Interim results
(Thomson Reuters ONE) - NEWS RELEASE30 July2009 For immediate release Novae Group plc Interim results for the period ended 30 June 2009 HighlightsNovae Group plc ("Novae"), the specialist insurance group, todayannounces its 2009 interim results. Highlights: * Loss before tax and before foreign exchange movement on non-monetary items: £2.1 million (H1 2008: profit of £16.8 million), after a charge of £26 million from aviation reinsurance and credit insurance claims * Loss before tax and after foreign exchange movement on non-monetary items: £18.5 million (H1 2008: profit of £16.3 million) * Combined ratio: 112.2% (H1 2008: 98.7%), 90.4% excluding aviation and trade credit losses * Gross written premium: £220.3 million (H1 2008: £186.0 million) * Interim dividend per share: 3.0p (H1 2008: 2.5p) * Net asset value per share: 389p (June 2008: 390p) * Investment return: £10.9 million, equivalent to an annualised return of 2.02% (H1 2008: £20.7 million) * Realised gain from repurchase of 2017 bonds for cancellation: £7.7 million (H1 2008: nil)Matthew Fosh, Chief Executive, today said:"An otherwise sound performance in the first half was hit principallyby an abnormal incidence of loss during the period in our aviationreinsurance unit, including the Air France loss over the Atlantic.There was also an increase in losses from our credit insurance unitbut, as a whole, our range of property and casualty classes has beenresilient in a market where rates overall are rising but only in apiecemeal fashion.That said, we saw a whole account rate increase of 8% during theperiod. We will be accelerating the growth of premium income into2010 and increasingly deploying the Group's surplus capital into animproving rating environment. We will need to remain patient, but wecontinue to be optimistic about the outlook for the remainder of thisyear and beyond."There will be a presentation to analysts at 09.00 a.m. today atCitypoint, 9th floor, 1 Ropemaker Street, EC2Y 9HT.For further information:Matthew Fosh Novae Group plc 020 7903 7300Nick Miles M:Communications 020 7153 1535Introduction to NovaeNovae, which is based in London and listed on the London StockExchange, is a risk-taking insurance business operating at Lloyd'svia Syndicate 2007 managed by Novae Syndicates Limited ("NSL") andthrough Novae Insurance Company Limited ("NICL"), an FSA-regulated UKinsurance company. Novae has a diversified mix of business withunderwriters operating across four segments made up of 21 specialistunits.Syndicate 2007 is rated A2 (Good) by Moody's; A (Excellent) by AMBest; and LSA 3- by Standard & Poors within the context of itsoverall A+ Lloyd's rating. NICL is rated A- (Excellent) by AM Bestand A- by Fitch. All these ratings have a stable outlook.Interim results statementFinancial resultsNovae's results in the first half of 2009 reflect in large partcatastrophe losses from the aviation reinsurance unit. There was alsoan increase in recession-related losses from our credit insuranceunit, but in general our range of property and casualty classesperformed satisfactorily in a market where rates overall are stillresponding only slowly and interest rates remain at all time lows.Rates in the property reinsurance, energy and financial institutionsclasses have firmed, reflecting actual or perceived market losses,but more widely the rating environment is yet to respond tocircumstances which suggest losses to come.Operating loss before foreign exchange loss on non-monetary items was£5.1 million (H1 2008: profit of £23.1 million). Loss before tax andforeign exchange loss on non-monetary items was £2.1 million (H12008: profit of £16.8 million).The combined ratio in the first half, calculated at the ownershiplevel on an earned premium basis of £145.4 million, was 112.2% (H12008: 98.7%). This was made up of a claims ratio of 69.0% (H1 2008:51.9%), based on net claims of £100.3 million, and an expense ratioof 43.2% (H1 2008: 46.8%), based on acquisition and operating costsof £62.9 million (excluding the foreign exchange loss on non-monetaryitems). Excluding variable compensation, the running costs of theDiscontinued Units and central costs together totalling £8.8 million,the expense ratio falls to 37.2% (H1 2008: 36.8%) based on operatingcosts net of these items of £54.1 million.Novae's investment assets made an important contribution in spite ofa much lower interest rate environment and continuing volatility.Investment return in the period was £10.9 million, equivalent to anannualised return on average invested assets over the six monthperiod of 2.02% (H1 2008: £20.7 million and 4.34% respectively).First half financing credit was £3.0 million (H1 2008: £6.3 millionexpense). This was made up of an underlying cost of £4.7 million,more than offset by a realised gain of £7.7 million arising from thebuy in for cancellation of 2017 subordinated notes. Assuming nomaterial changes to the capital structure of the Group in the secondhalf, financing costs for the year as a whole are expected to bearound £1.0 million after taking credit for the gain on buying in2017 subordinated notes for cancellation.Net assets per share as at 30 June 2009 were 389.0p (30 June 2008:389.6p). Net tangible assets per share were 374.6p (30 June 2008:381.2p). Net tangible assets reflect the effects of purchasing theremaining third party capacity rights of tenure on Syndicate 2007 inJanuary 2009. Unrecognised deferred tax assets represent anadditional 34.1p per share (30 June 2008: 23.6p).Underwriting performanceOverall performanceOperating loss for the period was £5.1 million (H1 2008: profit of£23.1 million).The rating environment in the first half was mixed. In US-windstormrelated classes such as US property, property treaty and Gulf ofMexico energy rates were up strongly. Rating has also begun toimprove for financial institutions business. Although rates havegenerally stopped falling in most other areas, there is limitedevidence so far of a transition to an improved pricing environment.Rate increases in the first half are consistent with the the Board'sexpectation of a 5-10% increase overall for the year as whole.Competition remains intense in many casualty classes as well as in UKregional business. In spite of the gradual emergence ofrecession-related losses and low investment returns, some insurersappear to remain focussed on increasing market share rather than onunderwriting for profit. The Group has deliberately not written forgross income in such circumstances.Claims activity increased, reflecting the emergence ofrecession-related claims in the credit and political risks unit andcatastrophe losses in the aviation reinsurance unit. Claims activityelsewhere in the business was mixed with some units enjoying a benignperiod and others seeing an increase in claims notifications.The combined ratio for the period was 112.2% (H1 2008: 98.7%).Catastrophe losses on the aviation reinsurance account contributed13.3% to this; and recession-related losses in the credit andpolitical risks unit a further 8.5%. The underlying combined ratio inthe period was thus 90.4%, which the Board regards as a satisfactoryperformance given the current rating and economic environment.SpecialtySpecialty remains the Group's largest segment, although its relativecontribution to gross written premium has fallen as the Group'sdiversification has gathered pace. Gross written premiums in thefirst half of 2009 were £71.9 million (H1 2008: £74.4 million),reflecting both underwriting discipline and a second half bias for anumber of units within the segment.The overall contribution to Group profit was substantially lower at£3.1 million (H1 2008: £14.9 million), with much of that profitcoming from business underwritten by NICL. The Lloyd's business madea small profit after absorbing significant losses from creditinsurance. CIFS, the UK trade credit business, returned a loss ofaround £8 million and emerging market trade credit made a loss ofover £4 million. These losses, although disappointing, are within theGroup's loss tolerance in a severe recession.The financial institutions and professional indemnity units benefitedfrom reserve releases on prior years. Both professional indemnity andmanagement liability business have made significant contributions toprofit in respect of more recent years notwithstanding the extremelycompetitive trading environment that has prevailed, reflecting strongunderwriting discipline.PropertyGross written premium income on property business in the first halfwas £59.2 million (H1 2008: £45.7 million), reflecting an increase inscale, the benefits of rate increases and exchange rate movements.Novae's property segment has continued to develop and diversify,providing a better balance of direct and reinsurance business and ofUS and non-US exposure.The first half of 2009 saw the Property segment contribute a loss of£1.6 million (H1 2008: profit of £8.1 million). Historically theprofit has had a second half bias in years characterised by a lowlevel of catastrophe loss and the performance in the first half thisyear also reflects a cautious view of claims activity. Despite theimproving balance of the segment, experience in the US windstormseason is likely to be a key factor in the outcome for the year.Aviation & MarineThis segment has grown in significance in recent years, reflectingboth the formation of the energy unit and growth and diversificationof the marine units. Gross written premiums in the period were £51.5million (H1 2008: £25.7 million), including a sizeable element onloss-related reinstatement premium income from the aviationreinsurance unit.In the first half of 2009 the aviation reinsurance unit has sufferedfrom a particularly severe claims experience, with the largest singleimpact being from the Air France loss. There were, however, a numberof other significant losses in both the first and second quarters.Overall, net of reinsurance recoveries and reinstatement premiums,aviation reinsurance losses were $29 million. This means that afterseveral years of very strong contribution to profits, the aviationreinsurance unit will produce a significant loss in 2009. Theindividual loss events that occurred in the period were in line withthe Group's risk appetite and loss tolerance.While marine hull, energy and marine war business each made valuableprofits, the scale of the loss from aviation reinsurance is reflectedin the overall segment loss of £8.8 million. Both energy and marinebusiness have benefited from an improving rating environment. Weexpect claims experience on aviation business in the first half of2009 to stimulate pressure for significant rate hardening.LiabilityDuring the period this was the smallest of the four segments by grosspremium income. Generally the market has remained competitive andNovae's underwriting posture has continued to reflect a disciplinedand circumspect approach. In the first half of 2009 gross writtenpremiums of this segment were £37.6 million (H1 2008: £39.8 million).The profit from liability business was an extremely creditable £8.4million, reflecting valuable contributions from both the Lloyd'sbusiness and NICL. This included the emergence of extremely goodlevels of profit from business transacted in the 2007 and 2008underwriting years. In the Lloyd's business the marine liability unitagain produced a substantial level of profit while the non-marineliability profit arose mainly in NICL.Discontinued UnitsThe Discontinued Units are made up of liability reinsurance,healthcare and third party liability written across Syndicates 1241and 1007.The 2002 and prior years of Syndicates 1241 and 1007 continue to runoff in line with expectations. The population of lead claims (inrelation to both Discontinued Units and other business) has fallenfurther to 1,545 at 30 June 2009 (30 June 2008: 2,214; 31 December2005: 6,117). This represents a reduction of 75% over the past threeand a half years. Over the same period the value of open lead claimsacross these two syndicates had fallen by 41% to £224.4 million (30June 2008: £228.2 million; 31 December 2005: £378.0 million).As at 30 June 2009 the Discontinued Units accounted for £117.0million of gross reserves and £26.6 million of reinsurance asset (30June 2008: £127.1 million and £30.8 million respectively).Investment performanceInvestment return in the first half was £10.9 million, equivalent toan annualised return on average invested assets of 2.02% (H1 2008:£20.7 million and 4.34% respectively). As at 30 June 2009 investmentassets including cash were £1,011.1 million (30 June 2008: £951.5million).The Group's investment strategy remains focussed on capitalpreservation and, subject to that constraint, the achievement of anexplicit total return each financial year. The investment guidelineswere revised during the first quarter of 2009 to permit a modestlyincreased weighting in short duration investment grade bonds.During the first half the Group reduced its exposure to pooled moneymarket funds and rotated into investment grade corporate bonds. Thisis against a backdrop of very low returns from short duration UK andUS government bonds, typically under 1.0%.Following asset/liability modelling carried out at the end of 2008,neutral duration was re-set at 3.0 years.The Group's targeted total return for the year to December 2009 is2.0-2.5%.Investment type 30 June 30 June 2009 2008 £m £mCash 289.2 326.6Government bonds and bills 226.3 179.4Corporate and supranational issuers 200.1 65.2Certificates of deposit and floating rate notes 140.2 216.2Lloyd's overseas deposits 79.5 64.7Government agencies 75.8 48.0Pooled money market funds - 39.2Asset-backed securities - 12.2Total 1,011.1 951.5Investment assets can be further analysed by rating as follows:S&P rating equivalent 30 June 30 June 2009 2008 £m £mAAA rated 371.5 275.0AA rated 102.3 21.4A rated 25.7 8.0BBB+ or better rated 2.4 -Total bond portfolio 501.9 304.4Other * 140.5 216.6Cash 289.2 326.6Total managed portfolios 931.6 847.6Lloyd's overseas deposits 79.5 64.7Pooled money market funds - 39.2Total 1,011.1 951.5* included within other investment assets is £140.2 million (30 June2008: £216.2 million) of certificates of deposits and floating ratenotes together with £0.3 million (30 June 2008: £0.4 million) inrespect of a single legacy shareholding.The average duration of the bond element of the managed portfolios iscurrently 1.8 years (30 June 2008: 0.6 years). As at 30 June 2009investment assets were held as to 52% in sterling, 34% in US dollarsand 14% in other currencies (30 June 2008: 56%, 33% and 11%respectively).Currency assets and liabilitiesNovae is exposed to foreign currency risk. Its principal exposure isto the US dollar, which accounts for approximately 50% of grosswritten premiums. IFRS requires non-monetary items to be carried athistorical exchange rates rather than at closing rates (as formonetary items). Non-monetary items comprise unearned premiums,reinsurers' share of unearned premiums and deferred acquisitioncosts.During 2008 the US dollar appreciated against sterling, resulting ina non-monetary gain of £12.9 million. The exchange rate was £1:$1.44at 31 December 2008; this had moved to £1:$1.65 at 30 June 2009. As aresult, a non-monetary foreign currency loss of £16.4 million wasrecorded in the period, reversing the gain recorded in 2008.Interim dividendThe Board has declared an interim dividend of 3.0p per share (H12008: 2.5p). This will be paid on 5 October 2009 to shareholders onthe register on 11 September 2009.TaxThe Group's tax credit in the first half was £8.0 million (H1 2008:charge of £0.9 million), representing 43% of loss before tax (H12008: 6% of profit before tax).The deferred tax asset held on the balance sheet at 30 June 2009 is£29.5 million (30 June 2008: £22.4 million). A further £24.5 millionof deferred tax assets are not included on the balance sheet (30 June2008: £16.9 million). These are worth 34.1p per share (30 June 2008:23.6p per share).CapitalNovae's capital employed as at 30 June 2009 was £358.7 million, madeup as follows: 30 June 2009 30 June 2008 £m £mShareholders' funds 279.7 279.4Less: intangible assets (10.4) (6.0)Net tangible assets 269.3 273.42017 subordinated notes 68.9 97.82034 loan notes 20.5 19.42008 convertible bonds - 7.6Capital employed 358.7 398.2In April 2007 Novae issued £100.0 million (nominal value) of 2017subordinated bonds. It had intended to use part of the net proceedsof this issue to refinance its $36.0 million (nominal value) 2034notes. The 2034 notes are priced at a weighted average margin overLIBOR of 366 basis points. Following the reduction in $ LIBOR overthe last 12 months, the 2034 notes now have a lower running cost thanthe 2017 subordinated notes, which carry a fixed coupon of 8.375% totheir first call date in 2012.As a result, the Group has bought in a total of £30.0 million(nominal value) of 2017 subordinated notes for cancellation at aweighted average price of 63p per £1 nominal value. This hasresulted in a total realised pre-tax gain of £10.5 million. Of this,£2.8 million was recognised in the year ended 31 December 2008 and£7.7 million recognised in the period ended 30 June 2009. £70.0million (nominal value) of 2017 subordinated notes remain in issue.The Group's total debt at 30 June was £89.4 million, compared withshareholders' funds of £279.7 million. This is equivalent to afinancial gearing level of 32.0%.Capital is used to provide admissible assets for Novae's regulatedsubsidiaries as well as working capital. Novae's Lloyd's corporatemember currently has a 2009 capital requirement of £223.7 million,equivalent to 66% of its 2009 premium capacity of £340.0 million. Ofthe Lloyd's corporate member's capital requirement, around £170million underpins the ongoing business with the balance of some £50million supporting the 2002 run-off year of Syndicates 1007 and1241. Syndicate 2007's gross written premium in its regulatorybusiness plan (net of acquisition costs and at Lloyd's stipulatedexchange rates of $1.50:£1) is £291 million at the 100% level.Expressing the Group's capital requirement excluding 2002 and priorrun-off of £170 million as a percentage of its share of gross incomeof £275 million produces a solvency ratio of 62%.For 2010, the Group is currently intending to pre-empt the capacityof Syndicate 2007 by 25% to £450.0 million, reflecting continuingrecruitment of new teams and rate hardening in some areas where theGroup is active. The additional capital required to support thislevel of pre-emption is currently expected to be relatively modest.NICL's net assets at 31 December 2008 were £104.7 million, more thandouble its stand-alone regulatory capital requirement. However, NICLhas to maintain minimum net worth to satisfy rating agency andbrokers' security requirements. In particular, rating agency modelsimpose a higher capital requirement in the start-up phase of aninsurance company's life than on a mature business of equal size.This is likely to result in NICL remaining over-capitalised relativeto its premium base until the start-up phase has concluded in 2011.On 18 March 2009 the Group's £20 million revolving credit facilitywas extended until 31 December 2010. The facility remains undrawn.Principal risksThe principal risks that face the Group are described in the riskdisclosure section in the 2008 annual report (pages 71 to 84),together with the relevant section of the operating review (pages 26to 27). There have been no significant changes to the principal risksduring the six months ended 30 June 2009.OutlookThe first six months of 2009 represented a challenging period for theGroup. Although rates in property classes began to improve, liabilityrates generally have yet to do so; investment returns on risk freeassets are at an all time low; recession-related claims led to losseswithin the credit insurance unit; and one of Novae's two event-drivenreinsurance units, aviation reinsurance, suffered from a series ofmajor loss events. While the financial outcome is disappointing,these events need to be seen in context.The aviation reinsurance unit has made a major contribution toNovae's profits over the past five years. It has the potential togenerate significant profits in the future as rates improve.The credit and political risks unit is one of several specialistareas in which Novae has a niche presence. Against the background ofperhaps the most severe and rapid recession since 1945 it should comeas no surprise the unit made a loss even if, as the anecdotalevidence suggests, the unit's performance is favourable when comparedto its peers.Novae's business mix more generally continues to be around two thirdsliability, one third property. In this context, the current interestrate environment is clearly an obstacle to progress. Over the past 10years the redemption yield on the short gilt has averaged 5.04%. Asat 30 June 2009, the redemption yield on the Treasury 2010 4.75% notewas 0.77%; it has since fallen to 0.67%. The fall in the return onrisk free assets, imposed by policymakers to support the bankingsector, has implications on the profitability of liability business.These headwinds have obscured good progress on several other fronts.New units established since 2006 have made a strong contribution toperformance and longer established units have continued to displaythe quality of the underwriting expertise that they represent. Novaeis recruiting new talent to build upon its underwriting strengths andfurther diversify the business.It is also worth noting that the financial outcome in the six monthsto 30 June 2009 follows a year in which the Group's strategydelivered one of the best returns on equity in its sector. Novae'sability to absorb exceptional losses and low investment returns inthe first half of the year, and still be able to grow the scale ofits business without recourse to additional capital, validates itspolicy of diversification and controlled risk appetite.The emergence of a more favourable rating environment continues to bepatchy. While financial institutions, property reinsurance and energyclasses are enjoying rating momentum, rates in other areas areimproving only reluctantly. This is despite a backdrop in theinsurance industry and in the wider economy which would imply upwardrating pressure. A contracting global economy is one factorrestraining rates. But if claims frequency does increase, replacementcapital and investment returns will not easily make up thedifference. Rate increases across the whole account of 5-10% for thefull year are expected for 2009, driven by classes already reportinglosses. But if the broader claims environment deteriorates, wider andmore sustained rating improvements are likely. We will be patient indeploying capital, but will respond boldly as conditions dictate.M K FoshGroup Chief Executive30 July 2009Responsibility statement of the directors in respect of thehalf-yearly financial reportWe confirm that to the best of our knowledge: * the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU * the interim management report includes a fair review of the information required by: (a) section 4.2.7 of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year (b) section 4.2.8 of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do soBy order of the BoardM J TurveySecretary30 July 2009Condensed consolidated statement of comprehensive incomefor the six months ended 30 June 2009 Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 Note £m £m £mGross premium revenue 4 199.9 162.7 345.7Less premium ceded to 4 (54.5) (36.8) (87.3)reinsurersNet premium revenue 145.4 125.9 258.4Investment income 5 10.9 20.7 50.0Fees and commission income 1.8 0.8 1.8Total revenue (net of premium 158.1 147.4 310.2ceded to reinsurers)Gross claims incurred (128.5) (79.0) (240.6)Reinsurers' share of claims 28.2 13.6 73.7incurredNet claims incurred (100.3) (65.4) (166.9)Policy acquisition costs (34.9) (29.8) (61.5)Operating expenses 6 (44.4) (29.6) (32.0)Operating (loss)/profit before (5.1) 23.1 36.9currency (loss)/gain on non-monetary itemsCurrency (loss)/gain on 7 (16.4) (0.5) 12.9non-monetaryitemsOperating (loss)/profit (21.5) 22.6 49.8Financing credit/(costs) 8 3.0 (6.3) (9.6)(Loss)/profit before income (18.5) 16.3 40.2taxesIncome taxes 9 8.0 (0.9) (3.1)(Loss)/profit for the period (10.5) 15.4 37.1attributable to shareholders(Losses)/earnings per shareBasic (losses)/earnings per 10 (14.6)p 21.4p 51.7pshareDiluted (losses)/earnings per 10 (14.6)p 20.8p 50.2pshareCondensed consolidated balance sheetas at 30 June 2009 30 June 30 June 31 December 2009 2008 2008 Note £m £m £mAssets Intangible assets 10.4 6.0 6.5 Property, plant and 1.2 1.0 1.1equipment Deferred acquisition costs 37.6 33.7 31.1 Deferred tax assets 11 29.5 22.4 20.2 Financial assets 12 642.4 560.2 478.3 Reinsurance contracts 13 421.2 358.1 410.2 Insurance and other 184.6 201.0 184.4receivables Cash and cash equivalents 14 368.7 391.3 622.5Total assets 1,695.6 1,573.7 1,754.3Liabilities Insurance contracts 15 (1,241.0) (1,098.0) (1,277.3)Financial liabilities, duewithin one year - Convertible debt 16 - (7.6) - Financial liabilities, dueafter one year - Loan notes 16 (20.5) (19.4) (21.3) - Subordinated notes 16 (68.9) (97.8) (89.2)Insurance and other payables, (83.2) (71.5) (66.0)duewithin one yearInsurance and other payables, (2.3) - -dueafter one yearTotal liabilities (1,415.9) (1,294.3) (1,453.8)Net assets 279.7 279.4 300.5Shareholders' equity Share capital 17 73.2 73.2 73.2 Share premium 67.1 67.1 67.1 Merger reserve 69.6 69.6 69.6 Retained earnings 69.8 (89.1) 90.6 Other reserves - 155.2 - Equity component of - 3.4 -convertible debtTotal shareholders' equity 279.7 279.4 300.5Net asset value per share 10 389.0p 389.6p 420.0pNet tangible asset value per 10 374.6p 381.2p 410.8pshareThese financial statements were approved by the Board of Directors on30 July 2009and were signed on its behalf by:J PHastings-BassO R P CorbettChairmanGroup Finance DirectorCondensed consolidated statement of changes in equityfor the six months ended 30 June 2009 Share Share Merger Profit and Total capital premium reserve loss account account £m £m £m £m £mLoss for the period - - - (10.5) (10.5)Increase in share-basedpayment reserve - - - 0.4 0.4Acquisition of treasuryshares, net of LTIP - - - (2.4) (2.4)sharesvestedDividends paid (note 18) - - - (8.3) (8.3)Net decrease in equity - - - (20.8) (20.8)As at 31 December 2008 73.2 67.1 69.6 90.6 300.5As at 30 June 2009 73.2 67.1 69.6 69.8 279.7for the six months ended 30 June 2008 Share Share Merger Other Profit Equity Total capital premium reserve reserves and component account loss of account convertible debt £m £m £m £m £m £m £mProfit for - - - - 15.4 - 15.4theperiodConvertiblebond - - - - - (0.1) (0.1)redemptionIncrease inshare-based - - - - 0.1 - 0.1paymentreserveAcquisitionof - - - - (0.5) - (0.5)treasuryshares, netofLTIP sharesvestedDividends - - - - (5.4) - (5.4)paid(note 18)Netincrease / - - - - 9.6 (0.1) 9.5(decrease)inequityAs at 31December 73.2 67.1 69.6 155.2 (98.7) 3.5 269.92007As at 30June 2008 73.2 67.1 69.6 155.2 (89.1) 3.4 279.4for the year ended 31 December 2008 Share Share Merger Other Profit Equity Total capital premium reserve reserves and component account loss of account convertible bond £m £m £m £m £m £m £mProfit for the - - - - 37.1 - 37.1periodConvertiblebond - - - - 3.4 (3.5) (0.1)redemptionIncrease inshare-based - - - - 1.6 - 1.6paymentreserveAcquisition oftreasury - - - - (0.8) - (0.8)shares, net ofLTIP sharesvestedReserves - - - (155.2) 155.2 - -reorganisationDividends paid - - - - (7.2) - (7.2)(note 18)Net increase /(decrease) in - - - (155.2) 189.3 (3.5) 30.6equityAs at 31December 73.2 67.1 69.6 155.2 (98.7) 3.5 269.92007As at 31December2008 73.2 67.1 69.6 - (90.6) - 300.5Condensed consolidated cash flow statementfor the six months ended 30 June 2009 Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £m(Loss)/profit before tax (18.5) 16.3 40.2Adjustments for non-cash itemsand itemsseparately disclosed- Foreign exchange on financial 79.6 (16.4) (77.7)assets- Financing (credit)/costs (3.0) 6.3 9.6- Amortisation charge 0.6 0.4 1.0- Investment income (10.9) (20.7) (50.0)- Depreciation charge 0.4 0.4 1.1- Employee equity incentives 2.6 3.1 4.7Changes in operating assets andliabilities - Change in insurance contract (36.3) 23.9 203.2liabilities - Change in insurance 0.4 (5.5) (15.5)receivables - Change in other receivables 0.1 (20.1) 4.0 - Change in deferred (6.5) (4.9) (2.3)acquisition costs - Change in reinsurance (11.0) (17.2) (69.3)contract assets - Change in insurance and other 25.9 33.5 24.3payables - Change in market value of (0.8) 0.1 2.0loan notes - Change in market value of 8.0 (14.1) (18.9)investments - Other non-cash movements (3.2) (2.8) 0.1Net cash from operating 27.4 (17.7) 56.5activitiesCash flows from investingactivities - Purchase of property, plant (0.5) (0.6) (1.4)and equipment - Purchase of intangible fixed (4.5) - (1.1)assets - Interest received 11.9 21.3 42.8 - Purchase of financial assets (927.6) (773.7) (1,088.0) - Proceeds from sale of 716.6 812.8 1,218.6financial assetsNet cash used in investing (204.1) 59.8 170.9activitiesCash flows from financingactivities - Acquisition of treasury (7.7) (3.5) (5.3)shares - Redemption of convertible - (2.9) (10.2)debt - Redemption of subordinated (13.0) - (6.0)notes - Interest paid (8.1) (9.6) (11.6) - Dividends paid (8.3) (5.4) (7.2)Net cash used in financing (37.1) (21.4) (40.3)activitiesNet (decrease)/increase in cash (213.8) 20.7 187.1and cashequivalentsOpening cash and cash equivalents 622.5 367.0 367.0Effect of exchange rate changes (40.0) 3.6 68.4on cash and cashequivalentsClosing cash and cash equivalents 368.7 391.3 622.5Notes to the interim financial information1) Significant accounting policiesThe unaudited interim financial statements, which do not compriseannual accounts, have been prepared in accordance with IAS 34 InterimFinancial Reporting as adopted by the EU, and on the basis of theaccounting policies set out in the annual report of Novae Group plcfor the year ended 31 December 2008.The consolidated financial statements include the results of NovaeGroup plc and all its subsidiary undertakings made up to the sameaccounting date.The financial information contained in these interim results does notconstitute statutory accounts of Novae within the meaning of Section435 of the Companies Act 2006. Statutory accounts for Novae Group plcfor the year ended 31 December 2008 have been delivered to theRegistrar of Companies. The auditors have reported on the accounts,their report was unqualified and did not constitute a statement underSection 237(2) or (3) of the Companies Act 1985.Basis of preparationThe financial statements are presented in pounds sterling unlessotherwise stated. They have been prepared under the historical costconvention, as modified by the revaluation of financial assets andfinancial liabilities at fair value through profit or loss.The preparation of financial statements in conformity with IFRSrequires management to make judgements, estimates and assumptionsthat affect the application of policies and reported amounts ofassets and liabilities, income and expenses. The estimates andassociated assumptions are based on historical experience and variousother factors that are believed to be reasonable under thecircumstances. The results of these factors allow judgements to bemade regarding the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differfrom these estimates. Uncertainties exist where current valuationsare dependent on estimates of future results. This applies to theshare based payment charge, the deferred tax asset and financialassets and liabilities held at fair value. The accounting policieshave been applied consistently to all periods presented in thisreport.The Group's greatest area of uncertainty relates to insurancecontract liabilities (see note 15).The estimates and assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period inwhich the estimate is revised if the revision only affects thatperiod, or in the period of the revision and future periods if therevision affects both current and future periods.Revised and new reporting standardsThe Group has adopted the amendment to IAS 1 Presentation ofFinancial Statements. This has resulted in the income statement beingrenamed the statement of comprehensive income. No other reviseddisclosures and measurements have been required as a result of new oramended international standards and interpretations that the Grouphad not previously chosen to adopt in preparing the financialstatements for the year ended 31 December 2008.2) Segmental informationThe Group's operating segments are organised into similar product andservice types. The Board is the Group's chief operating decisionmaker. This is due to the Board being the ultimate decision maker forfuture resource allocation to the Group's underwriting platforms.Monthly management information is reported to the Board on asegmental basis to aid its assessment of the Group's performance.Segment results, assets and liabilities include items that can beallocated on a reasonable basis. Unallocated items comprise insuranceworking capital, central items and the deferred tax asset.The Group comprises the following reportable operating segments:(i) SpecialtyBusiness included within the Specialty segment relates to financialinstitutions, professional indemnity, management liability, fine art& specie, special situations, bloodstock and credit, political risk &terrorism.(ii) PropertyThe Property segment consists of both direct and reinsurance businesstransacted in the USA and internationally (including the UK).(iii) LiabilityThis comprises a UK general liability account, both public andemployers' liability risks, international general liability, marineliability business and a motor fleet account.(iv) Aviation & MarineThis segment is dominated by aviation reinsurance and marine energy,and also includes the specialist hull, cargo and marine war accounts.(v) Discontinued UnitsThis segment is primarily made up of liability reinsurance (orcasualty treaty) accounts and also includes smaller healthcare andthird party liability units. The Group withdrew from these classesprior to 2002 and they have subsequently been reported separately tomanagement. This does not represent a discontinued business analysisfor IFRS 5 purposes.2a. Segmental information at the 100% levelThis information is presented to include 100% of the syndicateresults. This is to avoid any distortion from the effects of changein ownership of syndicates between underwriting years.The segment results for the six months ended 30 June 2009 include: Specialty Property Liability Aviation Discontinued Total & Units Marine £m £m £m £m £m £mGross 75.3 62.4 39.3 54.6 0.2 231.8writtenpremiumGross 85.3 38.7 36.7 49.6 0.2 210.5premiumrevenueNet premium 62.7 27.2 31.1 32.3 0.3 153.6revenueNet claims 41.0 18.4 13.0 34.1 (0.9) 105.6incurredOperating 22.0 12.2 11.2 8.8 0.3 54.5expenses(includingbrokerage)The segment results for the six months ended 30 June 2008 include: Specialty Property Liability Aviation Discontinued Total & Units Marine £m £m £m £m £m £mGross 77.6 48.6 41.7 27.3 0.4 195.6writtenpremiumGross 79.6 31.8 33.9 25.4 0.4 171.1premiumrevenueNet premium 50.2 33.3 31.9 17.7 - 133.1revenueNet claims 29.9 10.8 18.5 7.8 4.1 71.1incurredOperating 20.9 9.9 10.8 6.2 0.2 48.0expenses(includingbrokerage)The segment results for the year ended 31 December 2008 include: Specialty Property Liability Aviation Discontinued Total & Units Marine £m £m £m £m £m £mGross 165.8 76.7 68.2 55.9 0.5 367.1writtenpremiumGross 166.9 76.6 62.8 57.7 0.5 364.5premiumrevenueNet premium 124.0 56.2 51.0 41.2 (0.2) 272.2revenueNet claims 87.6 38.6 30.6 20.9 3.8 181.5incurredOperating 41.3 21.5 19.2 15.6 0.6 98.2expenses(includingbrokerage)b) Segmental information at the Novae ownership levelThe segment results for the six months ended 30 June 2009 are asfollows: Specialty Property Liability Aviation & Discontinued Total Unallocated Total Marine Units reportable by segment segments £m £m £m £m £m £m £m £mGross written 71.9 59.2 37.6 51.5 0.1 220.3 - 220.3premiumGross premium 81.3 36.6 35.2 46.7 0.1 199.9 - 199.9revenueNet premium 59.3 25.7 29.8 30.4 0.2 145.4 - 145.4revenueNet claims (40.0) (17.1) (12.3) (32.1) 1.2 (100.3) - (100.3)incurredInvestment 4.8 1.4 1.7 1.1 1.3 10.3 0.6 10.9returnFees and - - - - - - 1.8 1.8commissionincomePolicy (14.1) (7.6) (7.5) (5.7) - (34.9) - (34.9)acquisitioncostsOperating (6.9) (4.0) (3.3) (2.5) (0.3) (17.0) (27.4) (44.4)expensesOperating 3.1 (1.6) 8.4 (8.8) 2.4 3.5 (25.0) (21.5)profitFinancing - - - - - - 3.0 3.0credit/(costs)Profit/(loss) 3.1 (1.6) 8.4 (8.8) 2.4 3.5 (22.0) (18.5)before taxIncome taxes - - - - - - 8.0 8.0Profit/(loss) 3.1 (1.6) 8.4 (8.8) 2.4 3.5 (14.0) (10.5)after taxIncludedwithinoperatingexpenses are:Depreciation (0.1) (0.1) (0.1) (0.1) - (0.4) - (0.4)The segment results for the six months ended 30 June 2008 are asfollows: Specialty Property Liability Aviation Discontinued Total Unallocated Total & Marine Units reportable by segment segments £m £m £m £m £m £m £m £mGross written 74.4 45.7 39.8 25.7 0.4 186.0 - 186.0premiumGross premium 75.8 29.9 32.5 24.1 0.4 162.7 - 162.7revenueNet premium 56.7 24.3 27.4 17.4 0.1 125.9 - 125.9revenueNet claims (30.2) (10.1) (17.7) (7.5) 0.1 (65.4) - (65.4)incurredInvestment 8.1 3.4 2.7 2.0 2.1 18.3 2.4 20.7returnFees and - - - - - - 0.8 0.8commissionincomePolicy (12.9) (6.3) (7.1) (3.9) - (30.2) 0.4 (29.8)acquisitioncostsOperating (6.8) (3.2) (3.2) (1.9) (0.2) (15.3) (14.3) (29.6)expensesOperating 14.9 8.1 2.1 6.1 2.1 33.3 (10.7) 22.6profit/(loss)Financing - - - - - - (6.3) (6.3)costsProfit/(loss) 14.9 8.1 2.1 6.1 2.1 33.3 (17.0) 16.3before taxIncome taxes - - - - - - (0.9) (0.9)Profit/(loss) 14.9 8.1 2.1 6.1 2.1 33.3 (17.9) 15.4after taxIncludedwithinoperatingexpenses are:Depreciation (0.1) (0.1) (0.1) (0.1) - (0.4) - (0.4)The segment results for the year ended 31 December 2008 are asfollows: Specialty Property Liability Aviation Discontinued Total Unallocated Total & Marine Units reportable by segment segments £m £m £m £m £m £m £m £mGross written 158.6 72.0 65.3 52.5 0.6 349.0 - 349.0premiumGross premium 159.0 71.8 60.1 54.2 0.6 345.7 - 345.7revenueNet premium 118.4 52.4 48.8 38.9 (0.1) 258.4 - 258.4revenueNet claims (82.7) (36.0) (29.0) (19.9) 0.7 (166.9) - (166.9)incurredInvestment 22.2 4.5 9.3 4.0 5.8 45.8 4.2 50.0returnFees and - - - - - - 1.8 1.8commissionincomePolicy (26.4) (13.7) (12.8) (9.3) - (62.2) 0.7 (61.5)acquisitioncostsOperating (12.8) (6.4) (5.6) (5.3) (0.6) (30.7) (1.3) (32.0)expensesOperating 18.7 0.8 10.7 8.4 5.8 44.4 5.4 49.8profitFinancing - - - - - - (9.6) (9.6)costsProfit/(loss) 18.7 0.8 10.7 8.4 5.8 44.4 (4.2) 40.2before taxIncome taxes - - - - - - (3.1) (3.1)Profit/(loss) 18.7 0.8 10.7 8.4 5.8 44.4 (7.3) 37.1after taxIncludedwithinoperatingexpenses are:Depreciation (0.5) (0.1) (0.3) (0.1) (0.1) (1.1) - (1.1)c) Segmental balance sheet analysisRelevant balance sheet captions are deemed to be attributable to thebusiness segments as follows (investment assets comprise financialassets, cash and cash equivalents):As at Aviation Discontinued Total Unallocated30 June 2009 Specialty Property Liability & Units reportable by segment Total Marine segments £m £m £m £m £m £m £m £mReinsurers' 227.0 20.0 29.7 62.6 26.6 365.9 - 365.9share ofclaimsoutstandingInvestment 467.8 116.7 170.1 99.5 115.4 969.5 41.6 1,011.1assetsOther assets - - - - - - 318.6 318.6Total assets 694.8 136.7 199.8 162.1 142.0 1,335.4 360.2 1,695.6Gross 572.2 60.6 161.4 129.2 117.0 1,040.4 - 1,040.4provision forclaimsoutstandingOther - - - - - - 375.5 375.5liabilitiesShareholders' - - - - - - 279.7 279.7fundsTotal 572.2 60.6 161.4 129.2 117.0 1,040.4 655.2 1,695.6liabilitiesAs at Aviation Discontinued Total Unallocated30 June 2008 Specialty Property Liability & Units reportable by segment Total Marine segments £m £m £m £m £m £m £m £mReinsurers' 214.3 10.9 24.2 29.7 30.8 309.9 - 309.9share ofclaimsoutstandingInvestment 386.4 145.8 129.3 90.5 92.2 844.2 107.3 951.5assetsOther assets - - - - - - 312.3 312.3Total assets 600.7 156.7 153.5 120.2 123.0 1,154.1 419.6 1,573.7Gross 506.0 44.7 155.1 82.7 127.1 915.6 - 915.6provision forclaimsoutstandingOther - - - - - - 378.7 378.7liabilitiesShareholders' - - - - - - 279.4 279.4fundsTotal 506.0 44.7 155.1 82.7 127.1 915.6 658.1 1,573.7liabilitiesAs at Aviation Discontinued Total Unallocated31 December Specialty Property Liability & Units reportable by segment Total2008 Marine segments £m £m £m £m £m £m £m £mReinsurers' 250.9 20.9 30.0 48.1 31.2 381.1 - 381.1share ofclaimsoutstandingInvestment 515.1 90.2 213.5 88.2 112.9 1,019.9 80.9 1,100.8assetsOther assets - - - - - - 272.4 272.4Total assets 766.0 111.1 243.5 136.3 144.1 1,401.0 353.3 1,754.3Gross 611.2 68.7 173.2 111.0 144.3 1,108.4 - 1,108.4provision forclaimsoutstandingOther - - - - - - 345.4 345.4liabilitiesShareholders' - - - - - - 300.5 300.5fundsTotal 611.2 68.7 173.2 111.0 144.3 1,108.4 645.9 1,754.3liabilitiesAs at 30 June 2009 the Group's share of the aggregate gross assetsand liabilities of the 2002 open year of Syndicates 1007 and 1241 was£357.6 million (30 June 2008: £393.4 million, 31 December 2008:£452.4 million).3) Seasonality of interim operationsWithin a financial year, the Group's underwriting income is notrecognised on a straight line basis. This is due to a number offactors.Gross written premium is recognised on the inception of an insurancecontract. For many classes of business these have historically beenweighted towards the first half of the year.Certain of the Group's underwriting units (primarily propertyreinsurance and energy) are exposed to major risk events, such as USwindstorms. The US hurricane season runs from May to November, whichmeans that the Group may experience large losses in the second halfof the year. Conversely, in years without a major event, the lossratio is likely to be lower in the second half.Premium revenue is earned separately for each insurance contract inline with the risk exposure profile. This means that for catastropheexposed contracts, the majority of income is recognised in the secondhalf of the year.Movements in foreign exchange rates also affect seasonality. Thiseffect is accentuated as the Group's catastrophe exposed unitsprimarily transact business in US dollars.This seasonality can be demonstrated by reviewing Novae's keymetrics: Gross written premium Claims ratio Net premium revenue H1 H2 Total H1 H2 Total H1 H2 Total £m £m £m % % % £m £m £m2005 129.2 115.1 244.3 35.3 93.2 69.4 111.4 159.2 270.62006 146.6 134.6 281.2 53.0 39.0 46.3 114.8 106.0 220.82007 173.3 159.7 333.0 47.7 58.3 53.7 96.8 124.2 221.02008 186.0 163.0 349.0 51.9 76.6 64.6 125.9 132.5 258.44) Premium revenue Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £mGross written premium 220.3 186.0 349.0Change in the gross provision for (20.4) (23.3) (3.3)unearned premiumsGross premium revenue 199.9 162.7 345.7Outward reinsurance premiums (78.2) (59.2) (90.8)Change in reinsurers' share of 23.7 22.4 3.5provision for unearned premiumsPremium ceded to reinsurers (54.5) (36.8) (87.3)Net premium revenue 145.4 125.9 258.45) Investment income Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £mInterest income on fair value 11.5 21.7 44.1throughprofit and loss assetsNet fair value (losses)/gains (0.3) (0.7) 6.5Investment management expenses (0.3) (0.3) (0.6) 10.9 20.7 50.06) Operating expenses Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £mUnderwriting expenses 17.0 15.2 30.7Distribution company expenses 1.3 - -Central expenses 7.2 12.4 23.6Foreign exchange losses/(gains) 18.9 2.0 (22.3)(seenote 7) 44.4 29.6 32.0The increase in other income and consequent increase in distributioncompany expenses are due to changes made on certain underwritingclasses whereby the distribution company now charges commission tothe Group's syndicate and incurs the associated expenses.7) Foreign exchangeThe net foreign exchange gains and losses for the period comprise thefollowing amounts: Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £mForeign exchange (losses)/gains (2.5) (1.5) 9.4(excluding non-monetary items)Foreign exchange (losses)/gains (16.4) (0.5) 12.9on non-monetary itemsNet foreign exchange (18.9) (2.0) 22.3(losses)/gainsForeign exchange movements are included within operating expenses(see note 6). Foreign exchange movements on non-monetary items arehighlighted on the face of the statement of comprehensive income.Principal exchange rates applied are as follows: Six months ended Six months ended Year ended 30 June 2009 30 June 2008 31 December 2008 Period Period Period Period Year Year average end average end average endUS dollar 1.50 1.65 1.98 1.99 1.85 1.44Euro 1.12 1.17 1.29 1.26 1.26 1.03Canadian dollar 1.80 1.91 1.99 2.02 1.96 1.778) Financing (credit)/costs Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £mCost of 2017 subordinated notes 3.8 4.4 8.8Cost of 2034 loan notes 0.7 0.9 1.8Other financing 0.2 0.1 0.2Cost of 2008 convertible bond - 0.5 0.8Reinsurer letter of credit cost - 0.4 0.8 4.7 6.3 12.4Less: gain on purchase and (7.7) - (2.8)cancellation of 2017 subordinatednotes (see note 16(d)) (3.0) 6.3 9.69) Income taxes Six months Six months Year ended ended ended 30 June 30 June 31 December 2009 2008 2008 £m £m £mCurrent tax expense:Current period 1.3 - -Adjustments for prior years - - -Total current tax 1.3 - -Deferred tax (see note 11):Effect of tax losses utilised (9.3) 0.9 3.1Total income tax (credit)/expense (8.0) 0.9 3.1Reconciliation of effective taxrate:(Loss)/profit before income taxes (18.5) 16.3 40.2Income tax at the standard UK (5.2) 4.7 11.5corporationtax rate (28%) (June 2008: 29%;December 2008: 28.5%)Effect of disallowable (10.2) (0.6) (2.1)expenditure/timingdifferencesEffect of tax losses de- 7.4 (3.2) (6.3)recognised/(recognised) (8.0) 0.9 3.1The future tax charge is dependent on the Group's ability to utilisepast tax losses.10) Losses/earnings, net assets and net tangible assets per shareBasic losses per shareThe calculation of losses per share of 14.6p (June 2008: earnings of21.4p; December 2008: earnings of 51.7p) is based on a lossattributable to equity shareholders of the parent company of £10.5million (June 2008: profit of £15.4 million; December 2008: profit of£37.1 million) and on 71.9 million shares (June 2008: 71.9 millionshares; December 2008: 71.7 million shares), being the weightedaverage number of shares in issue (excluding shares held by theEmployee Benefit Trust which are earmarked for the Group's Long TermIncentive Plan ("LTIP") and deferred bonuses payable in shares)during the period ended 30 June 2009.Diluted losses per shareDiluted losses per share are calculated adjusting the weightedaverage number of shares outstanding to assume conversion of allpotentially dilutive shares. Novae Group has two sources ofpotentially dilutive shares: share options and LTIP awards/deferredbonuses payable in shares. For share options, a calculation is madeto determine the number of shares that could have been acquired atfair value (determined at the average annual market share price)based on the monetary value of the subscription rights attached tooutstanding share options. For LTIP awards and deferred bonusespayable in shares, the number of potential shares is calculated withreference to the current date as though it were the vesting date,excluding shares held by the Employee Benefit Trust earmarked forthese awards.For the six months ended 30 June 2009 and the year ended 31 December2008, share options are not considered to have any dilutive effect asthe average market share price during these periods did not ex
Datum: 30.07.2009 - 08:01 Uhr
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