Half Yearly Report

Total gross written premiums increased by 9.0% compared with the prior interim period. General business premiums increased by 9.7% and long term business premiums decreased by 3.1%.

Group profit before tax was £25.7m (H1 2008: £21.5m loss). General business operations contributed a £28.7m profit (H1 2008: £15.8m loss), including investment return, to this result. It includes an underwriting profit of £15.1m (H1 2008: £5.4m loss), with a combined operating ratio of 87.9% (H1 2008: 104.5%). The long term business contributed a £1.4m loss (H1 2008: £3.0m loss) to the group result before tax.

The first half of 2009 has seen the UK continue to experience the effects of what has become a protracted recession. While stock markets remained volatile following the heavy losses experienced in 2008, some recovery has been seen during the half year, and has continued after the interim period. The economic outlook remains uncertain however. Total net investment return for the group (including investment income and net fair value movements) was a profit of £24.9m (H1 2008: £35.3m loss).

Group profit after tax was £18.7m (H1 2008: £10.7m loss).

Shareholders' equity increased to £353.0m (31 December 2008: £342.3m). Shareholders' equity at the end of the interim prior period, 30 June 2008, was £350.3m. Our financial strength means we are well positioned to cope with the current economic challenges, and our results include an interim grant of £4.0m (£2.9m net of tax relief) to Allchurches Trust Limited, the ultimate parent undertaking. Our total grant for the full year 2008 was £7.0m.

The 2009 interim period has been characterised by an excellent underwriting result in our UK and London market operations, in contrast to the poor claims experience including high theft of metals costs incurred during the prior interim period. The improvement in the combined operating ratio to 87.9% reflects this performance.

In many ways the outlook today is very similar to the situation a year ago. The financial climate is still uncertain and the insurance market is still incredibly competitive, so the approach to our business hasn't changed and we're still working as hard as ever. Our programme of change continues as we simplify processes, utilise modern technology, engage our staff more widely and invest in our people. We're keeping customer service at the forefront of our minds, whilst becoming more competitive by reducing our expenses. We've already won some notable pieces of business, but we're hungry to achieve more.

Related party transactions

Related party transactions and changes to them since the last annual report are disclosed in note 7 to the condensed set of financial statements.

Principal risks and uncertainties

The principal risks and uncertainties that could have a material impact on the group's performance, such that actual results differ from expected and historical results, are detailed in note 1 to the interim report. There have been no material changes to the principal risks and uncertainties that were disclosed in notes 3 and 4 to our latest annual report, and no changes are anticipated in the next six months.

Going concern

The group has considerable financial resources and, as a consequence, the directors believe the group is well placed to continue in operational existence for the foreseeable future, despite the current uncertain economic outlook. Accordingly, they continue to adopt the going concern basis in preparing the interim report.

There have been no material subsequent events to disclose in this interim report.

Michael Tripp

Group Chief Executive

RESPONSIBILITY STATEMENT

30.06.09 

30.06.08 

31.12.08 

6 Months 

6 Months 

12 Months 

£000 

£000 

£000 

Revenue 

Gross written premiums 

 229,937 

 210,838 

 403,608 

Outward reinsurance premiums 

(79,684)

(70,151)

(140,043)

Net change in provision for unearned premium 

(16,566)

(10,197)

(2,300)

Net earned premiums 

 133,687 

 130,490 

 261,265 

Fees and commission income

 21,164 

 18,662 

 38,764 

Net investment return 

 24,886 

(35,315)

(52,584)

Total revenue 

 179,737 

 113,837 

 247,445 

Expenses 

Claims and change in insurance liabilities 

(108,426)

(125,145)

(252,451)

Reinsurance recoveries 

 31,772 

 34,131 

 71,608 

Fees, commissions and other acquisition costs 

(40,130)

(37,071)

(74,582)

Other operating and administrative expenses 

(32,527)

(32,682)

(66,645)

Change in provisions for investment contract liabilities 

(1,456)

 6,375 

 13,893 

Change in net asset value attributable to unitholders

(2,658)

 6,820 

 14,749 

Total operating expenses 

(153,425)

(147,572)

(293,428)

Operating profit/(loss) 

 26,312 

(33,735)

(45,983)

Finance costs 

(134)

(112)

(460)

Transfers (to)/from the unallocated divisible surplus 

(466)

 12,332 

 23,962 

Profit/(loss) before tax 

 25,712 

(21,515)

(22,481)

Tax (expense)/credit 

(6,971)

 10,791 

 7,088 

Profit/(loss) for the financial period attributable to equity holders of the parent 

 18,741 

(10,724)

(15,393)

All the amounts above are in respect of continuing operations

for the 6 months to 30 June 2009

30.06.09 

30.06.08 

31.12.08 

6 Months 

6 Months 

12 Months 

£000 

£000 

£000 

Net fair value losses on property 

- 

- 

(28)

(Loss)/gain on currency translation differences

(2,286)

 1,807 

 6,396 

Net (expense)/income recognised directly in equity

(2,286)

 1,807 

 6,368 

Profit/(loss) for the period after tax 

 18,741 

(10,724)

(15,393)

Total recognised income and expense for the period 

 16,455 

(8,917)

(9,025)

for the 6 months to 30 June 2009

Share 

Share 

Equalisation 

Revaluation 

Translation 

Retained 

capital 

premium 

reserve 

reserve 

reserve 

earnings 

Total 

£000 

£000 

£000 

£000 

£000 

£000 

£000 

2009

At 1 January

 80,477 

 4,632 

 18,012 

 1,402 

 11,826 

 225,961 

 342,310 

Dividends

- 

- 

- 

- 

- 

(2,866)

(2,866)

Net charitable grant to ultimate parent

- 

- 

- 

- 

- 

(2,880)

(2,880)

Total comprehensive income

- 

- 

- 

- 

(2,286)

 18,741 

 16,455 

Reserve transfers

- 

- 

 1,988 

- 

- 

(1,988)

- 

At 30 June

 80,477 

 4,632 

 20,000 

 1,402 

 9,540 

 236,968 

 353,019 

2008

At 1 January

 80,477 

 4,632 

 21,285 

 1,430 

 5,430 

 248,797 

 362,051 

Dividends

- 

- 

- 

- 

- 

(2,866)

(2,866)

Total comprehensive income

- 

- 

- 

- 

 1,807 

(10,724)

(8,917)

Reserve transfers

- 

- 

(1,482)

- 

- 

 1,482 

- 

At 30 June

 80,477 

 4,632 

 19,803 

 1,430 

 7,237 

 236,689 

 350,268 

2008

At 1 January

 80,477 

 4,632 

 21,285 

 1,430 

 5,430 

 248,797 

 362,051 

Dividends

- 

- 

- 

- 

- 

(5,731)

(5,731)

Net charitable grant to ultimate parent

- 

- 

- 

- 

- 

(4,945)

(4,945)

Group tax relief in excess of standard rate

- 

- 

- 

- 

- 

(40)

(40)

Total comprehensive income

- 

- 

- 

(28)

 6,396 

(15,393)

(9,025)

Reserve transfers

- 

- 

(3,273)

- 

- 

 3,273 

- 

At 31 December

 80,477 

 4,632 

 18,012 

 1,402 

 11,826 

 225,961 

 342,310 

The equalisation reserve is not distributable and must be kept in compliance with the solvency capital regulations.

The revaluation reserve represents cumulative net fair value gains on owner occupied property.

The translation reserve arises on consolidation of the group's foreign operations.

30.06.09 

30.06.08 

31.12.08 

£000 

£000 

£000 

Assets 

Goodwill and other intangible assets 

 26,557 

 25,605 

 26,419 

Deferred acquisition costs 

 37,039 

 33,801 

 34,048 

Deferred tax assets 

 2,438 

 2,724 

 2,589 

Pension assets 

 25,979 

 22,826 

 24,974 

Property, plant and equipment 

 10,817 

 11,231 

 11,094 

Investment property 

 24,561 

 33,558 

 24,561 

Financial investments 

 953,356 

 953,858 

 954,425 

Reinsurers' share of contract provisions 

 201,750 

 191,979 

 198,921 

Current tax recoverable 

 1,127 

 6,034 

 538 

Other assets 

 134,493 

 123,458 

 106,606 

Cash and cash equivalents 

 159,629 

 150,994 

 146,009 

Total assets 

 1,577,746 

 1,556,068 

 1,530,184 

Equity 

Share capital 

 80,477 

 80,477 

 80,477 

Share premium account 

 4,632 

 4,632 

 4,632 

Retained earnings and other reserves 

 267,910 

 265,159 

 257,201 

Total shareholders' equity 

 353,019 

 350,268 

 342,310 

Liabilities 

Insurance contract provisions 

 959,682 

 938,730 

 956,146 

Investment contract liabilities 

 42,711 

 48,587 

 40,943 

Unallocated divisible surplus 

 16,340 

 27,504 

 15,874 

Finance lease obligations 

 1,718 

 1,517 

 1,586 

Provisions for other liabilities and charges 

 14,084 

 8,406 

 13,589 

Retirement benefit obligations 

 4,988 

 12,903 

 5,021 

Deferred tax liabilities 

 33,131 

 38,776 

 32,358 

Current tax liabilities 

 5,836 

 1,762 

 2,914 

Deferred income 

 20,164 

 18,237 

 18,200 

Other liabilities 

 56,586 

 46,350 

 44,401 

Net asset value attributable to unitholders 

 69,487 

 63,028 

 56,842 

Total liabilities 

 1,224,727 

 1,205,800 

 1,187,874 

Total shareholders' equity and liabilities 

 1,577,746 

 1,556,068 

 1,530,184 

for the 6 months to 30 June 2009

30.06.09 

30.06.08 

31.12.08 

6 Months 

6 Months 

12 Months 

£000 

£000 

£000 

Profit/(loss) before tax 

 25,712 

(21,515)

(22,481)

Adjustments for: 

Depreciation of property, plant and equipment 

 1,188 

 1,025 

 2,159 

Loss/(gain) on disposal of property, plant and equipment 

 143 

(9)

 88 

Amortisation of intangible assets 

 926 

 734 

 1,694 

Net fair value losses on financial instruments & 

investment property 

 552 

 70,743 

 123,164 

Dividend and interest income 

(21,892)

(32,200)

(69,286)

Finance expense 

 134 

 112 

 460 

Changes in operating assets and liabilities: 

Net increase in insurance contract provisions 

 6,909 

 20,427 

 28,705 

Net (increase)/decrease in reinsurers' share of contract provisions 

(3,218)

 37 

(4,871)

Net increase/(decrease) in investment contract liabilities 

 1,768 

(6,333)

(13,976)

Net increase in deferred acquisition costs 

(3,258)

(1,670)

(1,300)

Net increase in other assets 

(27,536)

(13,356)

(675)

Net increase in operating liabilities 

 14,210 

 8,902 

 2,067 

Net increase/(decrease) in other liabilities 

 13,572 

(16,725)

(37,137)

Cash generated by operations 

 9,210 

 10,172 

 8,611 

Dividends received 

 7,410 

 8,587 

 16,023 

Interest received 

 18,665 

 20,223 

 41,665 

Interest paid 

(134)

(112)

(460)

Tax paid 

(2,586)

(912)

(2,229)

Net cash from operating activities 

 32,565 

 37,958 

 63,610 

Cash flows from investing activities 

Purchases of property, plant and equipment 

(636)

(1,365)

(2,138)

Proceeds from the sale of property, plant and equipment 

 6 

 50 

 48 

Purchases of intangible assets 

(593)

(751)

(2,392)

Acquisition of subsidiary, net of cash acquired 

(184)

(20,699)

(20,781)

Purchases of financial investments 

(58,385)

(242,884)

(492,376)

Sale of financial instruments 

 53,936 

 196,917 

 412,323 

Net cash used in investing activities 

(5,856)

(68,732)

(105,316)

Cash flows from financing activities 

Payment of finance lease liabilities 

(306)

(226)

(424)

Payment of group tax relief in excess of standard rate 

- 

- 

(72)

Dividends paid to company's shareholders 

(2,866)

(2,866)

(5,731)

Donations paid to ultimate parent undertaking

(3,000)

- 

(4,000)

Net cash used in financing activities 

(6,172)

(3,092)

(10,227)

Net increase/(decrease) in cash and cash equivalents 

 20,537 

(33,866)

(51,933)

Cash and cash equivalents at the beginning of the period

 146,009 

 181,003 

 181,003 

Exchange (losses)/gains on cash and cash equivalents 

(6,917)

 3,857 

 16,939 

Cash and cash equivalents at the end of the period 

 159,629 

 150,994 

 146,009 

1. General information 

The results for the year ended 31 December 2008 are not statutory accounts. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying the report, and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

The interim report was approved by the board on 26 August 2009. The group results for the six month periods to 30 June 2009 and 30 June 2008 are unaudited, but have been reviewed by Deloitte LLP whose review report is presented at the end of this report.

The principal risks and uncertainties of the group are in respect of insurance risk and financial risk. The principal risk that the group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities, which may occur if the frequency or severity of claims and benefits are greater than estimated. Insurance events are unpredictable and the actual level of claims and benefits may vary from year to year from the estimates established using statistical techniques. The group's insurance underwriting strategy aims to diversify the type of insurance risks accepted in order to reduce the variability of the expected outcome. The group also manages insurance risk through a comprehensive reinsurance programme and proactive claims handling. 

The most important components of financial risk are interest rate risk, credit risk, currency risk and equity price risk. The group is exposed to equity price risk because of financial investments held by the group and stated at fair value through the income statement. The group mitigates this risk by holding a diversified portfolio across geographical regions and market sectors, and through the use of options and futures contracts from time to time which would limit losses in the event of a fall in equity markets. The impact of this risk on the group result is discussed in the interim management report. These principal risks and uncertainties, together with details of the financial risk management objectives and policies of the group, are disclosed in the latest annual report.

The group's interim results are not subject to any significant impact arising from the seasonality or cyclicality of operations.

2. Accounting policies 

The annual financial statements are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

In the current period the group has adopted IFRS 8, "Operating Segments", which is effective for accounting periods beginning on or after 1 January 2009. IFRS 8 sets out the requirements for the disclosure of information about an entity's operating segments which should follow the format of the financial information that is internally evaluated regularly by the chief operating decision maker. However, the internal reports reviewed by the Group Chief Executive follow the same format as those segments identified under IAS 14. Accordingly the segmental analysis presented in accordance with IFRS 8 is consistent with that previously disclosed in accordance with IAS 14. IAS 1, "Presentation of Financial Statements (revised 2007)", which is effective for accounting periods beginning on or after 1 January 2009, renames the primary financial statements and requires the inclusion of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income. These changes will be reflected in the financial statements for the current annual reporting period, and therefore have also been adopted for this condensed set of financial statements.

With these exceptions, the same accounting policies and methods of computation are followed in the condensed set of financial statements as applied in the group's latest audited annual financial statements.

Six months ended 

General 

Long term 

30 June 2009

business 

business 

Other 

Group 

£000 

£000 

£000 

£000 

Revenue

Gross written premiums 

 220,376 

 9,561 

- 

 229,937 

Net earned premiums

 124,915 

 8,772 

- 

 133,687 

Fee and commission income

 18,190 

 296 

 2,678 

 21,164 

Net investment return

 14,482 

 6,303 

 4,101 

 24,886 

Total revenue

 157,587 

 15,371 

 6,779 

 179,737 

Result

General business underwriting

 15,086 

Combined operating ratio

 87.9% 

Investment return, net of expenses

 13,752 

Operating profit/(loss)

 28,838 

(730)

(1,796)

 26,312 

Finance costs

(126)

(198)

 190 

(134)

Transfers to the unallocated divisible surplus

- 

(466)

- 

(466)

Profit/(loss) before tax

 28,712 

(1,394)

(1,606)

 25,712 

Tax (expense)/credit

(8,373)

 110 

 1,292 

(6,971)

Profit/(loss) attributable to equity holders of the parent

 20,339 

(1,284)

(314)

 18,741 

Six months ended 

General 

Long term 

30 June 2008

business 

business 

Other 

Group 

£000 

£000 

£000 

£000 

Revenue

Gross written premiums 

 200,966 

 9,872 

- 

 210,838 

Net earned premiums

 121,218 

 9,272 

- 

 130,490 

Fee and commission income

 16,688 

 446 

 1,528 

 18,662 

Net investment return

(9,662)

(19,499)

(6,154)

(35,315)

Total revenue

 128,244 

(9,781)

(4,626)

 113,837 

Result

General business underwriting

(5,448)

Combined operating ratio

 104.5% 

Investment return, net of expenses

(10,310)

Operating loss

(15,758)

(15,297)

(2,680)

(33,735)

Finance costs

(66)

(18)

(28)

(112)

Transfers from the unallocated divisible surplus

- 

 12,332 

- 

 12,332 

Loss before tax

(15,824)

(2,983)

(2,708)

(21,515)

Tax credit

 6,615 

 2,194 

 1,982 

 10,791 

Loss attributable to equity holders of the parent

(9,209)

(789)

(726)

(10,724)

Twelve months ended 

General 

Long term 

31 December 2008

business 

business 

Other 

Group 

£000 

£000 

£000 

£000 

Revenue

Gross written premiums 

 384,693 

 18,915 

- 

 403,608 

Net earned premiums

 243,872 

 17,393 

- 

 261,265 

Fee and commission income

 33,659 

 932 

 4,173 

 38,764 

Net investment return

(5,255)

(32,769)

(14,560)

(52,584)

Total revenue

 272,276 

(14,444)

(10,387)

 247,445 

Result

General business underwriting

(1,858)

Combined operating ratio

 100.8% 

Investment return, net of expenses

(6,561)

Operating loss

(8,419)

(31,922)

(5,642)

(45,983)

Finance costs

(222)

(251)

 13 

(460)

Transfers from the unallocated divisible surplus

- 

 23,962 

- 

 23,962 

Loss before tax

(8,641)

(8,211)

(5,629)

(22,481)

Tax credit

 3,128 

 3,280 

 680 

 7,088 

Loss attributable to equity holders of the parent

(5,513)

(4,931)

(4,949)

(15,393)

4. Changes in estimates 

The estimation of the ultimate liability arising from claims made under general business insurance contracts is a critical accounting estimate. There are various sources of uncertainty as to how much the group will ultimately pay with respect to such contracts. There is uncertainty as to the total number of claims made on each class of business, the amounts that such claims will be settled for and the timing of any payments. During the six month period, changes to claims reserve estimates made in prior years as a result of reserve development resulted in a release of £27m (H1 2008: £22m).

5. Tax 

Income tax for the six month period is calculated at rates representing the best estimate of the average annual effective income tax rate expected for the full year, applied to the pre-tax result of the six month period.

6. Dividends 

Dividends paid on the 8.625% Non-Cumulative Irredeemable Preference shares amounted to £2.9m (H1 2008: £2.9m).

No interim dividend was paid in the current or prior period.

7. Related party transactions

Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation.

Charitable grants to the ultimate parent company are disclosed in the condensed consolidated statement of changes in equity.

There have been no other changes to related party transactions in the period which require disclosure.

8. Holding company 

The ultimate holding company is Allchurches Trust Limited, a company limited by guarantee and a registered charity. 

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 2009, which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated statement of financial position, the condensed consolidated statement of cash flows and related notes 1 to 8. 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 International Standard on Review Engagements (UK and Ireland) 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review 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 formed.

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 Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

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 United Kingdom. A review of interim financial information consists of making inquiries, 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 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP 

Chartered Accountants and Statutory Auditors 

26 August 2009 

London, United Kingdom