8th Dec 2008 07:00
8 December 2008
For publication in the United Kingdom only. Not for release, publication or distribution in or into any other jurisdiction including the United States of America, Australia, Canada, the Republic of South Africa, the Republic of Ireland or Japan
OMEGA Insurance Holdings Limited
Placing to raise £130 mILLION
Overview OF THE PLACING
This summary should be read in conjunction with the detailed announcement which follows.
Comments
Walter Fiederowicz, Chairman of Omega, said today:
"As a result of this fundraising, the Group is now able to seize a significant market opportunity to grow the underwriting book in our existing business areas over the next 12 to 18 months. During this time we foresee a hardening of rates and an improvement in terms and conditions in the Group's core lines of business. Our conservative investment policy and short-tail account mean we will be focused on the future and its opportunities and not dealing with legacy issues from 2008 and prior years that will be preoccupying so many in the industry".
Richard Tolliday, Chief Executive of Omega, said today:
"We expect to see a progressive and significant improvement in market conditions over the next 12 to 18 months. The insurance industry environment is very different today from the conditions seen following Hurricane Andrew, 9/11 and the 2005 hurricane season, because of the number and nature of the factors which are profoundly affecting the industry. This creates exciting opportunities for a group as well positioned as Omega is. The severity of capital constraints being felt in the industry means we are confident we can utilise our enlarged balance sheet to grow our Bermudian operations and our surplus lines carrier in the US, essentially by writing more of the same type of business we have written so successfully for the past 29 years".
Contacts
Richard Tolliday, Chief Executive, Omega +1 441 294 6610
John Coles, Threadneedle Communications 020 7653 9848
Placing Statistics
|
Placing Price |
140 pence |
|
Number of Common Shares in issue prior to the Placing |
147,662,417 |
|
Number of Placing Shares being issued |
92,857,142 |
|
Number of Common Shares in issue following the Placing |
240,519,559 |
|
Estimated net proceeds of the Placing receivable by the Company |
approx. £123.7m |
|
Percentage of the enlarged issued Common Share capital available in the Placing |
38.6 per cent. |
|
Market capitalisation at the Placing Price |
approx. £336.7m |
Expected Timetable of Principal Events
|
Publication of the Circular and posting to Shareholders |
On or around 9 December 2008 |
|
Latest time and date for receipt of Form of Direction |
9.00 a.m. (Bermuda time) on 5 January 2009 |
|
Latest time and date for receipt of Form of Proxy |
9.00 a.m. (Bermuda time) on 6 January 2009 |
|
Time and date of Special General Meeting |
9.00 a.m. (Bermuda time) on 8 January 2009 |
|
First day of dealings in Placing Shares on AIM |
30 January 2009 |
|
CREST accounts credited |
30 January 2009 |
All times are London times unless otherwise stated and are subject to change
DETAILS OF THE PLACING
Introduction
The Board announces that the Company proposes to raise approximately £130 million (before expenses) by means of a Placing by Cenkos and Numis of 92,857,142 Common Shares at 140 pence per share. The Placing is fully underwritten by Numis. The net proceeds of the Placing will be used to support the Group's underwriting activities.
This announcement sets out the background to the Proposals, which the Directors consider to be in the best interests of the Company and its Shareholders as a whole, for the reasons stated below. The Board has received financial advice from Kinmont in relation to the Proposals. In giving its advice, Kinmont has relied on the Board's commercial assessment of the Proposals. The Board unanimously recommends Shareholders to vote in favour of the Resolutions at the Special General Meeting. The Directors, other than Penelope James who holds no Common Shares, together with David Burchett (Deputy Underwriter, Syndicate 958), have irrevocably undertaken to vote or procure votes in favour of the Resolutions in respect of the holdings of Common Shares in which they are interested. These holdings, in aggregate, amount to 20,610,790 Common Shares, representing approximately 13.96 per cent. of the existing issued Common Share capital of the Company. The Special General Meeting will be held at 9.00 a.m. (Bermuda time) on 8 January 2009 at the offices of Conyers Dill & Pearman, Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.
Information on the Omega Group
The Omega Group is an international insurance and reinsurance group, headquartered in Bermuda with operations in Bermuda, London, Chicago and Cologne. The Group's origins centre on the management of Lloyd's Syndicate 958 which has made an underwriting profit in every closed year of account since its establishment in 1980.
In 2005, Omega began the execution of its strategy to change the focus of the Group from being primarily a manager of the third party capital supporting the Syndicate to become an insurance and reinsurance operation with a significant amount of its own aligned capital.
In April 2005, the Group was admitted to trading on AIM, with an associated £18.2 million fundraising (net of expenses) from institutional and other investors. In December 2005, the Group raised £85.8 million (net of expenses) principally to capitalise a new Bermudian business, Omega Specialty (a Bermudian Class 3 insurance company rated ''A-'' (Excellent) by A.M. Best). In October 2006, a further fundraising of £32.8 million (net of expenses) took place, the proceeds of which were used to capitalise Omega US (also rated ''A-'' (Excellent) by A.M. Best). On 9 November 2006, a scheme of arrangement became effective under which Omega Insurance Holdings Limited, a Bermudian company, became the holding company of the Omega Group. Shareholders in Omega Underwriting Holdings PLC (''OUH'') (the previous holding company now re-registered as a private limited company) received an equal number of Common Shares in exchange for their shares in OUH. Omega was admitted to trading on AIM on 9 November 2006 and the admission to AIM of OUH was cancelled on the same date.
The Omega Group has established underwriting platforms in each of the US, Bermuda and Germany, in addition to Lloyd's, and as such is able to provide insureds and brokers with a range of options for the most appropriate carrier for individual policies.
The Group underwrites a predominantly short-tail property insurance and reinsurance account, with a focus on insuring small to medium sized insureds and reinsuring smaller insurance companies. The Directors believe that in these targeted areas, the profit margins are more consistent and the volatility of earnings lower than on larger risks. The Group focuses on gross underwriting profit, managing its premium income base accordingly across the cycle.
Omega is an efficient business at both an operating and a capital level. A total underwriting staff of 30 manage capacity on Syndicate 958 of £249 million for the 2008 year of account, as well as its underwriting operations in Omega Specialty and Omega US. The Group's underwriters are highly experienced with an average career experience of over 30 years. At Lloyd's, Omega Dedicated has an Economic Capital Assessment requirement with regards to its participation in Syndicate 958 of 40 per cent. for the 2009 year of account, which is the minimum possible ECA permitted by Lloyd's.
A more detailed summary of the Group is set out in Section 4 of this announcement.
Background to and reasons for the Placing
The Board of Omega perceives an opportunity to grow the Group's underwriting capacity based on current market conditions.
Hurricane Ike is now estimated to be the third most expensive US hurricane in history and, along with Hurricane Gustav, has resulted in insured losses which total US$20 billion to US$25 billion based on recent industry estimates. In particular, Syndicate 958 and Omega Specialty anticipate benefits from improved market conditions in 2009 as a result of these losses and other factors set out below.
Due to the current global economic conditions, and the significant decline in stock values and various other asset values worldwide, many insurance and reinsurance companies have suffered significant losses on their investment portfolios.
The erosion of capital and liquidity in the market and the associated dislocation is likely to result in certain existing carriers being unable to renew business, including US surplus lines, they would otherwise have written. Research by A.M. Best shows that the US surplus lines market totalled approximately US$36.6 billion in 2007. Two carriers alone account for approximately 39 per cent., the next representing approximately 4 per cent only. The Group's surplus lines carrier, Omega US, which is eligible to write surplus lines business in 40 US jurisdictions, is well positioned to benefit from this.
These factors, combined with the extreme difficulties faced by certain carriers, and the anticipated increased scrutiny of insurers' balance sheets and capital adequacy requirements from ratings agencies, are expected to result in constraints on the volume of premium that certain companies will be able to write. Furthermore, following the losses described above, competition from capital market products such as securitised or collaterised reinsurances will, in the opinion of the Board, be reduced in 2009.
The Directors believe that the insurance markets are being reshaped with commercial insureds and reinsureds focusing on the strength and spread of carriers providing protection. More insurers and reinsurers will look to retain less risk following the insurance and investment losses and will refocus on delivering underwriting profits.
Given all of the above, the Board believes that there will be increased opportunities in the insurance and reinsurance markets in 2009 and beyond for the Group, which are expected to include hardening of pricing, and improvement in terms and conditions in the Group's core lines of business. In particular, given Omega's:
the Board believes the Group is well placed to capitalise upon these opportunities.
Whilst the net proceeds of the Placing will substantially increase the capitalisation of Omega, the Directors believe that the current industry conditions, Omega's historic experience in targeted lines of business and the Group's existing premium income base justify the sum proposed to be raised. The Group will seek to strengthen its underwriting resource to meet the increased level of business activity associated with the larger capital base. Additional resource is also intended to be recruited in finance and compliance areas of the Group.
Although insurance industry conditions are the principal driver of the Proposals, in the current economic climate and financial environment the Directors also believe that the Group will benefit from a stronger, more liquid balance sheet. It is the current intention of the Group to deploy the capital raised over a 12 to 18 month period following receipt of the Placing proceeds.
Current trading and prospects
On 20 October 2008 the Group released a trading statement summarising the impact on the Group of Hurricanes Ike and Gustav, the impact of the downturn in the financial markets and the future outlook for the Company. The following text is extracted without amendment from that trading statement:
"Hurricanes
Hurricane Ike, though officially a category 2 hurricane, was exceptionally large in its area of coverage and as a result created an overall level of damage more usually connected with a more powerful storm, progressing from Texas on 13 September 2008 as far north as Ohio. Hurricane Gustav, which made landfall on 1 September 2008 in Louisiana, was a less damaging storm. Modelling agencies estimated the level of insured losses from both hurricanes together to be between $11 billion and $19 billion for the combined onshore and marine energy offshore losses. Based upon information that Omega is receiving from insureds, cedants, brokers and agents, it seems most probable that the losses will ultimately be materially larger than these figures.
The overall impact to Group earnings from these two events is estimated to be $34 million, of which $8 million relates to marine energy offshore losses. Whilst it is still too early to have definitive information on claims, Omega has established prudent and realistic reserves for these events, using the intelligence it has gained from its clients and intermediaries and employing a conservative approach consistent with the well-tested methodology of the Group's historic reserving practices for major events.
At both a Syndicate and a Group underwriting level we benefit from a comprehensive reinsurance programme including aggregate whole-account reinsurance protections, which means that any increase in the gross cost of these losses, or further claims events in 2008, should be recoverable from third party reinsurers.
Taking into account reserve levels for Hurricanes Gustav and Ike, and given a normal claims progression from this point, Syndicate 958 is estimated to produce a profit for the 2008 year of account.
Investments
The Group and Syndicate adopt a low risk approach to their investments with portfolios limited exclusively to cash, treasuries and high grade corporate bonds. The absence of equities, hedge funds and mortgage backed securities has protected Omega from the worst of the volatility in the financial markets.
Omega has not had to significantly write down the value of any holding. Minor value deterioration on the corporate bond portfolio as yield spreads have widened in the quarter has been offset by the strong performance of treasuries. As a result Omega is showing a positive investment return for the quarter giving a year to date return at 30 September of 2.7 per cent.
Outlook
Omega believes that, taken together, the industry losses from Hurricanes Gustav and Ike and the erosion of capital from the wider industry through investment losses provide a catalyst for opportunities going forward. Omega anticipates a hardening of market conditions in both US property insurance and reinsurance and marine offshore energy. In addition, the capital and strategic issues being faced by a number of large carriers are likely to give rise to material opportunities for Omega. In particular, the Group's surplus lines insurance carrier, Omega US, based in Chicago, is ideally positioned to benefit. It is now eligible to write surplus lines in 39 jurisdictions, including those most important to the development of its account. As a result, Omega sees significant opportunity for attractive returns in 2009 and beyond."
Current Position
Since releasing that statement on 20 October 2008, trading has continued in line with management's expectations, as stated above. Omega US is now eligible to write surplus lines in 40 jurisdictions. Industry loss estimates for Hurricanes Gustav and Ike have increased as anticipated in the trading statement and now stand at between US$20 billion and US$25 billion, although as previously stated the Group does not expect any increase in its own net losses in relation to these hurricanes. The Board considers that this increase in the industry loss estimates will only further enhance the opportunity available to the Group.
The Placing
The Company is proposing to raise additional capital by the Placing of 92,857,142 new Common Shares to raise approximately £130 million (before expenses). The Company has entered into the Placing Agreement with Cenkos and Numis pursuant to which Cenkos and Numis have agreed to procure Placees for the Placing Shares at the Placing Price, such Placees to comprise institutional and other investors (including certain existing Shareholders, including John Robinson). The Placing has been fully underwritten by Numis.
John Robinson, an Executive Director and Chief Underwriting Officer of the Company, disclosed to the Company on 5 December 2008 that he agreed on that date to subscribe for 714,286 Placing Shares in the Placing at the Placing Price. This will represent approximately 0.3 per cent. of the Company's issued share capital immediately following Admission. As previously notified to the Company, John Robinson already holds 17,000,000 Common Shares and options over 3,350,000 Common Shares. He continues to hold options over 3,350,000 Common Shares and immediately after Admission, will hold 17,714,286 Common Shares.
The Placing Shares will be issued credited as fully paid and will rank on Admission pari passu in all respects with the Existing Common Shares, including as to the right to receive and retain all dividends and other distributions declared, made or paid after Admission in respect of the Common Shares save that they will not be entitled to the Proposed Special Interim Dividend.
Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the Placing Shares will commence at 8.00 a.m. (London time) on 30 January 2009.
The Placing Shares are not being made available to the public and are not being offered or sold in any jurisdiction where it would be unlawful to do so.
Dividend Policy
The Group focuses on underwriting for gross profit and manages its capital base across the business cycle accordingly. When considering the appropriate level of dividends to pay at any one point in time, the Directors will have regard to the Group's ability to deploy capital profitably, the level of surplus capital in the business and the stage of the insurance cycle.
The policy of the Group is and remains to pay a substantial amount, broadly in line with the current market consensus forecast dividend payout ratio, of the Group's net profits each year as dividends. The Group continues to believe that this remains a sustainable and appropriate policy.
The Board confirms that it is its current intention to pay existing Shareholders a Proposed Special Interim Dividend conditional upon the Placing in an amount to be based on the estimated profitability (if any) of the Group during the second half of the Company's 2008 financial year, in lieu of what would otherwise have been the final dividend for the year ending 31 December 2008. In the event that the estimated results for the second half of the 2008 financial year do not produce a profit, no Proposed Special Interim Dividend will be paid.
Any dividends are, and will be, declared in US dollars with a pounds sterling election made available to those Shareholders who wish to receive dividend payments in pounds sterling. The currency exchange rate applying to pounds sterling dividend elections in the future will be notified to Shareholders at the relevant future date.
All dividends will be subject to the financial performance and position of the Group from time to time including results of operations and cash flows, the Group's financial position and capital requirements, rating agency considerations, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends and any other factors that the Directors in their discretion deem relevant, which will be taken into account at the time. Insurance and reinsurance industries can be highly cyclical and volatile and are subject to exposure to significant unpredictable losses. Accordingly, there can be no assurance that, in any given year, profits will be available for distribution. Dividends to shareholders will be considered as part of an active management of the Group's capital base.
Investment Policy
The Group has historically pursued, and will in the future continue to pursue, a conservative investment selection policy, prioritising preservation of capital over seeking enhanced returns in a challenging environment. Throughout the current market turbulence, in order to minimise risk and limit short-term volatility, the Group has maintained a strategy of holding only high quality, highly diversified senior corporate debt, US treasuries and cash. As a result, the portfolio is wholly cash and fixed income based. The Group currently does not hold and has no current intention to hold any equities, hedge funds or derivatives. The Group's investments are predominantly US dollar based reflecting the currency of the majority of the Group's underlying insurance liabilities.
The Group's Investment Committee will continue to be responsible for setting the strategy and monitoring the performance of external investment managers, from time to time, in the context of the Group's current and proposed activities and investment managers' compliance with the investment guidelines which the Investment Committee establishes.
Official List of the UK Listing Authority
The Company intends to apply for admission to the Official List and to trading on the London Stock Exchange's main market for listed securities during the first half of 2009.
Related Party Transaction
The Placing referred to above is intended to include a subscription (subject to the terms and conditions of the Placing) by an existing Shareholder which is treated as a related party under the AIM Rules because it holds more than 10 per cent. of the Company's issued Common Shares, namely Invesco plc (which has irrevocably agreed to subscribe for up to 25,928,571 new Common Shares under the Placing).
The Directors consider, having consulted Cenkos as the Company's Nominated Adviser, that the terms of this transaction are fair and reasonable insofar as the Company's Shareholders are concerned. In being consulted, Cenkos has relied on the Director's commercial assessment of the transaction.
Formal Documentation
It is expected that the Circular will be posted to Shareholders on 9 December 2008. The Circular will include the notice of the Special General Meeting and will explain the actions which Shareholders and holders of Depositary Interests will be requested to take. Only Shareholders entered on the register of members at 5.00 p.m. Bermuda time on 8 December 2008 will be entitled to attend and vote at the Special General Meeting (either in person or by proxy) in respect of the number of Common Shares registered in their name at that time. Notice of the SGM will be sent to Shareholders entered on the register of members at that time and on that date.
SUMMARY INFORMATION ON THE OMEGA GROUP
1. The Group and its history
The Omega Group is an international insurance and reinsurance group, headquartered in Bermuda with operations in Bermuda, London, Chicago and Cologne.
The Group's origins centre on the management of Lloyd's Syndicate 958 which has made an underwriting profit in every closed year of account since its establishment in 1980. In 2005 Omega began the execution of its strategy to change the focus of the Group from being primarily a manager of the third party capital supporting the Syndicate to become an insurance and reinsurance operation with a significant amount of its own capital at risk. In April 2005 the Group was admitted to trading on AIM, with an associated £18.2 million fundraising (net of expenses) from institutional and other investors. In December 2005, the Group raised £85.8 million (net of expenses) principally to capitalise a new Bermudian business, Omega Specialty (a Bermudian Class 3 insurance company rated ''A-'' (Excellent) by A.M. Best). In October 2006, a further fundraising of £32.8 million (net of expenses) took place, the proceeds of which were used to capitalise Omega US. In December 2007 Omega US was rated ''A-'' (Excellent) by A.M. Best.
In executing the Group's strategy of becoming an insurance and reinsurance operation with its own capital at risk, certain objectives were seen as key. The businesses into which the Group would deploy its capital should be complementary to its existing Lloyd's business but involve no departure from Omega's long-established underwriting discipline and focus. The development of those businesses should enable the Group to extend its reach into the markets from which it already sourced activity for the Syndicate. The decision was therefore taken to establish Omega Specialty in Bermuda and, subsequently, to establish Omega US in the United States. Bermuda has emerged as one of the premier global markets for a number of the types of insurance and reinsurance business that Omega underwrites. Omega's operations in Bermuda and the US provide access to business that would not otherwise be accessible to the Group.
A majority of the Group's premium income is, and has been historically, derived from business in the US. In conjunction with the establishment of the Group's operations in Bermuda and the US, this led Omega to conclude that the Group would be more appropriately headquartered in Bermuda. Bermuda is seen as the key location for the headquarters of groups whose principal business, like Omega's, is the insurance and reinsurance of US based corporations and US based risks. Beyond its strategic importance as a leading insurance market, the attractions of Bermuda to Omega includes its proximity and transport links to the US, the insurance industry expertise, potentially lower brokerage rates, good commercial and legal infrastructure and the regulatory and tax environment. The Chairman of Omega and Omega's Chief Executive Officer are on the boards of both Omega Specialty and Omega US and the Chairman is also on the board of Omega Underwriting Agents. Omega's Chief Executive Officer, Richard Tolliday, relocated to the US and spends the majority of his time in Bermuda and the US.
On 9 November 2006, a scheme of arrangement became effective under which Omega Insurance Holdings Limited, a Bermudian company, became the holding company of the Omega Group. Shareholders in OUH (the previous holding company and now re-registered as a private limited company) received an equal number of Common Shares in exchange for their shares in OUH. Omega was admitted to trading on AIM on 9 November 2006 and the admission to AIM of OUH was cancelled on the same date.
Omega sought and gained consent from H.M. Treasury for the transfer of both Omega Specialty and Omega US from Omega Underwriting Holdings PLC in the UK to the Company in Bermuda. The final step in these transfers was completed in March 2007. As a result, Omega has a structure that it considers optimal from strategic, operational and financial perspectives.
2. Key strengths
3. Underwriting strategy and activities
The Omega Group's portfolio of underwriting risks is well diversified by both geographic exposure (including within the US) and class of business. The exact balance depends on rate strength in a particular niche or field at any one time, compared against its maximum exposures. The composition of the portfolio for the 2007 year of account was as follows:
Non-marine Property Insurance (24.6 per cent. of gross premiums written in 2007):
The non-marine property insurance account remains core to the Group and is comprised of predominantly low value, commercial risks. The Group seeks to avoid direct participation in any of the world's largest insured property portfolios. It is written through a series of managing agents with whom the Group has long standing relationships. The regionalised nature of these agents adds to the inherent diversification of the portfolio.
Property Catastrophe Treaty Reinsurance (26.2 per cent. of gross premiums written in 2007):
Omega is an established underwriter in this class of business which provides excess of loss reinsurance of the property accounts of insurers worldwide, affording protection for catastrophic events. The focus of this account is the reinsurance of smaller to medium sized insurance companies.
Property Per Risk Treaty Reinsurance (6.1 per cent. of gross premiums written in 2007):
This account, which provides excess loss reinsurance to insurers on a per-risk basis, is written with a methodology and approach consistent with that employed on the Property Catastrophe Treaty Reinsurance account, with a similar bias towards reinsuring smaller to medium sized insurers.
Professional Indemnity Insurance (6.4 per cent. of gross premiums written in 2007):
Omega's account is focused predominantly on small assureds in the US.
Motor Insurance and Reinsurance (6.1 per cent. of gross premiums written in 2007):
The majority of the insurance element of this account is vehicle physical damage cover in the US and the reinsurance element is comprised of reinsurances of European and UK motor insurers, covering both physical damage and liability, on both a proportional and excess of loss basis.
Marine Insurance and Reinsurance (17.7 per cent. of gross premiums written in 2007):
The account is comprised principally of reinsurances of the direct marine accounts of insurers, protecting their insurance of marine hulls, cargo, oil and energy risks, on both an excess of loss basis and proportional basis. In 2007 the account was further diversified by the addition of the new energy insurance account covering both on and offshore energy exposures.
Liability Insurance and Reinsurance (7.9 per cent. of gross premiums written in 2007):
Most of the liability insurance underwritten by Omega is the restricted coverage given in conjunction with the writing of commercial property insurances. The reinsurances are of European and UK general liability insurers on a risk excess basis.
Other (5.0 per cent. of gross premiums written in 2007):
Classes categorised as ''other'' include Omega's underwriting, on either an insurance or reinsurance basis, of satellites, aviation, war, fine art, personal accident and kidnap and ransom. Omega underwrites these classes on an opportunistic basis and therefore expands and contracts the individual lines of business according to the market conditions.
4. Geographic mix
Whilst the US as a whole is the largest single source of the Group's business, the risks selected by the Group have a geographical diversity within the US. Omega's emphasis in the US is on underwriting insurance of small to medium sized commercial properties located predominantly outside large central city areas and the reinsurance of the smaller, regional insurance companies.
The majority of the Group's premiums and reserves are US dollar denominated. As the US dollar is both the reporting currency and the currency in which most investment assets are held, the Group has a degree of protection from foreign exchange fluctuation. However, as there are some sterling/multi-currency cash flows, there remains scope for profit deterioration or enhancement with movements in exchange rates. Furthermore, as the Common Shares are quoted in sterling the share price may be impacted at times by movements in exchange rates.
5. Omega Specialty
Omega Specialty received its licence from the Bermuda Monetary Authority in February 2006 as a Class 3 insurance company. It was capitalised at US$172 million and is rated ''A-'' (Excellent) by A.M. Best.
During 2007 Omega Specialty wrote gross premiums of US$233.4 million (compared to US$104.9 million in 2006). This consisted predominantly of:
During 2008, Omega Specialty has renewed the reinsurance of Omega Dedicated and has a whole account quota share of Syndicate 958 at a level of 20 per cent. and a 50 per cent. quota share of the Omega US book. It has increased its other inwards reinsurance business. For 2008, Syndicate 958's energy account has been subsumed into the Syndicate's principal capacity and accordingly no qualifying quota share was required.
Omega Specialty's account accordingly has an inherent diversity and balance, reflecting its proportional protection of Omega Dedicated and Syndicate 958's whole account. It is therefore expected that Omega Specialty's earnings will be more consistent and subject to less volatility than an account focused more heavily on catastrophe reinsurance.
Omega Specialty is also increasing its third party reinsurances account by seeking to underwrite reinsurance business similar in type and composition to be complementary to that underwritten by Syndicate 958. Cedants are small to medium sized insurance companies and, in the current market conditions, predominantly US-domiciled.
6. Syndicate 958
Syndicate 958 commenced underwriting for the 1980 year of account and is managed by Omega Underwriting Agents Limited. It has closed every year of account since its formation at an underwriting profit, creating an exceptional record of outperformance of the insurance market. The Syndicate has a capacity of £249 million for 2008 and is rated ''A'' (Excellent) by A.M. Best. Some 83.6 per cent. of the capacity of Syndicate 958 for the 2008 year of account is supported by third party Names and Omega's own capital supports 16.4 per cent. of Syndicate 958's stamp. Syndicate 958 benefits from Lloyd's worldwide trading licences and has longstanding trading relationships with Lloyd's brokers, agents with limited delegated underwriting authority in the US and reinsurance companies.
Historic Syndicate Performance
Syndicate 958 has a 26 year record of unbroken profitability since commencing underwriting in 1980. It is also currently forecasting a profit of between 14 per cent. to 19 per cent. and between 12.5 per cent. to 17.5 per cent. of capacity for the 2006 and 2007 open year of accounts, respectively. In addition Omega Dedicated has an ECA requirement with regards to its participation on Syndicate 958 of 40 per cent. for the 2009 year of account, which is the minimum possible ECA permitted by Lloyd's. These demonstrate the Syndicate's disciplined underwriting and its ability to take timely appropriate action to manage the insurance cycle. By continuing to focus on well diversified books of business, the Syndicate has a record of greater consistency and materially lower volatility of result than the Lloyd's market as a whole and has continuously made profits through both hard and soft markets.
7. Omega US
Omega US is an insurance company licensed in the state of Delaware and underwrites business on a surplus lines basis. As at the date of this document, Omega US has been granted eligibility to write in 40 jurisdictions and applications are pending in further states. Capitalised at US$50 million from the proceeds of the placing in October 2006, the company received a rating of ''A-'' (Excellent) from A.M. Best in December 2007.
Omega US commenced underwriting in the first quarter of 2008. Throughout 2007 the focus was on the recruitment of a senior management team, securing eligibility in key states and establishing the company's operational infrastructure.
Omega US applies an underwriting approach which is consistent with that of Syndicate 958, with a focus on small sized, commercial, property-orientated business and seeking to underwrite predominantly in those geographic areas in the US that are not directly accumulatory with the Group's peak catastrophe zones. It is intended that Omega US will be developed in a way that is complementary to Syndicate 958 and that it continues to build upon existing long term relationships of the Group in the United States. Whilst dealing predominantly through agents already known to the Group, it will be writing business that would not otherwise have been offered to the Syndicate in London.
8. Omega Europe
The Group established its operations in Germany in late 2003 to complement the development of Omega's European reinsurance account. Based in Cologne, it offers clients access to all of the Omega Group's services and is able to facilitate the placement and servicing of reinsurance business with Syndicate 958. Omega Europe accounts for 12 per cent. of Syndicate 958's gross written premium.
9. Reinsurance
As well as a diversified portfolio, the Group maintains a reinsurance programme to protect its capital against extreme loss events. The exact nature of the programme is influenced by the availability, price and quality of reinsurance coverage in the market place. The Group will only place reinsurance with counterparties it believes have the financial strength to stand by their contracts in stress scenarios and where the terms of the contract offer real benefit.
Omega Specialty, where the majority of the Group's capital supporting current underwriting resides, benefits from both reinsurance within the Syndicate which protects quota share reinsurers as well as the Syndicate itself and a tailored programme of its own.
In addition, the Syndicate quota shares a proportion of its business to Omega Specialty, so that in effect a proportion of the risks and rewards of business written in the Syndicate is underwritten by and are shared with Omega Specialty.
From 2008 onwards the capital in Omega US has also been supporting material levels of underwriting activity. In addition to Omega US' quota share agreement with Omega Specialty, Omega US has purchased reinsurances externally, including whole account protection.
10. Management and employees
The Directors consider that the experience of the Group's management and underwriters, their professional approach towards the assessment of risk (only accepting business which is considered by the underwriters to be appropriately priced) and their rigorous underwriting controls, have been important factors in the consistent underwriting track record of the Group.
The Group employs 49 staff, 35 of whom are located in London, 3 in Bermuda, 5 in Chicago and 6 are located in Cologne. The Group outsources many of its back office functions to specialist service providers to increase flexibility and to ensure that its resources are focused on its core underwriting activities. Of the staff employed by Omega, 30 are engaged in underwriting functions.
DEFINITIONS
''Admission'' the admission of the Placing Shares to trading on AIM becoming effective in accordance with the AIM Rules
''AIM'' AIM, a market operated by the London Stock Exchange
''AIM Rules for Companies'' the rules published by the London Stock Exchange governing admission to and the operation of AIM
''A.M. Best'' A.M. Best Company, Inc.
''Bermuda Act'' the Companies Act 1981 of Bermuda, as amended
''the Board'' or ''the Directors'' the directors of the Company
''Cenkos'' Cenkos Securities plc
''Circular'' the circular sent to be sent to Shareholders on or around 9 December 2008
''Common Shares'' the common shares of US$0.10 each in the capital of the Company
''the Company'' or ''Omega'' Omega Insurance Holdings Limited, an exempted company incorporated in Bermuda under the Bermuda Act with limited liability
''CREST'' the relevant system (as defined in the Regulations) in respect of which Euroclear UK & Ireland Limited is the Operator (as defined in the
Regulations) in accordance with which securities may be held and transferred in uncertificated form
''Depositary'' Capita IRG Trustees Limited
''Depositary Interest'' a depositary interest representing an underlying Common Share
''Existing Common Shares'' Common Shares other than Placing Shares
''Form of Direction'' the form of direction which will accompany the Circular by which holders of Depositary Interests may instruct the Depositary how to vote at the SGM
''Form of Proxy'' the form of proxy which will accompany the Circular for use by Shareholders in connection with the SGM
''FSA'' the Financial Services Authority
''FSMA'' the Financial Services and Markets Act 2000, as amended
''the Group'' or ''Omega Group'' the Company, and its subsidiary undertakings, or any of them, as the case may be
''holder'' includes any person entitled by transmission
''Joint-Brokers'' Cenkos and Numis
''Kinmont'' Kinmont Limited
''Lloyd's'' the Society and Corporation of Lloyd's created and governed by the Lloyd's Acts 1871-1982
''London Stock Exchange'' London Stock Exchange plc
''Nominated Adviser'' is as defined in the AIM Rules
''Numis'' Numis Securities Limited
''Official List'' the Official List of the UK Listing Authority
''Omega Dedicated'' Omega Dedicated Limited, an indirect wholly-owned subsidiary of the Company
''Omega Europe'' Omega Europe GmbH, a wholly-owned subsidiary of the Company
''Omega Specialty'' Omega Specialty Insurance Company Limited, a wholly owned subsidiary of Omega which is an exempted company incorporated in Bermuda under the Bermuda Act with limited liability
''Omega Underwriting Agents'' Omega Underwriting Agents Limited, an indirect wholly- owned subsidiary of the Company
''Omega US'' Omega US Insurance, Inc., an indirect wholly owned subsidiary of Omega which is a corporation incorporated in Delaware pursuant to section 102 of the General Corporation Law of the State of Delaware
''OUH'' Omega Underwriting Holdings PLC, the previous holding company of the Group now re-registered as a private company
''Placees'' placees procured by the Joint-Brokers to subscribe for Placing Shares pursuant to the Placing
''Placing'' the placing by Cenkos and Numis of the Placing Shares at the Placing Price, on the terms and conditions of the Placing Agreement
''Placing Agreement'' the conditional agreement dated 5 December 2008 and made between (1) Cenkos, (2) Numis, and (3) the Company
''Placing Price'' 140 pence per Common Share
''Placing Shares'' 92,857,142 new Common Shares to be allotted and issued by the Company and placed by Cenkos and Numis pursuant to the Placing
''Proposals'' the Placing and the Resolutions
''Proposed Special Interim the proposed special interim dividend (if any) to be paid by the
Dividend'' Company to holders of Existing Common Shares
"Regulations" the Uncertified Securities Regulations 2001 (SI 2001/3755)
''Resolutions'' the resolutions to be proposed at the SGM
''Securities Act'' the United States Securities Act of 1933, as amended
''Shareholders'' holders of Common Shares
''Special General Meeting'' or ''SGM'' the special general meeting of the Company convened for 9.00 a.m. on 8 January 2009 by the notice set out in the Circular, or any adjournment thereof
''subsidiary'' has the meaning given in the Act or the Bermuda Act, as the context requires
''Syndicate 958'' or ''the Syndicate 958 at Lloyd's
Syndicate''
''UK Listing Authority'' the FSA, acting in its capacity as the competent authority for the purposes of Part VI of FSMA
''United Kingdom'' or ''UK'' the United Kingdom of Great Britain and Northern Ireland, and all other areas subject to its jurisdiction
''United States or ''US'' the United States of America, its territories and possessions, any state of the United States and the District of Columbia, and all other areas subject to its jurisdiction
Legal Notice
Kinmont, which is authorised and regulated in the United Kingdom by the FSA, is acting for the Company as its financial adviser in connection with the Proposals and will not be responsible to anyone other than the Company for providing the protections afforded to customers of Kinmont or for providing advice in relation to the Proposals and the other arrangements described in this announcement.
Cenkos, which is authorised and regulated in the United Kingdom by the FSA, is acting for the Company as Nominated Adviser and Joint-Broker for the purposes of the AIM Rules in connection with the Proposals and will not be responsible to anyone other than the Company for providing the protections afforded to customers of Cenkos or for providing advice in relation to the Proposals and the other arrangements described in this announcement.
Numis, which is authorised and regulated in the United Kingdom by the FSA, is acting for the Company as Joint-Broker for the purposes of the AIM Rules in connection with the Proposals and will not be responsible to anyone other than the Company for providing the protections afforded to customers of Numis or for providing advice in relation to the Proposals and the other arrangements described in this announcement.
The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions.
No offer, invitation or inducement to acquire shares or other securities in Omega, or any other company nor any solicitation of any vote or approval in any jurisdiction pursuant to the Proposals is being made by this announcement. The Circular will contain the full terms and conditions of the Placing, including details of how to vote in favour of the Resolutions. Any decisions on how to vote on the Resolutions should be made only on the basis of the information contained or incorporated in the Circular.
Certain statements contained in this announcement may constitute forward-looking statements. Any such forward-looking statements involve risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Omega Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements speak only as of the date of this announcement and there can be no assurance that the results and events contemplated by such forward-looking statements will, in fact, occur. The Company and the Directors expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein, save as required to comply with any applicable legal or regulatory obligations (including the AIM Rules), whether as a result of new information, future events or otherwise . In addition, any reference in this announcement to the price at which Common Shares have been bought or sold in the past or the yield on Common Shares cannot be relied on as a guide to future performance.
This announcement is not an invitation nor is it intended to be an inducement to engage in investment activity for the purpose of section 21 of FSMA. The Placing Shares are in any event being placed only with (i) persons who have professional experience in matters relating to investments and who are investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 of the United Kingdom (the "Financial Promotion Order") or (ii) persons who fall within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order (all such persons together being referred to as "relevant persons"). Any investment or investment activity to which this announcement relates is available only to relevant persons and will be engaged in only with relevant persons. Anyone other than a relevant person must not rely on this announcement.
The Placing Shares have not been, and nor will they be, registered under the United States Securities Act of 1933 as amended (the "Securities Act") or qualified for sale under the laws of any state of the United States or under the applicable laws of any of Canada, Australia, the Republic of South Africa, the Republic of Ireland or Japan and, subject to certain exceptions, may not be offered or sold in the United States or to, or for the account or benefit of, US persons (as such term is defined in Regulation S under the Securities Act) or to any national or resident of Canada, Australia, the Republic of South Africa, the Republic of Ireland or Japan.
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