Interim Results

PRESS RELEASE

Tawa plc

23 September 2011

Tawa plc

 Interim results for the six months ended 30 June 2011

An active first half of year for Tawa

Tawa plc ("Tawa" or "the Group") today announces interim results for the six months ended 30 June 2011.

Highlights

·; Profit for the half year was $11.0 million (2010: $1.4 million);

·; Group net assets are $234.6 million (2010: $223.9 million);

·; Net assets per share in US dollars are $2.08 (£1.27) per share (31 December 2010: $2.00 / £1.26);

·; A capital extraction of $22.8 million from its Connecticut domiciled subsidiary PXRE Reinsurance Company Limited was achieved during the period. This represents free cash available to Tawa plc and has been used to repay debt;

·; On 10 March 2011, the Group completed the transaction to acquire Oslo Reinsurance Company (UK) Limited;

·; On 31 March 2011, Tawa plc set up QX Reinsurance Company Limited, a Bermudian regulated special purpose insurer which provides reinsurance coverage for a book of lead paint exposure that was underwritten by Pennsylvania National Mutual Casualty Insurance Company;

·; On 7 April 2011, Tawa plc entered into a definitive agreement to acquire for $1 a 51% stake in LGIC Holdings, LLC the sole shareholder of Lincoln General Insurance Company, a Pennsylvania run-off, which is awaiting regulatory approval;

·; An interim dividend for the year ended 31 December 2010 of 2 cents (1.23 pence) per share was paid on 1 June 2011, with a final dividend for the same amount to be paid on 2 December 2011.

Tawa plc holds capital extraction and free cash flow generation as its main performance indicator. In this context a capital extraction of $22.8 million from its Connecticut domiciled subsidiary PXRE Reinsurance Company Limited was achieved during the period, which has been used to repay debt. This continues to reflect the progress made on reduction of the volatility achieved by downscaling the liability portfolios owned by the Group. 

Gilles Erulin, Chief Executive, commented:

"This first half of the year has been busy and profitable for our company. We have invested considerable effort into our servicing arm to create a solid performer across all segments of the insurance market. Since the acquisition of Pro, nearly two years ago, Tawa has positioned Pro as 'best in class' outsourcing provider and moved its consulting services towards higher value added. The soon to be completed acquisition of Chiltington, and now Whittington, will give our servicing business outstanding coverage of the UK insurance market, and a US and Continental reach.

"On the insurance portfolio front we are keeping a good momentum in our cash investment-cash extraction model. Overall the first half of the year results were more volatile than we would have expected in relation to the insurance portfolios we are carrying, but capable of being absorbed by solid acquisitions generated profits of the QX transaction earlier this year. QX is an innovative way to assume discontinued portfolios, when a company transfer is not possible. The engineering of this transaction by both Tawa and Penn National Insurance illustrates where Tawa makes a difference, enabling this innovative structure to be developed and established.

"Overall, Tawa has reaped the benefits of cross synergies between its servicing business and its portfolio acquisition capacity. Service provision enhances our ability to access portfolio opportunities and the portfolios acquired by Tawa feed our servicing business and increase the skilled professional staff which forms the bulk of our consulting capacity.

While this first part of the year has been a great ride, we keep in mind that those transactions are only valuable to our shareholders if we ensure new investments contribute to solid sustainable earnings in the future."

--ENDS-

Enquiries:

Note for Editors

Tawa plc was formed in 2001 with the purpose of acquiring or developing assets and business in the insurance industry. Tawa is interested in acquiring portfolios of insurance and reinsurance companies, companies and businesses providing services to the insurance industry and in developing its own products to serve the insurance market as a whole.

Since its formation, Tawa has acquired CX Reinsurance Company Limited, KX Reinsurance Company Limited, PXRE Reinsurance Company, Island Capital Limited, the Pro group of companies and OX Reinsurance Company Limited. It also set up QX Reinsurance Company Limited, a Bermudian regulated reinsurance company, to write reinsurance business. It has recently announced the acquisition of Chiltington Group of companies, and its acquisition, as part of a consortium, of Whittington Insurance Markets Limited.

The Group's combined team of 300 professionals service a number of the largest insurance businesses in the UK and Europe and deliver a market-wide third-party servicing capability and cover London's company and Lloyd's markets as well as Europe, Bermuda and the USA.

Tawa also operates as an incubator for new projects and launched the STRIPE® system in September 2010. STRIPE® is a web based platform enabling insurers and cedants to deal with their (re)insurers directly, reducing re-processing of data. STRIPE® supports the single keying of data and allows the rapid and secure delivery of all transactions.

Tawa plc was floated on the AIM market in July 2007.

Further information can be found on the Company's website: www.tawaplc.co.uk.

Highlights

The consolidated net earnings of Tawa plc after tax were $11.0 million for the half year (2010 $1.4 million). These results were driven principally by the $19.6 million profit generated by QX Reinsurance Company Limited's ('QX Re') reinsurance of lead paint exposure underwritten by Pennsylvania National Mutual Casualty Insurance Company ('Penn National') and offset by the $5.3 million loss on discontinued operations, finance costs of $2.1 million and group costs of $4.8 million.

As to cash generation capacity, which Tawa plc views as its main performance indicator, a capital extraction of $22.8 million from its Connecticut domiciled subsidiary PXRE Reinsurance Company Limited ('PXRE') was achieved during the period. This represents the extraction of trapped regulatory capital and is free cash available to Tawa plc. The $22.8 million has been used to repay debt. This continues to reflect the significant progress made on reduction of the volatility achieved by downscaling the liability portfolios owned by the Group.

On 10 March 2011, the Group completed the transaction to acquire Oslo Reinsurance Company (UK) Limited ('Oslo Re (UK)'), a small London market company which has been in run-off since 1994. Most of the business has been removed by schemes and commutations; however the acquisition is strategically important as the company will be able to accept portfolio transfers or reinsurance of liabilities from other companies managed by Tawa or from external entities, subject to approval from the FSA. The company has been renamed OX Reinsurance Company Limited ('OX Re').

On 31 March 2011, Tawa plc set up QX Re, a Bermudian regulated special purpose insurer which will provide reinsurance coverage for a book of lead paint exposure that was underwritten by Penn National. The company will operate as a reinsurance vehicle and is an innovative way for Tawa to assume discontinued portfolios when a company transfer is not a viable option. QX Re received $56.9 million in reinsurance premium and booked a claims provision of $35.9 million. There were $1.3 million of costs associated with the deal.

On 7 April 2011, Tawa plc announced that it had entered into a definitive agreement to acquire for $1 a 51% stake in a newly formed US holding company, LGIC Holdings, LLC ('LGIC'). Subject to regulatory approval, LGIC will acquire a majority of Walshire General Assurance Company, the sole shareholder of Lincoln General Insurance Company. The other investor in LGIC will be Kingsway Financial Services Inc, the former indirect owner of Walshire General Assurance Company. Pennsylvania-based Lincoln General, in run-off since 2009, reported statutory gross assets of $412 million and net assets of $3.2 million at the end of 2010. Previously Lincoln General wrote a broad book of predominantly commercial and personal lines insurance. After making allowances for fair value adjustments Tawa anticipates that the transaction will have minimal impact on net assets.

Financial review

During the first six months of 2011, Tawa recognised net profits of $11.0 million compared to net profits of $1.4 million in the six months to 30 June 2010. During the period Group net assets increased by $8.3 million, from $226.3 million at 31 December 2010 to $234.6 million ($2.08/£1.27 per share) at 30 June 2011 mainly as a result of the continued expansion of the group, notably through QX Re.

Dividend and dividend policy

In line with the Group's dividend policy an interim dividend for the year ended 31 December 2010 of 2 cents (1.23 pence) per share was paid on 1 June 2011, with a final dividend for the same amount to be paid on 2 December 2011. The Group does not propose the payment of a dividend relating to the interim period.

Operational results

The Group's operations are underwriting run-off, insurance portfolios management, insurance services (Pro), development of IT tools for the insurance industry (STRIPE®) and other corporate activities.

Underwriting run-off and insurance

Underwriting run-off and insurance comprises the Group's insurance subsidiaries in run-off, namely Island Capital, KX Reinsurance Company Limited ('KX Re'), OX Re and PXRE, together with the specialist insurer QX Re. The objective for the Group is to reduce insurance liabilities by accelerating the natural run-off of the portfolios to enable extraction of capital with regulatory consent while protecting policyholders' future rights. The underwriting run-off and insurance profit for the period was $17.1 million. A dividend of $22.8 million was paid by PXRE during the period (2010 $4.4 million).

Run-off management

Run-off management represents the results of the Group's providers of run-off management through its subsidiary Tawa Management Ltd. The revenue comprises income from run-off fees and expenses recharged within the Group. Profit for the period was $2.1 million (2010 $1.8 million).

Insurance services (Pro)

The insurance services segment represents the results of the Group's subsidiary Pro which is a provider of insurance services to external clients. Profit for the period was $2.3 million from total revenues of $24.7 million (2010 $2.4 million from $23.9 million).

Other corporate activities

Other corporate activities summarises acquisition activity, the Group's investment in its associated undertaking CX Reinsurance Company Limited ('CX Re'), the change in the deferred consideration attributable to the sale of 87.35% of the shares of CX Re in March 2006 and the costs of developing the Group's business.

The loss from this discontinued business was $5.3 million. This arises in our associate CX Re, which was sold to a consortium in March 2006. Tawa plc is a member of the consortium holding 12.5% and is due deferred consideration linked to any distributions by CX Re to its consortium shareholders. The discounted net asset value of CX Re at the half year was $47.1 million. The economic value of CX Re depends primarily on the value of receivables from the consortium members related to the availability of tax losses surrendered for the 2006 tax year. Of the $47.1 million net asset value of CX Re at the half year, $33.9 million was held in cash escrow accounts representing the present net worth to CX Re of the losses surrendered and is not available for paying claims.

It is understood that presently HMRC has sought to deny the relief claimed by the consortium beneficiaries but this is under appeal. HMRC are presently reviewing the position to decide whether they will litigate on the appeals; however should litigation ensue it is expected that the process may take upwards of 3 years to reach a conclusion. Whilst the consortium has the benefit of positive advice from leading counsel, any litigation is likely to have a substantial adverse effect on the costs of the CX Re run-off and continue to restrict its liquidity.

During the interim period CX Re's net assets decreased by $6.1 million to $47.3 million (in the group accounts, $5.3 million loss from discontinued operations and $0.8 million share of loss of associate). The principal contributory factors were:

CX Re claims management

Net discounted claims reserves and provision for expenses reduced in the period from $121.1 million to $112.8 million. During the period there was a net incurred deterioration on insurance risks of $4.9 million.

CX Re asset and liability management ("ALM")

The return on investments supporting the liabilities (excluding the impact of changes in interest rates) was $0.7 million more than the unwinding of the discount. There was also a favourable movement on foreign exchange of $0.5 million in the period.

CX Re operating expenses

Net operating expenses, which exclude those costs charged to unallocated loss adjustment expenses and allocated loss adjustment expenses in the period, were $1.5 million, comprising management fees payable to Tawa Management Limited and staff bonus.

Prospects

Since the half year Tawa has announced two deals which will move it further along its goal of diversifying the Group's activities. On 8 September 2011, Tawa entered into a share purchase agreement which will lead to the acquisition of the Chiltington Group of companies, subject to regulatory approval. This will give Tawa a strategically important entry into the continental European market where Chiltington have a skilled team and strong presence.

On 16 September 2011, as a member of a consortium comprising Tawa plc, Skuld, and Paraline Group Limited announced a definitive agreement to acquire Whittington Insurance Markets Limited ("Whittington"), subject to regulatory approval. This transaction provides Tawa with a platform through which to expand its range of services to the Lloyd's market. Whittington is the leading franchise in the Lloyd's agency management market and provides the Group with real scale as a provider of insurance services to the live market. This is highly complementary with the range of consulting and outsourcing services currently provided through Pro.

Tawa also has advanced plans to provide platforms for underwriting teams, managing general agencies and brokers looking for an experienced partner to help them launch new businesses into the insurance market. In effect the service will provide to the London market the turnkey concept of Lloyd's.

Prospects continued

In spite of the positive growth prospects resulting from Group's acquisitions discussed above, Group shareholders should remain acutely aware of the continuing volatility of the markets in which we invest our assets. Foreign exchange, interest rates and corporate bond spreads, among others, have experienced significant volatility over the last three months. This will undoubtedly have an impact upon the Group's risk carriers and CX Re which retains some exposure to such volatility.

Auditor

Mazars LLP was appointed as the Group's auditor during the period.

Currency translation differences have been reclassified from retained earnings to a translation reserve in the period and the brought-forward balances revised accordingly.

Tawa plc (the "Company") and its subsidiaries (together the "Group") are engaged in three principal business activities:

·; The acquisition and run-off of insurance companies that have ceased underwriting;

·; The provision of run-off management services to acquired insurance companies; and

·; The provision of insurance services to external clients.

On 10 March 2011, the Group completed the transaction to acquire Oslo Re (UK), a small London market company which has been in run-off since 1994. Most of the business has been removed by schemes and commutations, however the acquisition is strategically important as the company will be able to accept portfolio transfers or reinsurance of liabilities from other companies managed by Tawa or from external entities, subject to approval from the FSA. The company has been renamed OX Re.

Participant Run-Off (Pro) Iberica was placed into liquidation on 11 March 2011. This has no impact upon the Groups' net assets as the value of the investment was written down to nil in 2009.

On 31 March 2011, Tawa plc set up QX Re, a Bermudian regulated special purpose insurer which will initially provide reinsurance coverage for a book of lead paint exposure that was underwritten by Pennsylvania National Mutual Casualty Insurance Company. The company will operate as a reinsurance vehicle and is an innovative way for Tawa to assume discontinued portfolios when a company transfer is not a viable option.

The interim consolidated financial statements do not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and should be read in conjunction with the Group's consolidated financial statements for the year ended 31 December 2010. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified, did not include a reference to any matters to which the auditors draw attention by way of emphasis without qualifying the report, and did not contain any statements under section 498(2) or 498(3) of the Companies Act 2006.

The Directors have considered the position of the Group's investments and assets compared to the technical provisions and other liabilities. In addition they have assessed the Group's liquidity with regard to expected future cash flows. They have also considered the performance of the business, as discussed in the interim results. During the period, approval was given for the capital extraction of $22.8 million from subsidiary PX RE, which was used to part repay the Group loan from Natixis bank. In light of these reviews the Directors have concluded that it is appropriate to adopt the going concern basis in preparing the interim report.

The Directors confirm that the risks disclosed in the Company's consolidated financial statements for the year ended 31 December 2010 are still relevant for the current period and the remaining period to the year end. A description of these risks is included in note 5 to the 31 December 2010 consolidated financial statements, namely; insurance risk, market risk (including interest rate risk), currency risk, credit risk, liquidity risk, and risk related to the Group's deferred assets.

The interim results have been reviewed by the Group's auditors, Mazars LLP, and their review report is set out on page 20.

The annual financial statements of Tawa plc are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this interim report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

The same accounting policies, presentation and methods of computation are followed in these condensed consolidated financial statements as were applied in the preparation of the Group's consolidated financial statements for the year ended 31 December 2010.

During the period ended 30 June 2011 the Group adopted the following significant standards and revisions to standards:

·; IAS 24 (amended) Related Party Disclosures - In November 2009, the IASB issued amendments to IAS 24, effective for annual periods beginning on or after 1 January 2011, with earlier application permitted. The revised standard modifies the definition of a related party and simplifies disclosures for government-related entities.

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The interim condensed consolidated financial statements do not include all risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the group's annual financial statements as at 31 December 2010. There have been no changes since the year end in any risk management policies.

The Group measures its financial instruments at fair value, grouped into levels 1 to 3 based on the degree to which the fair value is observable. As disclosed in the annual financial statements as at 31 December 2010, the directors of CX Re have allocated one fixed income bond with a market value of $2.3 million (31 December 2010: $2.4 million) to Level 3 following review of its investment portfolio. This allocation to level 3 continues to reflect the limited liquidity in the market for investments of this nature. All other assets are allocated to Level 2.

Island Capital

On 22 October 2010, 94.3% of the issued ordinary share capital of the Island Capital group of companies comprising: Island Capital Limited, and Island Capital (Europe) Limited, were acquired by the Company. This transaction has been accounted for by the acquisition method of accounting. The net assets acquired in the transaction, and the negative goodwill arising, are as follows:

The initial accounting for the business combination and amounts recognised in the 2010 annual financial statements were provisional. The fair values of the acquired assets were provisional pending the final valuations of these assets. The fair value exercise has been revised during the current year, but still remains provisional at this stage. A final fair value exercise will be completed and accounted for in the 2011 annual financial statements.

The revised deferred consideration of $8.2 million (2010: $8.4 million) has been taken into account in the calculation of the goodwill and is included in other liabilities in the statement of financial position. The adjustment to negative goodwill of $0.4 million has been recognised in the consolidated income statement for the period.

Oslo Re (UK)

On 10 March 2011, the Group acquired 100% of the issued ordinary share capital of Oslo Re (UK). This transaction has been accounted for by the acquisition method of accounting. The net assets acquired in the transaction, and the negative goodwill arising, are as follows:

The Group's reportable segments under IFRS 8 are identified as follows:

·; Underwriting run-off and insurance;

·; Run-off management;

·; Insurance services (Pro); and

·; Other corporate activities.

The other corporate activities segment includes corporate expenses and other activities not related to the core business segments and which are not reportable segments due to their immateriality. Certain expenses and taxes are not allocated across the segments.

The accounting policies of the reportable segments are the same as the Group's accounting policies. Segment profit represents the profit earned by each segment without allocation of central corporate expenses and tax expense. This is the measure reported to the Group Chief Executive for the purposes of resource allocation and assessment of segment performance.

Segment income and results

The following is an analysis of the Group's revenue and result by reportable segment.