25th Aug 2006 07:01
Advent Capital (Holdings) PLC25 August 2006 Advent Capital (Holdings) PLC ("Advent" or the "Company") Interim Results for the six months ended 30 June 2006 Advent Capital (Holdings) PLC, the specialist Lloyd's insurer, reports its halfyear results. Key highlights a. Market conditions in principal lines of business amongst the best experienced by the company b. Profit before tax up £7.6m to £10.1m (£2.5m HY 2005) c. Net premium earned up £7.7m to £40.0m (£32.3m HY 2005) d. Gross premium written up £38.1m to £90.4m (£52.3m HY 2005) reflecting Advent's increased share of capacity of 80% on Syndicate 780 (53% 2005) e. Capital and debt raising of £45m successfully completed f. 2005 hurricanes net loss estimates stable g. Notified loss ratio for the 2006 year of account is 5% (12% HY2005) amongst lowest since 1993 Financial summary 2006 half year 2005 half 2005 year year Profit before tax £10.1m £2.5m £(74.8)mEPS 1.9p 1.3p (30.6)pNet premium earned £40.0m £32.3m £65.1mCombined Ratio 77%* 101% 220%Return on Equity 11.1% 2.7% (69.1%)Net tangible assets per share 17.8p 37.8p 13.3p (* combined ratio 90% excluding FX gain) Outlook • Improved terms and pricing across all major sectors of the business are expected to last through to 2007 • Alert to new opportunities as a result of scarce capacity for catastrophe reinsurance • Revised business model with reduced exposure to catastrophes and better coverage terms and pricing • Syndicate 780's forecast result at 30 June 2006, as a percentage of capacity has remained as previously stated, (2004 year of account loss of 17.5% - 22.5%, 2005 year account loss of 72.5% - 82.5%) Brian Caudle, Executive Chairman commented: "We have adjusted our business model to ensure that we take advantage of themarket conditions which now exist. This model will help us to better withstandmajor catastrophes while also capitalising on better pricing, coverage terms andconditions, including higher deductibles. We are excited by the opportunitiesbeing presented in this current trading environment and look to take fulladvantage and at the same time keep to our plan of reducing peak exposures tomajor catastrophes" Friday, 25 August 2006 For further information please contact: Advent Capital HoldingsKeith Thompson Tel: 020 7743 8200Chief Operating Officer Neil EwingInvestor Relations and Tel: 020 7743 8250Analysis Pelham Public RelationsCharles Vivian Tel: 020 7743 6670Gavin Davis Advent Capital (Holdings) PLC, which listed on AIM in June 2005, is a leadingLloyd's insurer which manages and participates on Syndicate 780. The Syndicateis predominantly a short tail property reinsurance and insurance syndicatespecialising in catastrophe business. Notes: • Advent listed on AIM in June 2005 and raised a total of £70 million of equity and £40m of debt during 2005. • The Company has made an offer to acquire all of the capacity it does not presently own on Syndicate 780 which will provide the Company with greater operating flexibility for 2008 onwards. • Advent manages and participates on Syndicate 780 through Advent Underwriting Limited (a Lloyd's managing agency) and Advent Capital (No.3) Limited (a corporate member of Lloyd's). • Advent Underwriting Limited, which was formed in 1975, has operated in the Lloyd's market for thirty years. • Advent's management is led by Brian Caudle (Executive Chairman and Director of Underwriting), Keith Thompson (Chief Operating Officer) and Trevor Ambridge (Chief Financial Officer). • Syndicate 780 has an excellent long term underwriting track record. With its focus on property catastrophe reinsurance, it has underperformed the Lloyd's market over the last 2 years. Interim Report 30 June 2006 Highlights During the first six months of 2006, market conditions in the Company'sprincipal lines of business have been among the best that the Company hasexperienced. Although the hurricane season awaits us, a benign claimsenvironment, amongst the best since 1993 with relatively few attritional orcatastrophe losses, provided a good start to 2006. In line with our 2006business plan, we have significantly reduced aggregate catastrophe exposureswhile obtaining better coverage terms and conditions, including higherdeductibles. While our gross US dollar loss estimates for the 2005 hurricanes developedsomewhat during the six month period ended 30 June 2006, our net US dollar lossestimates were largely unchanged. However, we experienced adverse development,net of reinstatement premiums, of £3.0 million on prior years losses, which waslargely offset by foreign exchange gains of £4.3 million from the impact of theweakening US dollar on our net US dollar denominated liabilities. In January 2006, we completed our previously announced capital and debt raisingof £45 million, of which £38 million was subsequently lodged into Funds atLloyd's in readiness to meet open year losses as and when they fall due. The Company has made an offer to acquire all of the capacity it does notpresently own on Syndicate 780 which will provide the Company with greateroperating flexibility from 2008 onwards. Financial summary Six months (unaudited) Year Year 2006 2005 2005 2004 £'000 £'000 £'000 £'000 Gross premiums written 90,433 52,307 100,550 74,749Net premiums written 66,154 39,524 62,949 63,734Net premiums earned 40,029 32,278 65,070 69,221Earnings (loss) before tax 10,119 2,466 (74,843) 4,515Earnings (loss) after tax 6,998 1,541 (52,580) 2,702Return on Equity 11.1% 2.7% (69.1%) 5.1% Per Share AmountsEarnings (loss) - basic and 1.9p 1.3p (30.6p) 2.6pdilutedDividend - 2.75p 2.75p 2.75pNet assets 19.2p 40.4p 15.7p 49.9pNet tangible assets 17.8p 37.8p 13.3p 44.2p Operating ratiosClaims ratio 66% 80% 191% 74%Expense ratio 11%* 21%* 29% 28%Combined ratio 77% 101% 220% 102%Notified loss ratio 5% 12% 135% 63%(by year of account) *24% excluding foreign exchange gain (2005: 22%) Interim results statement For the first six months of 2006, the Group's profit on ordinary activitiesbefore tax was £10.1 million, an improvement of £7.6 million from the prioryear's first half profit of £2.5 million. Earnings per share of 1.9p for thefirst six months of 2006 was up from 1.3p for the first six months of 2005,reflecting higher net profit, partially offset by the impact of the Company'sshare issues on 3 June 2005 and 6 January 2006. The reason for the increased net profit is due to a foreign exchange gain on USdollar denominated net liabilities of £4.3 million, a higher level of earnedpremium and a reduction in adverse development on claims, net of reinstatementpremiums, to £3.0 million for the six months ended 30 June 2006 compared withadverse development, net of reinstatement premiums, of £10.9 million for the sixmonths ended 30 June 2005. Dividend Policy In line with previous practice, we are not proposing to pay an interim dividend. Underwriting review Gross premiums written increased to £90.4 million for the first half of 2006from £52.3 million for the same period in 2005 reflecting the increase inAdvent's share of the supported capacity for Syndicate 780 from 53% in 2005 to80% in 2006. Net earned premiums for the six month period ended 30 June 2006 was £40.0million, an increase of £7.7 million over the same period last year. Thisincrease primarily arises from the increase in Advent's share of the supportedcapacity for Syndicate 780. For the six months ended 30 June 2005,approximately £4.9 million of earned premiums arose from the portfolio transferpremium received from external Names on the closure at 31 December 2004 ofSyndicate 780's 2001 and 2002 years of account as a result of the increase inAdvent's capacity on the 2003 year of account of Syndicate 780. For the sixmonths ended 30 June 2006, this only amounted to a £0.7 million effect on earnedpremiums. The gross underwriting result from the Group's participation on Syndicate 780analysed by principal divisions is as follows: Non-Marine Property Reinsurance Insurance Marine Other Total £,000 £,000 £,000 £,000 £,000 Gross premiums written 64,168 12,485 13,216 690 90,599 Gross premiums earned 32,517 7,903 5,357 723 46,500 Gross claims incurred (27,963) (4,262) (2,973) (343) (35,541) Gross claims ratio 86% 54% 56% 47% 76% Gross claims ratio (excluding development on prior years) - 2006 38% 54% 47% 50% 41% - 2005 33% 39% 56% 46% 36% Net claims ratio - 2006 73% 53% 64% 47% 68% - 2005 102% 35% 83% 20% 86% Non Marine Reinsurance Rate improvements have continued through from the first quarter of 2006 and, inthe case of US catastrophe exposed accounts, have increased further especiallywith regard to hurricane exposed territories. Average increases are now inexcess of 40% to 50% compare to 25% to 30% achieved in January 2006. Inaddition to rates, terms have also improved from those seen at 1 January 2006renewals, with further restrictions on cover, both peril and geographically, andfurther pressure on deductibles. Large US Nationwide accounts and Worldwideretrocessional programmes have become increasingly difficult to place ascapacity restrictions, driven in part by rating agency guidelines, recalibrationof catastrophe models and increased capital requirements, take hold. Outside of the USA, catastrophe capacity is more plentiful and rate increaseshave been lower with most territories seeing increases limited to single digitpercentages other than accounts in the UK and Western Europe where capacity isless plentiful and increases of 10% or more have been achieved. The Group earns more of its gross premium in the second half of the year thanthe first half since premiums written relating to the insurance or reinsuranceof catastrophe events are earned over the period in which those events areexpected to occur. The high gross claims ratio of 86% reflects the deterioration in the gross lossestimates for the 2005 hurricanes. When the impact of this deterioration isremoved, the increase in the gross claims ratio reflects a more cautiousattitude to reserving for attritional catastrophe losses in the first six monthsof 2006 which has been a relatively benign period for claims activity comparedwith the claims activity for the six month period ended 30 June 2005 whenattritional loss activity was significant. The 2005 hurricanes net lossestimates have remained stable through 30 June 2006, however movement inattritional losses and the more cautious reserving, on the 2006 year of accounthave resulted in a net claims ratio of 73%. Property Insurance As with the reinsurance portfolio, US catastrophe exposed property riskscontinue to see significant price increases with middle market and smallaccounts now seeing similar rate increases to the large accounts. Catastrophecapacity has become extremely scarce, especially for windstorm exposures leadingto terms and conditions continuing to improve as 2006 has gone on. Peakcatastrophe areas are seeing increases in excess of 100% with non criticalcatastrophe areas still in excess of 20%. In addition to rate improvements, weare achieving higher deductibles and more restrictive coverage on most accounts.Non catastrophe accounts have seen some competition especially for the smallerto mid sized accounts where pricing has remained flat or has seen minordecreases. On the larger non catastrophe capacity accounts, we are howeverachieving limited increases. Outside of the US, capacity is more readily available and rates are experiencingsome pressure. Terms are generally holding although we are seeing some smallpercentage decreases on select accounts. In the UK, there is greatercompetition for business, in particular commercial risks, where rates aregenerally down by 5% to 10%. The account has seen little claims activity duringthe period to 30 June 2006. Our more cautious reserving approach has resultedin an increase to the gross claims ratio compared with 2005, however the netclaims ratio is a healthy 53%. Marine The Offshore Energy portfolio has seen similar changes to the reinsurance andproperty insurance sections of the account. Rate increases, particularly forGulf of Mexico exposures, have been significant with some renewals seeingpremium increases in excess of 300% to 400% and significantly tighter termsregarding coverage and limits with windstorm sub limits now becoming the norm.Policies now rarely include business interruption. Catastrophe losses aregenerally restricted to an annual limit within the policy limit. Capacity,particularly for the Gulf of Mexico, has become tighter during 2006 creatingfurther pressure on terms and conditions. Outside of the Gulf of Mexico, rate increases have been less dramatic but stillsignificant with clean renewals averaging 20% to 40% dependent on territory. The Marine excess of loss portfolio has also seen dramatic rate improvements,accompanied by territorial restrictions and catastrophe limitations for peakareas. Rate increases for Gulf of Mexico exposures have been in excess of 50%but, in the majority of other territories, terms and conditions have largelybeen flat. The Marine account has not suffered any significant claims in the period to 30June 2006, whereas there were a number of attritional claims in the comparableperiod in 2005, resulting in an improved gross claims ratio of 47% for the sixmonths ended 30 June 2006 compared with 56% for the first six months ended 30June 2005. The net loss ratio of 64% reflects our more cautious reservingapproach. Other The current classes covered within this section are our Casualty and PersonalAccident accounts. For both of these classes, capacity remains plentiful andterms and conditions have therefore remained flat. 2005 Hurricane Losses Update In the second half of 2005, we saw three major hurricanes in the US withHurricane Katrina being the largest. Syndicate 780's gross loss estimates for the 2005 hurricanes increased fromUS$571.5 million at 31 December 2005 to US$608.4 million at 30 June 2006.However, its net loss estimates decreased slightly from US$271.0 million at 31December 2005 to US$268.5 million at 30 June 2006, largely due to a reinsurancerecovery of US$20 million which responded when the market loss estimate forHurricane Wilma exceeded US$10 billion. Syndicate 780 has exhausted itsreinsurance protection for Hurricane Katrina and while some protection remainsfor Hurricanes Rita and Wilma, it is likely that any further gross lossdevelopment will also be largely net to the Syndicate. For hurricanes Katrina, Rita and Wilma, Syndicate 780 has recorded paid andoutstanding claims and IBNR on a gross basis the following estimates at 30 June2006 compared with our estimates at 31 December 2005. Katrina Q2 Katrina Q4 Rita Q2 Rita Q4 Wilma Q2 Wilma Q4 Total Q2 Total Q4 2006 2005 2006 2005 2006 2005 2006 2005 $m $m $m $m $m $m $m $m IBNR 20.0 89.0 14.5 38.1 18.0 79.0 52.5 206.1 Outstanding 148.7 239.4 73.0 47.0 60.2 18.9 281.9 305.3 Paid 194.2 42.0 37.5 12.1 42.3 6.0 274.0 60.1 Total 362.9 370.4 125.0 97.2 120.5 103.9 608.4 571.5 For the six months ended 30 June 2006, gross loss estimates for HurricaneKatrina have reduced marginally. Gross loss estimates for Hurricane Rita haveincreased primarily due to additional losses from the Energy and Marine lines ofbusiness while the increase in gross loss estimates for Hurricane Wilmagenerally reflects the increase in the market loss estimate beyond US$10billion. The collectibility of reinsurance recoveries is a key factor of any major lossyear. Up to 30 June 2006, Syndicate 780 issued collection notes to reinsurersfor the 2005 hurricanes totalling some US$182.3 million and has so far receivedUS$178.4 million - 98% of what was requested as due and owing. Advent's share of the net ultimate loss for the 2005 hurricanes, in sterlingterms, also benefited from the weaker US dollar resulting in a reduction in netloss estimates in sterling terms, of £2.1 million. The gross and net costs toAdvent at 30 June 2006 compared with our estimates at 31 December 2005 aredetailed below: 30 June 2006 31 December 2005 Gross Net Gross Net Ultimate Ultimate Ultimate Ultimate US$m US$m Hurricane Katrina 194.1 83.3 196.0 85.7Hurricane Rita 67.1 31.0 51.5 20.4Hurricane Wilma 64.7 29.3 53.4 37.4 Advent share of loss - US$m 325.9 143.6 300.9 143.5 Advent share of loss - £m 176.2 77.6 167.4 79.7 The reinsurance recoveries on claims reserves at 30 June 2006 for Advent standat £50.9 million down from £94.1 million at 31 December 2005 reflectingcollection of recoveries requested on the 2005 hurricanes. The analysis ofthese recoveries show that only 8.7% (excluding balances for which collateral isheld) were rated BBB or below and Non Rated. 2006 Business Plan In the 2005 Report and Accounts, we disclosed our 2006 planned gross and netlosses as a percentage of Syndicate 780's capacity for the five largestrealistic disaster scenarios assessed for Lloyd's purposes in April 2005. At 1 April 2006, Lloyd's updated its realistic disaster scenarios andsignificantly increased the industry loss parameters for certain events. Thecatastrophe modelling software, Catrader, also included more conservative lossassumptions including higher demand surge. This resulted in higher net lossestimates as a percentage of capacity for 2006 business written to 31 July 2006when compared with the net loss estimates disclosed in the 2005 Report andAccounts, summarised below. Florida Wind LA Quake Euro Wind Japan Quake Gulf of Mexico NE WindIndustry loss April 2005 $71bn $62bn $31bn $52bn $61bn 1 in 100 year April 2006 $101bn $73bn $31bn $52bn $101bn $65bn Net loss estimate (as % ofcapacity) 2006 plan 16% 14% 16% 14% 17% N/A 31 July 2006 19% 12% 25% 12% 24% 26% Expenses The underwriting expense ratio for the six months ended 30 June 2006 was 11%,compared with 21% for the prior period in 2005, largely driven by a the profiton foreign exchange of £5.0 million recorded due to the weakening of the USdollar. When this impact is removed, the underwriting expense ratios are 24%and 22% respectively. Investment return The six month investment return increased by 119% to £5.7 million (H1 2005: £2.6million). This reflects an improved investment environment, particularly in theUS following the increase in the Federal Reserve Rate and an increase in theCompany's corporate investments of £74.9 million since 31 December 2004,reflecting its successful capital raisings in June 2005 and January 2006. Throughout the period, the US dollar portfolio duration was maintained short,between 0.76 and 1.05 years. Government paper remains the dominant asset class(about 96.7% of US investments). An overall return on US Bonds of 1.85%(annualised return of 3.7%) was achieved compared with 1.1% for the first halfof 2005. Sterling funds were held mainly in AA rated bank corporates achieving a returnof 2.07%. In addition, significant sterling cash balances were held on which areturn of 2.19% (annualised return of 4.38%) was achieved, down from a return of2.79% for the first half of 2005. Our investment mix as at 30 June 2006 is shown below: 30 June 2006 30 June 2005 31 December 2005 Syndicate Corporate Total Total Total £'000 £'000 £'000 £'000 £'000 Debt Securities 85,389 - 85,389 81,129 109,024Cash and cash equivalents 48,750 123,150 171,900 136,288 104,953 Total 134,139 123,150 257,289 217,417 213,977 Outlook and 2006 underwriting We continue to see improving terms and pricing across all major sectors of ourbusiness. We will take advantage of these attractive market conditions, whichare expected to last through to 2007, while continuing to manage and reduce thevolatility of our business and exposures to major catastrophe losses throughreductions in aggregate loss exposures, more restrictive terms and conditionsand better pricing. We remain alert to new opportunities in these markets wherecatastrophe reinsurance capacity is scarce and pricing, terms and conditions areattractive. CONSOLIDATED PROFIT AND LOSS ACCOUNTGROUP GENERAL BUSINESS TECHNICAL ACCOUNTfor the six months ended 30 June 2006 Note Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Gross premiums written 3 90,433 52,307 100,550Net premiums written 66,154 39,524 62,949Net premiums earned 40,029 32,278 65,070Allocated net investment income 5 2,403 1,556 4,172 Total technical income 42,432 33,834 69,242 Claims incurred, net of reinsuranceClaims paid - gross amount (90,617) (36,214) (91,277) - reinsurers' share 45,912 8,857 31,763 (44,705) (27,357) (59,514) Change in the provision forclaims- gross amount 56,154 3,880 (110,424)- reinsurers' share (38,063) (2,442) 45,728 18,091 1,438 (64,696) Claims incurred, net of reinsurance 3 (26,614) (25,919) (124,210)Net operating expenses (4,621) (5,973) (18,958)Total technical charges (31,235) (31,892) (143,168) Balance on the technical account forgeneral business 6 11,197 1,942 (73,926) CONSOLIDATED PROFIT AND LOSS ACCOUNTGROUP NON TECHNICAL ACCOUNTFor the six months ended 30 June 2006 Note Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited) (Restated) (Restated) £'000 £'000 £'000 Balance on the general businesstechnical account 6 11,197 1,942 (73,926)Net investment return 5 5,693 2,642 6,614Investment return allocatedto the technical account 5 (2,403) (1,556) (4,172)Other income 460 1,381 1,915Interest on debt (1.713) (135) (1,153)Other charges (3,115) (1,808) (4,121)Profit (loss) on ordinary activities before tax 10,119 2,466 (74,843)Tax on profit (loss) on ordinary activities 7 (3,121) (925) 22,263 Profit (loss) on ordinary activities after tax 6,998 1,541 (52,580)Dividends 8 - (2,896) (2,896)Profit and loss account brought forward (26,195) 29,281 29,281Profit and loss account carried forward (19,197) 27,926 (26,195) Earnings per ordinary share - Basic and diluted 13 1.9p 1.3p (30.6p)Dividend per ordinary share 8 - 2.75p 2.75p All of the operations are continuingThere are no recognised gains or losses other than the profit or loss CONSOLIDATED BALANCE SHEETAt 30 June 2006 Note Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 AssetsIntangible assets 9 5,014 5,672 5,344 Investments 10Debt securities and other fixed income securities 85,389 81,129 109,024Deposits with credit institutions - 74,446 2,148Deposits with cedants 49 22 10 85,438 155,597 111,182 Reinsurers' share of technical provisions 15Provision for unearned premiums 19,704 10,052 2,331Claims outstanding 50,908 40,940 94,073 70,612 50,992 96,404 DebtorsDebtors arising out of direct insuranceoperations - Intermediaries 5,885 2,553 1,143Debtors arising out of reinsurance operations 77,670 64,056 63,794Deferred tax 26,020 6,661 29,214Other debtors 5,140 11,358 6,977 114,715 84,628 101,128 Other assetsTangible assets 622 1,275 1,050Cash at bank 11 171,851 61,820 102,795Overseas deposits 3,681 4,339 3,813 176,154 67,434 107,658 Prepayments and accrued incomeAccrued income 2,732 4,556 4,713Deferred acquisition costs 10,761 6,380 3,311Prepaid expenses 1,050 1,015 427 14,543 11,951 8,451 Total assets 466,476 376,274 430,167 CONSOLIDATED BALANCE SHEET continuedAt 30 June 2006 Note Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited) (Restated) (Restated) £'000 £'000 £'000 Liabilities and reservesCalled-up share capital 12 18,481 10,981 10,981Share premium account 53,527 31,759 31,759Profit and loss account (19,197) 27,926 (26,195)Capital redemption reserve 21,065 21,065 21,065Other reserves (2,978) (3,048) (3,029)Total shareholders' funds 14 70,898 88,683 34,581 Technical provisions 15Provision for unearned premiums 58,456 37,830 15,689Claims outstanding 253,518 199,074 328,487 311,974 236,904 344,176 Deposits received from reinsurers - 1,112 99 Long term debt 16 39,315 26,229 27,104 CreditorsCreditors arising out of direct insurance 195 555 120operationsCreditors arising out of reinsurance operations 27,724 18,591 21,039Syndicate bank loan 11 11,580 - -Other creditors 4,160 3,336 2,266 43,659 22,482 23,425 Accruals and deferred income 630 864 782 Total liabilities 466,476 376,274 430,167 CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 30 June 2006 Note Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Net cash inflow/(outflow) from operating activities 18 10,585 (7,395) (13,347) Interest received 2,811 433 1,120Interest paid (1,695) - (996)Net taxation paid (2) (1,726) (1,726)Net purchased tangible fixed assets (90) (49) (94) Net cash inflow/(outflow) before financing 11,609 (8,737) (15,043) Cash inflow from financingIssue of ordinary share capital net of expenses 29,268 37,474 37,474Issue of long term debt net of expenses 14,620 26,229 26,229 43,888 63,703 63,703 Equity dividend paid - (2,896) (2,896) Net cash inflow/(outflow) 55,497 52,070 45,764 Cash flows were invested as follows: Increase/(decrease) in cash holdings 19 74,168 (28,165) 41,525 Net portfolio investmentFixed income securities (16,562) 11,060 7,374Deposits with credit institutions (2,148) 69,170 (3,128)Deposits with cedants 39 5 (7) (18,671) 80,235 4,239 Net investment of cash flows 55,497 52,070 45,764 NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. BASIS OF PREPARATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS Accounting Policies These interim consolidated financial statements should be read in conjunctionwith the Group's consolidated financial statements for the year ended 31December 2005 as set out on pages 42 to 73 of the company's 2005 Report andAccounts. These unaudited interim consolidated financial statements have been prepared inaccordance with the accounting policies set out in the consolidated financialstatements for the year ended 31 December 2005, except as noted, and althoughthey do not include all disclosures required for statutory accounts, inmanagement's opinion, they include all disclosures necessary for the fairpresentation of the Group's interim results. In these interim financial statements, the Group has adopted AccountingStandards applicable for accounting periods starting on or after 1 January 2006as follows: FRS 20 - Share based payments FRS 20 requires companies to recognise the fair value of share option schemesused to compensate staff and third parties. The fair value is calculated usingan option pricing model and charged to the profit and loss account over thevesting period of the option. This accrual is recognised in shareholders funds. FRS 20 requires that the impact of the adjustment be reflected in prior periods.Charges of £33,000 and £52,000 have been reflected in the restatednon-technical account for the periods ended 30 June 2005 and 31 December 2005respectively. The charge for the six months ended 30 June 2006 was £51,000. Status of the interim financial statements The interim financial statements have been reviewed by the Company's auditorsPricewaterhouseCoopers LLP. These interim financial statements do notconstitute accounts as defined in section 240 of the Companies Act 1985 ("theAct"). The results for the year ended 31 December 2005 are based on the statutory Groupaccounts which received an unqualified audit opinion from the Group's auditors,and did not contain a statement under section 237(2) or (3) of the Act. The 31December 2005 Group accounts have been filed with the Registrar of Companies. 2. PRINCIPAL EXCHANGE RATES The principal exchange rates used in translating foreign currency assets,liabilities, income and expenditure in the preparation of these accounts were: Six months 2006 Six months 2005 Year 2005 Period Period Period Period Period Period average End average end average end rate rate rate rate rate rate US dollar 1.79 1.85 1.87 1.79 1.82 1.72Euro 1.46 1.45 1.46 1.48 1.46 1.46Canadian dollar 2.04 2.06 2.31 2.20 2.21 2.01 3. SEGMENTAL ANALYSTS Syndicate Syndicate Total 780 2 Non-Marine Property Reinsurance Insurance Marine Other £'000 £'000 £'000 £'000 £'000 £'000 Six months 30 June 2006(unaudited)Gross premiums written 64,168 12,485 13,216 690 (126) 90,433 Net premiums written 47,224 8,951 9,685 688 (394) 66,154 Net premiums earned 28,192 7,038 4,467 726 (394) 40,029Net claims incurred (20,654) (3,724) (2,878) (338) 980 (26,614) Net underwriting result 7,538 3,314 1,589 388 586 13,415 Net operating expenses before (9,584)profit on exchangeProfit on exchange 4,963Allocated investment return 2,403 Technical result 11,197 Syndicate Syndicates Total 780 2 and 506 Non-Marine Property Reinsurance Insurance Marine Other £'000 £'000 £'000 £'000 £'000 £'000 Six months 30 June 2005(unaudited)Gross premiums written 43,047 3,766 3,890 1,470 134 52,307 Net premiums written 34,271 1,485 2,689 1,038 41 39,524 Net premiums earned 23,881 3,667 1,834 2,855 41 32,278Net claims incurred (24,365) (1,276) (1,518) (561) 1,801 (25,919) Net underwriting result (484) 2,391 316 2,294 1,842 6,359 Net operating expenses before (7,020)profit on exchangeProfit on exchange 1,047Allocated investment return 1,556 Technical result 1,942 Syndicate Syndicate Total 780 2 and 506 Non-Marine Property Reinsurance Insurance Marine Other £'000 £'000 £'000 £'000 £'000 £'000 Year ended 31 December2005 (audited)Gross premiums written 79,640 10,304 7,349 2,171 1,086 100,550 Net premiums written 57,570 7,767 4,910 2,173 (9,471) 62,949Net premiums earned 58,263 8,991 4,663 2,624 (9,471) 65,070Net claims incurred (107,105) (8,495) (16,794) (2,642) 10,826 (124,210) Net underwriting result (48,842) 496 (12,131) (18) 1,355 (59,140) Net operating expenses (14,816)before loss on exchangeLoss on exchange (4,142)Allocated investment return 4,172 Technical result (73,926) 4. BUSINESS SEGMENT Six months Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 UnderwritingTechnical account 11,197 1,942 (73,926) Managing AgencyAgency fees 223 472 595Profit commission - 687 822 223 1,159 1,417 OtherInvestment income on corporate funds 3,290 1,086 2,442Interest on debt (1,713) (135) (1,153)Other expenses (3,115) (1,808) (4,121)Recharges to Syndicates 237 222 498 Profit (loss) before tax 10,119 2,466 (74,843) 5. INVESTMENT RETURN Six months Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Investment IncomeIncome from investments and bank deposits 5,807 3,231 7,570 Investment expenses and chargesInvestment management expenses (50) (23) (93)Net realised and unrealised losses on investments (64) (566) (863) (114) (589) (956) Net investment return 5,693 2,642 6,614 Analysed between:Net investment return allocated to the technical account 2,403 1,566 4,172Investment income included in the non-technical account 3,290 1,086 2,442 Net investment return 5,693 2,642 6,614 6. BALANCE ON TECHNICAL ACCOUNT Under the annual basis of accounting the Group's share of the syndicates'technical accounts by years of account has been accounted for as follows: Six months Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Syndicate 780 - Non MarineUnderwriting Year of Account2006 - open 6,948 - -2005 - open 2,286 7,001 (64,412)2004 - open 913 (10,000) (14,867)2003 and prior closed - 4,069 4,850 Balance on technical account 10,147 1,070 74,429 Syndicate 2 - MarineUnderwriting Year of Account2002 - run-off (24) 802 6902001 - run-off 1,074 70 (253) Balance on technical account 1,050 872 437 Syndicate 506 - Non-MarineUnderwriting Year of Account2001 - closed - - 66 Total balance on technical account 11,197 1,942 (73,926) The figures above exclude profit commission and agency fees payable to theGroup's managing agency. 7. TAX ON PROFIT ON ORDINARY ACTIVITIES Six months Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Analysis of charge in periodUK corporation tax (75) 196 10Overseas taxation 2 96 -Deferred tax 3,194 633 (22,273) Total taxation 3,121 925 (22,263) 8. EQUITY DIVIDENDS Six months Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Final dividend : Nil (2005: 2.75p) per New Ordinary share - 2,896 2,896 9. INTANGIBLE FIXED ASSETS Goodwill Auction on Acquisition Capacity Total £'000 £'000 £'000 Cost 9,858 2,193 12,051 AmortisationAt 31 December 2005 (audited) 5,710 997 6,707Charge for the period 259 71 330 At 30 June 2006 (unaudited) 5,969 1,068 7,037 Net Book ValueAt 30 June 2006 (unaudited) 3,889 1,125 5,014 At 31 December 2005 (audited) 4,148 1,196 5,344 At 30 June 2005 (unaudited) 4,407 1,265 5,672 10. FINANCIAL INVESTMENTS 30 June 30 June 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Carrying ValueDebt securities and other fixed income securities 85,389 81,129 109,024Deposits with credit institutions - 36,881 476Deposits with credit institutions - corporate - 37,565 1,672Deposits with cedants 49 22 10 85,438 155,597 111,182 Purchase PriceDebt securities and other fixed income securities 85,214 86,860 109,304Deposits with credit institutions - 36,881 476Deposits with credit institutions - corporate - 37,565 1,672Deposits with cedants 49 22 10 85,263 161,328 111,462 All financial investments are held by the Company's managed syndicates. Alldebt securities and other fixed income securities apart from asset-backedsecurities are listed on recognised stock exchanges. 11. CASH AT BANK AND INVESTMENTS 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000 Corporate cash at bank 14,790 40,232 2,027Corporate funds held by Lloyd's 108,360 14,697 87,210Corporate financial investments - 37,565 -Syndicates' cash at bank 48,701 6,891 13,558Syndicates' financial investments 85,389 118,032 111,172 Total cash and investments 257,240 217,417 213,967 Syndicate bank loan (11,580) - - Net cash and investments 245,660 217,417 213,967 The Funds held by Lloyd's represent monies deposited with the Corporation ofLloyd's (Lloyd's) to support the Group's underwriting activities. These fundsare subject to a Lloyd's deposit trust deed which gives Lloyd's the right toapply these monies in settlement of any claims arising from the Group'sunderwriting at Lloyd's. In addition to the Group's Funds at Lloyd's (FAL) of £108 million at 30 June2006, a major shareholder, Fairfax Financial Holdings Limited (Fairfax), hasdeposited Funds at Lloyd's of £74.2 million at 30 June 2006 to support theGroup's underwriting for the 2001 to 2005 underwriting years pursuant to aFunding Agreement dated 16 November 2000. Any underwriting profits arising fromthe business supported by the Fairfax FAL are receivable by the Group which isalso responsible for the payment of any losses arising. In January 2006, the Group deposited an additional £38 million in FAL from thenet proceeds of its debt and equity offerings completed on 6 January and 16January 2006, as part of the process for providing for open year losses on the2004 and 2005 years of account, thereby reducing Fairfax's FAL by the sameamount. On 30 June 2006, the Group paid its share of Syndicate 780's cash call on the2005 year of account of £36.9 million from its FAL deposited in January 2006.It does not affect the 2006 underwriting or the FAL deposited in November 2005. The Syndicate's bank loan was repaid on 5 July 2006 out of Syndicate 780's cashcall received on 30 June 2006. 12. CALLED-UP SHARE CAPITAL Authorised Allotted, Called-Up and Fully Paid 30 June 30 June 31 December 30 June 30 June 31 December 2006 2005 2005 2006 2005 2005 £'000 £'000 £'000 £'000 £'000 £'000 Ordinary shares of 5p each 50,000 16,555 16,555 18,481 10,981 10,981 Number of shares ('000s) 1,000,000 331,109 331,109 369,609 219,609 219,609 Share capital reorganisation On 17 May 2005 each issued Ordinary Share of 25 pence of the Company wasconverted and subdivided into one New Ordinary Share of 5 pence and one DeferredShare of 20 pence and each existing unissued Ordinary Share of 25 pence in thecapital of the Company was converted and subdivided into five New OrdinaryShares of 5 pence, each new Ordinary Share and each Deferred Share having thesame rights and being subject to the restrictions set out in the New Articles ofAssociation of the Company adopted on the same date. The authorised sharecapital of the Company was increased to £37.620 million on the same date by thecreation of 170,157,000 Ordinary Shares of 5 pence each, such new shares to havethe rights attached thereto in the New Articles of Association of the Company.As a result of the share capital reorganisation, £21.065 million was transferredfrom called-up share capital to capital redemption reserve. On 26 May 2005, the Deferred Shares were acquired by the Company and cancelled,as a result of which the Company's authorised share capital reduced by £21.065million from £37.620 million to £16.555 million. Share Issues On 3 June 2005, the Company issued 114,285,714 New Ordinary Shares of 5 penceeach at 35 pence per share, pursuant to an equity offering fully underwritten byNumis Securities Limited (Numis) for cash proceeds of £40 million less expensesof issue of £2.53 million, of which £5.715 million has been included incalled-up share capital and £31.755 million has been included in the sharepremium income account. Pursuant to the Placing Agreement the Company has granted to Numis an option tosubscribe for up to 2,196,087 Ordinary Shares at 35p per share, exercisable atany time, in whole or in part, up to 3 June 2010. On 6 January 2006, the Company issued 150,000,000 New Ordinary Shares of 5 penceeach at 20 pence per share for cash proceeds of £30 million less expenses ofissue of £0.7 million of which £7.5 million has been included on called-up sharecapital and £21.8 million has been included in the share premium account. At thesame time the authorised number of shares was increased from 331,109,320 to1,000,000,000 shares. Share Option Schemes In the periods included in this report, the Company operated two share optionsschemes. The 1998 Scheme, which was open to all employees, and the 1999Executive Share Option Scheme. Both schemes were superseded in 2005 by the newAdvent Share Option Plans. All option holders under the 1998 Scheme were sent aletter of cancellation of that scheme on 21 April 2005 and have acknowledgedcancellation of that scheme. No options were exercised under this scheme. Thetwo option holders under the 1999 Scheme waived their rights under that Schemeon 4 May 2005. The Company has established two share option plans: the Unapproved Plan whichwas adopted by the Board of Directors on 20 April 2005; and the Approved Planwhich was adopted by the Board of Directors on 29 March 2005 (collectivelyreferred to as the "Advent Share Option Plans"). The Advent Share Option Planshave been set up to enable employees and Directors of the Company to be grantedoptions to acquire Ordinary Shares of the Company ("Options"). As at 3 June 2005, options over an aggregate of 4,629,000 Ordinary Shares wereawarded to Directors and Employees of the Advent Group, pursuant to the AdventShare Option Plans, subsequent to which 390,000 options have been cancelled asemployees have left the Company. These awards have been granted at the placingprice of 35p per share and are not subject to performance conditions. At 30June 2006, the 2,112,568 options outstanding under the Approved Scheme have anexercise period between three and ten years from the date of grant of 3 June2005, whereas the 2,126,432 options outstanding under the Unapproved Scheme havean exercise period between one and ten years following the date of grant. On 28 April 2006, options over an aggregate of 5,850,000 shares, exercisable at20p (which was the Placing Price of the private placement undertaken at the samedate that shareholder approval was granted for issue of the options followingpublication of the Company's 2005 Report and Accounts) were granted to Directorsand employees of the Advent Group. The options are not exercisable before 28April 2009 and expire 28 April 2016. 13. EARNINGS PER ORDINARY SHARE Six months Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited)Profit (loss) for the period £6.998m £1.541m £(52.580)mWeighted average number of shares in issue 365.4m 123.0m 171.7mBasic and diluted earnings per share 1.9p 1.3p (30.6)p 14. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Six months Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Profit (loss) for the period 6,998 1,541 (52,580)Dividend (Note 8) - (2,896) (2,896)Share issue (Note 12) 29,268 37,474 37,474Share options 51 33 52 Net addition/(reduction) to shareholders' funds 36,317 36,152 (17,950)Opening shareholders' funds 34,581 52,531 52,531 Closing shareholders' funds 70,898 88,683 34,581 15. TECHNICAL PROVISIONS Provision for Claims Total unearned outstanding premiums £'000 £'000 £'000 GrossAt 1 January 2006 (audited) 15,689 328,487 344,176Exchange adjustments - (18,815) (18,815)Movement in provisions- current year 42,767 18,689 61,456- prior year - 15,696 15,696- paid claims - (90,539) (90,539) At 30 June 2006 (unaudited) 58,456 253,518 311,974 Reinsurance amountAt 1 January 2006 (unaudited) 2,331 94,073 96,404Exchange adjustments - (5,101) (5,101)Movement in provisions- current year 17,373 1,048 18,421- prior year - 6,800 6,800- paid recoveries - (45,912) (45,912) At 30 June 2006 (unaudited) 19,704 50,908 70,612 NetAt 30 June 2006 (unaudited) 38,752 202,610 241,362 At 31 December 2005 (audited) 13,358 234,414 247,772 At 30 June 2005 (unaudited) 27,778 158,134 185,912 For the six months ended 30 June 2006, adverse development on claims, net ofreinstatement premiums, amounted to £3.0 million (2005: £10.9 million. The netclaims outstanding balance is further analysed between notified outstandingclaims and incurred but not reported claims (IBNR) below: Six months Six months 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Notified outstanding claims 147,666 111,807 146,463Claims incurred but not reported 54,944 46,327 87,951 Claims outstanding 202,610 158,134 234,414 16. LONG TERM DEBT 30 June 2006 30 June 2005 31 December 2005 £'000 £'000 £'000 US$34 million due 3 June 2035 17,831 18,424 19,160Euro 12 million due 3 June 2035 8,004 7,805 7,944US$26 million due 15 January 2026 13,480 - - 39,315 26,229 27,104 On 3 June 2005, the Company raised US$34 million and Euro 12 million aggregateprincipal amount of unsecured subordinated notes (the "USD Notes" and "EuroNotes" respectively), due 3 June 2035 and callable by the Company at any time,in whole or in part, after 3 June 2010. Expenses incurred in connection withthe issue of the debt reduced net proceeds to £26.2 million. The notes bear interest at 3 month EURIBOR plus 3.85% for the Euro Notes (6.91%at 30 June 2006) and 3 month USD Libor plus 3.9% for the USD Notes (9.38% at 30June 2006). Payment of interest may, at the option of the Company, be deferredfor up to 20 consecutive quarters. Proceeds of the debt issue have been maintained in US dollars and Euro cashdeposits so that the Company is not exposed to exchange rate fluctuations onthis debt. The Notes rank on a winding-up of the Company in priority to distributions onall classes of share capital and rank pari passu with each other but aresubordinated in right of payment to the claims of all unsubordinated creditorsof the Company (including, where applicable, all policy holders of theSyndicate). On 16 January 2006, the Company issued senior subordinated loan notes of US$26million (£15.1 million), (the "Senior Notes"), due 15 January 2026 and callableby the Company at any time, in whole or in part, after 16 January 2011.Expenses incurred in connection with the issue of the debt were £0.4 million. The Senior Notes bear interest at 3 month USD Libor plus 4.5% (9.98% at 30 June2006). The Senior Notes rank on a winding-up of the Company in priority todistributions on all classes of share capital and subordinated loan notes, andrank pari passu with each other but are subordinated in right of payment to theclaims of all unsubordinated creditors of the Company (including, whereapplicable, all policyholders of the Syndicate). The Notes and Senior Notes are listed on the Channel Islands Stock Exchange. 17. SYNDICATE CAPACITY OFFER On 28 July 2006, the Company offered to acquire all of the capacity not alreadyowned by Advent for 2007 and onwards, for 5p in cash for each £1 of capacityheld on Syndicate 780 for the 2006 year of account. In addition, Members areoffered a "Limited Tenancy Arrangement", under which they have the right toparticipate on Syndicate 780 for the 2007 year of account only plus a deferredpayment of an additional 5p in cash for each £1 of capacity retained for the2007 year of account payable on 30 June 2008 (the "Limited Tenancy Rights").(The "Offer"). The Offer will remain open for acceptance until 25 August 2006. AdventUnderwriting Limited intends to apply to Lloyd's for permission to give noticeof termination of the standard managing agent's agreement to all of thosemembers of Syndicate 780 who do not accept the Offer, provided that at such datethe Company has acquired, or contracted to acquire under the Offer, 90% (or suchother proportion as the Council of Lloyd's may specify) of the capacity ofSyndicate 780 for the 2007 year of account (the "Minority Buy-Out"). The Offeris conditional on Lloyd's granting consent to the Minority Buy-out. The Company has received an undertaking from the two members' agents whichrepresent 99.7% of the outstanding capacity for the 2006 year of account, tomake a general recommendation to their members to accept the Offer in respect ofthe whole of their capacity, the recommendation being subject to the individualcircumstances of each member. If Lloyd's grants its consent to the MinorityBuy-out then the total consideration payable would be £1.5 million on closure ofthe Offer, with up to a further £1.5 million payable on 30 June 2008, dependenton the take up of the Limited Tenancy Rights. 18. RECONCILIATION OF PROFIT BEFORE TAX TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES Six months Six months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Profit before tax 10,119 2,466 (74,843)(Increase)/decrease in debtors and prepayments (23,490) (20,758) (14,265)Increase/(decrease) in creditors and accruals 21,177 6,137 6,440Increase/(decrease) in net technical provisions 7,304 6,247 62,931- debt interest 1,713 - 1,153- foreign tax - - 96Investment income (2,811) (1,085) (1,085)Unrealised investment return - - 316Depreciation 518 259 529Amortisation of goodwill 330 330 658Amortisation of debt issue costs 24 - 17Share option issue 51 33 52Foreign exchange movement (4,350) (1,024) 4,654 10,585 (7,395) (13,347) 19. MOVEMENT IN CASH HOLDINGS At Cash Movement in At 31 December 2005 Flow Valuation and 30 June 2006 Currencies £'000 £'000 £'000 £'000 Corporate funds held by Lloyd's 87,210 24,007 (2,857) 108,360Corporate cash at bank 2,027 12,945 (182) 14,790Syndicates' cash at bank 13,558 36,887 (1,744) 48,701Syndicates' overseas deposits 3,813 329 (461) 3,681 106,608 74,168 (5,244) 175,532 INDEPENDENT REVIEW REPORT TO ADVENT CAPITAL (HOLDINGS) PLC Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2006 which comprises the consolidated interimbalance sheet as at 30 June 2006 and the related consolidated interim GroupTechnical Account, Group Non-Technical Account and Cash Flow Statement for thesix months then ended and related notes. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directorsare responsible for preparing the interim report in accordance with the AIMRules for Companies. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the company for the purposeof the AIM Rules for Companies and for no other purpose. We do not, inproducing this report, accept or assume responsibility for any other purpose orto any other person to whom this report is shown or into whose hands it may comesave where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. PricewaterhouseCoopers LLPChartered AccountantsLondon24 August 2006 Notes: (a) The maintenance and integrity of the Advent Capital (Holdings) PLC web siteis the responsibility of the directors; the work carried out by the auditorsdoes not involve consideration of these matters and, accordingly, the auditorsaccept no responsibility for any changes that may have occurred to the interimreport since it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. DIRECTORS B.F. Caudle Chairman K.D. Thompson Chief Operating Officer T.J. Ambridge FCA Chief Financial Officer P. Stormonth Darling Non-Executives B.W. Rowbotham FCA E. St. C. Stobart FCA COMPANY SECRETARY Z.C. Bucknall ACII ACIS REGISTERED OFFICE 10th Floor 1 Minster Court Mincing Lane London EC3R 7AA BANKERS The Royal Bank of Scotland plc 5-10 Great Tower Street London EC3P 3HX AUDITORS PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors Southwark Towers 32 London Bridge Street London SE1 9SY SOLICITORS Norton Rose Kempson House Camomile Street London EC3A 7AN NOMINATED ADVISER Numis Securities Limited Cheapside House 138 Cheapside London EC2V 6BJ PUBLIC RELATIONS Pelham PR No 1 Cornhill London EC3V 3ND LONDON STOCK EXCHANGE ADV company This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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