	1,550.7
Gross unearned claims reserve										(346.6)
Third party participation on syndicates										(105.0)
Gross claims reserve										1,099.1
	2002 & prior	2003	2004	2005	2006	2007	2008	2009	2010	Total
Underwriting year	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Net claims: Estimate of ultimate net claims
- at end of underwriting year	1,527.1	153.5	209.4	210.4	146.3	196.5	222.9	193.0
- one year later	1,745.6	154.7	198.9	191.0	143.7	196.4	250.8
- two years later	1,923.5	137.6	184.9	172.8	135.5	183.8
- three years later	2,010.9	131.6	182.2	173.5	128.9
- four years later	2,020.8	129.1	170.3	173.4
- five years later	2,018.9	123.2	167.2
- six years later	2,031.9	119.9
- seven years later	2,048.5
- position at 30 June 2010	2,042.1	118.7	167.3	170.7	131.1	181.1	253.6	209.0	301.5
Net claims paid
- at end of underwriting year	883.0	4.9	13.0	11.6	3.9	6.3	18.9	6.1
- one year later	1,080.9	24.7	54.4	51.1	21.3	50.0	75.5
- two years later	1,279.2	45.9	87.5	93.0	46.5	87.2
- three years later	1,442.7	62.3	107.5	117.7	70.5
- four years later	1,539.7	77.1	125.0	133.0
- five years later	1,648.2	87.8	137.9
- six years later	1,707.7	93.7
- seven years later	1,792.2
- position at 30 June 2010	1,813.0	96.0	142.1	137.1	73.6	98.3	96.4	24.8	0.7
Net ultimate claims reserve	229.1	22.7	25.2	33.6	57.5	82.8	157.2	184.2	300.8	1,093.1
Net unearned claims reserve										(300.1)
Third-party participation on syndicates										(62.6)
Net claims reserve										730.4

 

 

The information shown above is prepared on an underwriting year basis and it therefore relates the expected cost of claims to the level of ultimate premiums. Changes in the projected level of ultimate premiums will contribute to the movement in claims costs shown above. Across all prior years net of reinsurance and excluding the business of the discontinued units, that component of claims development that relates to settlement of claims at levels different from reserves carried or reassessment of reserves required in respect of claims that remain unsettled amounted in aggregate to a credit of £23.8 million at the Group's ownership level.

 

16) Financial liabilities

(a) Loan notes

During 2004 the Group issued $36.0 million of 30 year floating rate notes and floating rate subordinated notes in three tranches. The notes constitute direct and unsecured obligations of the issuer. The notes are listed on the Irish Stock Exchange.

 

(b) Revolving credit facility

 

Novae Group has available a revolving credit facility from Lloyds TSB of £15.0 million, none of which was drawn at 30 June 2010 (June 2009 and December 2009: none).

 

(c) Subordinated notes

 

1,000,000 fixed/floating rate subordinated notes at a nominal value of £100.0 million were issued on 27 April 2007. The notes are listed on the London Stock Exchange. The notes are callable at par on 27 April 2012 and bear an initial interest rate of 8.375% per annum. Following the call date the interest rate resets at a step-up of 313 basis points above the original three month sterling LIBOR equivalent spread until the notes fall due on 27 April 2017.

 

At 30 June 2010 £30.0 million nominal value (June 2009 and December 2009: £30.0 million) had been bought at market value of £19.0 million plus accrued interest and cancelled (June 2009 and December 2009: £19.0 million).

 

17) Share capital

 

	Ordinary shares of £1		Preference shares of £1
	Number	£	Number	£
Authorised
31 December 2009 and 30 June 2010	349,950,000	349,950,000	50,000	50,000
Issued and fully paid
31 December 2009 and 30 June 2010	73,221,346	73,221,346	-	-

 

 

18) Dividends per share

 

 

	Six months ended	Six months ended	Year ended
	30 June	30 June	31 December
	2010	2009	2009
	£m	£m	£m
Special dividend of 4.0p per share	-	2.9	2.9
Final dividend for the year ended 31 December 2008 of 7.5p per share	-	5.4	5.4
Interim dividend for the year ended 31 December 2009 of 3.0p per share	-	-	2.2
Second interim dividend for the year ended 31 December 2009 of 8.0p per share	5.8	-	-
	5.8	8.3	10.5

 

 

A second interim dividend of 8.0p per ordinary share was paid on 31 March 2010. An interim dividend of 3.3p (2009: 3.0p) per ordinary share is payable on 4 October 2010 to shareholders registered on 10 September 2010. This interim report does not provide for the interim dividend as a liability.

 

 

Independent review report to Novae Group plc

 

Introduction

 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 which comprises a condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.

 

As disclosed, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

 

 

 

Rees Aronson

For and behalf of KPMG Audit Plc

Chartered Accountants

8 Salisbury Square

London

EC4Y 8BB

5 August 2010

 

 

 

This information is provided by RNS

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