ADV.L Regulatory News (ADV)

28 Apr 2009 07:00

W

Advent Capital (Holdings) PLC

("Advent" or the "Company")

Advent, the specialist Lloyd's insurer, today reports its results for the three months ended 31 March 2009.

Key highlights 

Profit after tax of £1.3 million (2008: loss £4.0 million).

Pre-tax profit of £1.9 million (2008: loss £5.5 million).

Underwriting profit of £2.2 million and combined ratio of 98% (2008: 111%). The combined ratio, excluding RITC, was 93%.

Gross premiums written, excluding the reinsurance to close premiums (RITC), increased by 40.8% to £87.3 million (2008: £62.0 million) partially reflecting the US dollar which strengthened by 28% over 2008.

Syndicate 780's revised 2009 business plan approved by Lloyd's including quota share reinsurance agreement with an A rated subsidiary of Fairfax Financial Holdings Limited of 40% of Syndicate 780's property reinsurance lines of business.

Our long term debt which matures in 2026 and 2035 is not subject to refinancing risk.

Market conditions and pricing continue to improve, particularly in the reinsurance account.

  Financial summary 

	Three months (unaudited)
	2009	2008	Year  2008	Year  2007	Year 2006
	£'000	£'000	£'000	£'000	£'000
Gross premiums written	158,574	96,275	209,637	126,912	115,356
Net premiums written	105,398	74,592	168,659	106,199	88,201
Net premiums earned	88,496	56,033	157,262	95,984	81,694
Underwriting profit (loss)	2,176	(6,358)	(24,164)	20,912	21,064
Profit (loss) before tax	1,886	(5,524)	(14,351)	25,161	22,853
Profit (loss) after tax	1,270	(3,984)	(8,945)	19,192	16,011
Return on equity	1.3%	(3.7%)	(8.5%)	21.6%	25.1%

	Three months (unaudited)
	2009	2008 Restated	Year 2008	Year 2007 Restated	Year 2006 Restated
Per share amounts
Earnings (loss)  basic and diluted	3.1p	(9.8p)	(22.0)p	47.2p	43.3p
Dividend	-	-	12.5p	-	-
Net assets	236p	257p	233p	267p	219p
Net tangible assets	219p	240p	216p	249p	199p

Operating ratios
Claims ratio	88% (1)	100%	93%	50%	53%
Expense ratio	10% (1)	11% (2)	22%	29%	30%
Combined ratio	98% (1)	111% (2)	115%	79%	83%
Net notified loss ratio	5%	10%	86%	32%	17%
(by year of account)

(1) claims ratio of 64%, expense ratio of 29% and a combined ratio of 93% excluding the impact of reinsurance to close (RITC) premium

(2) expense ratio of 30% and combined ratio of 130% excluding the impact of RITC premium 

  

Advent Capital (Holdings) PLC
Keith Thompson Chief Operating Officer		020 7743 8200
Trevor Ambridge Chief Financial Officer		020 7743 8200
Neil Ewing Investor Relations		020 7743 8250
Fox-Pitt Kelton Cochran Caronia Waller
Simon Law		020 7663 6023
Jonny Franklin-Adams		020 7663 6029
Pelham Public Relations
Damian Beeley		020 7337 1508
Zoe Pocock		020 7337 1532

  Financial Review

For the three months ended 31 March 2009, the Company's profit before tax was £1.9 million compared with a loss before tax of £5.5 million for the first quarter of 2008.  The Company's earnings per share were 3.1p for the first quarter of 2009 compared with a loss per share of 9.8p in 2008.

The results for the first quarter of 2009 reflect the generally benign claims environment compared with the first quarter of 2008 when the Company recorded single risk property losses, net of reinsurance recoveries and reinstatement premiums, of £7.0 million in excess of business plan losses.

The underwriting profit of £2.2 million for the first quarter of 2009 includes:

Underwriting loss of £0.2 million on the 2009 year of account from attritional catastrophe losses in the U.S. regional catastrophe book and Australian fires, in excess of business plan losses.  

Underwriting profit of £3.0 million on the 2008 year of account after the negative effect of £3 million resulting from the translation of US denominated premiums into sterling at the 2008 average exchange rate of £1.85/£ while incurred losses have been translated at £1.43/£ for the first quarter of 2009 (2008 Foreign Exchange Effect). Premiums denominated in US dollars were translated into sterling at the 2008 average exchange rate of $1.85/£ while incurred losses were translated into sterling at the average exchange rate of $1.43/£ for the first quarter of 2009 of resulting in a negative effect on underwriting contribution of £3.0 million.

Underwriting loss of £0.2 million on the 2007 and prior years of account is primarily due to operating expenses.

Prior years' reserves proved stable during the first quarter of 2009 with adverse development, net of reinsurance recoveries and reinstatement premiums, of £0.6 million (2008: £0.2 million). 

For the three months ended 31 March 2009, the Company had an underwriting profit of £2.2 million and combined ratio of 97.5% compared with an underwriting loss of £6.4 million and combined ratio of 111.4% in 2008.  Excluding the RITC premiums from the closure of Syndicate 2's 2002 and prior years of account of £55.1 million and Syndicate 780's 2006 year of account of £4.1 million (2008: £34.2 million from Syndicate 780's 2005 year of account), the combined ratio for the first quarter of 2009 was 92.6% on net earned premium of £29.3 million (2008: 129.1% on net earned premium of £21.9 million).

Underwriting Review

For the three months ended 31 March 2009, gross premiums written, excluding the RITC premiums, increased by 40.8% to £87.3 million from £62.0 million in 2008, primarily reflecting the impact of the US dollar which strengthened by 28% to an average rate of $1.43/£ for the first quarter of 2009 from $1.98/£ for the first quarter of 2008 and increased business written of £14 million.  

Similarly, excluding the RITC premium, net premiums written increased by 14.5% to £46.2 million from £40.3 million in 2008, and net premiums earned increased by 33.9% to £29.3 million from £21.9 million in 2008. Net premiums written and earned for the first quarter of 2009 reflect ceded premiums of £14.3 million and £3.6 million respectively under the quota share reinsurance agreement with an AM Best A rated subsidiary of Fairfax Financial Holdings Limited in respect of 40% of the property reinsurance lines of business for Syndicate 780's 2009 underwriting year of account (Fairfax Quota Share). 

  Insurance Segment Review

	31 March 2009
	Non-Marine Reinsurance	Property Insurance	Marine	Syn 3330	Total
	£'000	£'000	£'000	£'000	£'000
Gross premiums written	79,847	9,365	2,181	67,181	158,574
Net premiums written	43,000	5,340	1,939	55,119	105,398
Net premiums earned	21,446	7,019	4,912	55,119	88,496
Net claims incurred	(16,592)	(6,354)	285	(55,126)	(77,787)
Acquisition costs	(2,705)	(1,960)	(1,178)	-	(5,843)
Operating costs	(1,043)	(1,136)	(265)	(246)	(2,690)
Underwriting profit (loss)	1,106	(2,431)	3,754	(253)	2,176
Claims ratio	77.4%	90.5%	(5.8%)	100.0%	87.9%
Acquisition costs	12.6%	27.9%	24.0%	-	6.6%
Operating costs	4.9%	16.2%	5.4%	0.5%	3.0%
Expense ratio	17.5%	44.1%	29.4%	0.5%	9.6%
Combined ratio	94.9%	136.6%	23.6%	100.5%	97.5%
Adjusted combined ratio excluding effect of RITC premium	93.6%	136.6%	23.6%	-	92.6%

  

	31 March 2008
	Non-Marine Reinsurance	Property Insurance	Marine	Syn 2	Total
	£'000	£'000	£'000	£'000	£'000
Gross premiums written	86,190	5,467	4,603	15	96,275
Net premiums written	70,147	3,053	1,338	54	74,592
Net premiums earned	47,302	4,914	3,763	54	56,033
Net claims incurred	(46,373)	(8,271)	(1,662)	289	(56,017)
Acquisition costs	(1,981)	(1,301)	(1,016)	(2)	(4,300)
Operating costs	(1,765)	(107)	(90)	(112)	(2,074)
Underwriting profit (loss)	(2,817)	(4,765)	995	229	(6,358)
Claims ratio	98.0%	168.3%	44.2%	(535.2%)	100.0%
Acquisition costs	4.2%	26.5%	27.0%	3.7%	7.7%
Operating costs	3.7%	2.2%	2.4%	207.4%	3.7%
Expense ratio	7.9%	28.7%	29.4%	211.1%	11.4%
Combined ratio	105.9%	197.0%	73.6%	(324.1%)	111.4%
Adjusted combined ratio excluding effect of RITC premium	121.5%	197.0%	73.6%	(324.1%)	129.1%

Non-Marine Reinsurance

For the three months ended 31 March 2009, the Non-Marine Reinsurance account had an underwriting profit of £1.1 million and combined ratio of 94.9% reflecting the generally benign claims environment.  In the first quarter of 2009, the 2008 Foreign Exchange Effect reduced the underwriting profit by £1.1 million and increased the combined ratio by 4.6%. This compares with an underwriting loss of £2.8 million and combined ratio of 105.9% in 2008 which was negatively impacted by single risk property losses, net of reinsurance recoveries and reinstatement premiums, of £4.3 million.  Excluding the RITC premium, the combined ratio was 93.6% for the first quarter of 2009 (2008: 121.5%).  

Advent Re

For the three months ended 31 March 2009, Advent Re had an underwriting loss of £0.2 million, with two remaining 2008 contracts expiring on 31 May 2009. Advent Re has agreed to enter a quota share reinsurance agreement with the Advent corporate member in respect of Syndicate 780's 2009 year of account. In April 2009, Advent Re wrote premiums, net of brokerage, with third party clients of $1.7 million.

Property Insurance

For the three months ended 31 March 2009, the Property Insurance account had an underwriting loss of £2.3 million and combined ratio of 136.6% reflecting prior years' premium reductions of £1.0 million and an increase in the frequency and severity of attritional claims from the Binder accounts, consistent with market trends. In the first quarter of 2009, the 2008 Foreign Exchange Effect reduced the underwriting profit by £0.5 million and increased the combined ratio by 13.6%. This compares with an underwriting loss of £4.8 million and combined ratio of 197.0% in 2008 which was negatively impacted by single risk property losses of £2.7 million, reductions in ultimate premium estimates and overall deterioration on the 2006 and 2007 years of account.

Marine

For the three months ended 31 March 2009, the Marine account had an underwriting profit of £3.8 million and a combined ratio of 23.6%, reflecting better than expected attritional loss experience on the physical damage and Operators extra expense accounts for the 2007 and 2008 years of account, partially offset by a small increase in the 2008 Hurricane losses. In the first quarter of 2009, the 2008 Foreign Exchange Effect reduced the underwriting profit by £1.2 million and increased the combined ratio by 0.8%. This compares with an underwriting profit of £1.0 million and combined ratio of 73.6% in 2008.

Syndicate 3330 (formerly Syndicate 2)

Syndicate 3330 had an underwriting loss of £0.3 million for the three months ended 31 March 2009 principally due to operating expenses in excess of investment income. Syndicate 2 had an underwriting profit of £0.1 million in 2008.

Syndicate 780 - Net notified loss ratio at three months (excluding IBNR)

Year of account	1994	1995	1996	1997	1998	1999	2000	2001
% net notified	10.7%	0.3%	1.9%	1.5%	7.6%	5.4%	0.8%	0.4%
Year of account	2002	2003	2004	2005	2006	2007	2008	2009
% net notified	0.1%	0.3%	3.9%	5.5%	0.1%	6.5%	10.1%	5.0%

The 2009 net notified loss ratio of 5.0% principally reflects winter storm losses in the US regional catastrophe book and Australian fires in the worldwide catastrophe book. The 2008 net notified loss ratio included net notified single risk property losses arising in the first quarter.

Catastrophe Exposure

At 31 March 2009, the Company's consolidated exposure to any one of the major Lloyd's Realistic Disaster Scenarios (RDS), from Syndicate 780 and Advent Re, is summarised below. The RDS exposures do not include the aggregate exposures (net of notified losses) on the Gulf of Mexico wind-exposed account of US$92.1 million at 1 April 2009 which will run off by 98% by 1 July 2009.

	Industry	31 March 2009	31 March  2009	1 January 2009	1 January 2009
	Loss	Gross loss	Net loss	Gross loss	Net loss
Catastrophe Event	US$bn	£m	£m	£m	£m
Gulf of Mexico Windstorm	$113	85.7	27.3	90.0	39.8
USA North East Windstorm	$78	83.0	27.1	87.9	40.6
Los Angeles Earthquake	$78	73.4	30.3	73.6	42.7
European Windstorm	$31	56.9	19.1	60.7	31.3
Japan Earthquake	$51	53.0	18.5	49.2	27.1

The Gulf of Mexico catastrophe event, before consideration of any Syndicate 780 or Advent Re catastrophe margins, would result in an estimated after tax loss of £20.7 million or 21.6% of shareholders' equity (1 January 2009: £30.4 million and 32.2% respectively). The decrease results from a combination of the Fairfax Quota Share, exposure management and the run-off of Advent Re policies.  

Expenses

For the three months ended 31 March 2009, the underwriting expense ratio (excluding acquisition costs and foreign exchange gains) as a percentage of net earned premiums, (excluding RITC), was 9.2%, compared with 10.1% in 2008, reflecting the increase in net premiums earned. 

Investment Return

For the three months ended 31 March 2009, the investment return decreased to £1.2 million (2008: £3.2 million), reflecting the lower interest rates in the United States and the United Kingdom, and the reversal of unrealised gains at 31 December 2008, partially offset by an increase in the Company's cash and investments of £48.3 million since 31 December 2008, principally from the closure of Syndicate 2 into Syndicate 3330.

The duration of the Syndicates' US dollar investment portfolio is approximately 0.9 years. It is wholly invested in government or government guaranteed securities, with an overall return on US bonds of 0.16% for the first three months of 2009 (annualised return of 0.64%). Neither the syndicates nor the Company invest in asset backed or mortgage backed securities (ABS and MBS), corporate bonds, equities or derivatives. Certain overseas deposits managed by Lloyd's (over which the Company has no investment control) have been invested in corporate bonds and ABS as referred to in note 5 to the financial statements. 

Advent Re's funds (included in corporate balances below) continued to be invested mainly in short term US treasury bills.  The investment return for the first quarter of 2009 was 0.02% (annualised return of 0.08%).

Our investment mix as at 31 March 2009 is shown below.

			31 March  2009	31 December 2008
	Syndicates	Corporate	Total	Total
Investment mix	£'000	£'000	£'000	£'000
Government debt securities	255,467	137,535	393,002	349,850
Cash and cash equivalents	10,980	5,412	16,392	15,538
Overseas deposits and money market funds	11,484	-	11,484	7,195
Total	277,931	142,947	420,878	372,583

The increase in cash and investments to £420.9 million at 31 March 2009 from £372.6 million at 31 December 2008 principally reflects the increase in the Company's share of Syndicate 2's assets as they have been reinsured into Syndicate 3330, which is wholly owned by the Company.

Capital Management

		31 March  2009		31 December 2008
		£’000		£’000
Long term debt - subordinated - senior		33,754 31,002		34,162 30,852
		64,756		65,014
Shareholders’ equity		95,937		94,536
Debt to equity ratio		67%		69%
Debt to total capital ratio		40%		41%
Interest coverage		3 x		(2 x)

For the three months ended 31 March 2009, the average weighted interest rate on the Company's debt was 5.35%, down from 7.18% for the first quarter of 2008. The interest rate on the Company's US dollar debt is the weighted average of 4.16% above 3 month US dollar LIBOR and resets quarterly.

The Company's long term debt has no financial or other covenants, other than the payment of interest quarterly and principal on maturity. Interest on the Company's subordinated debt of £33.8 million can be deferred and not paid for up to five years, without creating an event of default. The long term debt has maturities of £33.8 million in 2026 and £31.0 million in 2035. The debt is callable only at the Company's option after five years from date of issue.

2009 Business Plan Update

Following the strengthening in the US Dollar against sterling in the second half of  2008, Lloyd's requested that all managing agents review their 2009 business plans and capital requirements in the first quarter of 2009. The Company completed its review of Syndicate 780's revised 2009 Business Plan which Lloyd's has now approved. 

Syndicate 780's revised 2009 business plan has forecast gross premium income, net of brokerage, of £145.0 million (at the Lloyd's approved exchange rate of US$1.50/£) compared to the original 2009 Business Plan, approved by Lloyd's in November 2008, which had forecast gross premium income, net of brokerage, of £124.8 million (at the Lloyd's Premium Income Monitoring exchange rate of US$1.99/£).

As part of its revised 2009 business plan, Syndicate 780 entered the Fairfax Quota Share in respect of 40% of the property reinsurance lines of business for the 2009 underwriting year of account. The property reinsurance lines represent 60% of the forecast gross premium income of Syndicate 780. The Fairfax Quota Share is subject to a management fee charged as a percentage of the premium ceded and a profit commission on the ultimate underwriting result, both of which are at normal commercial terms. The Fairfax Quota Share also benefits from Syndicate 780's reinsurance programme and bears its share of the ceded reinsurance cost.

The forecast gross premium income, net of brokerage, for the original 2009 business plan and the revised 2009 business plan, before and after the Fairfax Quota Share, are set out below, with all figures shown before management fee overrider and profit commission.

	Original plan	Revised plan before quota share	Revised plan after quota share
Exchange rate	US$1.99 / £	US$1.50 / £	US$1.50 / £
Reinsurance
Treaty	53.6	65.8	39.5
Assumed	14.9	21.1	12.7
Marine	2.3	3.3	3.3
Aviation	1.2	1.3	1.3
Casualty and other	8.2	7.8	7.8
	80.2	99.3	64.6
Insurance
Property	31.5	37.3	37.3
Energy	9.1	5.0	5.0
Cargo and other	1.0	1.2	1.2
Personal Accident	3.0	2.2	2.2
	44.6	45.7	45.7
Total	£124.8	£145.0	£110.3

The Syndicate has written gross premiums, net of brokerage, for the 2009 year of account (at Lloyd's Premium Income Monitoring rates of exchange of $1.50/£), of £98.0 million, before the Fairfax Quota Share.

Gross premiums written for the Reinsurance account were ahead of plan by £4.0 million reflecting the better than expected rating environment in for 2009. USA Catastrophe rates were up by 5% to 10% on regional programmes, with some Nationwide programmes seeing rate increases of 10% to 20%, depending upon loss activity. Worldwide catastrophe rates have increased between 2.5% and 5%. Risk excess and assumed classes have both seen rates increases of up to 10%.

Premiums written for the Property Insurance account are below plan by £0.75 million reflecting competitive market conditions in the insurance market.  Property Insurance terms and conditions remain firm with the rating environment showing initial signs of firming. Rate increases of up to 5% are currently being achieved with further rate increases expected as the year progresses.

Premiums written for the Marine account were £0.2 million, with most of the business written in the second quarter. The energy market is currently in a state of uncertainty following the losses from Hurricanes Gustav and Ike. Although little business is written during the first quarter, international business rates are up by 10% to 20% with tighter wordings on coverage. During the second quarter, we expect terms, conditions and rates to continue to harden.

Advent Re

Advent Re is considering plans for 2009 given the changes in the reinsurance market and its decision to write a quota share reinsurance agreement with Advent's corporate member in respect of Syndicate 780's 2009 year of account.

Outlook 

Syndicate 780's revised 2009 business plan reflects the support of our major shareholder and allows us to maintain our presence in our core lines of business in increasingly attractive market conditions. We believe that market conditions should continue to improve during 2009 as reinsurers and insurers alike seek to achieve better underwriting returns given low investment returns and reduced capacity. 

Our 2009 business plan for Syndicate 780 builds on our strengths in Treaty Reinsurance and Property Insurance Markets with the continuing development of the worldwide non USA catastrophe exposed business while building balance and diversity across the rest of the portfolio if we can do so at an underwriting profit.

Our experienced management and underwriting team is well prepared to take advantage of these improving market conditions while maintaining our focus on underwriting profitability.

Brian F Caudle

Chairman

27 April 2009

  CONSOLIDATED INCOME STATEMENT

For the three months ended 31 March 2009 

	Note		Three months				Year
			2009		2008		2008
			(unaudited)		(unaudited)		(audited)
			£’000		£’000		£’000
Income
Gross premiums earned	4		38,911		26,609		159,145
Reinsurance to close premium			59,190		34,246		34,246
Reinsurance premium ceded	4		(9,605)		(4,822)		(36,129)
Net premiums earned	4		88,496		56,033		157,262
Investment income	5		1,152		3,154		15,127
Other operating income			119		126		502
Total Income			89,767		59,313		172,891
Expenses
Claims incurred	4		(22,586)		(23,394)		(141,534)
Reinsurance to close claims	4		(59,190)		(34,246)		(34,246)
Reinsurance recoveries	4		3,989		1,623		29,371
Acquisition costs			(5,843)		(4,300)		(25,570)
Underwriting expenses			(2,690)		(2,074)		(9,447)
Profit (loss) on exchange			569		(326)		3,808
Corporate costs			(1,102)		(1,031)		(5,366)
Total Expenses			(86,853)		(63,748)		(182,984)
Operating Result			2,914		(4,435)		(10,093)
Interest on debt			(1,028)		(1,089)		(4,258)
Profit (loss) before tax			1,886		(5,524)		(14,351)
Tax	7		(616)		1,540		5,406
Profit (loss) for the period attributable to ordinary shareholders			1,270		(3,984)		(8,945)
Earnings per ordinary share					Restated
- Basic and diluted	6		3.1p		(9.8p)		(22.0p)

The notes form an integral part of these financial statements.

  CONSOLIDATED BALANCE SHEET

At 31 March 2009

	Note		31 March				31 December
			2009(unaudited)		2008(unaudited)		2008(audited)
			£'000		£'000		£'000
Assets
Cash and cash equivalents	5		16,392		36,647		12,136
Financial investments at fair value	5		404,486		251,499		360,447
Other receivables			6,903		18,561		4,855
Insurance and reinsurance assets
- Reinsurers' share of outstanding claims	4		63,870		22,262		55,081
- Reinsurers' share of unearned premiums	4		33,099		17,918		1,592
- Debtors arising from insurance and reinsurance operations			118,524		71,295		69,898
- Deferred acquisition costs			15,136		11,402		10,150
Deferred tax asset			20,455		17,205		21,071
Property and equipment			404		567		472
Intangible assets	8		6,843		7,046		6,843
Total assets			686,112		454,402		542,545
Equity
Share capital	6		20,329		20,329		20,329
Share premium account			60,662		60,662		60,662
Capital redemption reserve			21,065		21,065		21,065
Other reserves			(2,370)		(2,650)		(2,501)
Retained earnings (deficit)			(3,749)		5,024		(5,019)
Total shareholders' equity			95,937		104,430		94,536
Liabilities
Insurance and reinsurance liabilities
- Outstanding claims	4		379,574		208,051		314,444
- Unearned premiums	4		91,477		66,559		43,067
- Creditors arising out of insurance and reinsurance operations			47,547		22,374		19,881
Trade and other payables			6,821		4,884		5,603
Long term debt	6		64,756		48,104		65,014
Total liabilities			590,175		349,972		448,009
Total liabilities and shareholders' equity			686,112		454,402		542,545

The notes form an integral part of these financial statements.

 

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the three months ended 31 March 2009

	Share capital	Share premium	Capital re-demption reserve	Other reserves	Retained earnings	31 March 2009 (unaudited)  Total	31 March 2008 (unaudited) Total	31 Dec  2008 (audited) Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January	20,329	60,662	21,065	(2,501)	(5,019)	94,536	108,398	108,398
Profit (loss) for the period	-	-	-	-	1,270	1,270	(3,984)	(8,945)
Dividends Share based payments	- -	- -	- -	- 131	- -	- 131	- 16	(5,082) 165
Balance at end of period	20,329	60,662	21,065	(2,370)	(3,749)	95,937	104,430	94,536

 

The notes form an integral part of these financial statements.

  CONSOLIDATED CASH FLOW STATEMENT

For the three months ended 31 March 2009

	Note		Three months				Year
			2009 (unaudited)		2008 (unaudited) Restated		2008 (audited)
			£'000		£'000		£'000
Cash flows from operating activities	9		5,132		9,210		(12,871)
Interest paid			(1,090)		(1,134)		(4,245)
			4,042		8,076		(17,116)
Cash flows from investing activities
Interest received			226		1,576		4,990
Purchase of property and equipment			(25)		(11)		(163)
			201		1,565		4,827
Cash flows from financing activities
Dividends paid			-		-		(5,082)
			-		-		(5,082)
Net increase (decrease) in cash and cash equivalents			4,243		9,641		(17,371)
Exchange movements on opening cash and cash equivalents			13		28		2,529
Cash and cash equivalents at 1 January			12,136		26,978		26,978
Cash and cash equivalents at end of period	5		16,392		36,647		12,136

 

The notes form an integral part of these financial statements.

  NOTES TO THE INTERIM FINANCIAL STATEMENTS

 

1. BASIS OF PREPARATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS

These interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended 31 December 2008 as set out on pages 38 to 71 of the 2008 Report and Accounts.

These interim financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) and in accordance with International Accounting Standards (IAS) 34 Interim Financial Reporting.  The policies utilised are also consistent with those set out on pages 42 to 44 of the Company's consolidated financial statements for the year ended 31 December 2008. 

Status of the interim financial statements

The interim financial statements have been reviewed by the Company's auditors PricewaterhouseCoopers LLP. These interim financial statements do not constitute accounts as defined in section 435 of the Companies Act 2006.

The results for the year ended 31 December 2008 are based on the Company's statutory accounts which received an unqualified audit opinion from the Company's auditors, and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The Company's Report and Accounts for the year ended 31 December 2008 have been filed with the Registrar of Companies.

  2. FOREIGN EXCHANGE RISK MANAGEMENT

The principal exchange rates used in translating foreign currency assets, liabilities, income and expenditure in the preparation of these financial statements were:

	31 March 2009				31 March 2008				31 December 2008
	Period average rate		Period end rate		Period average rate		Period end rate		Period average rate		Period end rate
US dollar	1.43		1.43		1.98		1.99		1.85		1.44
Euro	1.10		1.08		1.32		1.25		1.26		1.03
Canadian dollar	1.79		1.80		1.99		2.04		1.96		1.77

The Company had foreign exchange gains and losses in respect of underwriting and corporate activities as follows: 

	Three  months 2009		Three  months 2008		Year 2008
	£’000		£’000		£’000
Underwriting	885		(80)		15,811
Corporate	(316)		(246)		(12,003)
Net gain (loss)	569		(326)		3,808

 

The Company's policy is that it is not in the business of taking or speculating on foreign currency risk. Its objective is to match each major currency position (US$, £, CDN$ and Euro), including its share of the underlying assets and liabilities of its managed syndicates. Monthly, the Company reviews its consolidated foreign currency balance sheet, prepared in its principal currencies, including its share of the assets and liabilities of its managed syndicates. Action is taken to reduce or mitigate foreign currency mismatches through the purchase or sale of the appropriate currencies.

At 31 March 2009, the Company's asset and liability positions in its major foreign currencies were as follows:

	31 March 2009 (unaudited)
	US$m	£m	CDN$m	€m
Total assets	684.8	187.3	31.8	12.7
Total liabilities	(686.5)	(82.8)	(26.9)	(20.3)
Net assets (net liabilities)	(1.7)	104.5	4.9	(7.6)

	31 December 2008 (audited)
	US$m	£m	CDN$m	€m
Total assets	541.3	143.3	25.1	12.1
Total liabilities	(538.4)	(54.2)	(18.2)	(19.4)
Net assets (net liabilities)	2.9	89.1	6.9	(7.3)

The Company has designated US$54.6 million of its long term debt as a hedge of its net investment in Advent Re at 31 March 2009 (31 December 2008: US$ 54.8 million). 

  3. OPERATING RESULTS

	Three  months 2009		Three  months 2008		Year 2008
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Underwriting profit
Syndicate 780 - Non-Marine
Underwriting Year of Account
2009 - open	(177)		-		-
2008 - open	3,020		(2,422)		(30,492)
2007 and prior - open	(176)		(1,772)		1,922
2006 and prior closed			(2,512)		3,016
Total Syndicate 780	2,667		(6,706)		(25,554)
Syndicate 3330 (Formerly Syndicate 2)	(253)		229		(1,118)
Advent Re	(238)		119		2,508
Underwriting profit (loss)	2,176		(6,358)		(24,164)
Managing Agency
Agency fees	5		12		46
Recharges to Syndicates	114		114		456
	119		126		502
Other
Investment result	1,152		3,154		15,127
Interest expense	(1,028)		(1,089)		(4,258)
Corporate costs	(1,102)		(1,031)		(4,353)
Fairfax offer - related costs	-		-		(1,013)
Profit (loss) on exchange	569		(326)		3,808
Profit (loss) before tax	1,886		(5,524)		(14,351)

4. INSURANCE RISK MANAGEMENT 

Insurance segment results

The underwriting results of Advent Re are included in the Non-Marine Reinsurance segment. Acquisition costs consisting of direct brokerage commissions, are allocated to each segment on a direct basis while operating costs, including underwriting costs, are allocated based on gross premiums written.

For catastrophe exposed business, including multiple peril coverage, the Company recognises premiums as earned based on the underlying exposure to catastrophe. As a result, a greater proportion of premium income on catastrophe exposed business is earned in the second half of the year when the company is exposed to greater risk of hurricane related losses.

The reinsurance to close (RITC) premium and claims are included in the Non Marine Reinsurance segment for Syndicate 780 and Syndicate 3330 for Syndicate 2 and are valued at the RITC transaction date of 1 January 2009. Subsequent movements in premiums and claims from the RITC are reflected in the segments to which they relate in claims incurred and reinsurance recoveries on the income statement. Syndicate 2's 2002 and prior years of account were closed into Syndicate 3330, a syndicate wholly supported by the Company and managed by Cavells, effective 1 January 2009.

	Non-Marine		Property
	Reinsurance		Insurance		Marine		Syndicate 3330		Total
	£'000		£'000		£'000		£'000		£'000
Three months 2009 (unaudited)
Gross premiums written	79,847		9,365		2,181		67,181		158,574
Net premiums written	43,000		5,340		1,939		55,119		105,398
Net premiums earned	21,446		7,019		4,912		55,119		88,496
Net claims incurred	(16,592)		(6,354)		285		(55,126)		(77,787)
Acquisition costs	(2,705)		(1,960)		(1,178)		-		(5,843)
Operating expenses	(1,043)		(1,136)		(265)		(246)		(2,690)
Underwriting profit (loss)	1,106		(2,431)		3,754		(253)		2,176
Combined ratio	94.8%		134.6%		23.6%		100.5%		97.5%

	Non-Marine		Property
	Reinsurance		Insurance		Marine		Syndicate 2		Total
	£'000		£'000		£'000		£'000		£'000
Three months 2008 (unaudited, restated)
Gross premiums written	86,190		5,467		4,603		15		96,275
Net premiums written	70,147		3,053		1,338		54		74,592
Net premiums earned	47,302		4,914		3,763		54		56,033
Net claims incurred	(46,373)		(8,271)		(1,662)		289		(56,017)
Acquisition costs	(1,981)		(1,301)		(1,016)		(2)		(4,300)
Operating expenses	(1,765)		(107)		(90)		(112)		(2,074)
Underwriting profit (loss)	(2,817)		(4,765)		995		229		(6,358)
Combined ratio	105.9%		197.0%		73.6%		(324.1%)		111.4%

	Non-Marine		Property
	Reinsurance		Insurance		Marine		Syndicate 2		Total
	£'000		£'000		£'000		£'000		£'000
Year 2008 (audited, restated)
Gross premiums written	142,136		39,.473		27,435		593		209,637
Net premiums written	113,562		34,403		19,920		774		168,659
Net premiums earned	109,326		30,744		16,418		774		157,262
Net claims incurred	(90,428)		(25,089)		(29,636)		(1,256)		(146,409)
Acquisition costs	(11,209)		(8,871)		(5,401)		(89)		(25,570)
Underwriting expenses	(5,237)		(2,161)		(1,502)		(547)		(9,447)
Underwriting profit	2,452		(5,377)		(20,121)		(1,118)		(24,164)
Combined ratio	97.8%		117.4%		222.5%		244.5%		115.4%

  

Provision for claims

(a) Net incurred claims	Three months 2009		Three months 2008		Year 2008
	(unaudited)		(unaudited) Restated		(audited)
	£'000		£'000		£'000
Claims incurred
- Gross paid claims	29,605		17,483		100,881
- Change in provision for claims	(7,019)		5,911		40,653
	22,586		23,394		141,534
Reinsurance Recoveries
- Received	(7,546)		(1,852)		(10,390)
- Change in provision	3,556		229		(18,981)
	(3,990)		(1,623)		(29,371)
Reinsurance to close claims (net)	59,190		34,246		34,246
Net incurred claims	77,787		56,017		146,409

(b) Outstanding claims and unearned premiums	Unearned		Claims		Total
	Premiums		outstanding
	£'000		£'000		£'000
Gross
At 1 January 2009 (audited)	43,067		314,444		357,511
Exchange adjustments			896		896
Movement in provisions
- current year	48,410		20,448		68,858
- reinsurance to close claims			71,253		71,253
- prior year			2,139		2,139
- paid claims			(29,606)		(29,606)
At 31 March 2009 (unaudited)	91,477		379,574		471,051
Reinsurance amount
At 1 January 2009 (audited)	1,592		55,081		56,673
Exchange adjustments			283		283
Movement in provisions
- current year	31,507		3,313		34,820
- reinsurance to close claims recoveries			12,063		12,063
- prior year			676		676
- paid recoveries			(7,546)		(7,546)
At 31 March 2009 (unaudited)	33,099		63,870		96,969
Net
At 31 March 2009 (unaudited)	58,378		315,704		374,082
At 31 December 2008 (audited)	41,475		259,363		300,838
At 31 March 2008 (unaudited)	48,641		185,789		234,430

For the three months ended 31 March 2009, adverse development in prior years' claims, net of reinsurance recoveries and reinstatement premiums, amounted to £0.6 million (2008: adverse development of £0.2 million). 

  

The net outstanding claims are further analysed between notified outstanding claims and incurred but not reported claims (IBNR) below:

	31 March		31 March		31 December
	2009		2008		2008
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Notified outstanding claims	222,680		125,149		177,750
Claims incurred but not reported	93,024		60,640		81,613
Claims outstanding	315,704		185,789		259,363

The breakdown of the gross and net outstanding claims by category of claims is set out below.

	31 March 2009 (unaudited)				31 March 2008 (unaudited)				31 December 2008 (audited)
	Gross		Net		Gross		Net		Gross		Net
	£'000		£'000		£'000		£'000		£'000		£'000
Large catastrophe provisions	101,705		63,313		43,287		31,331		135,686		90,397
All other short tail provisions	115,977		112,542		86,018		84,010		86,735		86,531
Long-tail provisions (casualty)	41,300		41,300		34,844		34,843		37,168		37,168
Syndicate 3330 provisions	120,592		98,549		43,902		35,605		54,855		45,267
Total	379,574		315,704		208,051		185,789		314,444		259,363

Large catastrophe provisions include Hurricanes Gustav and Ike (2008 Hurricanes) and the 2004 and 2005 Hurricanes.

Reinsurance recoverable

At 31 March 2009, the Company's reinsurance recoverable on outstanding claims amounted to £63.9 million, an increase of £8.8 million since 31 December 2008, resulting from the closure of Syndicate 2 into Syndicate 3330,with reinsurers with the following risk ratings by AM Best (or equivalent S&P rating in the absence of an AM Best rating):

Risk Rating		Reinsurance recoverable
		£'000		%
A+		26,182		41.0
Lloyd's		9,636		15.1
A		16,096		25.2
A-		3,595		5.6
Trust fund backed		6,054		9.5
BBB or below and Non rated		2,307		3.6
Total		63,870		100.0

Included in the "A" Rated reinsurance recoverable balance above is a total of £3.3 million due from an affiliate in respect of the Fairfax Quota Share.

  

Included in debtors arising from insurance and reinsurance operations are the following reinsurer balances.

		Syndicate  780		Syndicate  3330				Total
		£'000		£'000			£'000
Fully performing		5,102		1,042			6,144
Past due		2		890			892
Impaired		5,918		19,402			25,320
Provision for uncollectible reinsurance		(4,374)		(13,621)			(17,995)
Net		6,648		7,713			14,361

5. FINANCIAL RISK MANAGEMENT

NET INVESTMENT INCOME	Three  months 2009		Three months 2008		Year 2008
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Investment Income
Interest	3,365		2,909		12,362
Gain on sale of investments	117		130		1,848
Unrealised gains on investments	30		253		2,556
	3,512		3,292		16,766
Investment expenses and charges
Investment management expenses	(86)		(56)		(236)
Loss on sale of investments	(683)		(22)		(1,220)
Unrealised losses on investments	(1,591)		(60)		(183)
	(2,360)		(138)		(1,639)
Net investment income	1,152		3,154		15,127

FINANCIAL INVESTMENTS	31 March  2009		31 March  2008		31 December 2008
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Carrying Value
Debt securities and other fixed income securities
- Government and government guaranteed	393,003		243,470		349,850
- Holdings in collective investment schemes	2,792		3,605		3,402
- Syndicate overseas deposits	8,691		4,424		7,195
	404,486		251,499		360,447
Purchase Price
Debt securities and other fixed income securities
- Government and government guaranteed	393,624		242,783		345,796
- Holdings in collective investment schemes	2,792		3,605		3,402
- Syndicates' overseas deposits	8,691		4,424		7,195
	405,107		250,812		356,393

All debt securities and other fixed income securities are listed on recognised stock exchanges. All financial investments are classified as fair value through income including short term fixed maturity securities. 

The syndicates' overseas deposits (Joint Asset Trust Funds (JATF)) are managed by Lloyd's. The Company does not have the authority to ensure that its investment policies are complied with. Lloyd's has advised the Company that it has invested the JATF in:

		Company's share £'000
US Government securities		5,993
Corporate bonds rated AAA		1,289
AA		878
A		479
Asset backed securities (ABS)		5
Cash		47
			8,691

Other than the above investments, over which the Company does not exercise investment authority, the Company only invests in short term government and government guaranteed securities. It does not invest in derivatives, MBS, ABS, equities or corporate bonds given current market conditions.

At 31 March 2009, Syndicate investments of £99.8 million (31 December 2008: £80.9 million) were held in US Situs and other regulatory deposits available for the payment of claims in those jurisdictions and which are not available for the payment of other claims and obligations.

At 31 March 2009, Advent Re had pledged cash and investments of £25.3 million (31 December 2008: £39.5 million) as security for policy limits of contracts written.

CASH AND CASH EQUIVALENTS	31 March		31 March		31 December
	2009		2008		2008
	(unaudited)		(unaudited)		(audited)
	£’000		£’000		£’000
Corporate cash at bank	4,250		12,146		1,834
Corporate funds held by Lloyd’s	272		659		4,484
Advent Re cash at bank	890		7,271		5,247
Syndicates’ cash at bank	10,558		1,505		372
Syndicates’ deposits with credit institutions	422		15,066		199
Total cash and cash equivalents	16,392		36,647		12,136

 

Cash at bank was held with Royal Bank of Scotland and Barclays Bank. These banks are rated A+ and AA- respectively by Standard & Poor's (S&P).

6. CAPITAL MANAGEMENT

SHARE CAPITAL	Authorised						Allotted, Called-Up and Fully Paid
	31  March		31  March		31 December		31  March		31 March		31  December
	2009		2008		2008		2009		2008		2008
	£'000		£'000		£'000		£'000		£'000		£'000
Ordinary shares of 5p each (£000)	-		50,000		-		-		20,329		-
Ordinary shares of 50p each (£000)	50,000		-		50,000		20,329		-		20,329
Number of shares ('000s)	100,000		1,000,000		1,000,000		40,657		406,570		40,657

On 23 June 2008, the Company's ordinary shares of 5p each were consolidated on a ratio of 1 new ordinary share of 50p each for 10 old ordinary shares of 5p each approved by shareholders at the Annual General Meeting. Outstanding shares, options and per share amounts have been retroactively restated to present the comparative information on a consistent basis.

EARNINGS PER ORDINARY SHARE	Three  Months 2009		Three  months 2009		Year 2008
	(unaudited)		(unaudited) Restated		(audited)
Profit (loss) after tax for the period (£'000)	1,270		(3,984)		(8,945)
Weighted average number of shares in issue ('000s)	40,657		40,657		40,657
Basic and diluted earnings (loss) per share	3.1p		(9.8p)		(22.0p)

Outstanding debt	Issue date	Due date	Callable (by the Company) after	Interest rate	Interest rate (31 March 2009)	31 March  2009 £'000	31 March 2008 £'000	31  Dec 2008 £'000
Subordinated Notes
US$34 million	3/6/2005	3/6/2035	3/6/2010	3 month LIBOR + 3.90%	5.09%	22,992	16,556	22,894
€12 million	3/6/2005	3/6/2035	3/6/2010	3 month EURIBOR + 3.85%	5.36%	10,762	9,282	11,268
						33,754	25,838	34,162
Senior Notes
US$26 million	16/1/2006	15/1/2026	16/1/2011	3 month LIBOR + 4.50%	5.69%	17,485	12,543	17,400
US$20 million	15/12/2006	15/12/2026	15/12/2011	3 month LIBOR + 4.15%	5.34%	13,517	9,723	13,452
						31,002	22,266	30,852
Total Loan Notes at amortised cost and fair value						64,756	48,104	65,014
Weighted average interest rate, period end						5.35%	7.18%	5.78%

The Loan Notes have no financial covenants other than the payment of interest and principal on maturity. In the case of the Subordinated Notes, interest can be deferred for up to 5 years without creating an event of default. The Notes can be called at the sole option of the Company five years after the date of issue and are non-callable by the holders.

The Subordinated Notes rank on a winding-up of the Company in priority to distributions on all classes of share capital and rank pari passu with each other but are subordinated in right of payment to the claims of all unsubordinated creditors of the Company (including, where applicable, all policyholders of the Syndicate).

The Senior Notes rank on a winding-up of the Company in priority to distributions on all classes of share capital and subordinated loan notes, and rank pari passu with each other but are subordinated in right of payment to the claims of all unsubordinated creditors of the Company (including, where applicable, all policyholders of the Syndicate).

The Subordinated Notes and Senior Notes are listed on the Channel Islands Stock Exchange.

LONG TERM INCENTIVE PLANS

On 20 March 2009, the Company issued 1,516,171 options to purchase ordinary shares of 50p each at an exercise price of 147p per share. The options vest on 20 March 2012 and are exercisable until 20 March 2019.

On 20 March 2009, the Company made grants under its Long Term Incentive Plan of 1,818,576 nil cost options to buy ordinary shares of 50p each. The shares vest as to 30% of the initial grant if the Company's average return on equity exceeds 10% for the three year period from 2009 to 2011 rising to 100% if the average return on equity during the three year period reaches 15% or over more.

FUNDS AT LLOYD'S (FAL)

The Funds held by Lloyd's represent monies deposited with the Corporation of Lloyd's (Lloyd's) to support the Company's underwriting activities. These Funds are subject to a Lloyd's deposit trust deed which gives Lloyd's the right to apply these monies in settlement of any claims arising from the Company's underwriting at Lloyd's.

In addition to the Company's FAL of £103.7 million at 31 March 2009, a major shareholder, Fairfax Financial Holdings Limited (Fairfax), has deposited FAL of £25.0 million at 31 March 2009 (£21.4 million at 31 December 2008) to support the Company's underwriting for the 2001 to 2005 underwriting years pursuant to a Funding Agreement dated 16 November 2000 and pursuant to a Deed of Variation, to support Syndicate 3330.  With the closure of Syndicate 2, it is anticipated that the majority of this FAL will be released by Lloyd's in the second quarter of 2009. All Fairfax FAL is repayable by the end of 2009 whether it is released by Lloyd's or not.

Any underwriting profits arising from the business supported by the Fairfax FAL are receivable by the Company which is also responsible for the payment of any losses arising.

The FAL and the overseas deposits are not available for use by the Company for ordinary cash flow purposes.

In June 2008, the Company paid its share of the loss on Syndicate 780's 2005 year of account 2008 £29.1 million (at distribution rates of exchange) which was settled from existing FAL funds (£15.2 million), profit distributions on the 2006 and 2007 years of accounts (£12.6 million) and holding company cash of £1.3 million. On 26 March 2009, the Company deposited additional FAL of £9.0 million to partially fund Syndicate 780's incurred loss with a further £9.7 million to be deposited by 30 June 2009. 

  

7. INCOME TAXES

	31  March 2009		31  March 2008		31  December 2008
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Analysis of charge in period
UK corporation tax on profit for the period	-		-		-
Deferred tax	616		(1,540)		(5,406)
Total taxation	616		(1,540)		(5,406)

8. INTANGIBLE FIXED ASSETS

	Goodwill on Acquisition		Purchased Capacity - finite life		Purchased Capacity - indefinite life		Total
	£'000		£'000		£'000		£'000
Fair Value
At 31 March 2009 (unaudited)	4,148		-		2,695		6,843
At 31 December 2008 (audited)	4,148		-		2,695		6,843
At 31 March 2008 (unaudited)	4,148		203		2,695		7,046

The consideration paid to third party capital providers of £1.2 million on 30 June 2008 was considered to be a finite life asset and accordingly, the cost has been amortised to expenses as the gross premium income was earned on the 2007 year of account to which the payment relates.

9. RECONCILIATION OF PROFIT BEFORE TAX TO NET CASH

INFLOW (OUTFLOW) FROM OPERATING ACTIVITIES

	Three months		Three months		Year
	2009		2008		2008
	(unaudited)		(unaudited)		(audited)
			Restated
	£’000		£’000		£’000
Profit (loss) before tax	1,886		(5,524)		(14,351)
Movement in:
- insurance and reinsurance receivables	(93,907)		(55,582)		(69,429)
- other receivables	(1,396)		(14,402)		(699)
- insurance and reinsurance payables	141,206		95,642		176,050
- trade and other payables	1,280		38		700
Interest expense	1,028		1,089		4,258
Investment result	(881)		(1,382)		(4,792)
Unrealised investment gains	(1,604)		193		2,374
Net purchase of investments	(42,435)		(11,866)		(122,995)
Depreciation	94		95		342
Amortisation of debt issue costs	8		6		26
Amortisation of capacity	-		164		369
Amortisation of share option costs	131		16		165
Exchange movements on opening cash and cash equivalents	(13)		(28)		(2,529)
Foreign exchange movements on financing	(265)		751		17,640
	5,132		9,210		(12,871)

ENDQRFEAKLXAEFNEFE