Interim Results

4th Sep 2007 07:01

BRIT Insurance Holdings PLC04 September 2007 Press release 4th September 2007FOR IMMEDIATE RELEASE Brit Insurance Holdings PLC Interim results for the six months ending 30 June 2007 Continuing to deliver against strategy Brit Insurance Holdings PLC, the UK-domiciled international general insurer andreinsurer, today announces interim results for the six months ending 30 June2007. FINANCIAL HIGHLIGHTS • Return on equity for the six month period of 12.1% (30 June 2006: 11.9%), annualised 24.2% (23.8%) • Profit before tax £106.8m (30 June 2006: £106.0m) • Profit before tax and before exchange adjustments arising from the IFRS treatment of non-monetary items £110.5m (30 June 2006: £118.5m) • Investment return up 50.5% to £55.7m (30 June 2006: £37.0m). Minimal exposure to sub-prime • Earnings per share 23.53p (30 June 2006: 22.99p) • Net tangible assets per share up 6.8% to record 235.6p • Interim dividend maintained at 7.5p, 50% of our minimum targeted annual distribution to shareholders OPERATIONAL HIGHLIGHTS A solid underwriting performance • Gross written premiums up 4.6% to £727.4m • Underlying gross written premium up 7.8% • Net earned premiums up 9.3% to a H1 record £570.6m • Underwriting profit £70.3m (30 June 2006: £92.0m) • Group combined ratio 87.7% (30 June 2006: 82.4%) • Enhanced asset liability management through an innovative catastrophe swap contract • £50m buy-back programme of ordinary shares successfully completed on 18 July 2007 Brit Insurance Holdings PLC55 BishopsgateLondon EC2N 3AST. 020 7984 8500F. 020 7984 8501www.britinsurance.com Dane Douetil, Chief Executive Officer of Brit Insurance Holdings PLC, said: "Wehave delivered a solid result in the first half despite claims activityreturning to more normal patterns from the low levels seen in 2006 and thepricing pressures seen in an increasing number of classes of business. "With the continuing investment in its operating platform Brit Insurance is inits strongest position in its history to meet positively the increasingcompetitive pressures of our industry. Our strategy remains on track and ourmedium term expectations remain unchanged." Enquiries Dane Douetil, Chief Executive OfficerCarne Curgenven, Communications DirectorBrit Insurance Holdings PLC 020 7984 8500 David Haggie, Peter Rigby or Juliet TilleyHaggie Financial 020 7417 8989 There will be a presentation to analysts today at 9.30am at Brit Insurance'sHead Office, 55 Bishopsgate, London EC2N 3AS. An audio webcast of the presentation will be available on Brit Insurance'swebsite from 2pm today. www.britinsurance.com Notes to Editors Brit Insurance's operations principally comprise of three strategic businessunits: Brit Global Markets, Brit Reinsurance and Brit UK. All three have accessto the two regulatory vehicles through which Brit Insurance underwrites: BritInsurance Limited which is a UK FSA regulated insurance company and Lloyd'ssyndicate 2987 which is managed by Brit Syndicates Limited. Brit Insurance hasUK underwriting offices in London, Reading, Birmingham, Bristol, Glasgow, Leeds,Darlington, Ilford and Manchester. www.britinsurance.com Brit Insurance Holdings PLC55 BishopsgateLondon EC2N 3AST. 020 7984 8500F. 020 7984 8501www.britinsurance.com FINANCIAL HIGHLIGHTS 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06 Gross written premium (£'m) 727.4 695.3 1,236.3Net earned premium (£'m) 570.6 522.2 1,048.7Underwriting profit (£'m) 70.3 92.0 137.2Investment return (£'m) 55.7 37.0 110.5Profit before tax (£'m) 106.8 106.0 186.3Earnings per share ("EPS") (pence) 23.5 23.0 41.3Claims ratio (%) 55.0 49.6 53.0Expense Ratio (%) 32.7 32.8 33.9Combined Ratio (%) 87.7 82.4 86.9Net assets (£'m) 827.9 771.2 813.3Net tangible assets ("NTA") (£'m) 743.5 684.2 724.3NTA per share (pence) 235.6 209.0 220.7 OUTLOOK The near term outlook is positive but challenging. In our opinion it is unlikelythat second half year profits will match the first half as a result of a morecompetitive environment in many classes of insurance. In addition, we are nowapproaching the peak season for US windstorms. Our medium term outlook remains unchanged. We expect to see the Brit GlobalMarkets and Brit Reinsurance Strategic Business Units facing increasedcompetition, albeit from a good margin environment. The UK market remainschallenging but we expect to see an improvement in the latter half of 2008 andbeyond. DIVIDEND We are pleased to declare an interim dividend of 7.5p per share, equivalent to50% of our minimum targeted annual distribution to shareholders of 15.0p pershare. It is payable on 23 November 2007 to shareholders on the register on 26October 2007. The shares will go ex-dividend on 24 October 2007. UNDERWRITING OPERATIONAL STRUCTURE In July 2007, we announced changes to our corporate structure designed to helpus continue our growth efficiently and profitably and to help us better meet theneeds of our broking partners, customers and employees. The principal changesare: • The three divisional heads have assumed new roles as Chief Executive Officers of their respective Strategic Business Units ("SBUs") and have wider responsibility for running and directing their business units; • The introduction of an independent Underwriting Advisory Forum that will provide independent strategic underwriting advisory support to senior management and the Board; and • The creation of two dedicated and specialist claims functions to reflect Group growth and to differentiate service needs of our London and UK customer groups. Strategic Main classes of businessBusiness Unit Brit Global Accident & Health; Aerospace; Financial & Professional; Marine;Markets and Property(formerlyLondon Market) Brit Property Treaty; Treaty Casualty; Marine XL; and Aviation XL.Reinsurance Brit UK Employers' / Public Liability; Professional Indemnity / D&O; Motor; and Property and Commercial Combined ("Packages") In the six months to 30 June 2007, we have made significant strides indeveloping our operational platforms, including: • The launch of a new e-trading platform for Global Markets and Reinsurance to automate risk quotation and placement; • The delivery of the policy, claims and reinsurance phases of an integrated Data Warehouse, to enhance our analytical capability; and • The implementation of a new infrastructure across our branches, to enhance customer service. PERFORMANCE The Group made an underwriting profit for the period of £70.3m (2006:£92.0m), asolid result in a period where trading conditions have become more competitive,especially in the UK business. Premiums As anticipated, our premium growth has come from Brit Global Markets which grewby 13.6%. Premiums written by Brit UK have remained stable in difficult marketconditions and the reduction in Brit Reinsurance premiums reflects increasedcompetition and the effect of currency movements, especially the US dollar. While our growth aspirations are unchanged, our overriding parameter is aminimum cross-cycle return of 6% above the risk free rate. We will not pursueunprofitable business for the sake of premium volume. We continue to strengthenour operating platform which will allow us to grow when the opportunity arises. Rating indices are included in the underwriting commentaries. As in previousyears, we emphasise that these indices are to be read with caution. They arebased on underwriters' estimates of rate changes, including adjustments to termsand conditions, and relate to renewal business only, since this represents thebusiness on which we have the best year-on-year data. Claims Claims frequency and severity have returned to a more normalised level comparedwith the first half of 2006. The Group's claims ratio was 55.0% (H1 2006:49.6%). Claims have arisen from various events, including the Australian floods,the European Windstorm Kyrill and the June 2007 UK floods. Brit Insurance's exposure to specific 2007 events Gross claims Net Claims £m £mAustralian floods 2.5 1.75European Windstorm Kyrill 3.0 2.0June UK floods 16.0 10.6 During the period, there have been no material changes to the reservespreviously reported in respect of Hurricanes Katrina, Rita and Wilma. Since 30 June 2007, there has been claims activity in the UK arising from theJuly Floods. We expect the claims arising from the July 2007 UK floods to beless than the June floods. There remains an element of seasonality in our annual results because the USwindstorm season is largely concentrated into the second half of the calendaryear. As reported in our 2006 Annual Report, the peak zone risk aggregatereductions achieved since the hurricane claims of 2005 have significantlyreduced our exposure to US wind and other catastrophe events. However, itremains a material variable in determining the full year result. For the sixmonths ended 30 June 2007, the proportion of the Group's gross written premiumsexposed to natural catastrophes was 11.9% (30 June 2006: 12.0%). Reserves Net Group reserves (outstanding claims and IBNR) as at 30 June 2007 were £1.6bn(30 June 2006: £1.4bn). Prior year reserves produced an overall release of £6.7m for the period,representing 0.5% of opening net Group reserves (30 June 2006: £23.5m and 1.7%). Prior year reserve releases SBU Class 6 months 6 months Year ended ended ended 30.06.07 30.06.06 31.12.06 £'m £'m £'m Brit GlobalMarkets Accident & Health (3.7) (1.5) 0.3 Aerospace 4.9 6.0 9.0 Financial & Professional 1.0 6.7 17.2 Marine (5.0) (5.4) (15.9) Property (2.3) 10.0 6.4 (5.1) 15.8 17.0 BritReinsurance Property Treaty (2.7) 6.7 3.7 Treaty Casualty 2.1 (1.3) 1.3 Marine XL 0.5 (4.2) (3.9) Aviation XL (7.2) 0.8 2.0 Property Retrocessional 1.1 (19.1) (15.1) (6.2) (17.1) (12.0) Brit UK Employers'/Public Liability 3.4 9.5 7.7 Professional Indemnity / D&O 8.2 2.9 6.5 Motor (0.6) 3.1 1.2 Property and commercial Combined ("Package") 5.9 10.5 16.6 16.9 26.0 32.0 Other Life Syndicate 389 (in run-off) 1.1 (1.2) (3.1) Total 6.7 23.5 33.9 BRIT GLOBAL MARKETS Review • Gross written premium increased by 13.6% to £399.2m (30 June 2006: £351.5m); • Profit before tax increased by 1.8% to £67.5m (30 June 2006: £66.3m); • Combined ratio of 86.5% (30 June 2006: 80.6%); • Premium income increased in the majority of underwriting classes, to underpin diversified strategy whilst focusing on maintaining quality of earnings; • Continued to rigorously monitor the mix of business and volumes to ensure we maximise the return on capital; and • Continued to develop strategic relationships with coverholders. Market Conditions Premium Rating Index (Year 2000 as base year) 30 31 31 31 31 31 31 31 June December December December December December December December 2007 2006 2005 2004 2003 2002 2001 2000------------- ------ -------- ------- ------- ------- ------- ------- -------Accident &Health 172 164 152 149 142 131 100 n/aAerospace 213 254 268 260 237 202 158 100Financial &Professional 274 276 280 280 265 207 122 100Marine 182 182 171 160 156 144 112 100Property 170 171 151 152 155 150 112 100------------- ------ -------- ------- ------- ------- ------- ------- ------- Performance 6m ended 12m ended 6m ended 12m ended 6m ended 12m ended 6m ended 12m ended 30.06.07 31.12.06 30.06.06 31.12.05 30.06.05 31.12.04 30.06.04 31.12.03 £'m £'m £'m £'m £'m £'m £'m £'m Gross written premium:Accident &Health 66.5 140.2 69.3 93.2 57.5 54.0 48.1 54.7Aerospace 6.5 23.9 11.2 11.1 3.8 28.6 10.1 61.5Financial &Professional 153.2 267.8 128.9 223.2 107.5 181.4 122.7 173.8Marine 89.5 143.4 76.4 115.7 65.4 80.0 61.0 81.3Property 83.5 131.6 65.7 115.4 60.2 87.6 87.0 97.0Total 399.2 706.9 351.5 558.6 294.4 431.6 328.9 468.3 Net earnedpremium 323.1 557.5 266.3 412.1 197.5 367.4 169.9 285.4Underwritingprofit/(loss) 43.6 81.2 51.5 (0.8) 36.5 28.2 26.3 10.4Profit beforetax 67.5 127.5 66.3 44.2 59.0 57.4 33.9 29.8Claims ratio 50.5% 46.5% 43.2% 63.8% 48.5% 58.0% 50.9% 62.1%Expense Ratio 36.0% 38.9% 37.4% 38.2% 36.3% 34.5% 37.6% 29.5%Combined Ratio 86.5% 85.4% 80.6% 102.0% 84.8% 92.5% 88.5% 91.6% Outlook and risk factors Brit Global Markets aims to grow and to diversify its portfolio, subject tosatisfactory pricing and market conditions. Market conditions are becoming more difficult with rates softening in severalclasses of business aided by surplus capacity from market entrants. However theunderlying environment remains generally positive. BRIT REINSURANCE Review • Profit before tax increased by 41.1% to £45.0m (30 June 2006: £31.9m); • Claims ratio 43.4% (30 June 2006: 54.5%); • Combined ratio 69.0% (30 June 2006: 82.1%) after £2.6m net provision for June 2007 UK floods; • Strong market conditions have allowed a re-engineering and reshaping of our inwards reinsurance portfolio; and • Continued to develop risk aggregation and pricing tools, allowing us greater understanding of the performance of the portfolio and improving our capability to take advantage of new opportunities. Market Conditions Premium Rating Index (Year 2000 as base year) 30 31 31 31 31 31 31 31 June December December December December December December December 2007 2006 2005 2004 2003 2002 2001 2000------------- ------ -------- ------- ------- ------- ------- ------- -------Property Treaty 212 198 155 153 154 149 110 100Treaty Casualty 234 234 228 230 215 182 115 100Marine XL 289 286 193 183 179 171 115 100Aviation XL 125 125 128 139 159 167 100 100------------- ------ -------- ------- ------- ------- ------- ------- ------- Performance 6m ended 12m ended 6m ended 12m ended 6m ended 12m ended 6m ended 12m ended 30.06.07 31.12.06 30.06.06 31.12.05 30.06.05 31.12.04 30.06.04 31.12.03 £'m £'m £'m £'m £'m £'m £'m £'m Gross written premium:Property Treaty 95.7 139.5 96.2 140.8 97.0 133.3 93.0 102.9Treaty Casualty 63.8 95.5 75.0 73.3 49.3 60.9 43.3 55.1Marine XL 7.4 9.4 9.0 12.0 6.7 7.1 10.0 2.0Aviation XL 11.6 15.4 16.8 39.4 32.0 36.0 14.0 19.9PropertyRetrocessional 0.5 1.1 14.1 63.3 30.1 42.7 26.3 41.9Total 179.0 260.9 211.1 328.8 215.1 280.0 186.6 221.8 Net earnedpremium 108.8 237.0 129.4 224.2 107.0 179.9 80.2 150.3Underwritingprofit/(loss) 33.8 50.4 23.1 (103.5) 3.6 9.0 23.2 50.7Profit beforetax 45.0 76.5 31.9 (81.1) 14.2 23.2 26.7 61.9Claims ratio 43.4% 50.0% 54.5% 119.8% 71.9% 68.5% 46.7% 39.9%Expense Ratio 25.6% 28.8% 27.6% 28.5% 27.2% 26.6% 27.8% 25.8%Combined Ratio 69.0% 78.8% 82.1% 148.3% 99.1% 95.1% 74.5% 65.7% Outlook and risk factors We continue to participate in this potentially high margin global businesswhilst managing the risk profile. We are comfortable with our leading positionin the London Reinsurance Market but will restrict the business written to atarget limit of 25% of the Group's gross written premium, reflecting the higherimplicit volatility of reinsurance. Pricing competition continues to increase in light of the lack of significantglobal loss activity and accumulation of surplus capital by the reinsuranceindustry. Pricing levels still remain attractive for our key business lines. BRIT UK Review • Gross Written Premium stable at £148.0m (30 June 2006: £146.5m); • Net earned premium up 9.0% to £137.7m (30 June 2006: £126.3m); • Profit before tax £8.5m (30 June 2006: £30.4m); • Reduction of £15.4m in underwriting profit compared to June 2006, primarily reflecting the reduction in prior year reserve releases (30 June 2007: £16.9m; 30 June 2006: £26.0m), the impact of the UK floods (£8.0m) and an increase in expenses (£6.0m) reflecting ongoing investment; • Development of our underwriting and distribution structure enhanced by recruitment of additional experienced staff; and • Creation of "London Region". Market Conditions Premium Rating Index (Year 2000 as base year) 30 31 31 31 31 31 31 31 June December December December December December December December 2007 2006 2005 2004 2003 2002 2001 2000------------ -------- -------- ------- ------- ------- ------- ------- -------Employers' /PublicLiability 219 237 257 284 286 200 100 n/aProfessionalIndemnity /D&O 107 118 130 132 130 100 n/a n/aMotor 101 104 111 122 120 115 108 100Property 123 125 130 131 132 123 104 100------------- -------- -------- ------- ------- ------- ------- ------- ------- Performance 6m ended 12m ended 6m ended 12m ended 6m ended 12m ended 6m ended 12m ended 30.06.07 31.12.06 30.06.06 31.12.05 30.06.05 31.12.04 30.06.04 31.12.03 £'m £'m £'m £'m £'m £'m £'m £'m Gross written premium:Employers' /PublicLiability 47.9 91.4 52.1 112.8 64.8 129.2 82.7 87.8ProfessionalIndemnity /D&O 11.8 36.7 19.3 35.6 19.2 37.3 22.9 39.6Motor 40.0 91.3 39.5 89.9 46.2 105.6 51.1 113.0Property andCommercialCombined("Packages") 48.3 60.5 35.6 79.6 38.3 73.3 68.8 69.0Total 148.0 279.9 146.5 317.9 168.5 345.4 225.5 309.4 Net earnedpremium 137.7 251.2 126.3 302.6 142.9 301.0 156.6 221.2Underwritingprofit/(loss) (7.7) 7.7 19.2 65.6 23.0 24.5 9.4 2.7Profit beforetax 8.5 40.4 30.4 112.3 45.2 54.3 17.6 16.1Claims ratio 74.8% 69.6% 56.4% 55.8% 60.6% 68.1% 72.3% 71.4%Expense Ratio 30.8% 27.3% 28.4% 22.6% 23.7% 23.9% 22.2% 23.9%Combined Ratio 105.6% 96.9% 84.8% 78.4% 84.3% 92.0% 94.5% 95.3% Outlook and risk factors The medium term goal for the UK business is to secure approximately a 5% shareof its target market which we believe is in the region of £14bn. Expertise andexecution skills will be our differentiator. Growth is very difficult in the current market as we are not prepared to writebusiness at unprofitable pricing levels. As our distribution extends through ourregional office network and as our product offering is broadened, opportunitieswill arise for profitable growth. We do not envisage any material change to the UK Commercial Market operatingenvironment during the remainder of 2007 despite the recent UK floods andcurrent trading conditions which are now inherently unprofitable for the marketas a whole. We believe that this situation is unsustainable and thereforeexpect to see improved trading conditions in the latter half of 2008 and beyond. INVESTMENTS Strategy Our investment strategy adopts a diversified approach across the portfolio tominimise risk at a targeted level of return. Our focus is to define the assetclasses appropriate to our strategy and then to select specialist investmentmanagers for each specific class. Our portfolio is weighted towards fixed incomesecurities. Financial performance The investment return for the half year was £55.7m (30 June 2006 £37.0m). Gross weighted average investment return 6m ended 6m ended Year ended 30.06.07 30.06.06 31.12.06 % % % Equities 7.73 5.65 18.92Bonds 1.49 1.12 3.42Specialised Investment Funds 2.37 2.74 5.55Cash and cash equivalents 2.62 2.04 4.27 Group portfolio 2.20 1.68 4.74 Fixed income portfolios have under performed benchmarks in most areas in anenvironment of continuously rising interest rates. Strategy was to keep theduration close to 2 years in GBP and 1.5 years in USD. Our equity portfolio has performed well in the period compared to most assetclasses but risks of setbacks increase as interest rate levels rise. Our Investment portfolio The Value at Risk of the portfolio, as measured by independent risk models, hasreduced from 3.65% as at 31 December 2006 to 3.52% at 30 June 2007. During the six months to 30 June 2007, we have increased our holdings inspecialised investment funds. These consist of collective investment schemes,open ended funds and funds of hedge funds. They have been selected as part ofour strategy to increase the diversification of investments in the portfolio.The instruments in the funds are predominantly fixed income. Asset Allocation by asset class As at 30.06.07 As at 30.06.06 As at 31.12.06 £m £m £mEquities 230.0 199.6 226.4Bonds 1,653.6 1,714.3 1,825.7Specialised InvestmentFunds 183.2 26.7 27.2Cash and deposits 498.1 440.3 421.1Derivatives and assets heldfor sale 3.2 1.6 1.1Total 2,568.1 2,382.5 2,501.5 Fixed income by currency As at 30.06.07 As at 30.06.06 As at 31.12.06 % % %Sterling 62.0 59.5 58.9US dollars 24.7 29.5 31.1Euros 9.8 7.2 6.8Other 3.5 3.8 3.2Total 100.0 100.0 100.0 Bond portfolio duration As at 30.06.07 As at 30.06.06 As at 31.12.06 Yrs Yrs YrsSterling 2.00 1.93 1.96US dollars 1.50 1.73 1.54Euro 1.70 1.67 1.54CAN Dollars 1.38 1.35 1.76----------------------- ------------ ------------ ------------ Bond portfolio credit ratings As at 30.06.07 As at 30.06.06 As at 31.12.06 % % %Government 29 42 31AAA 19 16 17AA 42 28 39A 9 14 13B and lower 1 0 0----------------------- ------------ ------------ ------------Total 100 100 100----------------------- ------------ ------------ ------------ Outlook and risk factors Since 30 June, there has been a significant re-pricing of risk across themarkets triggered by sub prime mortgage concerns in the USA. De-leveraging byhedge funds and reduction in risk appetite of banks and brokers has resulted ina flight to quality. Brit's portfolio was substantially invested in Governmentbonds that benefited from this move. Brit Insurance has minimal exposure tosub-prime debt. The return generated by our investment portfolio between 1 July 2007 and 29August 2007 was 0.60%. Key market risks over the next six months includeunexpected movements in interest rates, equity prices and significant furtherwidening of credit spreads. BALANCE SHEET MANAGEMENT Capital The Group continues to have a strong balance sheet that is not dependent onshort term gearing to finance growth. BIL continues to maintain a high "A"rating with the rating agencies (Fitch: A+ (Strong); A M Best: A (Excellent)),which is consistent with our target range. Capital As at As at As at As at As atresources 30.06.2007 31.12.2006 30.06.2006 31.12.2005 31.12.2004 £'m £'m £'m £'m £'m Net tangibleassets 743.5 724.3 684.2 638.4 643.5Long-termsubordinateddebt 147.2 147.2 147.1 147.1 -Total capital resources 890.7 871.5 831.3 785.5 643.5 Our gearing ratio at 30 June 2007 was 19.5% (31 December 2006: 20.9%) based ontotal capital resources. As the Group grows, it will seek to keep gearing in thedesired range of 20% to 30%. Share Buy-Back In our 2006 Annual Report the Board announced that we intended to pursue a sharebuy-back programme for up to £50m of ordinary shares by market value. As at 30June 2007, 11,603,000 shares had been bought back for a total consideration,including expenses, of £40.3m. This programme was concluded on 18 July 2007. 14,301,412 shares were bought backfor a total consideration, including expenses, of £50.0m. This represented 4.34%of the total issued share capital of 329,764,397. The average trade price was347.18p. The full positive effect on earnings per share will be seen when wereport our 2007 full year results. Risk Transfer including Reinsurance Reinsurance Different outwards reinsurance strategies are modelled and reviewed to determinethe most effective programmes to protect our balance sheet and reduce earningsvolatility. With the Group's increasing diversity, the outwards reinsurance strategy hasbeen reviewed and the approach to risk retention has been refined. Theexpectation is that the Group will buy less reinsurance from the commercialreinsurance market in 2008. Reinsurance spend as a percentage of gross written premiums was 21.5% (30 June2006: 24.5%). Reinsurance 6 months ended 6 months ended Year endedexpenditure: 30 June 2007 30 June 2006 31 December 2006 £'m £'m £'mProportional 22.0 26.7 34.2Non-proportional 134.1 143.7 157.2Total 156.1 170.4 191.4 Innovative Capital Markets Risk Transfer Mechanism On 22 June 2007 BIL entered into a three-year cash collateralised catastropheswap contract with Fremantle Limited ("Fremantle"), a Cayman Islands company. Fremantle will pay BIL up to US$200 million in the event of four to ninequalifying natural catastrophes ("trigger events") - US$40 million for each ofthe 4th and 5th events and US$30 million for each of the sixth to ninth events.The first three trigger events are excluded. Trigger Events Market loss (US$ bn)California Earthquake 10.00+New Madrid Earthquake 20.00+US Hurricane (Florida) 15.00+US Hurricane (Gulf states & East Coast states) 12.00+US Hurricane (Bypassing) 12.00+EU Windstorm 7.00*UK Windstorm 4.00*Japan Typhoon 12.00*Japan Earthquake 24.25* + actual industry claims as measured by an independent agent * Indicative monetary value only - actual triggers are physical parameters suchas wind speed or seismic strength Fremantle was formed solely for issuing loan notes underpinning a catastropheswap programme. In its first issue Fremantle raised US$200 million by the issueof three-year Principal At-Risk Variable Rate Notes. The proceeds from the notessecure Fremantle's obligations under the catastrophe swap contract with BIL. This innovative product increases the range of options at our disposal in ourasset liability management toolkit and reduces our dependence on traditionalreinsurance solutions. Although this is a relatively small part of our overallcatastrophe hedging programme, it widens our access to the capital markets whileoffering structural features which are considered to be attractive compared withtraditional products. In particular this gives us a multi year, multi eventhedge, which is cash collateralised. This instrument is accounted for as a derivative under International FinancialReporting Standard 4 and International Accounting Standard 39. SALE OF HOLDING IN Epic Investment Partners Limited ("EIP") In January 2007, we sold our stake in EIP to Syndicate Asset Management plc("SAM") for a profit of £2.9m, having originally announced our willingness todispose of our stake in EIP in March 2006. We believe that EIP's prospects arebetter under separate ownership. Under the terms agreed with SAM, we derived initial consideration of £1.3m incash and £3.1m of 4-year SAM loan notes. The redemption value of the loan noteswould be reduced if revenues derived by EIP from Brit Insurance over that periodwere to fall below current levels. In addition, there is deferred contingentconsideration of up to £1.1m based on the profitability of EIP in the threeyears post completion. SALE OF MAJORITY HOLDING IN RI3K LIMITED ("RI3K") On 3 May 2007, we completed the sale of 10.3m ordinary shares in RI3K to aconsortium of investors. This sale reduced the Group's holding in RI3K from85.6% to 22.4% (19.9% on a fully diluted share basis). RI3K is now accounted foras an associated undertaking. The cash consideration receivable upon the sale was £8.3m, creating a profit forthe Group of £2.3m. Brit Insurance and a consortium of investors subscribed fora further £5.0m of convertible preference shares in RI3K to satisfy its futurefunding requirements, of which our share was £1.3m. In addition, we have beengranted warrants over further ordinary shares which will become exercisablesubject to certain valuation criteria. The sale of our majority stake in RI3K achieves our objective of focusing ourbusiness on our core activities. Furthermore, this transaction represents asignificant step in the development of RI3K and our continuing interest in theCompany is testament to our belief in its successful future. ASSOCIATED UNDERTAKINGS Norton Re Insurance Limited ("Norton Re"), a 100% subsidiary of Norton HoldingsLimited in which the Group has an 18.8% interest, writes catastropheretrocession business. The initial underwriting period has now closed andcontracts bound by Norton Re have closely followed the proposed Business Plan. Asmall amount of capital unutilised in its first year has been returned toinvestors. The Group's share of profit after tax for the six months to 30 June2007 was £0.8m. As at 30 June 2007, the Group had a 33.6% shareholding in Ebix Inc., the Nasdaqlisted provider of application software products to the industry. As at 30 June2007 the carrying value of the Group's holding in Ebix was £11.1m (30 June 2006:£10.3m; 31 December 2006 £10.3m). The Group's share of profit after tax for thesix months to 30 June 2007 was £0.6m. Defined Benefit Pension Scheme The pension fund deficit as calculated under IAS 19 fell by 59.7% in 2007, from£12.4m to £5.0m. This reduction was primarily a result of rising bond yields.The scheme has been closed to new members since October 2001. Expense MANAGEMENT As stated in our 2006 Annual Report, we expect that as our premium base grows,the overall insurance expense ratio will remain broadly in line with 2006levels. This has been reflected in the six months to 30 June 2007. Groupmanagement expenses before foreign exchange, bonus pool and RI3K totalled£60.2m, equivalent to a total management expense ratio of 10.5% (30 June 2006:£50.0m and 9.6%; 31 December 2006: £112.1m and 10.7%). The key drivers of the increase in expenses when compared to the first sixmonths of 2006 were: • Headcount increase in underwriting and operational functions, primarily in the second half of 2006; • Investment in enhanced structures and processes; and • Expansion of our regional platform in the second half of 2006. The increase in expenses is in line with our financial plan to support theGroup's long term growth. These areas of expansion and investment will be a keycontributor to the Group achieving its goals in terms of profitability, growth,market position and customer service. Expenses 6 months ended 6 months ended Year ended 30.06.07 30.06.06 31.12.06 -------------- -------------- -------------- Expenses Ratio* Expenses Ratio* Expenses Ratio* £'m % £'m % £'m %------------------ -------- ------- -------- ------- -------- --------Staff costs beforebonus pool 30.4 5.3 24.0 4.6 51.5 4.9Accommodationcosts 3.8 0.7 2.8 0.5 7.0 0.7Legal & professionalcharges 5.2 0.9 5.2 1.0 10.9 1.0IT costs 3.5 0.6 3.6 0.7 5.7 0.5Regulatory leviesand charges 8.6 1.5 6.4 1.2 14.3 1.4Other 8.7 1.5 8.0 1.5 22.7 2.2 -------- ------- -------- ------- -------- --------Managementexpenses 60.2 10.5 50.0 9.6 112.1 10.7Foreign exchange 2.5 0.4 2.4 0.5 25.4 2.4Bonus pool 7.9 1.4 7.9 1.5 14.0 1.3RI3K 1.7 0.3 2.3 0.4 4.7 0.4 -------- ------- -------- ------- -------- --------Expenses beforecommissions 72.3 12.7 62.6 12.0 156.2 14.9Commission costs 134.6 23.6 124.7 23.9 247.6 23.6 -------- ------- -------- ------- -------- --------Total expenses 206.9 36.3 187.3 35.9 403.8 38.5------------------ -------- ------- -------- ------- -------- -------- * Ratio calculated as the expense as a proportion of net earned premiums. FOREIGN EXCHANGE We made an overall loss of £2.5m (30 June 2006: £2.4m) as a result of foreignexchange adjustments. 6 months ended 6 months ended Year ended 30.06.07 30.06.06 31.12.06 £m £m £m (Loss)/profit on currencytrades (2.1) 5.6 4.7Profit on restatement ofopening net assets 4.7 4.1 5.7(Loss)/profit on restatement ofincome statement to averagerates (1.4) 0.4 (8.9)Profit on exchange beforeexchange adjustments arisingfrom the IFRS treatment ofnon-monetary items 1.2 10.1 1.5Exchange adjustments arisingfrom the IFRS treatment ofnon-monetary items (3.7) (12.5) (26.9)Loss on exchange (2.5) (2.4) (25.4) TAXATION The Group's effective tax rate was 28.8% (30 June 2006: 29.8%). The Group welcomes the recent HMRC discussion paper on the taxation of foreignprofits. Condensed Consolidated Income Statementfor the 6 months ended 30 June 2007 6 months ended 6 months ended 12 months ended 30 June 30 June 31 December 2007 2006 2006 Note £'000 £'000 £'000-------------------------------------- ------ ---------- ---------- -----------RevenueGross premiums written 727,372 695,265 1,236,289Less premiums ceded to reinsurers (156,061) (170,393) (191,371)-------------------------------------- ------ ---------- ---------- -----------Premiums written, net of reinsurance 571,311 524,872 1,044,918 Gross amount of change in provisionfor unearned premiums (72,705) (74,588) 4,945Reinsurers' share of change inprovision for unearned premiums 72,019 71,897 (1,200)-------------------------------------- ------ ---------- ---------- -----------Net change in provision for unearned premiums (686) (2,691) 3,745-------------------------------------- ------ ---------- ---------- -----------Earned premiums, net of reinsurance 570,625 522,181 1,048,663-------------------------------------- ------ ---------- ---------- -----------Fees, commissions and other income 4 755 348 775Investment income 5 56,110 48,053 101,265Net realised gains recorded in theincome statement 6 13,526 4,916 1,638Net fair value (losses)/gainsrecorded in the income statement 7 (13,943) (15,931) 7,575Disposal of subsidiary undertaking 8(i) 2,346 - -Disposal of asset held for sale 8(ii) 2,887 - --------------------------------------- ------ ---------- ---------- -----------Total revenue 632,306 559,567 1,159,916-------------------------------------- ------ ---------- ---------- -----------ExpensesClaims incurred:Claims paid:Gross amount (279,297) (358,915) (690,705)Reinsurers' share 53,416 153,295 324,101-------------------------------------- ------ ---------- ---------- -----------Claims paid, net of reinsurance (225,881) (205,620) (366,604) Change in the provision for claims:Gross amount (81,707) 71,459 59,683Reinsurers' share (5,973) (124,628) (249,121)-------------------------------------- ------ ---------- ---------- -----------Net change in the provision for (87,680) (53,169) (189,438)claims Claims incurred, net of reinsurance (313,561) (258,789) (556,042)Acquisition costs (155,227) (140,613) (289,450)Other operating expenses (51,674) (46,644) (114,354)-------------------------------------- ------ ---------- ---------- -----------Total expenses excluding finance costs (520,462) (446,046) (959,846)-------------------------------------- ------ ---------- ---------- -----------Operating profit 111,844 113,521 200,070 Finance costs (6,371) (7,873) (14,864)Share of profit after tax ofassociated undertakings 1,291 380 1,058-------------------------------------- ------ ---------- ---------- -----------Profit on ordinary activitiesbefore tax 106,764 106,028 186,264 Income tax expense 9(i) (30,712) (31,567) (52,495)-------------------------------------- ------ ---------- ---------- -----------Profit attributable to equityholders of the parent 76,052 74,461 133,769-------------------------------------- ------ ---------- ---------- -----------Basic earnings per share (pence pershare) 10 23.53p 22.99p 41.25p Diluted earnings per share (penceper share) 10 23.39p 22.87p 41.05p Condensed Consolidated Statement of Recognised Income and Expensefor the 6 months ended 30 June 2007 6 months ended 6 months ended 12 months ended 30 June 30 June 31 December 2007 2006 2006 Note £'000 £'000 £'000-------------------------------------- ------ ---------- ---------- -----------Foreign exchange translation differences (527) (760) (1,340)Actuarial gains on defined benefitpension scheme 7,542 1,343 8,869Tax on items taken to equity 9(ii) (2,223) (403) (2,661)-------------------------------------- ------ ---------- ---------- -----------Net income recognised directly in equity 4,792 180 4,868Profit for the period 76,052 74,461 133,769-------------------------------------- ------ ---------- ---------- -----------Total recognised income and expense for the period attributable toequity holders of the parent 80,844 74,641 138,637-------------------------------------- ------ ---------- ---------- ----------- Condensed Consolidated Balance Sheetas at 30 June 2007 30 June 30 June 31 December 2007 2006 2006 Note £'000 £'000 £'000-------------------------------------- ------ ---------- ---------- -----------AssetsProperty, plant and equipment 10,802 8,587 10,144Intangible assets 11 84,333 86,953 88,982Deferred acquisition costs 144,164 137,095 122,225Investments in associated undertakings 12 22,614 10,258 21,093Deferred taxation - 2,137 -Reinsurance contracts 13 436,409 586,433 374,068Financial investments 14 2,069,959 1,941,082 2,079,313Trade and other receivables 15 592,538 747,533 540,322Assets held for sale 8(ii) - 1,080 1,080Cash and cash equivalents 16 498,137 440,292 421,090-------------------------------------- ------ ---------- ---------- -----------Total assets 3,858,956 3,961,450 3,658,317-------------------------------------- ------ ---------- ---------- -----------Liabilities and EquityLiabilitiesInsurance contracts 13 2,535,914 2,538,897 2,400,057Employee benefits 5,013 19,548 12,422Borrowings 17 173,900 174,099 173,863Current taxation 30,462 33,822 22,158Deferred taxation 10,554 - 4,484Provisions 424 483 443Trade and other payables 18 274,832 423,427 231,598-------------------------------------- ------ ---------- ---------- -----------Total liabilities 3,031,099 3,190,276 2,845,025-------------------------------------- ------ ---------- ---------- -----------EquityCalled up share capital 19 & 22 247,323 245,571 246,107Share premium account 22 137,969 134,738 135,767Capital redemption reserve 22 586 586 586Translation reserve 22 (1,867) (760) (1,340)Capital reorganisation reserve 22 - 180,000 180,000Own shares 21 & 22 (46,074) (7,526) (5,777)Retained earnings 22 489,920 218,565 257,949-------------------------------------- ------ ---------- ---------- -----------Total equity attributable to equity holders of the parent 827,857 771,174 813,292-------------------------------------- ------ ---------- ---------- -----------Total liabilities and equity 3,858,956 3,961,450 3,658,317-------------------------------------- ------ ---------- ---------- ----------- Condensed Consolidated Cash Flow Statementfor the 6 months ended 30 June 2007 6 months ended 6 months ended 12 months ended 30 June 30 June 31 December 2007 2006 2006 Note £'000 £'000 £'000-------------------------------------- ------ ---------- ---------- -----------Cash generated from operations Cash flows provided by operatingactivities 23 96,667 70,780 209,644 Income tax paid (18,561) (12,900) (41,129)Interest paid (1,176) (1,198) (11,411)Interest received 52,392 36,250 84,866Dividends received 1,155 1,273 2,182 ------------------------- ------ ----------- ---------- -----------Net cash inflowsfrom operatingactivities 130,477 94,205 244,152------------------------- ------ ----------- ---------- ----------- ------------------------- ------ ----------- ---------- -----------Cash flows from investingactivitiesNet sale/(purchase)of investments 11,677 (117,027) (235,028)Purchase ofproperty, plant andequipment andrelated exchangeadjustments (2,330) (1,485) (4,444)Purchase ofintangible assets (4,968) (2,563) (6,630)Proceeds fromdisposal ofproperty, plant andequipment - 2 2Repayment of loanfrom asset held forsale - 300 300Decrease/(increase)in investment inassociatedundertakings 1,497 - (10,737)Proceeds fromdisposal of assetheld for sale 1,233 - -Net increase incash from disposalof subsidiaryundertaking 7,595 - - ------------------------- ------ ----------- ---------- -----------Net cashinflows/(outflows)from investingactivities 14,704 (120,773) (256,537)------------------------- ------ ----------- ---------- ----------- ------------------------- ------ ----------- ---------- -----------Cash flows from financingactivities Proceeds fromexercised shareoptions 3,418 932 2,497Equity dividendspaid (30,953) (29,198) (53,555)Repurchase ofunsecured loanstock - (22,425) (22,425)Acquisition of ownshares for employeeincentive schemes (19) (40) (288)Acquisition oftreasury shares (40,278) - -Proceeds from saleof own shares - - 288 ------------------------- ------ ----------- ---------- -----------Net cash outflowsfrom financingactivities (67,832) (50,731) (73,483)------------------------- ------ ----------- ---------- -----------Netincrease/(decrease)in cash and cashequivalents 77,349 (77,299) (85,868)Cash and cashequivalents atbeginning of theperiod 421,090 526,638 526,638Effect of exchangerate fluctuationson cash and cashequivalents (302) (9,047) (19,680)------------------------- ------ ----------- ---------- -----------Cash and cashequivalents at endof the period 16 498,137 440,292 421,090------------------------- ------ ----------- ---------- ----------- Notes to the Financial Statements 1 Accounting policies The interim condensed consolidated financial statements for the six months ended30 June 2007 have not been audited, nor have the interim condensed financialstatements for the equivalent period in 2006. The interim condensed consolidated financial statements for the six months ended30 June 2007 have been prepared in accordance with International AccountingStandard 34 "Interim Financial Reporting". The interim condensed consolidated financial statements do not include all the information and disclosures requiredin the annual financial statements and should be read in conjunction with theGroup's annual financial statements as at 31 December 2006. The interim condensed financial statements have been prepared in accordance withaccounting policies that are consistent with those followed in the preparationof the Group's annual financial statements for the year ended 31 December 2006and those that the directors anticipate will be complied with in the Group'sannual financial statements for the year ended 31 December 2007. The statutory accounts for the year ended 31 December 2006 have been reported onby the Group's auditors, Ernst & Young LLP, and delivered to the registrar ofcompanies. The report of the auditors was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. Thecomparative figures provided for the 12 months ended 31 December 2006 are basedon the Group's statutory accounts. The interim condensed financial statements do not constitute statutory accountsof the Group within the meaning of Section 240 of the Companies Act 1985. Basis of preparation The Group's condensed consolidated income statement, condensed consolidatedstatement of recognised income and expense, condensed consolidated balance sheetand condensed consolidated cash flow statement, have been prepared in accordancewith IFRS and those parts of the Companies Act 1985 applicable to companiesreporting under IFRS. IFRS comprises standards issued by the InternationalAccounting Standards Board ("IASB") and interpretations issued by theInternational Financial Reporting Interpretations Committee ("IFRIC") as adoptedby the EU. In accordance with IFRS 4, "Insurance Contracts", the Group continues to complywith the recommendations of the Statement of Recommended Practice on Accountingfor Insurance Businesses issued by the Association of British Insurers inDecember 2005 (as revised in December 2006). However the Group has the option tomake improvements to its policies if the changes make the financial statementsmore relevant to decision making needs of the users. Basis of consolidation The consolidated financial statements include the accounts of the Company, itssubsidiaries and the Group's participation in Lloyd's syndicates' assets,liabilities, revenues and expenses. Subsidiaries are those entities (includingspecial purpose entities) in which the Group directly or indirectly has thepower to govern the operating and financial policies in order to gain economicbenefits and includes the Group's employee benefit trusts and its open endedinvestment company ("OEIC"). The financial statements of subsidiaries areprepared for the same reporting year as the parent company. Consolidationadjustments are made to convert subsidiary accounts prepared under UK GAAP intoIFRS so as to remove any dissimilar accounting policies that may exist.Subsidiaries are consolidated from the date control is transferred to the Groupand cease to be consolidated from the date control is transferred out. Allsignificant inter-company balances, profits and transactions are eliminated.Shares held by third parties in the Group's OEIC are treated as a liability tothe Group. Associated undertakings are those entities over which the Group has the power toexercise significant influence but not control. The Group's investments inassociated undertakings are accounted for under the equity method of accountingwhereby associated undertakings are carried in the balance sheet at cost pluspost-acquisition changes in the Group's share of net assets of the associate,less any impairment in value. The Group's investment in associated undertakingsalso includes goodwill identified on acquisition less any accumulated impairmentloss. The income statement reflects the Group's share of the post-acquisitionresults of operations of the associated undertaking. The financial statements ofassociated undertakings are prepared for the same reporting period as the parentcompany. 2 Seasonality of operations The Group underwrites a wide range of risks, some of which are subject topotential seasonal variation. The most material of these is the Group's exposure to US Windstorms which arelargely concentrated into the second half of a calendar year. Therefore it is not possible to use the results in the first half of the year asan indicator of the results for the full year as a whole. 3 Segmental information 6 months ended 30 June 2007---------------- ------ ------- ------ -------- -------- ------ ------- ------- Brit Global Brit Brit UK Other Total RI3K Other Total Markets Reinsurance Strategic underwriting underwriting £'000 corporate £'000 Strategic Strategic Business Unit £'000 £'000 £'000 Business Unit Business Unit £'000 £'000 £'000---------------- ------ ------- ------ -------- -------- ------ ------- -------Gross premiumswritten 399,241 179,012 147,974 1,145 727,372 - - 727,372Less premiumsceded toreinsurers (87,949) (43,371) (24,570) (171) (156,061) - - (156,061)---------------- ------ ------- ------ -------- -------- ------ ------- -------Premiumswritten, netof reinsurance 311,292 135,641 123,404 974 571,311 - - 571,311 Gross earnedpremiums 371,583 132,302 149,635 1,147 654,667 - - 654,667Reinsurers'share (48,496) (23,465) (11,910) (171) (84,042) - - (84,042)---------------- ------ ------- ------ -------- -------- ------ ------- -------Earnedpremiums, netof reinsurance 323,087 108,837 137,725 976 570,625 - - 570,625 Fees,commissionsand otherincome - - - - - 542 213 755Investmentincome, netrealised gainsand net fairvalue gains 23,913 11,220 16,262 102 51,497 5 4,191 55,693Disposal ofsubsidiaryundertakingand asset heldfor sale - - - - - - 5,233 5,233---------------- ------ ------- ------ -------- -------- ------ ------- -------Total revenue 347,000 120,057 153,987 1,078 622,122 547 9,637 632,306---------------- ------ ------- ------ -------- -------- ------ ------- ------- Gross claimsincurred (179,414) (58,783) (122,320) (487) (361,004) - - (361,004)Reinsurers'share 16,120 11,569 19,352 402 47,443 - - 47,443---------------- ------ ------- ------ -------- -------- ------ ------- -------Claimsincurred, netof reinsurance (163,294) (47,214) (102,968) (85) (313,561) - - (313,561)Acquisitioncosts -commission (89,800) (20,206) (24,338) (276) (134,620) - - (134,620)Acquisitioncosts - other (11,362) (2,721) (6,524) - (20,607) - - (20,607)Otherinsurancerelatedexpenses (15,040) (4,913) (11,619) - (31,572) - - (31,572)Other expenses - - - - - (1,747) (18,355) (20,102)---------------- ------ ------- ------ -------- -------- ------ ------- -------Total expensesexcludingfinance costs (279,496) (75,054) (145,449) (361) (500,360) (1,747) (18,355)(520,462)---------------- ------ ------- ------ -------- -------- ------ ------- ------- Operatingprofit 67,504 45,003 8,538 717 121,762 (1,200) (8,718) 111,844 ------ ------- ------ -------- -------- ------ ------- -------Finance costs (6,371)Share ofprofit ofassociatedundertakings 1,291 -------Profit onordinaryactivitiesbefore tax 106,764Income taxexpense (30,712) -------Profitattributableto equityholders of theparent 76,052 -------Claims ratio 50.5% 43.4% 74.8% 55.0%Expense ratio 36.0% 25.6% 30.8% 32.7%Combined ratio 86.5% 69.0% 105.6% 87.7% 6 months ended 30 June 2006 ---------------- ------ ------- ------ -------- -------- ------ ------- ------- Brit Global Brit Brit UK Other Total RI3K Other Total Markets Reinsurance Strategic underwriting underwriting £'000 corporate £'000 Strategic Strategic Business Unit £'000 £'000 £'000 Business Unit Business Unit £'000 £'000 £'000 ---------------- ------ ------- ------ -------- -------- ------ ------- -------Gross premiumswritten 351,518 211,071 146,511 (13,835) 695,265 - - 695,265Less premiumsceded toreinsurers (87,358) (59,073) (26,297) 2,335 (170,393) - - (170,393)---------------- ------ ------- ------ -------- -------- ------ ------- -------Premiumswritten, netof reinsurance 264,160 151,998 120,214 (11,500) 524,872 - - 524,872 Gross earnedpremiums 309,581 165,458 142,286 3,352 620,677 - - 620,677Reinsurers'share (43,271) (36,095) (15,958) (3,172) (98,496) - - (98,496)---------------- ------ ------- ------ -------- -------- ------ ------- -------Earnedpremiums, netof reinsurance 266,310 129,363 126,328 180 522,181 - - 522,181 Fees,commissionsand otherincome - - - - - 278 70 348Investmentincome, netrealised gainsand net fairvalue gains 14,826 8,812 11,173 (276) 34,535 4 2,499 37,038---------------- ------ ------- ------ -------- -------- ------ ------- -------Total revenue 281,136 138,175 137,501 (96) 556,716 282 2,569 559,567---------------- ------ ------- ------ -------- -------- ------ ------- ------- Gross claimsincurred (133,831) (77,614) (71,583) (4,428) (287,456) - - (287,456)Reinsurers'share 18,637 7,085 374 2,571 28,667 - - 28,667Claimsincurred, netof reinsurance (115,194) (70,529) (71,209) (1,857) (258,789) - - (258,789)Acquisitioncosts -commission (75,669) (25,056) (23,799) (179) (124,703) - - (124,703)Acquisitioncosts - other (8,000) (3,807) (4,103) - (15,910) - - (15,910)Otherinsurancerelatedexpenses (15,932) (6,849) (8,035) - (30,816) - - (30,816)Other expenses - - - - - (2,273) (13,555) (15,828)---------------- ------ ------- ------ -------- -------- ------ ------- -------Total expensesexcludingfinance costs (214,795) (106,241) (107,146) (2,036) (430,218) (2,273) (13,555) (446,046)---------------- ------ ------- ------ -------- -------- ------ ------- ------- Operatingprofit 66,341 31,934 30,355 (2,132) 126,498 (1,991) (10,986) 113,521 ------ ------- ------ -------- -------- ------ ------- -------Finance costs (7,873)Share ofprofit ofassociatedundertakings 380 -------Profit onordinaryactivitiesbefore tax 106,028Income taxexpense (31,567) -------Profitattributableto equityholders of theparent 74,461 ------- Claims ratio 43.2% 54.5% 56.4% 49.6%Expense ratio 37.4% 27.6% 28.4% 32.8%Combined ratio 80.6% 82.1% 84.8% 82.4% 12 months ended 31 December 2006 Brit Global Brit Brit UK Other Total RI3K Other Total Markets Reinsurance Strategic underwriting underwriting £'000 corporate £'000 Strategic Strategic Business Unit £'000 £'000 £'000 Business Unit Business Unit £'000 £'000 £'000---------------- ------ ------- ------ -------- -------- ------ ------- -------Gross premiumswritten 706,913 260,897 279,880 (11,401) 1,236,289 - - 1,236,289Less premiumsceded toreinsurers (115,818) (49,194) (29,041) 2,682 (191,371) - - (191,371)---------------- ------ ------- ------ -------- -------- ------ ------- -------Premiumswritten, netof reinsurance 591,095 211,703 250,839 (8,719) 1,044,918 - - 1,044,918 Gross earnedpremiums 661,870 292,368 281,248 5,748 1,241,234 - - 1,241,234Reinsurers'share (104,324) (55,386) (30,014) (2,847) (192,571) - - (192,571)---------------- ------ ------- ------ -------- -------- ------ ------- -------Earnedpremiums, netof reinsurance 557,546 236,982 251,234 2,901 1,048,663 - - 1,048,663 Fees,commissionsand otherincome - - - - - 659 116 775Investmentincome, netrealised gainsand net fairvalue gains 46,377 26,163 32,708 155 105,403 9 5,066 110,478---------------- ------ ------- ------ -------- -------- ------ ------- -------Total revenue 603,923 263,145 283,942 3,056 1,154,066 668 5,182 1,159,916---------------- ------ ------- ------ -------- -------- ------ ------- ------- Gross claimsincurred (295,744) (148,542) (181,823) (4,913) (631,022) - - (631,022)Reinsurers'share 36,394 30,053 6,931 1,602 74,980 - - 74,980---------------- ------ ------- ------ -------- -------- ------ ------- -------Claimsincurred netof reinsurance (259,350) (118,489) (174,892) (3,311) (556,042) - - (556,042)Acquisitioncosts -commission (157,458) (45,388) (43,437) (1,306) (247,589) - - (247,589)Acquisitioncosts - other (21,586) (8,786) (11,231) (258) (41,861) - - (41,861)Otherinsurancerelatedexpenses (37,984) (13,966) (14,022) - (65,972) - - (65,972)Other expenses - - - - - (4,712) (43,670) (48,382)---------------- ------ ------- ------ -------- -------- ------ ------- -------Total expensesexcludingfinance costs (476,378) (186,629) (243,582) (4,875) (911,464) (4,712) (43,670) (959,846)---------------- ------ ------- ------ -------- -------- ------ ------- ------- Operatingprofit 127,545 76,516 40,360 (1,819) 242,602 (4,044) (38,488) 200,070 ------ ------- ------ -------- -------- ------ ------- -------Finance costs (14,864)Share ofprofit ofassociatedundertakings 1,058 -------Profit onordinaryactivitiesbefore tax 186,264Income taxexpense (52,495) -------Profitattributableto equityholders of theparent 133,769 ------- Claims ratio 46.5% 50.0% 69.6% 53.0%Expense ratio 38.9% 28.8% 27.3% 33.9%Combined ratio 85.4% 78.8% 96.9% 86.9% 4 Fees, commissions and other income ----------------------------- ----------- --------- ---------- 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 ----------------------------- ----------- --------- ----------Electronic infrastructuredesign and development 542 278 658Other fees and commissions 213 70 117----------------------------- ----------- --------- ---------- 755 348 775 ----------------------------- ----------- --------- ---------- 5 Investment income ----------------------------- ----------- --------- ---------- 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 ----------------------------- ----------- --------- ----------Financial investments at fair value through the profit and loss: Dividend Income 1,155 1,273 2,182 Interest income 43,408 37,138 79,116Interest income on cashand cash equivalents 11,547 9,642 19,967----------------------------- ----------- --------- ---------- 56,110 48,053 101,265 ----------------------------- ----------- --------- ---------- 6 Net realised gains/(losses) recorded in the income statement ----------------------------- ----------- --------- ---------- 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 ----------------------------- ----------- --------- ----------Realised gains oninvestments 13,532 4,914 3,708Realised losses onderivatives - - (2,070)(Loss)/profit on sale ofproperty, plant andequipment (6) 2 ------------------------------ ----------- --------- ---------- 13,526 4,916 1,638 ----------------------------- ----------- --------- ---------- 7 Net fair value gains/(losses) recorded in the income statement ------------------------------ ---------- --------- ---------- 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 ------------------------------ ---------- --------- ----------Unrealised (losses)/gainson investments (13,691) (14,247) 7,667Unrealised losses onderivatives (252) (1,684) (92)------------------------------ ---------- --------- ---------- (13,943) (15,931) 7,575 ------------------------------ ---------- --------- ---------- 8 Disposal of subsidiary undertaking and asset held for sale (i) Disposal of subsidiary undertaking On 3 May 2007, the Group sold 10,338,400 ordinary shares in RI3K Limited("RI3K") to a consortium of investors, representing 63.2% of the company'sissued share capital. The Group has retained a 22.4% interest in RI3K which is now accounted for as aninvestment in an associated undertaking. As part of the disposal, the Group has been granted warrants over 2,628,571 RI3Kordinary shares at a strike price of £1.52 per share. In addition, the Group hasalso subscribed for 1,300,000 £1 RI3K Limited convertible preference shares atpar. The warrants and the convertible preference shares are carried in the balancesheet at fair value. Assets disposed of and related sales proceeds were as follows: £'000 ---------------------------- ---------- -----------Cash proceeds 8,276 Carrying value of 85.6% initially held (7,363)Carrying value of 22.4% share retained 1,927---------------------------- ---------- -----------Net amount disposed of (5,436) Costs of disposal (494)---------------------------- ---------- -----------Profit on disposal 2,346---------------------------- ---------- ----------- Of the 10,338,400 ordinary shares in RI3K that were sold by the Group, 863,235were purchased by Neil Eckert, a member of the consortium and a non-executivedirector of Brit Insurance Holdings PLC. (ii) Disposal of asset held for sale On 19 January 2007, the Group sold its stake in EPIC Investment Partners Limited("EIP") to Syndicate Asset Management plc ("SAM"). Under the terms agreed withSAM, the Group has derived initial consideration of £1,314,000 in cash and3,100,000 £1 4-year SAM loan notes. The redemption value of the loan notes wouldbe reduced if total revenues derived by EIP from the Group over the 4 years wereto fall below current levels, however, the Group is not obliged to keep fundswith EIP. In addition, there is deferred contingent consideration of up to£1,100,000 based on the profitability of EIP in the three years post completion. Assets disposed of and related sales proceeds were as follows: £'000 ------------------------------------ -----------Cash proceeds 1,314Fair value of 4-year SAM loan notes 2,734------------------------------------ -----------Total disposal proceeds 4,048Carrying value of Brit stake in EIP (1,080)Costs of disposal (81)------------------------------------ -----------Profit on disposal 2,887------------------------------------ ----------- 9 Income tax expense (i) Tax charged to income statement ----------------------- ----------- --------- ---------- 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 ----------------------- ----------- --------- ----------Current tax:For the period (27,363) (32,459) (54,224)Adjustments in respect of prior years:Adjustments 500 - 5,200----------------------- ----------- --------- ----------Total current tax (26,863) (32,459) (49,024)----------------------- ----------- --------- ---------- ---------- Deferred tax:Origination and reversalof temporary differences (3,647) 783 (2,702)Deferred tax assetspreviously unrecognised - 109 1,833Other adjustments inrespect of prior years (202) - (2,602)----------------------- ----------- --------- ----------Total tax charged toincome statement (30,712) (31,567) (52,495)----------------------- ----------- --------- ---------- (ii) Tax charged to equity ----------------------- ----------- --------- ---------- 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 ----------------------- ----------- --------- ----------Deferred tax (2,223) (403) (2,661)----------------------- ----------- --------- ---------- (iii) Tax reconciliation The tax on the Group's profits before tax differs from the theoretical amountthat would arise from using the current standard rate for corporation taxapplicable in the UK of 30% (2006: 30%) as follows: -------------------------- ---------- ---------- ----------- 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 -------------------------- ---------- ---------- -----------Profit on ordinaryactivities before tax 106,764 106,028 186,264-------------------------- ---------- ---------- ----------- Tax calculated at standardrate for corporation tax (32,029) (31,809) (55,879)Expenses not deductiblefor tax purposes (296) (363) (899)Equity dividends notsubject to corporation tax 257 382 539Sale of substantialshareholdings 1,570 - -Overseas tax notrecoverable (500) - (1,004)Effect of future tax ratechange on losses andcapital allowances (393) - -Deferred tax assetspreviously unrecognised - 109 1,833Other adjustments to taxcharge in respect of prioryears 298 - 2,598Tax effect of share ofresults of associatedundertakings 381 114 317-------------------------- ---------- ---------- ----------- (30,712) (31,567) (52,495) -------------------------- ---------- ---------- ----------- 10 Earnings per share The calculations of the basic and diluted earnings per share are based on thefollowing figures : 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 ----------------------- ----------- --------- ----------Profit on ordinaryactivities after tax 76,052 74,461 133,769----------------------- ----------- --------- ---------- 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 Number Number Number Basic weighted averagenumber of shares 323,242,923 323,936,820 324,262,139Dilutive potential ordinary shares:Employee share options 1,907,200 1,642,826 1,606,725----------------------- ----------- --------- ----------Diluted weighted averagenumber of shares 325,150,123 325,579,646 325,868,864----------------------- ----------- --------- ----------Basic earnings per share(pence) 23.53 22.99 41.25Diluted earnings per share(pence) 23.39 22.87 41.05 11 Intangible assets ------------------------- --------- -------- --------- ----------- Goodwill Syndicate Software Total £'000 Participations £'000 £'000 £'000 ------------------------- --------- -------- --------- -----------Cost:At 1 January 2006 80,408 9,025 19,503 108,936Additions - - 2,563 2,563------------------------- --------- -------- --------- -----------At 30 June 2006 80,408 9,025 22,066 111,499 At 1 January 2006 80,408 9,025 19,503 108,936Additions - - 6,630 6,630------------------------- --------- -------- --------- -----------At 31 December 2006 80,408 9,025 26,133 115,566 At 1 January 2007 80,408 9,025 26,133 115,566Additions - - 4,968 4,968Disposals (8,195) - (169) (8,364)------------------------- --------- -------- --------- -----------At 30 June 2007 72,213 9,025 30,932 112,170 Amortisation:At 1 January 2006 9,417 9,025 4,253 22,695Charge for the period - - 1,851 1,851------------------------- --------- -------- --------- -----------At 30 June 2006 9,417 9,025 6,104 24,546 At 1 January 2006 9,417 9,025 4,253 22,695Charge for the year - - 3,889 3,889Disposals - - - -------------------------- --------- -------- --------- -----------At 31 December 2006 9,417 9,025 8,142 26,584 At 1 January 2007 9,417 9,025 8,142 26,584Charge for the period - - 2,189 2,189Disposals (819) - (117) (936)------------------------- --------- -------- --------- -----------At 30 June 2007 8,598 9,025 10,214 27,837 Carrying amount:At 30 June 2006 70,991 - 15,962 86,953At 31 December 2006 70,991 - 17,991 88,982At 30 June 2007 63,615 - 20,718 84,333 12 Investments in associated undertakings ----------------------------- -------- ------- -------- 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 ----------------------------- -------- ------- --------Ebix Inc 11,063 10,258 10,328Norton Holdings Limited 8,499 - 10,765RI3K Limited 3,052 - ------------------------------ -------- ------- -------- 22,614 10,258 21,093 ----------------------------- -------- ------- -------- The movements in the Group's investment in associates are as follows: ----------------------------- -------- ------- --------- ------ Ebix Inc Norton Holdings RI3K Total £'000 Limited Limited £'000 £'000 £'000 ----------------------------- -------- ------- --------- ------Balance at 1 January 2007 10,328 10,765 - 21,093Share of subsidiary undertakingretained after majority disposal - - 1,927 1,927Foreign exchange revaluation (239) (288) - (527)(Redemption)/purchase ofpreference shares - (2,517) 1,300 (1,217)Effect of change in percentageownership of ordinary shares - (280) - (280)Share of profit/(loss) after taxin the period 647 819 (175) 1,291Share of associates' otherreserves movements 327 - - 327----------------------------- -------- ------- --------- ------Balance at 30 June 2007 11,063 8,499 3,052 22,614----------------------------- -------- ------- --------- ------ 13 Insurance and reinsurance contracts ----------------------------- -------- ------- -------- 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 ----------------------------- -------- ------- --------GrossInsurance contractsClaims reported and loss adjustmentexpenses 951,302 1,020,637 953,758Claims incurred but not reported 912,857 839,678 847,249----------------------------- -------- ------- -------- 1,864,159 1,860,315 1,801,007Unearned premiums 671,755 678,582 599,050----------------------------- -------- ------- --------Total insurance contracts 2,535,914 2,538,897 2,400,057----------------------------- -------- ------- -------- Recoverable from insurersReinsurance contractsClaims reported and loss adjustmentexpenses 177,733 311,920 224,998Claims incurred but not reported 146,395 163,250 106,113Impairment provision (19,739) (21,835) (17,044)----------------------------- -------- ------- -------- 304,389 453,335 314,067Unearned premiums 132,020 133,098 60,001----------------------------- -------- ------- --------Total reinsurance contracts 436,409 586,433 374,068----------------------------- -------- ------- -------- NetClaims reported and loss adjustmentexpenses 773,569 708,717 728,760Claims incurred but not reported 766,462 676,428 741,136Impairment provision 19,739 21,835 17,044----------------------------- -------- ------- -------- 1,559,770 1,406,980 1,486,940Unearned premiums 539,735 545,484 539,049----------------------------- -------- ------- --------Net insurance and reinsurance contracts 2,099,505 1,952,464 2,025,989----------------------------- -------- ------- -------- Releases from prior year claims reserves have been made of £6,700,000 (30 June2006: £23,500,000) (31 December 2006: £33,890,000). 14 Financial investments -------------------------------- --------- --------- --------- 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 -------------------------------- --------- --------- ---------Equity securities :Listed 230,075 199,080 226,437Unlisted - 500 --------------------------------- --------- --------- --------- 230,075 199,580 226,437 Debt securities :Listed 1,358,083 1,344,409 1,397,953Unlisted 2,734 - -Certificates of deposit 292,743 369,874 427,752-------------------------------- --------- --------- --------- 1,653,560 1,714,283 1,825,705Other investments :Specialised investment funds 183,156 26,734 27,156Derivative financial instruments 3,168 485 15-------------------------------- --------- --------- --------- 186,324 27,219 27,171 -------------------------------- --------- --------- --------- 2,069,959 1,941,082 2,079,313 -------------------------------- --------- --------- --------- On 22 June the Group's principal subsidiary, Brit Insurance Limited ("BIL"),entered into a three-year catastrophe swap contract with Fremantle Limited("Fremantle"), an unrelated Cayman Islands exempted company. Fremantle will pay BIL up to US$200 million in the event of four to ninequalifying natural catastrophes ("events") - US$40 million for each of the 4thand 5th events and US$30 million for each of the 6th to 9th events. The firstthree events are excluded. This transaction has been accounted for as a derivative and its fair value hasbeen included within "derivative financial instruments". 15 Trade and other receivables -------------------------------- --------- --------- ----------- 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 -------------------------------- --------- --------- -----------Trade debtors 12,346 16,618 10,171Arising out of direct insurance operations 328,755 330,324 332,900Arising out of reinsurance operations 204,557 365,483 160,679Prepayments 7,691 6,600 2,644Accrued income 34,497 28,247 31,934Other debtors 4,692 261 1,994-------------------------------- --------- --------- ----------- 592,538 747,533 540,322 -------------------------------- --------- --------- ----------- All amounts are due within one year of the balance sheet date. 16 Cash and cash equivalents -------------------------------- --------- --------- ----------- 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 -------------------------------- --------- --------- -----------Cash at bank and on deposit 437,182 429,481 367,518Cash equivalents 60,955 10,811 53,572-------------------------------- --------- --------- ----------- 498,137 440,292 421,090 -------------------------------- --------- --------- ----------- Included in cash and cash equivalents are amounts totalling £233,472,000 (30June 2006: £181,919,000) (31 December 2006: £183,105,000) not available for useby the Group which are held within the Lloyd's syndicates and as Funds atLloyd's. In addition, there are amounts totalling £28,202,000 (30 June 2006: £nil) (31December 2006: £nil) which have been deposited in separate bank accounts so asto guarantee payment of (a) the interest and capital payable to the holders ofthe outstanding 8.5% unsecured subordinated loan stock 2008 in the period up toand including 31 December 2008 and (b) the interest and capital payable to theholders of the outstanding US dollar floating rate unsecured subordinated loannotes 2034 in the period up to and including 15 August 2009. 17 Borrowings --------------------- ------ ------ -------------- ------- ------ -------- Maturity Call Effective 30 June 30 June 31 December interest rate % 2007 2006 2006 £'000 £'000 £'000 --------------------- ------ ------ -------------- ------- ------ --------Non-current8.5% unsecuredsubordinatedloan stock 2008 2008 9.50 19,314 19,052 19,181US dollarfloating rateunsecuredsubordinatedloan notes 2034 2009 US dollar 3 7,342 7,926 7,502 month LIBOR + 3.5Lower Tier Twosubordinateddebt 2030 2020 6.84 147,244 147,121 147,180--------------------- ------ ------ -------------- ------- ------ -------- 173,900 174,099 173,863 --------------------- ------ ------ -------------- ------- ------ -------- 18 Trade and other payables -------------------------------- --------- --------- -------- 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 -------------------------------- --------- --------- --------Trade creditors 2,568 6,995 2,264Arising out of direct insurance operations 45,057 209,399 41,286Arising out of reinsurance operations 173,396 166,638 131,866Other taxes and social security costs 2,721 1,140 1,344Shares held by third parties - CF EpicInvestment Funds 28,561 22,125 33,811Accruals and deferred income 22,015 16,691 20,502Other creditors 514 439 525-------------------------------- --------- --------- -------- 274,832 423,427 231,598 -------------------------------- --------- --------- -------- All amounts are payable within one year of the balance sheet date. 19 Share capital ------------------------ ---------- --------- -------- 30 June 30 June 31 December 2007 2006 2006 Number Number Number ------------------------ ---------- --------- --------Number of ordinary shares of 75p each,allotted, issued and fully paid:Opening balance 328,142,566 326,980,768 326,980,768Exercised share options 1,621,831 446,923 1,161,798------------------------ ---------- --------- --------Closing balance 329,764,397 327,427,691 328,142,566------------------------ ---------- --------- -------- 20 Equity dividends ------------------------ ---------- ----------- ---------- 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 ------------------------ ---------- ----------- ----------Final 2005 dividend paid -9.0p per ordinary share - 29,198 29,198First 2006 interimdividend paid - 7.5p perordinary share - - 24,357Final 2006 dividend paid -7.5p per ordinary share 24,437 - -Special final 2006dividend paid - 2.0p perordinary share 6,516 - ------------------------- ---------- ----------- ---------- 30,953 29,198 53,555 ------------------------ ---------- ----------- ---------- The Company had distributable reserves of £182,662,000 at 30 June 2007 (30 June2006: £22,194,000) (31 December 2006: £82,950,000). The Directors recommend an interim dividend of 7.5p per ordinary share for theperiod ended 30 June 2007. These dividends will be paid on 23 November 2007 toshareholders on the register on 26 October 2007. Based on the number of sharesin issue as at 3 September 2007, but excluding treasury shares and those ownedby the Group's Employee Benefit Trust which has waived its entitlement todividends, this would amount to £23,496,000. 21 Own shares 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 Performance Share Plan and Executive ShareOption Scheme 4,846 6,523 4,846All Employee Share Ownership Plan 950 700 931Held by Brit Insurance Limited - 303 -Treasury shares 40,278 - -------------------------- -------- ------- --------- 46,074 7,526 5,777 ------------------------- -------- ------- --------- On 6 March 2007, the Group announced a share buy-back programme to return up to£50,000,000 of capital to investors. In the period from 26 March 2007 to 30 June 2007 the Group has purchased11,603,000 ordinary shares at a cost of £40,278,000 and this is the total amountof shares held in treasury at the balance sheet date. 22 Reconciliation of movements in equity For the 6 months ended 30 June 2007 Total equity Note Called up Share Capital Capital attributable share premium redemption Translation reorganisation Own Retained to capital account reserve reserve reserve shares earnings shareholders £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000------------- ------ ------ ------ ------- ------- -------- ------ ------ -------Balance at 1January 2007 246,107 135,767 586 (1,340) 180,000 (5,777) 257,949 813,292 Arising in the period: -Foreignexchangetranslationdifferences - - - (527) - - - (527) Actuarialgains ondefinedbenefitpension scheme - - - - - - 7,542 7,542 Tax on itemstaken directlyto ortransferredfrom equity - - - - - - (2,223) (2,223) Profit for theperiod - - - - - - 76,052 76,052------------- ------ ------ ------ ------- ------- -------- ------ ------ -------Totalrecognisedincome andexpense forthe period - - - (527) - - 81,371 80,844------------- ------ ------ ------ ------- ------- -------- ------ ------ -------Acquisition ofown shares - - - - - (19) - (19) Purchase oftreasuryshares - - - - - (40,278) - (40,278) Equitydividends 20 - - - - - - (30,953) (30,953) Share-basedpayments - - - - - - 1,226 1,226 Exercisedshare options 1,216 2,202 - - - - - 3,418 Capitalreorganisation - - - - (180,000) - 180,000 - Share ofassociates'other reservesmovements - - - - - - 327 327------------- ------ ------ ------ ------- ------- -------- ------ ------ -------Balance at 30June 2007 247,323 137,969 586 (1,867) - (46,074) 489,920 827,857------------- ------ ------ ------ ------- ------- -------- ------ ------ ------- Following an application to the High Court, the Company was permitted totransfer an amount from the share premium account to a capital reorganisationreserve of £180,000,000. This capital reorganisation became effective on 29March 2006. On 2 March 2007, following £29,411,913 being deposited in separate bank accountsby the Company on terms approved by the Court, the £180,000,000 was transferredfrom the capital reorganisation reserve to retained earnings. For the 6 months ended 30 June 2006 Total equity Note Called up Share Capital Capital attributable share premium redemption Translation reorganisation Own Retained to capital account reserve reserve reserve shares earnings shareholders £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000------------- ------ ------ ------ ------- ------- -------- ------ ------ -------Balance at 1January 2006 245,236 314,758 586 - - (7,550) 171,630 724,660 Arising in the period: -Foreignexchangetranslationdifferences - - - (760) - - - (760)Actuarialgains ondefinedbenefitpension scheme - - - - - - 1,343 1,343Tax on itemstaken directlyto ortransferredfrom equity - - - - - - (403) (403)Profit for theperiod - - - - - - 74,461 74,461---------- ----- -------- ------- ------- ------- -------- ------- ------ ---------Totalrecognisedincome andexpense forthe period - - - (760) - - 75,401 74,641 ---------- ----- -------- ------- ------- ------- -------- ------- ------ ---------Acquisition ofown shares - - - - - (40) - (40)Vesting of ownshares - - - - - 64 - 64Equitydividends 20 - - - - - - (29,198) (29,198)Share-basedpayments - - - - - - 732 732Exercisedshare options 335 597 - - - - - 932Capitalreorganisation - (180,000) - - 180,000 - - -Premium onrepurchase ofunsecuredsubordinatedloan stock - (617) - - - - - (617)---------- ----- -------- ------- ------- ------- -------- ------- ------ ---------Balance at 30June 2006 245,571 134,738 586 (760) 180,000 (7,526) 218,565 771,174------------- -------- ------- ------- ------- -------- ------- ------ -------- For the 6 months ended 31 December 2006 Total equity Note Called up Share Capital Capital attributable share premium redemption Translation reorganisation Own Retained to capital account reserve reserve reserve shares earnings shareholders £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000------------- ------ ------ ------ ------- ------- -------- ------ ------ -------Balance at 1January 2006 245,236 314,758 586 - - (7,550) 171,630 724,660 Arising in theyear:Foreignexchangetranslationdifferences - - - (1,340) - - - (1,340) Actuarialgains ondefinedbenefitpension scheme - - - - - - 8,869 8,869 Tax on itemstaken directlyto ortransferredfrom equity - - - - - - (2,661) (2,661) Profit for theyear - - - - - - 133,769 133,769------------- ----- ------ ------- ------- ------- -------- ------ ------ -------Totalrecognisedincome andexpense forthe year - - - (1,340) - - 139,977 138,637------------- ----- ------ ------- ------- ------- -------- ------ ------ --------Acquisition ofown shares - - - - - (288) - (288) Vesting of ownshares - - - - - 1,758 (1,758) - Sale of ownshares - - - - - 303 (15) 288 Equitydividends 20 - - - - - - (53,555) (53,555) Share-basedpayments - - - - - - 1,670 1,670 Exercisedshare options 871 1,626 - - - - - 2,497 Capitalreorganisation - (180,000) - - 180,000 - - -Premium onrepurchase ofunsecuredsubordinatedloan stock - (617) - - - - - (617)------------- ----- ------ ------- ------- ------- -------- ------ ------ --------Balance at 31December 2006 246,107 135,767 586 (1,340) 180,000 (5,777) 257,949 813,292---------------- ------ ------- ------- ------- -------- ------ ------ -------- 23 Cash flows provided by operating activities 6 months ended 6 months ended 12 months ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 --------------------------- ----------- ----------- -----------Profit on ordinaryactivities before tax 106,764 106,028 186,264 Adjustments for non-cashmovements:Realised and unrealisedinvestment losses/(gains) 411 11,017 (9,213)Loss/(profit) on sale ofproperty, plant andequipment 6 (2) -Amortisation of software 2,189 1,851 3,889Depreciation of property,plant and equipment andrelated exchangeadjustments 1,561 1,134 2,534Foreign exchange gains onfinancing items (190) (612) (1,068)Foreign exchange losses oncash and cash equivalents 302 9,047 19,680Share of profit after taxof associated undertakings (1,291) (380) (1,058)Charges in respect ofemployee share schemes 1,226 732 1,670Charges in respect ofretirement benefits 133 (1,927) (1,527)Interest income (54,955) (46,780) (99,083)Dividend income (1,155) (1,273) (2,182)Vesting of own shares - 64 -Finance costs on borrowing 1,403 3,504 13,937Profit on disposal ofsubsidiary undertaking (2,346) - -Profit on disposal ofasset held for sale (2,887) - - Changes in working capital:Deferred acquisition costs (21,939) (11,998) 2,872Trade and otherreceivables excludingaccrued income (49,653) (139,120) 71,778Insurance and reinsurancecontracts 73,516 8,986 82,511Trade and other payables 43,234 130,515 (61,314)Working capital disposedof in sale of subsidiaryundertaking 357 - -Provisions (19) (6) (46)--------------------------- ----------- ----------- -----------Cash flows provided byoperating activities 96,667 70,780 209,644--------------------------- ----------- ----------- ----------- INDEPENDENT REVIEW REPORT TO BRIT INSURANCE HOLDINGS PLC Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2007 which comprises the Condensed ConsolidatedIncome Statement, Condensed Consolidated Statement of Recognised Income andExpense, Condensed Consolidated Balance Sheet, Condensed Consolidated Cash FlowStatement and the related notes 1 to 23. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the Company, for our work,for this report, or for the conclusions we have formed. 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 ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof group management and applying analytical procedures to the financialinformation and underlying financial data, and based thereon, assessing whetherthe accounting policies and presentation have been consistently applied, unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK and Ireland) and therefore provides alower level of assurance than an audit. Accordingly we do not express an auditopinion on the financial information. 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 2007. Ernst & Young LLP1 More London PlaceLondon SE1 2AF 3 September 2007 This information is provided by RNS The company news service from the London Stock Exchange

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