Interim Management Statement
(Thomson Reuters ONE) - NEWS RELEASE11 November2009 Novae Group plc Interim Management Statement Novae Group plc ("Novae" or "the Group") today releases its secondinterim management statement for 2009. This covers underwriting andinvestment performance for the first nine months of 2009, the Group'sbusiness review for the ten month period ended 31 October 2009 andits outlook for 2009 as a whole.Group highlights* Group gross written premium for the nine months of 2009: £308.2 million, up 15.1% (Q1-Q3 2008: £267.8 million)* Rate increases averaged 9% for the first nine months of 2009 (Q1-Q3 2008: 7% reduction)* Investment return during the first nine months of 2009: £26.5 million (Q1-Q3 2008: £32.0 million). This equates to an annualised return on average invested assets of 3.34% (Q1-Q3 2008 annualised return: 4.44%)* A more benign claims experience in the three months to 30 September 2009 compared to the first half of the year* Novae's bank facilities increased and extendedCommenting today, Group Chief Executive Matthew Fosh said: "If thesteady improvements enjoyed during the third quarter are maintainedfor the remainder of the year, we can counter the disappointments ofthe first halfthe first half. We are in positive rating territory ata time when the Group's income base is building and diversifying."UnderwritingIn the first nine months of the year the Group wrote £308.2 millionof premium income (including acquisition costs) (Q1-Q3 2008: £267.8million). This represents around 74% of the planned income for theyear (Q1-Q3 2008: 76% of planned income). Of the total, £262.1million or 85% was written by the Lloyd's business and £46.1 millionor 15% by NICL (Q1-Q3 2008: £222.9 million/83% and £45.8 million/17%respectively). Across all segments, rate increases in the first nine months of theyear averaged 9%, although significant variation between classesremains. This is towards the higher end of the Board's expectationof a 5%-10% increase overall for the year as a whole.In classes such as credit and financial institutions actual orperceived vulnerability to claims experience is driving up ratesstrongly. The effect of 2008 windstorm losses continues to underpinrate strength in property reinsurance and certain direct classes suchas US property. This is also true of energy business although rateincreases are partially offset by the reduced amount of cover beingbought. Aviation reinsurance business, much of which renews in thefourth quarter, looks as though it will benefit from rate increasesgiven significant loss activity earlier in 2009.For other classes the market's refusal to recognise potential claimsexperience and low interest rates is holding back rating. This isparticularly true of liability classes other than financialinstitutions business.Across the Group as a whole underwriting experience has improved inthe third quarter compared to the position at the interim stage.Novae's aviation reinsurance unit has experienced a more normal levelof claims activity and measures taken within the CIFS, the UK tradecredit business, are delivering positive results.The Specialty business, the largest of Novae's four reportingsegments, retains its cautious stance given uncertain economicconditions. Nevertheless areas such as financial institutions andprofessional indemnity continue to trade profitably. CIFS tradedaround breakeven in the third quarter. The emerging market creditunit remains under pressure from individual loss events stemming fromglobal recession. NICL's Specialty business compares well with2008.Within the Liability segment Novae continues to be defensivelypositioned given recession in most of its key geographic markets butperformance nevertheless remains satisfactory. There is a favourableyear-on-year comparison in NICL and the profitability of the marineliability unit remains strong.There has been a pronounced improvement in the Property segment inthe third quarter compared with the same period in 2008 as a resultof the absence of US windstorm losses this year. At the nine monthstage the Property segment shows a healthy level of profit, dominatedby an impressive performance on property catastrophe reinsurancebusiness.The performance of the Aviation & Marine segment for the first ninemonths continues to be dominated by aviation reinsurance losses fromthe first half. While the aviation reinsurance unit made a profit inthe third quarter it is still substantially loss-making at the ninemonth stage this year, in contrast to the situation in 2008 when itwas the largest source of profit for this segment.The level of underwriting profit at the nine month stage represents apronounced improvement, consistent with the Board's expectations atthe time, upon the situation reported at the interim stage. As faras syndicate forecasts are concerned, changes to the public ranges atthe third quarter stage carry no implication for any impact on thequantum of Group profit. NICL does not publish forecasts for itsresults but experience in the third quarter is consistent withexpectations for the year as a whole.Novae ReOn 20 August 2009 the Group announced the formation of Novae Re, anew unit underwriting an international and predominantly reinsuranceaccount. Nine senior underwriters have so far been appointed in London andZurich. The new unit is expected to commence underwriting in time toparticipate in the 1 January 2010 renewal season. The Board hasnoted positive feedback from industry sources, including Monte Carloin September and Baden Baden in October, which is encouraging. NovaeRe expects to write between £90-100 million of gross written premiumin 2010.As previously reported, the cost of Novae Re is not expected toexceed £3 million in 2009 and £7 million in 2010.BankingOn 1 October 2009 the Group renewed its bank facilities in the lightof the formation of Novae Re.Its existing facilities were restructured into a £30 million letterof credit available for the 2010 Lloyd's year of account and a £15million revolving credit component extended until December 2011. Theentire facility is provided by Lloyds TSB.In the light of these re-structured facilities the Board currentlyexpects the Group's financing charge in 2009 to be around £1 million,after taking credit for the £7.7 million gain on the repurchase forcancellation of 2017 notes; and some £10 million for 2010.InvestmentsThe Group's investment strategy remains focussed on preservation ofcapital and, within that constraint, the achievement of a targetedtotal return each financial year. Investment guidelines were revisedin the first quarter to permit an increased weighting in shortduration corporate bonds. The resulting re-balancing of theportfolios was completed in the second quarter.As at 30 September 2009 the Group had investment assets of £1,042.0million, as follows:+-------------------------------------------------------------------+| Investment type | 30 September | 31 December || | 2009 | 2008 || | (£'m) | (£'m) ||--------------------------------------+--------------+-------------|| | | ||--------------------------------------+--------------+-------------|| Cash | 327.2 | 546.1 ||--------------------------------------+--------------+-------------|| Corporate and supranational issuers | 319.2 | 82.6 ||--------------------------------------+--------------+-------------|| Government bonds and bills | 178.4 | 167.0 ||--------------------------------------+--------------+-------------|| Government agencies | 78.8 | 42.0 ||--------------------------------------+--------------+-------------|| Lloyd's overseas deposits | 78.7 | 76.4 ||--------------------------------------+--------------+-------------|| Certificates of deposit and floating | 59.7 | 186.7 || rate notes | | ||--------------------------------------+--------------+-------------|| | | ||--------------------------------------+--------------+-------------|| Total | 1,042.0 | 1,100.8 |+-------------------------------------------------------------------+Investment return for the first three quarters was £26.5 million onaverage investment assets of £1,056.9 million, equivalent to anannualised return of 3.34% (Q1-Q3 2008: £32.0 million, £962.7million and 4.44% respectively).Deferred taxUnder International Financial Reporting Standards, a deferred taxasset should be recognised to the extent that it is probable thatfuture taxable profits will be available against which it can beutilised.As the Group's development and diversification continues, it hasbecome increasingly probable that these tax losses will be utilised.As at 31 December 2009 Novae expects to recognise most, if not all,of the £24.5 million deferred tax asset that was not recognised onthe Group's consolidated balance sheet asset as at 30 June 2009.This will result in a tax credit on the income statement.OutlookA healthy level of profit in the third quarter has countered losseson credit and aviation reinsurance business in the first half.Although yields, particularly for short duration UK and US governmentbonds, are significantly lower than a year ago, the investmentportfolio was re-positioned sufficiently early in the year to reducethis headwind for 2009.Looking to 2010 the Group expects to benefit from the increasingdiversification of its underwriting portfolio, particularly followingthe formation of Novae Re. This diversification of the business,together with a higher loss tolerance (measured in terms ofWillingness To Lose), will improve return on equity assuming normalloss experience.DisclaimerThe financial information contained in this release is based onunaudited management information. Certain statements made in thisinterim management statement are forward-looking. They are based oncurrent expectations and are subject to a number of risks anduncertainties that could cause actual events, results or outcomes todiffer materially from any expected future events, results oroutcomes referred to in these forward-looking statements.For further information:Matthew Fosh - Novae Group plc 020 7903 7300Nick Miles - M:Communications 020 7920 2330---END OF MESSAGE---This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 11.11.2009 - 08:01 Uhr
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