15th Nov 2006 07:02
Advent Capital (Holdings) PLC15 November 2006 Advent Capital (Holdings) PLC ("Advent" or the "Company") Interim Results for the nine months ended 30 September 2006 Advent Capital (Holdings) PLC, the specialist Lloyd's insurer reports its thirdquarter results to shareholders. Key highlights a. Robust market conditions in principal lines of business expected to continue through to 2007 b. Profit before tax of £12.1m (2005 - loss before tax of £57.6 million) c. Gross premium written up £17.3m to £105.9m (2005 - £88.6 million) reflecting Advent's increased capacity of 80% on Syndicate 780 (53% 2005) d. Prior year hurricanes net loss estimates relatively stable e. Net incurred loss ratio 12% (2005 - 20%) one of the lower such ratios since 1993 f. Completed successful capacity offer to buyout Syndicate 780's third party capital Financial summary 2006 2005 nine months nine months Profit (loss) before tax £12.1m £(57.6)mEPS 2.3p (26.1)pNet premium earned £61.1m £56.6mCombined ratio 86% 207%Return on equity 13.2% (58.7)%Net assets per share 19.6p 18.7p Outlook • Syndicate 780's 2007 business plan has been approved by Lloyd's • Advent's 2007 Economic Capital requirement is unchanged at 67% • Continue to manage volatility of our business and exposures to major losses Wednesday 15 November 2006 For further information please contact: Advent Capital HoldingsKeith Thompson Tel: 020 7743 8200Chief Operating Officer Neil EwingInvestor Relations and Tel: 020 7743 8250Analysis Pelham Public RelationsCharles Vivian Tel: 020 7743 6670Gavin Davis Advent Capital (Holdings) PLC, which listed on AIM in June 2005, is a leadingLloyd's insurer which manages and participates on Syndicate 780. The Syndicateis predominantly a short tail property reinsurance and insurance syndicatespecialising in catastrophe business. Notes: • Advent manages and participates on Syndicate 780 through Advent Underwriting Limited (a Lloyd's managing agency) and Advent Capital (No.3) Limited (a corporate member of Lloyd's). • Advent Underwriting Limited, which was formed in 1975, has operated in the Lloyd's market for over thirty years. • Syndicate 780 has outperformed the Lloyd's market in 28 of the last 30 closed years of account returning an average profit of 19% compared with the Lloyd's average of 1.9%. However, Syndicate 780 is expected to under perform the Lloyd's market for the 2004 and 2005 years of account. Highlights Market conditions in the Company's principal lines of business continued to berobust in the third quarter of 2006. These attractive market conditions areexpected to continue through the 1 January 2007 renewal season. Although the2006 hurricane season is not yet over, we continued to experience a benignclaims environment such that at 30 September 2006 the net notified loss ratiofor Syndicate 780's 2006 year of account was 11.6%, one of the lower such ratiossince the 1993 year of account. For the nine months ended 30 September 2006, there has been some adversedevelopment in the 2005 hurricanes gross loss estimates while the net lossestimates have been relatively stable. In US dollar terms, the Company's shareof Syndicate 780's net loss estimates increased by 3.0% from US$143.5 million at31 December 2005 to US$147.8 million at 30 September 2006 while in sterlingterms, the net loss estimates decreased slightly from £79.7 million at 31December 2005 to £79.0 million at 30 September 2006 due to the weakening of theUS dollar. The Company has completed its offer to acquire all of the capacity it does notpresently own on Syndicate 780 which will provide the Company with greateroperating flexibility from 2008 onwards. Financial summary Nine months (unaudited) Year Year 2006 2005 2005 2004 £'000 £'000 £'000 £'000 Gross premiums written 105,903 88,575 100,550 74,749Net premiums written 77,694 61,069 62,949 63,734Net premiums earned 61,053 56,563 65,070 69,221Profit (loss) before tax 12,129 (57,592) (74,843) 4,515Profit (loss) after tax 8,358 (40,530) (52,580) 2,702Return on Equity 13.2% (58.7%) (70.7%) 5.1% Per Share AmountsEarnings (loss) - basic and 2.3p (26.1p) (30.6p) 2.6pdilutedDividend - 2.75p 2.75p 2.75pNet assets 19.6p 21.2p 15.7p 49.9pNet tangible assets 17.8p 18.7p 13.3p 44.2p Operating ratiosClaims ratio 67% 185% 191% 74%Expense ratio 19% 22% 29% 28%Combined ratio 86% 207% 220% 102%Notified loss ratio 12% 20% 135% 63%(by year of account) For the first nine months of 2006, the Group's profit on ordinary activitiesbefore tax was £12.1 million, compared with a loss before tax of £57.6 millionfor the first nine months of 2005, reflecting the impact of hurricanes Katrinaand Rita with an aggregate recorded net loss, net of reinstatement provisions,of £59.4 million. Earnings per share amounted to 2.3p for the first nine monthsof 2006 compared with a loss of 26.1p for the first nine months of 2005. The significant improvement in results for 2006 compared with 2005 is due tohigher earned premium and a benign claims environment including an absence ofhurricanes. Other factors include a reduction in adverse development on claims,net of reinstatement premiums, to £5.9 million for the nine months ended 30September 2006 compared with adverse development, net of reinstatement premiums,of £14.3 million for the nine months ended 30 September 2005 and a foreignexchange gain on US dollar denominated net liabilities of £4.4 million. Dividend Policy In line with previous practice, we are not proposing to pay an interim dividend. A decision as to any dividend to be recommended in respect of the 2006 year,will only be made once final 2006 results are known and after giving due regardto other demands on capital. Underwriting Review Gross premiums written increased to £105.9 million for the first nine months of2006 from £88.6 million for the same period in 2005 reflecting the increase inAdvent's share of the supported capacity for Syndicate 780 from 53% in 2005 to80% in 2006. This increase primarily comes from the property insurance andmarine (including energy) lines of business where gross premiums writtenincreased by £11.3 million and £6.7 million respectively. Net premiums written and earned for the nine months ended 30 September 2005reflect net reinstatement premiums of £9.6 million from hurricanes Katrina andRita. Excluding net reinstatement premiums on hurricanes Katrina and Rita, netpremiums written for the nine months ended 30 September 2006 increased by 32.2%to £68.1 million from 2005 and net premiums earned increased by 9.4% to £51.5million. This increase primarily arises from the increase in Advent's share ofthe supported capacity for Syndicate 780. For the nine months ended 30 September2005, approximately £4.9 million of earned premiums arose from the portfoliotransfer premium received from external Names on the closure at 31 December 2004of Syndicate 780's 2001 and 2002 years of account as a result of the increase inAdvent's capacity on the 2003 year of account of Syndicate 780. For the ninemonths ended 30 September 2006, this only amounted to a £0.7 million effect onearned premiums. The gross underwriting result from the Group's participation on Syndicate 780analysed by principal divisions is as follows: Non-Marine Property Reinsurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000 Gross premiums written 70,954 19,163 14,281 1,089 105,487 Gross premiums earned 52,654 13,090 9,045 991 75,780 Gross claims incurred (37,979) (6,886) (4,406) (454) (49,725) Gross claims ratio 73% 53% 50% 46% 66% Gross claims ratio (excluding development on prior years) - 2006 30% 57% 43% 52% 35% - 2005 213% 207% 565% 58% 239% Net claims ratio - 2006 68% 58% 63% 46% 65% - 2005 191% 118% 446% 48% 196% The Group earns more of its gross premium for non marine reinsurance, in thesecond half of the year than the first half since premiums written relating tothe insurance or reinsurance of catastrophe events are earned over the period inwhich those events are expected to occur. The gross claims ratio of 73% for non marine reinsurance reflects thedeterioration in the gross loss estimates for the 2005 hurricanes. For all linesof business, the first nine months have been a period of benign claims activitycompared with the significant hurricane activity for the nine month period ended30 September 2005 whereby the net notified loss ratio for the 2006 year ofaccount at 30 September 2006 was 11.6%, one of the lower such ratios since 1993. Syndicate 780 - Net notified loss ratio at 9 months (excluding IBNR) Year of 1993 1994 1995 1996 1997 1998 1999account% net 9.9% 19.2% 9.4% 17.9% 13.9% 26.8% 30.6%notified Year of 2000 2001 2002 2003 2004 2005 2006account% net 20.2% 33.0% 5.0% 9.1% 23.5% 20.4% 11.6%notified We also experienced other adverse development, net of reinstatement premiums, of£3.6 million on prior years' attritional losses for the nine months ended 30September 2006, principally related to the 2005 year of account and Syndicate2's 2001 year of account. For the 2006 year of account, Syndicate 780's business plan return was a targetof 20% of capacity which included a provision for catastrophe losses of 16% ofcapacity for estimated catastrophe losses in an average year. For the 2006 yearof account, Syndicate 780's net premiums written on catastrophe-exposed businessamounted to £47.2 million, of which £33.8 million has been earned at 30September 2006 at a net incurred loss ratio (including IBNR) of 36%. Netnotified catastrophe claims for the 2006 year of account, principally relatingto US tornados, amounted to £2.2 million at 30 September 2006. The Company willreassess the 2006 loss ratios, including for catastrophe exposed business, atthe end of 2006 once the occurrence of any catastrophe events in the fourthquarter is known. 2005 Hurricane Losses Update In the second half of 2005, we saw three major hurricanes in the US withHurricane Katrina being the largest. For the nine months ended 30 September 2006, although the net loss estimateshave been relatively stable, there was some adverse development in the 2005hurricanes gross loss estimates. In US dollar terms, the Company's share ofSyndicate 780's net loss estimates increased by US$4.2 million (£2.3 million) or3.0% from US$143.5 million at 31 December 2005 to US$147.8 million at 30September 2006 while in sterling terms, the net loss estimates decreasedslightly from £79.7 million at 31 December 2005 to £79.0 million at 30 September2006 due to the weakening of the US dollar. 30 September 2006 31 December 2005 Gross Net Gross Net Ultimate Ultimate Ultimate Ultimate US$m US$mHurricane Katrina 193.4 81.8 196.0 85.7Hurricane Rita 69.8 36.5 51.5 20.4Hurricane Wilma 72.9 29.5 53.4 37.4 Advent share of loss 336.1 147.8 300.9 143.5- US$mAdvent share of loss 179.7 79.0 167.4 79.7- £m The collectibility of reinsurance recoveries is a key factor in any major lossyear. Up to 30 September 2006, Syndicate 780 issued collection notes toreinsurers for the 2005 hurricanes totalling some US$212.7 million and has sofar received US$206.8 million - 97% of what was requested as due and owing. The reinsurance recoveries on all claims reserves at 30 September 2006 forAdvent stand at £42.1 million down from £94.1 million at 31 December 2005reflecting collection of recoveries requested on the 2005 hurricanes. Theanalysis of these recoveries show that only 11.2% (excluding balances for whichcollateral is held) were rated BBB or below and Non Rated. Underwriting Capacity Advent recently completed a successful capacity offer to buy out Syndicate 780'sthird party capital and will be the sole provider of capital to Syndicate 780for 2008 onwards. As part of the capacity offer, third party capital has the opportunity toparticipate for the 2007 Underwriting Account under a Limited TenancyArrangement. Some £27 million out of the £29.9 million of third party capacityhave indicated their wish to accept the 2007 Limited Tenancy offer. The 2007 business plan of Syndicate 780 has been approved by Lloyd's. Lloyd'shave advised the Company that the 2007 Economic Capital Requirement for AdventCapital is unchanged from 2006 at 67%. The overall capacity of Syndicate 780 for 2007 (2006 - £153 million) is stilldependent upon the final capacity figures provided by third party capital andany decision by the Company on whether to take up any drop in capacity (inaddition to the £122.8 million Advent currently underwrites for 2006), whichwould not be expected to be finalised until 29 November 2006. Expenses The underwriting expense ratio for the nine months ended 30 September 2006 was19%, compared with 22% for the prior period in 2005, largely driven by a profiton foreign exchange of £4.7 million recorded due to the weakening of the USdollar. When this impact is removed, the underwriting expense ratios are 27% and18% respectively, the 2005 comparative amount having included the reinstatementpremiums earned on the 2005 hurricanes. Investment return The nine month investment return increased by 119% to £9.4 million (YTD 2005:£4.2 million). This reflects an improved investment environment, particularly inthe US following the increases in the Federal Reserve Rate and an increase inthe Company's corporate investments of £75.1 million since 31 December 2004,reflecting its successful capital raisings in June 2005 and January 2006. Throughout the period, the US dollar portfolio duration was maintained short,between 0.60 and 1.05 years. Government paper remains the dominant asset class(about 96.5% of US investments) with an overall return on US Bonds of 3.28%(annualised return of 4.37%) was achieved. Sterling funds were held mainly in AA rated bank corporates achieving a returnof 3.06%. In addition, significant sterling cash balances were held on which areturn of 4.27% (annualised return of 5.69%) was achieved. Our investment mix as at 30 September 2006 is shown below. 30 Sept 2006 30 Sept 2005 31 December 2005Half Year 2006 Syndicate Corporate Total Total Totalinvestment mix £'000 £'000 £'000 £'000 £'000 Debt Securities 80,419 - 80,419 112,048 109,024Cash and cash equivalents 32,233 123,838 156,071 117,623 104,953 Total 112,652 123,838 236,490 229,671 213,977 Outlook and 2007 Business Plan The 2007 Business Plan of Syndicate 780 reflects a projected gross premiumincome target of £130.5 million representing an increase of 15% against theprojected gross income for 2006. The Plan reflects Advent's continued focus onproperty insurance and reinsurance business. Key components of the 2007 Plan against projected gross premium income net ofbrokerage for 2006: 2006 2007Class of business Projected GPI £m Plan £mReinsurance linesTreaty 40.7 43.2Assumed 28.7 12.2Marine 4.1 2.6Aviation - 1.0Casualty and other 2.5 2.8 --------------------------- ----------------------------------- 76.0 61.8 Insurance linesProperty 26.0 40.7Energy 10.3 20.7Cargo and other - 6.0Personal Accident 1.1 1.3 --------------------------- ----------------------------------- 37.4 68.7 --------------------------- ----------------------------------- 113.4 130.5 --------------------------- ----------------------------------- The Business Plan is based upon the view that rates will remain attractive andsimilar to levels achieved in 2006. Some of the features to the Plan include: - Increase in Property Treaty business by 6% - Reduction in Assumed business of 57.5% - Increase in Property Insurance business by 56.5% - Introduction of three new lines of business, Cargo, Aviation and War in which the Syndicate has prior underwriting experience 2007 Underwriting We continue to see robust market conditions in the Company's principal lines ofbusiness. We will take advantage of these attractive market conditions, whichare expected to last through to 2007, while continuing to manage thevolatility of our business and the exposures to major catastrophe losses. Weremain alert to new opportunities in these markets where catastrophe reinsurancecapacity is scarce and pricing, terms and conditions are attractive. CONSOLIDATED PROFIT AND LOSS ACCOUNTGROUP GENERAL BUSINESS TECHNICAL ACCOUNTfor the nine months ended 30 September 2006 Note Nine months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Gross premiums written 3 105,903 88,575 100,550Net premiums written 77,694 61,069 62,949Net premiums earned 61,053 56,563 65,070Allocated net investment income 5 4,229 2,403 4,172Total technical income 65,282 58,966 69,242 Claims incurred, net of reinsuranceClaims paid - gross amount (128,390) (59,816) (91,277) - reinsurers' share 56,544 16,904 31,763 (71,846) (42,912) (59,514) Change in the provision forclaims - gross amount 77,003 (116,709) (110,424) - reinsurers' share (45,915) 55,195 45,728 31,088 (61,514) (64,696) Claims incurred, net of reinsurance 3 (40,758) (104,426) (124,210)Net operating expenses (11,744) (12,177) (18,958)Total technical charges (52,502) (116,603) (143,168) Balance on the technical account forgeneral business 6 12,780 (57,637) (73,926) CONSOLIDATED PROFIT AND LOSS ACCOUNTGROUP NON TECHNICAL ACCOUNTFor the nine months ended 30 September 2006 Note Nine months Year 2006 2005 2005 (unaudited) (unaudited) (audited) (Restated) £'000 £'000 £'000 Balance on the general businesstechnical account 6 12,780 (57,637) (73,926)Net investment return 5 9,462 4,201 6,614Investment return allocatedto the technical account 5 (4,229) (2,403) (4,172)Other income 601 1,635 1,915Interest on debt (2,626) (641) (1,153)Other charges (3,859) (2,747) (4,121)Profit (loss) on ordinary activities before tax 12,129 (57,592) (74,843)Tax on profit (loss) on ordinary activities 7 (3,771) 17,062 22,263 Profit (loss) on ordinary activities after tax 8,358 (40,530) (52,580)Dividends 8 - (2,896) (2,896)Profit and loss account brought forward (26,195) 29,281 29,281Profit and loss account carried forward (17,837) (14,145) (26,195) Earnings per ordinary share - Basic and diluted 13 2.3p (26.1p) (30.6p)Dividend per ordinary share 8 - 2.75p 2.75p All of the operations are continuingThere are no recognised gains or losses other than the profit or loss stated above CONSOLIDATED BALANCE SHEETAt 30 September 2006 Note 30 Sept 2006 30 Sept 2005 31 December 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 AssetsIntangible assets 9 6,348 5,507 5,344 Investments 10Debt securities and other fixed income securities 80,419 112,048 109,024Deposits with credit institutions - 14,783 2,148Deposits with cedants 17 15 10 80,436 126,846 111,182 Reinsurers' share of technical provisions 15Provision for unearned premiums 15,496 6,492 2,331Claims outstanding 42,141 99,873 94,073 57,637 106,365 96,404 DebtorsDebtors arising out of direct insuranceoperations - intermediaries 1,192 49,125 1,143Debtors arising out of reinsurance operations 58,615 27,928 63,794Deferred tax 25,625 24,188 29,214Other debtors 5,122 11,584 6,977 90,554 112,825 101,128 Other assetsTangible assets 501 1,171 1,050Cash at bank 11 156,070 102,840 102,795Overseas deposits 3,697 4,545 3,813 160,268 108,556 107,658 Prepayments and accrued incomeAccrued income 1,250 4,184 4,713Deferred acquisition costs 8,962 5,482 3,311Prepaid expenses 818 639 427 11,030 10,305 8,451 Total assets 406,273 470,404 430,167 CONSOLIDATED BALANCE SHEET continuedAt 30 September 2006 Note 30 Sept 2006 30 Sept 2005 31 December 2005 (unaudited) (unaudited) (audited) (Restated) £'000 £'000 £'000 Liabilities and reservesCalled-up share capital 12 18,481 10,981 10,981Share premium account 53,527 31,759 31,759Profit and loss account (17,837) (14,145) (26,195)Capital redemption reserve 21,065 21,065 21,065Other reserves (2,918) (3,038) (3,029)Total shareholders' funds 14 72,318 46,622 34,581 Technical provisions 15Provision for unearned premiums 46,076 31,298 15,689Claims outstanding 229,989 324,768 328,487 276,065 356,066 344,176 Deposits received from reinsurers - 1,126 99 Long term debt 16 38,888 26,500 27,104 CreditorsCreditors arising out of direct insurance 470 1,986 120operationsCreditors arising out of reinsurance operations 15,829 27,390 21,039Other creditors 2,109 10,185 2,266 18,408 39,561 23,425 Accruals and deferred income 594 529 782 Total liabilities 406,273 470,404 430,167 CONSOLIDATED CASH FLOW STATEMENTFor the nine months ended 30 September 2006 Note Nine months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Net cash inflow/(outflow) from operating activities 18 (14,117) 13,169 (13,347) Interest received 4,427 837 1,120Interest paid (2,541) (454) (996)Net taxation received (paid) 151 (1,719) (1,726)Net purchased tangible fixed assets (261) (80) (94)Purchase of intangible fixed assets (1,499) - - Net cash inflow/(outflow) before financing (13,840) 11,753 (15,043) Cash inflow from financingIssue of ordinary share capital net of expenses 29,268 37,474 37,474Issue of long term debt net of expenses 14,620 26,229 26,229 43,888 63,703 63,703 Equity dividend paid - (2,896) (2,896) Net cash inflow 30,048 72,560 45,764 Cash flows were invested as follows: Increase in cash holdings 19 57,406 45,098 41,525 Net portfolio investmentFixed income securities (25,217) 17,957 7,374Deposits with credit institutions (2,148) 9,507 (3,128)Deposits with cedants 7 (2) (7) (27,358) 27,462 4,239 Net investment of cash flows 30,048 72,560 45,764 NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. BASIS OF PREPARATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS Accounting Policies These interim consolidated financial statements should be read in conjunctionwith the Group's consolidated financial statements for the year ended 31December 2005 as set out on pages 42 to 73 of the company's 2005 Report andAccounts. These unaudited interim consolidated financial statements have been prepared inaccordance with the accounting policies set out in the consolidated financialstatements for the year ended 31 December 2005, except as noted, and althoughthey do not include all disclosures required for statutory accounts, inmanagement's opinion, they include all disclosures necessary for the fairpresentation of the Group's interim results. In these interim financial statements, the Group has adopted AccountingStandards applicable for accounting periods starting on or after 1 January 2006as follows: FRS 20 - Share based payments FRS 20 requires companies to recognise the fair value of share option schemesused to compensate staff and third parties. The fair value is calculated usingan option pricing model and charged to the profit and loss account over thevesting period of the option. This accrual is recognised in shareholders'funds. FRS 20 requires that the impact of the adjustment be reflected in prior periods.Charges of £43,000 and £52,000 have been reflected in the restated non-technicalaccount for the periods ended 30 September 2005 and 31 December 2005respectively. The charge for the nine months ended 30 September 2006 was£111,000. Status of the interim financial statements The interim financial statements have been reviewed by the Company's auditorsPricewaterhouseCoopers LLP. These interim financial statements do not constitutestatutory accounts as defined in section 240 of the Companies Act 1985 ("the Act"). The results for the year ended 31 December 2005 are based on the statutory Groupaccounts which received an unqualified audit opinion from the Group's auditors,and did not contain a statement under section 237(2) or (3) of the Act. The 31December 2005 Group accounts have been filed with the Registrar of Companies. 2. PRINCIPAL EXCHANGE RATES The principal exchange rates used in translating foreign currency assets,liabilities, income and expenditure in the preparation of these accounts were: Nine months 2006 Nine months 2005 Year 2005 Period Period Period Period Period Period average End average end average end rate rate rate rate rate rate US dollar 1.82 1.87 1.84 1.77 1.82 1.72Euro 1.46 1.47 1.46 1.47 1.46 1.46Canadian dollar 2.06 2.08 2.26 2.05 2.21 2.01 3. SEGMENTAL ANALYSTS Syndicate Syndicate Total 780 2 Non-Marine Property Reinsurance Insurance Marine Other £'000 £'000 £'000 £'000 £'000 £'000 Nine months 30 September 2006(unaudited)Gross premiums written 70,945 19,170 14,284 1,088 416 105,903Net premiums written 49,927 15,483 10,924 1,086 274 77,694Net premiums earned 41,786 11,071 6,932 990 274 61,053Net claims incurred (28,382) (6,450) (4,366) (455) (1,105) (40,758)Net underwriting result 13,404 4,621 2,566 535 (831) 20,295 Net operating expenses before (16,473)profit on exchangeProfit on exchange 4,729Allocated investment return 4,229 Technical result 12,780 Syndicate Syndicates Total 780 2 and 506 Non-Marine Property Reinsurance Insurance Marine Other £'000 £'000 £'000 £'000 £'000 £'000 Nine months 30 September 2005(unaudited)Gross premiums written 70,811 7,878 7,519 1,944 423 88,575Net premiums written 48,951 5,058 5,001 1,944 115 61,069Net premiums earned 44,295 6,239 3,897 2,017 115 56,563Net claims incurred (80,449) (7,308) (17,425) (951) 1,707 (104,426)Net underwriting result (36,154) (1,069) (13,528) 1,066 1,822 (47,863) Net operating expenses before (10,387)profit on exchangeProfit on exchange (1,790)Allocated investment return 2,403Technical result (57,637) Syndicate Syndicate Total 780 2 and 506 Non-Marine Property Reinsurance Insurance Marine Other £'000 £'000 £'000 £'000 £'000 £'000 Year ended 31 December2005 (audited)Gross premiums written 79,640 10,304 7,349 2,171 1,086 100,550Net premiums written 57,570 7,767 4,910 2,173 (9,471) 62,949Net premiums earned 58,263 8,991 4,663 2,624 (9,471) 65,070Net claims incurred (107,105) (8,495) (16,794) (2,642) 10,826 (124,210)Net underwriting result (48,842) 496 (12,131) (18) 1,355 (59,140) Net operating expenses (14,816)before loss on exchangeLoss on exchange (4,142)Allocated investment 4,172returnTechnical result (73,926) 4. BUSINESS SEGMENT Nine months Nine months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 UnderwritingTechnical account 12,780 (57,637) (73,926) Managing AgencyAgency fees 262 532 595Profit commission - 730 822Expenses recharged to Syndicates 339 373 498 601 1,635 1,915 OtherInvestment income on corporate funds 5,233 1,798 2,442Interest on debt (2,626) (641) (1,153)Other expenses (3,859) (2,747) (4,121) Profit (loss) before tax 12,129 (57,592) (74,843) 5. INVESTMENT RETURN Nine months Nine months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Investment IncomeIncome from investments and bank deposits 9,082 4,891 7,570 Investment expenses and chargesInvestment management expenses (78) (67) (93)Net realised and unrealised gains (losses) on 458 (623) (863)investments 380 (690) (956)Net investment return 9,462 4,201 6,614 Analysed between:Net investment return allocated to the technical account 4,229 2,403 4,172Investment income included in the non-technical account 5,233 1,798 2,442Net investment return 9,462 4,201 6,614 6. BALANCE ON TECHNICAL ACCOUNT Under the annual basis of accounting the Group's share of the syndicates'technical accounts by years of account has been accounted for as follows: Nine months Nine months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Syndicate 780 - Non MarineUnderwriting Year of Account2006 - open 11,596 - -2005 - open (285) (47,014) (64,412)2004 - open 1,463 (15,873) (14,867)2003 and prior closed - 4,307 4,850Balance on technical account 12,774 (58,580) (74,429) Syndicate 2 - MarineUnderwriting Year of Account2002 - run-off (86) 710 6902001 - run-off 92 233 (253)Balance on technical account 6 943 437 Syndicate 506 - Non-MarineUnderwriting Year of Account2001 - closed - - 66 Total balance on technical account 12,780 (57,637) (73,926) The figures above exclude profit commission and agency fees payable to theGroup's managing agency. 7. TAX ON PROFIT ON ORDINARY ACTIVITIES Nine months Nine months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Analysis of charge in periodUK corporation tax 182 194 10Deferred tax 3,589 (17,256) (22,273)Total taxation 3,771 (17,062) (22,263) 8. EQUITY DIVIDENDS Nine months Nine months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Dividend - Nil (2005: 2.75p) per New Ordinary share - 2,896 2,896 9. INTANGIBLE FIXED ASSETS Goodwill Auction on Acquisition Capacity Total £'000 £'000 £'000CostAt 31 December 2005 (audited) 9,858 2,193 12,051Additions - 1,499 1,499At 30 September 2006 (unaudited) 9,858 3,692 13,550 AmortisationAt 31 December 2005 (audited) 5,710 997 6,707Charge for the period 388 107 495At 30 September 2006 (unaudited) 6,098 1,104 7,202 Net Book ValueAt 30 September 2006 (unaudited) 3,760 2,588 6,348At 31 December 2005 (audited) 4,148 1,196 5,344At 30 September 2005 (unaudited) 4,277 1,230 5,507 The addition to auction capacity results from the Syndicate capacity offer (seenote 17). In addition to the amount disclosed above, a further addition of up to£1.5 million will be recorded, once on the take up of limited tenancy rights isconfirmed by the end of November, 2006. This additional amount is payable inJune 2008. 10. FINANCIAL INVESTMENTS 30 Sept 30 Sept 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Carrying ValueDebt securities and other fixed income securities 80,419 112,048 109,024Deposits with credit institutions - 14,783 476Deposits with credit institutions - corporate - - 1,672Deposits with cedants 17 15 10 80,436 126,846 111,182 Purchase PriceDebt securities and other fixed income securities 79,835 113,071 109,304Deposits with credit institutions - 14,783 476Deposits with credit institutions - corporate - - 1,672Deposits with cedants 17 15 10 79,852 127,869 111,462 All financial investments are held by the Company's managed syndicates. Alldebt securities and other fixed income securities apart from asset-backedsecurities are listed on recognised stock exchanges. 11. CASH AT BANK AND INVESTMENTS 30 Sept 30 Sept 31 December 2006 2005 2005 £'000 £'000 £'000 Corporate cash at bank 7,710 86,836 2,027Corporate funds held by Lloyd's 116,128 6,741 87,210Syndicates' cash at bank 32,232 9,263 13,558Syndicates' financial investments 80,436 126,831 111,172Total cash and investments 236,506 229,671 213,967 The Funds held by Lloyd's represent monies deposited with the Corporation ofLloyd's (Lloyd's) to support the Group's underwriting activities. These fundsare subject to a Lloyd's deposit trust deed which gives Lloyd's the right toapply these monies in settlement of any claims arising from the Group'sunderwriting at Lloyd's. In addition to the Group's Funds at Lloyd's (FAL) of £116.1 million at 30September 2006, a major shareholder, Fairfax Financial Holdings Limited(Fairfax), has deposited Funds at Lloyd's of £69.2 million at 30 September 2006to support the Group's underwriting for the 2001 to 2005 underwriting yearspursuant to a Funding Agreement dated 16 November 2000. Any underwritingprofits arising from the business supported the Fairfax FAL are receivable bythe Group which is also responsible for the payment of any losses arising. In January 2006, the Group deposited an additional £38 million in FAL from thenet proceeds of its debt and equity offerings completed on 6 January and 16January 2006. In September 2006, the Group deposited a further £1.5 million andUS$11.4 million. These deposits were made as part of the process for providingfor open year losses on the 2004 and 2005 years of account, thereby reducingFairfax's FAL by the same amount. On 30 June 2006, the Group paid its share of Syndicate 780's cash call on the2005 year of account of £36.9 million from its FAL deposited in January 2006.It does not affect the 2006 underwriting or the FAL deposited in November 2005. 12. CALLED-UP SHARE CAPITAL Authorised Allotted, Called-Up and Fully Paid 30 Sept 30 Sept 31 December 30 Sept 30 Sept 31 December 2006 2005 2005 2006 2005 2005 £'000 £'000 £'000 £'000 £'000 £'000 Ordinary shares of 5p 50,000 16,555 16,555 18,481 10,981 10,981each Number of shares 1,000,000 331,109 331,109 369,609 219,609 219,609('000s) Share capital reorganisation On 17 May 2005 each issued Ordinary Share of 25 pence of the Company wasconverted and subdivided into one New Ordinary Share of 5 pence and one DeferredShare of 20 pence and each existing unissued Ordinary Share of 25 pence in thecapital of the Company was converted and subdivided into five New OrdinaryShares of 5 pence, each New Ordinary Share and each Deferred Share having thesame rights and being subject to the restrictions set out in the New Articles ofAssociation of the Company adopted on the same date. The authorised sharecapital of the Company was increased to £37.620 million on the same date by thecreation of 170,157,000 Ordinary Shares of 5 pence each, such new shares to havethe rights attached thereto in the New Articles of Association of the Company.As a result of the share capital reorganisation, £21.065 million was transferredfrom called-up share capital to capital redemption reserve. On 26 May 2005, the Deferred Shares were acquired by the Company and cancelled,as a result of which the Company's authorised share capital reduced by £21.065million from £37.620 million to £16.555 million. Share Issues On 3 June 2005, the Company issued 114,285,714 New Ordinary Shares of 5 penceeach at 35 pence per share, pursuant to an equity offering fully underwritten byNumis Securities Limited (Numis) for cash proceeds of £40 million less expensesof issue of £2.53 million, of which £5.715 million has been included incalled-up share capital and £31.755 million has been included in the sharepremium income account. Pursuant to the Placing Agreement the Company has granted to Numis an option tosubscribe for up to 2,196,087 Ordinary Shares at 35p per share, exercisable atany time, in whole or in part, up to 3 June 2010. On 6 January 2006, the Company issued 150,000,000 New Ordinary Shares of 5 penceeach at 20 pence per share for cash proceeds of £30 million less expenses ofissue of £0.7 million of which £7.5 million has been included on called-up sharecapital and £21.8 million has been included in the share premium account. At thesame time the authorised number of shares was increased from 331,109,320 to1,000,000,000 shares. Share Option Schemes In the periods included in this report, the Company operated two share optionsschemes. The 1998 Scheme, which was open to all employees, and the 1999Executive Share Option Scheme. Both schemes were superseded in 2005 by the newAdvent Share Option Plans. All option holders under the 1998 Scheme were sent aletter of cancellation by the Company on 21 April 2005 and have acknowledgedcancellation of that scheme. No options were exercised under this scheme. Thetwo option holders under the 1999 Scheme waived their rights under that Schemeon 4 May 2005. The Company has established two share option plans: the Unapproved Plan whichwas adopted by the Board of Directors on 20 April 2005; and the Approved Planwhich was adopted by the Board of Directors on 29 March 2005 (collectivelyreferred to as the "Advent Share Option Plans"). The Advent Share Option Planshave been set up to enable employees and Directors of the Company to be grantedoptions to acquire Ordinary Shares of the Company ("Options"). At 3 June 2005, options over an aggregate of 4,629,000 Ordinary Shares wereawarded to Directors and Employees of the Advent Group, pursuant to the AdventShare Option Plans, subsequent to which 470,000 options have been cancelled asemployees have left the Company. These awards have been granted at the placingprice of 35p per share and are not subject to performance conditions. At 30September 2006, the 2,032,568 options outstanding under the Approved Scheme havean exercise period between three and ten years from the date of grant of 3 June2005, whereas the 2,126,432 options outstanding under the Unapproved Scheme havean exercise period between one and ten years following the date of grant. On 28 April 2006, options over an aggregate of 5,850,000 shares, exercisable at20p (which was the Placing Price of the private placement undertaken at the samedate that shareholder approval was granted for issue of the options followingpublication of the Company's 2005 Report and Accounts) were granted to Directorsand employees of the Advent Group. The options are not exercisable before 28April 2009 and expire 28 April 2016. 13. EARNINGS PER ORDINARY SHARE Nine months Nine months Year 2006 2005 2005 (unaudited) (unaudited) (audited)Profit (loss) for the period £8.358m £(40.530)m £(52.580)mWeighted average number of shares in issue 366.9m 155.6m 171.7mBasic and diluted earnings per share 2.3p (26.1)p (30.6)p 14. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Nine months Nine months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Profit (loss) for the period 8,358 (40,530) (52,580)Dividend (Note 8) - (2,896) (2,896)Share issue (Note 12) 29,268 37,474 37,474Share options 111 43 52 Net addition/(reduction) to shareholders' funds 37,737 (5,909) (17,950)Opening shareholders' funds 34,581 52,531 52,531 Closing shareholders' funds 72,318 46,622 34,581 15. TECHNICAL PROVISIONS Provision for Claims Total unearned outstanding premiums £'000 £'000 £'000 GrossAt 1 January 2006 (audited) 15,689 328,487 344,176Exchange adjustments - (21,495) (21,495)Movement in provisions- current year 30,387 29,133 59,520- prior year - 22,254 22,254- paid claims - (128,390) (128,390)At 30 September 2006 (unaudited) 46,076 229,989 276,065 Reinsurance amountAt 1 January 2006 (audited) 94,073 96,404 2,331Exchange adjustments - (6,018) (6,018)Movement in provisions- current year 13,165 1,191 14,356- prior year - 9,439 9,439- paid recoveries - (56,544) (56,544)At 30 September 2006 (unaudited) 15,496 42,141 57,637 NetAt 30 September 2006 (unaudited) 30,580 187,848 218,428At 31 December 2005 (audited) 13,358 234,414 247,772At 30 September 2005 (unaudited) 24,806 224,895 249,701 For the nine months ended 30 September 2006, adverse development on claims, netof reinstatement premiums, amounted to £5.9 million (2005: £14.3 million). Thenet claims outstanding balance is further analysed between notified outstandingclaims and incurred but not reported claims (IBNR) below: Nine months Nine months 31 December 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Notified outstanding claims 135,623 107,027 146,463Claims incurred but not reported 52,225 117,868 87,951Claims outstanding 187,848 224,895 234,414 16. LONG TERM DEBT 30 Sept 2006 30 Sept 2005 31 December 2005 £'000 £'000 £'000 US$34 million due 3 June 2035 17,627 18,604 19,160Euro 12 million due 3 June 2035 7,905 7,896 7,944US$26 million due 15 January 2026 13,356 - - 38,888 26,500 27,104 On 3 June 2005, the Company raised US$34 million and Euro 12 million aggregateprincipal amount of unsecured subordinated notes (the "USD Notes" and "EuroNotes" respectively), due 3 June 2035 and callable by the Company at any time,in whole or in part, after 3 June 2010. Expenses incurred in connection with theissue of the debt reduced net proceeds to £26.2 million. The notes bear interest at 3 month EURIBOR plus 3.85% for the Euro Notes (7.27%at 30 September 2006) and 3 month USD Libor plus 3.9% for the USD Notes (9.27%at 30 September 2006). Payment of interest may, at the option of the Company,be deferred for up to 20 consecutive quarters. Proceeds of the debt issue have been maintained in US dollars and Euro cashdeposits so that the Company is not exposed to exchange rate fluctuations onthis debt. The Notes rank on a winding-up of the Company in priority to distributions onall classes of share capital and rank pari passu with each other but aresubordinated in right of payment to the claims of all unsubordinated creditorsof the Company (including, where applicable, all policyholders of theSyndicate). On 16 January 2006, the Company issued senior subordinated loan notes of US$26million (£15.1 million), (the "Senior Notes"), due 15 January 2026 and callableby the Company at any time, in whole or in part, after 16 January 2011. Expensesincurred in connection with the issue of the debt were £0.4 million. The Senior Notes bear interest at 3 month USD Libor plus 4.5% (9.87% at 30September 2006). The Senior Notes rank on a winding-up of the Company in priority todistributions on all classes of share capital and subordinated loan notes, andrank pari passu with each other but are subordinated in right of payment to theclaims of all unsubordinated creditors of the Company (including, whereapplicable, all policyholders of the Syndicate). The Notes and Senior Notes are listed on the Channel Islands Stock Exchange. 17. SYNDICATE CAPACITY OFFER On 28 July 2006, the Company offered to acquire all of the capacity not alreadyowned by Advent for 2007 and onwards, for 5p in cash for each £1 of capacityheld on Syndicate 780 for the 2006 year of account. In addition, Members wereoffered a "Limited Tenancy Arrangement", under which they have the right toparticipate on Syndicate 780 for the 2007 year of account only plus a deferredpayment of an additional 5p in cash for each £1 of capacity retained for the2007 year of account payable on 30 June 2008 (the "Limited Tenancy Rights") (The"Offer"). The Offer closed for acceptance on 25 August 2006. On 25 August 2006 AdventUnderwriting Limited applied to Lloyd's for permission to give notice oftermination of the standard managing agent's agreement to all of those membersof Syndicate 780 who did not accept the Offer, having at that date acquired, orcontracted to acquire under the Offer, over 90% of the capacity of Syndicate 780for the 2007 year of account (the "Minority Buy-out"). The Offer was conditionalon Lloyd's granting consent to the Minority Buy-out, which was granted on 21September 2006. The total consideration payable on closure of the Offer, was £1.5 million, paidon 30 September 2006, with up to a further £1.5 million payable on 30 June 2008,depending on the final take up of the Limited Tenancy Rights. To date, Namesrepresenting 90% of the third party capacity have expressed a wish to take upthe Limited Tenancy Rights. 18. RECONCILIATION OF PROFIT BEFORE TAX TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES Nine months Nine months Year 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Profit before tax 12,129 (57,592) (74,843)(Increase)/decrease in debtors and prepayments (604) (41,158) (14,265)Increase/(decrease) in creditors and accruals (5,774) 26,213 6,440Increase/(decrease) in net technical provisions (13,868) 88,889 62,931- debt interest 2,626 641 1,153- foreign tax - - 96Investment income (5,232) (1,085) (1,085)Unrealised investment return (458) 465 316Depreciation 810 394 529Amortisation of goodwill 495 495 658Amortisation of debt issue costs 42 9 17Share option issue 163 43 52Foreign exchange movement (4,446) (4,145) 4,654 (14,117) 13,169 (13,347) 19. MOVEMENT IN CASH HOLDINGS At Cash Movement in At 31 December 2005 Flow Valuation and 30 Sept 2006 Currencies £'000 £'000 £'000 £'000 Corporate funds held by Lloyd's 87,210 31,718 (2,800) 116,128Corporate cash at bank 2,027 5,946 (263) 7,710Syndicates' cash at bank 13,558 19,719 (1,045) 32,232Syndicates' overseas deposits 3,813 23 (139) 3,697 106,608 57,406 (4,247) 159,767 INDEPENDENT REVIEW REPORT TO ADVENT CAPITAL (HOLDINGS) PLC Introduction We have been instructed by the Company to review the financial information forthe nine months ended 30 September 2006 which comprises the consolidated interimBalance Sheet as at 30 September 2006 and the related consolidated interim GroupTechnical Account, Group Non-Technical Account and Consolidated Cash FlowStatement for the nine months then ended and related notes. We have read theother information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the AIM Rulesfor Companies. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lowerlevel of assurance. Accordingly we do not express an audit opinion on thefinancial information. This report, including the conclusion, has been preparedfor and only for the Company for the purpose of the AIM Rules for Companies andfor no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the nine monthsended 30 September 2006. PricewaterhouseCoopers LLPChartered AccountantsLondon14 November 2006 Notes: (a) The maintenance and integrity of the Advent Capital (Holdings) PLC web siteis the responsibility of the directors; the work carried out by the auditorsdoes not involve consideration of these matters and, accordingly, the auditorsaccept no responsibility for any changes that may have occurred to the interimreport since it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. DIRECTORS B.F. Caudle Chairman K.D. Thompson Chief Operating Officer T.J. Ambridge FCA Chief Financial Officer P. Stormonth Darling Non-Executives B.W. Rowbotham FCA E. St. C. Stobart COMPANY SECRETARY Z.C. Bucknall ACII ACIS REGISTERED OFFICE 10th Floor 1 Minster Court Mincing Lane London EC3R 7AA BANKERS The Royal Bank of Scotland plc 5-10 Great Tower Street London EC3P 3HX AUDITORS PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors Southwark Towers 32 London Bridge Street London SE1 9SY SOLICITORS Norton Rose Kempson House Camomile Street London EC3A 7AN NOMINATED ADVISER Numis Securities Limited Cheapside House 138 Cheapside London EC2V 6BJ PUBLIC RELATIONS Pelham PR No 1 Cornhill London EC3V 3ND LONDON STOCK EXCHANGE ADV company This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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