Interim Management Statement
(Thomson Reuters ONE) -
NEWS RELEASE
29 April
2010
For immediate release
Novae Group plc
Interim Management Statement
Novae Group plc ("Novae" or "the Group") today releases its first interim
management statement for 2010. This covers underwriting and investment
performance for the first three months of 2010, the Group's business review for
the year to date and its outlook for 2010 as a whole.
Group highlights
* Group gross written premium for the first three months of 2010: £167.2
million, up 48% (Q1 2009: £113.1 million)
* Rate increases averaged 2% for the first quarter (Q1 2009: 5% increase)
* Investment return during the first three months of 2010: £8.9 million (Q1
2009: £7.5 million). This equates to a return on average invested assets of
0.85% for the quarter (Q1 2009: 0.68%)
* Significant progress in the Group's three key strategic goals: (1) achieving
specific financial and operational targets in respect of Novae Re; (2)
releasing of NICL surplus capital; (3) reducing reinsurance spend and
eliminating cost inefficiencies
Commenting today, Group Chief Executive Matthew Fosh said: "In December last
year we set out specific measures within a clear timeframe to raise the Group's
return on equity across the underwriting cycle. Four months into 2010 we can
report significant progress in meeting these objectives."
Segmental reporting
Up to and including the financial year ended 31 December 2009, Novae has
reported four operating segments under IFRS 8: Specialty, Property, Liability
and Aviation & Marine.
As a result of the Group's expansion and development since 2006, the Board has
re-considered the format of the information it requires to discharge its role in
managing the Group. It has concluded that the most useful segmentation is
between property/short-tail and liability/long-tail. Therefore, with immediate
effect these two segments will form the basis of Novae's financial reporting.
Comparative information for earlier periods will be re-presented on the basis of
these two segments.
Underwriting
In the first three months of the year the Group wrote £167.2 million of gross
premium income (Q1 2009: £113.1 million). This represents 28% of the planned
gross written premium for the year (Q1 2009: 29% of planned income).
Gross written premium in the period has increased by 48% compared to the same
period in 2009. Of the total gross written premium £96.4 million or 58% was in
respect of property/short-tail units and £70.8 million or 42% for
liability/long-tail units.
On a whole account basis rate increases on renewal business in the first quarter
averaged 2% compared to a 5% increase in the equivalent period in 2009. There
was considerable variation between classes. There have been material rate
increases in classes such as credit and aviation reinsurance which have seen
significant recent claims activity. Elsewhere, rates are flat to modestly
lower. The Board currently expects 2010 rates, on a whole account basis, to be
broadly similar to those last year.
Property/short-tail
The highest profile loss event in the period was the earthquake in Chile on 27
February 2010. On 8 April 2010 the Group announced that, based on a market loss
of $8-10 billion, the net loss to Novae is expected to be $10-15 million.
There were a number of other property losses in the first quarter including
storm and flood losses in Australia and Western Europe and severe winter weather
on both sides of the Atlantic. The Louisiana offshore platform explosion on 20
April also has the potential to be a significant loss event for the insurance
industry.
Elsewhere in the property/short-tail segment there has been a much more
satisfactory experience on credit business. CIFS, the Group's UK trade credit
business, has benefited significantly from rate increases and other corrective
action on terms and conditions taken in 2009. The emerging markets credit
business has stabilised at levels consistent with the view taken in setting
2009 year end reserves.
Liability/long-tail
The aviation reinsurance unit has been affected by a weather-related loss
arising from a hangar collapse under the weight of snow at Dulles airport in the
US. The suspension of commercial air traffic across much of Europe following
the Icelandic volcanic eruption in April is not currently expected to have a
material effect on the aviation reinsurance unit.
Discontinued units
Legacy business written in 2002 and prior continues to run off in line with the
Board's expectations. By 31 March 2010 the number of lead claims from 2002 and
prior had fallen to 1,257 and their value had fallen to £183.6 million (December
2009: 1,314 and £191.8 million respectively). The value of the Group's share of
the gross reserves of the Discontinued Business Units had fallen to £93.0
million at 31 March 2010 (December 2009: £101.1 million).
Investments
The Group's investment strategy remains focussed on preservation of capital and,
within that constraint, the achievement of a targeted total return each
financial year. Investment guidelines were revised in 2009 so as to permit an
increased weighting in investment grade corporate bonds as well as to achieve a
better match with the average duration of the Group's liabilities.
As at 31 March 2010 the Group had investment assets of £1,065.9 million, as
follows:
+-----------------------------------------------+-------------+-------------+
|Investment type |31 March 2010|31 March 2009|
| | | |
| | (£'m) | (£'m) |
+-----------------------------------------------+-------------+-------------+
| | | |
+-----------------------------------------------+-------------+-------------+
|Corporate and supranational issuers | 360.1 | 124.8 |
+-----------------------------------------------+-------------+-------------+
|Cash | 236.7 | 480.8 |
+-----------------------------------------------+-------------+-------------+
|Government bonds and bills | 235.7 | 206.0 |
+-----------------------------------------------+-------------+-------------+
|Lloyd's overseas deposits | 94.1 | 79.4 |
+-----------------------------------------------+-------------+-------------+
|Government agencies | 83.6 | 45.5 |
+-----------------------------------------------+-------------+-------------+
|Certificates of deposit and floating rate notes| 55.7 | 169.3 |
+-----------------------------------------------+-------------+-------------+
| | | |
+-----------------------------------------------+-------------+-------------+
|Total | 1,065.9 | 1,105.8 |
+-----------------------------------------------+-------------+-------------+
Investment return for the first quarter of 2010 was £8.9 million on average
assets of £1,052.7 million, equivalent to a return of 0.85% on average assets
(Q1 2009: £7.5 million and 0.68% respectively). The return in the first
quarter was exceptional and, given the current investment stance, the Board is
targeting a total return for the year as whole of around 1.7%.
The portfolio had an overall duration at 31 March 2010 of 1.4 years (Q1
2009: 0.9 years).
Novae Re
The formation of Novae Re, a focused international and predominantly treaty
reinsurance business based in London and Zurich, was announced in August 2009.
The Group continues to expect Novae Re to write £90-100 million of gross premium
in 2010. Actual gross written premiums to 31 March 2010, which included the
important 1 January renewal date, were £50.0 million (of which £33.2 million
relates to property/short-tail units and £16.8 million to liability/long-tail
units).
The key operational objectives were to complete the IT and infrastructure
development to enable the new team to start underwriting from 1 January 2010,
and for it to move into a permanent Zurich office by the end of the first
quarter. Both of these objectives were achieved.
NICL surplus capital
As at 31 December 2009 Novae Insurance Company Limited ("NICL"), the Group's
FSA-regulated insurance company subsidiary, had audited net tangible assets of
£107.7 million. Its stand-alone solvency capital requirement during 2009 was
around £45 million. As a result, NICL had surplus capital of just over £60
million at December 2009.
On 7 December 2009 Novae announced that NICL's renewal rights were being
transferred to the Group's Lloyd's business and that NICL would be placed in
run-off. These steps will allow the surplus capital held by NICL either to be
returned to shareholders or redeployed in the Group's Lloyd's business.
The Board's preferred route for the release of capital is to petition the High
Court, under Part VII of the Financial Services and Markets Act, to transfer the
gross reserves and associated assets of NICL to the Group's Lloyd's business
("Part VII Transfer"). Following completion of the Part VII Transfer, NICL's
capital will be available for deployment elsewhere, subject to an element
required to support the transferred reserves. The surplus of just over £60
million as at December 2009 would then be available either to return to
shareholders or to support incremental underwriting in the Group's Lloyd's
business.
There are a number of detailed processes that need to be carried out to the
Court's satisfaction prior to the Part VII Transfer becoming effective. These
include the appointment of an Independent Expert to opine on the adequacy of
NICL's reserves; appropriate communication with policyholders; and the
submission to the Court of relevant witness statements supporting the proposed
transfer. Following the Court process in England, consent is required from
local regulators in respect of overseas policyholders. By April 2010
significant progress had been made in each of these areas.
The Board anticipates that this process, subject to Court and FSA consent, will
complete during the third quarter of 2010; and that an announcement setting out
the basis and timing of any consequential return of capital to shareholders will
be made by the end of the year.
Reduced reinsurance spend and elimination of cost inefficiencies
In recent years Novae has spent a larger proportion of its gross written premium
on outwards reinsurance than its peer group. In 2009 Novae ceded 22% of gross
written premium to reinsurers and in 2008 26%. Over the same period the peer
group average was around 18%.
In December 2009 Novae announced plans to reduce its outwards reinsurance
spend. The Group expected to reduce outwards spend on a comparable basis by
£10.0 million in 2010, rising to £12.5 million in 2011 and £15.0 million in
2012. The financial impact of reduced reinsurance spend will depend on future
claims experience.
Based on terms achieved at the key 1 January 2010 renewal date, the Group is on
target to achieve its 2010 objective.
In December 2009 Novae also announced that it was seeking annualised pre-tax
cost savings of £2.0 million by 2011. By April 2010 the Group had achieved
annualised cost savings of £0.7 million.
Outlook
Looking at the first quarter as a whole, investment return has been better than
expected offset by a higher incidence of loss events such as the Chile
earthquake.
Looking further ahead, the Board is encouraged by the progress of Novae Re in
further diversifying the Group's underwriting. With the Group simplified by the
combination of the Lloyd's business with that of NICL, the Board is confident
that the ingredients are in place to deliver attractive returns to shareholders.
Disclaimer
The financial information contained in this release is based on unaudited
management information. Certain statements made in this interim management
statement are forward-looking. They are based on current expectations and are
subject to a number of risks and uncertainties that could cause actual events,
results or outcomes to differ materially from any expected future events,
results or outcomes referred to in these forward-looking statements.
For further information:
Matthew Fosh - Novae Group plc 020 7903 7300
Nick Miles - M:Communications 020 7920 2330
[HUG#1409592]
Unternehmensinformation / Kurzprofil:
Datum: 29.04.2010 - 08:01 Uhr
Sprache: Deutsch
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