ADV.L Regulatory News (ADV)

30 Jul 2007 07:00

Advent Capital (Holdings) PLC30 July 2007 Advent Capital (Holdings) PLC ("Advent" or the "Company") Advent, the specialist Lloyd's insurer, today reports its results for the firstsix months of 2007. Key highlights • Profit before tax of £6.7 million (H1 2006: £10.4 million which included a foreign exchange profit of £4.4 million compared with a foreign exchange profit of £0.3 million for H1 2007). • First half non USA catastrophe losses of £4.9 million against an earned non USA catastrophe margin of £0.9 million. • Gross premiums written of £96.1 million (H1 2006: £90.4 million). • Market conditions are increasingly competitive but remain attractive and within expectations. • Net notified loss ratio, excluding IBNR, for 2007 year of account of 11% at 30 June 2007 (H1 2006: 5%). • Net loss estimates in underlying currencies for the 2005 hurricanes unchanged in the second quarter. • Improvement of £0.1 million in prior years' claims for the first half of 2007. • First half figures reflect the changes in business mix planned for 2007 and the resulting later recognition of premium income as expected. • Continued strategy of reducing peak exposures to major catastrophes. • With approximately 75% of premiums written in US dollars, the weak US dollar will continue to negatively impact premiums and earnings for 2007. • One time tax charge of £1.4 million on the reported reduction in the UK corporate tax rate to 28% previously reported in the first quarter. • Financial summary In the first quarter of 2007, the Company adopted IFRS for the first time withapplication effective as at 1 January 2006. Comparatives have been restated toan IFRS basis. Six months (unaudited) Year Year Year 2007 2006 2006 2005 2004 Restated Restated Restated Restated £'000 £'000 £'000 £'000 £'000 Gross premiums written 96,072 90,433 115,356 100,550 74,749 Net premiums written 76,658 66,154 88,201 62,949 63,734 Net premiums earned 42,577 40,029 81,694 65,070 69,221 Underwriting profit (loss) 4,416 8,794 21,064 (78,098) (846) Profit (loss) before tax 6,740 10,448 22,853 (74,185) 5,173 Profit (loss) after tax 3,457 7,327 16,011 (51,922) 3,360 Return on equity 3.9% 11.4% 25.1% (68.4%) 6.4% Six months (unaudited) Year Year Year 2007 2006 2006 2005 2004 Restated Restated Restated Restated £'000 £'000 £'000 £'000 £'000Per share amounts Earnings (loss)- basic and diluted 0.9p 2.0p 4.3p (30.3p) 3.2p Dividend - - - 2.75p 2.75p Net assets 22.8p 19.3p 21.9p 16.0p 50.5p Net tangible assets 20.8p 17.8p 19.9p 13.6p 45.4p Operating ratios Claims ratio 64% 66% 53% 191% 74% Expense ratio 26% 11%* 21% 29% 29% Combined ratio 90% 77%* 74% 220% 103% Notified loss ratio 11% 5% 17% 134% 62%(by year of account) * expense ratio of 24% and combined ratio of 90% excluding the foreign exchangegain of £5.0 million Advent Capital (Holdings) PLCKeith Thompson 020 7743 8200Chief Operating Officer Trevor Ambridge 020 7743 8200Chief Financial Officer Neil Ewing 020 7743 8250Investor Relations Pelham Public RelationsCharles Vivian 020 7743 6672Polly Fergusson 020 7743 6362 Financial Review For the six months ended 30 June 2007, the Company's profit before tax was £6.7million, compared with a profit before tax of £10.4 million for the six monthsended 30 June 2006 which included a foreign exchange profit of £4.4 million.Results for the first six months of 2007 have been affected by: • Change in premium writing and earning profile following Syndicate 780's 2007 business plan to reduce the volatility of its portfolio with a reduction in various lines of the Assumed account historically written predominantly in the first quarter of the year. The increase in the 2007 plan premium is in the Property Insurance account, written over the year, and the Energy account, predominantly written in the second and third quarters of the year. • Reinsurance expense for the first half of 2007 reflects the decision to bring forward the purchase of reinsurance to 1 January 2007 and the run-off of certain Original Loss Warranty (OLW) policies purchased in mid 2006. • Weakening US dollar to an average rate of US$1.97/£ for the first half of 2007 from an average rate of US$1.79/£ for the first half of 2006, a 10.1% decrease, has adversely affected gross and net premiums, of which approximately 75% are written in US dollars, and underwriting profit. For the six months ended 30 June 2007, the profit after tax was £3.5 millionwhich includes a one time tax expense of £1.4 million for the reduction in thedeferred tax asset resulting from the change in the UK corporate tax rate from30% to 28% which was substantially enacted on 26 June 2007. Earnings per share amounted to 0.9p for the first six months of 2007 comparedwith 2.0p for 2006. For the six months ended 30 June 2007, the Company had an underwriting profit of£4.4 million and a combined ratio of 90% compared with an underwriting profit of£8.8 million and a combined ratio of 77.5% for the first half of 2006(underwriting profit of £3.8 million and a combined ratio of 90% excluding theforeign exchange profit of £5.0 million). • At 30 June 2007, the 2007 underwriting year results reflect the changes in Syndicate 780's business mix and, as expected, a slower premium earnings pattern compared to the first half of 2006. • Claims in the first half of 2007 include European and Australian catastrophe losses of £4.9 million, comprising UK floods (£2.3 million), Australian storms (£0.8 million) and European Windstorm Kyrill (£1.8 million), in excess of the earned catastrophe margin on non USA exposed business of £0.9 million, for a net charge of £4.0 million. • The 2006 underwriting year had an underwriting profit of £3.4 million and a combined ratio of 77.5%. Net unearned premium amounted to £4.3 million at 30 June 2007 and will be substantially earned by the end of 2007. • The 2005 and prior underwriting years had an underwriting profit of £0.7 million for the first half of 2007, a significant improvement from the underwriting loss of £2.7 million for the first quarter of 2007 with favourable claims development in the second quarter offsetting additional Energy claims of £2.2 million arising from Hurricane Rita in the first quarter. • Advent Re had no underwriting profit or loss on premiums earned of £0.6 million (US$1.2 million) as it books conservative loss ratios on its catastrophe exposed business. Consistent with the Company's premium recognition policy, Advent Re recognises premiums as earned based on the underlying catastrophe exposures with the result that much of its premium will be earned in the second half of 2007 during the US hurricane season. For the six months ended 30 June 2007, the pre tax profit of £6.7 millionincludes a net improvement in prior years' claims, net of reinstatementpremiums, of £0.1 million compared with adverse development of £1.9 millionreported in the first quarter of 2007 and adverse development of £3.0 millionfor the six months ended 30 June 2006. Underwriting Review Changes to the gross and net premiums written and earned for the six monthsended 30 June 2007 compared with the first half of 2006 are due to the followingfactors: • The reduction in gross premium income on the current year of account following the change in Syndicate 780's business mix and as expected, its premium writing and earning profile. • The effect of the portfolio transfer premium (RITC) of £6.8 million (H1 2006: £0.7 million) received from external Names on the closure at 31 December 2006 of Syndicate 780's 2004 year of account as a result of the increase in the Company's capacity on Syndicate 780's 2005 year of account to 53.8% from 47.7% for the 2004 year of account. • The reduction in reinstatement premiums to £1.7 million for the first half of 2007 (H1 2006: £7.9 million). • The weaker US dollar. The impact of these movements are summarised below: Gross premiums Gross Net Net written earned premium premiums written premiums earned 2007 2006 2007 2006 2007 2006 2007 2006 (£m) (£m) (£m) (£m) (£m) (£m) (£m) (£m) 2007 YOA 78.2 - 21.6 - 59.4 - 17.4 - 2006 YOA 2.7 84.3 20.3 27.4 2.7 60.1 15.9 23.2 2005 and prior 0.4 (2.5) 0.8 10.4 0.6 (2.4) 1.0 8.3 Current Premium 81.3 81.8 42.7 37.8 62.7 57.7 34.3 31.5 Reinstatements 1.7 7.9 1.7 7.9 1.5 7.8 1.5 7.8 2004/2003 YOA RITC 6.8 0.7 6.8 0.7 6.2 0.7 6.2 0.7 Advent Re 6.3 - 0.6 - 6.3 - 0.6 - Total 96.1 90.4 51.8 46.4 76.7 66.2 42.6 40.0 For the six months ended 30 June 2007, gross premiums written increased to £96.1million from £90.4 million in 2006. Excluding the impact of RITC andreinstatement premiums, gross premiums written increased by 7.0% to £87.6million in the first half of 2007 from £81.8 million in the first half of 2006reflecting the growth in premium income from Advent Re and Syndicate 780 andAdvent's increased share of Syndicate 780's capacity for the 2007 year ofaccount. Excluding the impact of the weaker US dollar, gross premiums writtenincreased by 15.9% over the first half of 2006. Syndicate 780's 2007 businessplan included an increase in Marine account premiums of £15.9 millionpredominantly written in the second and third quarters of 2007 and in PropertyInsurance account premiums of £14.7 million written throughout 2007. Advent Rewrote gross premiums of £6.3 million (US$12.4 million) during the first half of2007. For the six months ended 30 June 2007, net premiums written increased to £76.7million from £66.2 million in 2006 principally due to prior years' negativepremiums written of £2.4 million recorded in the first six months of 2006resulting from a reduction in ultimate premium estimates. Excluding the impactof RITC and reinstatement premiums and the weaker US dollar, net premiumswritten increased by 30.2% for the first six months of 2007 compared with thefirst six months of 2006. For the six months ended 30 June 2007, net earned premiums increased to £42.6million from £40.0 million in 2006 which reflects: • Increase in net earned premiums on prior underwriting years, excluding RITC and reinstatement premiums, to £16.9 million in the first half of 2007 from £8.3 million in 2006, partially offset by; • Decrease in net earned premiums on the 2007 underwriting year to £18.9 million for the first half of 2007 from £23.2 million on the 2006 underwriting year for the first half of 2006, principally due to the change in Syndicate 780's premium mix referred to above; and • The weaker US dollar. Insurance Segment Review 30 June 2007 Non-Marine Property Reinsurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000 Gross premiums written 61,243 15,629 15,405 3,795 96,072 Net premiums written 47,634 11,938 13,043 4,043 76,658 Net premiums earned 22,103 11,490 6,291 2,693 42,577 Net claims incurred (17,015) (4,961) (4,593) (627) (27,196) Acquisition costs (2,663) (3,317) (1,243) (419) (7,642) Operating costs (2,299) (587) (579) (142) (3,607) Profit (loss) on Exchange 181 46 46 11 284 Underwriting profit (loss) 307 2,671 (78) 1,516 4,416 Combined ratio 99.4% 77.2% 102.0% 44.1% 90.3% 30 June 2006 Non-Marine Property Reinsurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000 Gross premiums written 64,168 12,485 13,216 564 90,433 Net premiums written 47,224 8,951 9,685 294 66,154 Net premiums earned 28,192 7,038 4,467 332 40,029 Net claims incurred (20,654) (3,724) (2,878) 642 (26,614) Acquisition costs (2,871) (2,134) (900) (129) (6,034) Operating costs (2,519) (490) (519) (22) (3,550) Profit on Exchange 3,522 685 726 30 4,963 Underwriting profit 5,670 1,375 896 853 8,794 Combined ratio 79.9% 80.5% 79.9% (157.4)% 78.0% Non Marine Reinsurance Syndicate 780 The premium written for Non Marine Reinsurance for the 2007 underwriting year iscurrently 13% ahead of plan (at Lloyd's business plan exchange rate of US$1.77/£), with underwriting conditions in line with expectations. Changes to thestructure of the Florida Hurricane Catastrophe Fund have had a minimal impact onpremiums written. Although pricing is under pressure, rates for USA catastropheexposed business remain robust, with pricing for mid year 2007 renewals in linewith January 2007 renewals but down from the higher rates achieved for mid year2006 renewals. Reductions in non USA treaty rates and competition for premiumsignings continue to affect our ability to further develop this account. TheAssumed account has focused on non USA catastrophe exposed business and isdeveloping in line with our expectations, albeit market conditions are becomingmore competitive. Rates on non catastrophe exposed business continue to be undergreater pressure worldwide and opportunities for growth are limited. Catastrophe activity in the USA for the first six months of 2007 has beenrelatively modest with Property Claims Services listing 13 reportable eventswith aggregate insured losses of US$3.4 billion compared with 20 events and withaggregate insured losses of US$6.5 billion in the first six months of 2006. Outside the USA, we have incurred attritional catastrophe losses of £4.1 millioncomprising European windstorm Kyrill (£1.7 million), June UK floods (£1.9million), and Australian storms (£0.5 million). Reliable claims information onthe UK floods is still scant with the Company's loss estimate based on a marketinsured loss of £1.5 billion. We expect the majority of these insured claims tobe retained within the deductibles of the primary insurance companies. For the six months ended 30 June 2007, the Non-Marine Reinsurance account had anunderwriting profit of £0.3 million and a combined ratio of 99.4% which wasnegatively impacted by the attritional catastrophe losses referred to above,(net of earned catastrophe margin on non USA business of £0.9 million) of £3.2million. The underwriting profit of £5.7 million in 2006 principally resultedfrom the foreign exchange profit of £3.5 million and the absence of attritionalcatastrophe losses. Advent Re For the six months ended 30 June 2007, Advent Re wrote US$12.4 million (£6.3million) of gross premiums, up from US$2.8 million (£1.4 million) in the firstquarter of 2007. Advent Re's premiums written net of brokerage, of US$11.5million, are principally from existing clients and relationships and areslightly less than its plan of US$12 to US$13 million, with US$7.8 millionrelating to policies which expire on 31 December 2007 and US$3.7 millionrelating to policies which expire on 31 March 2008. Advent Re has written all of its aggregate limits of US$30 million for USAearthquake and wind losses, US$20 million for European losses and US$15 millionfor Japanese losses. The risks written consist of Original Loss Warranty (OLW)policies for 27% of premiums written and traditional Ultimate Net Loss (UNL)policies for 73% of premiums written. The attachment points for the OLW's arein line with plan of US$20 billion for USA Wind, US$15 billion for USA andJapanese quake and US$10 billion for European losses. The attachment points forUNL policies are at a similar market loss and modelled return periods as for theOLW policies, recognising that the return periods are derived from modelled datasuch that the attachment points are estimates in terms of the probability andsize of the market loss. There have been no catastrophe events affecting Advent Re's policies during theperiod. No underwriting profit has been earned from these contracts as wemaintain conservative loss ratios reflecting its exposure to catastrophe riskand the US hurricane season in particular. Property Insurance The Property Insurance account has been targeted for growth in 2007 with grosspremiums written up by 25% over the first half of 2006. Currently, premiumswritten for the 2007 underwriting year stand at 88% of plan (at business planexchange rates). While pricing for non catastrophe exposed property business isunder significant pressure worldwide, we have noted a levelling off of pricereductions in the UK. For the six months ended 30 June 2007, the Property Insurance account had anunderwriting profit of £2.7 million and a combined ratio of 77.2% which includeda release of IBNR on the 2006 year of account of £1.6 million and net losses of£0.8 million from the European Windstorm Kyrill, June UK floods and Australianstorms. For the six months ended 30 June 2006, the Property Insurance accounthad an underwriting profit of £1.4 million and a combined ratio of 80.5% whichincluded a foreign exchange profit of £0.7 million. Marine For the six months ended 30 June 2007, the Marine account had an underwritingloss of £0.1 million down from the underwriting loss of £1.4 million for thefirst quarter of 2007 and compared with an underwriting profit of £0.9 millionin 2006 which included a foreign exchange profit of £0.7 million. The 2007underwriting loss was impacted by a deterioration of £2.2 million on HurricaneRita energy claims in the first quarter of 2007. For the 2006 year of account,the Marine segment is performing well with an underwriting profit of £1.8million for the first half of 2007. Premiums written for the Marine segment for the 2007 underwriting year are at65% of plan (at business plan exchange rates) with only modest amounts ofpremium having been written for the new classes of business such as cargo andwar, and with the Marine Excess of Loss account experiencing excess capacity inthe market and general rate softening. The Energy account, representing 78% ofplan premium for the Marine segment, is expected to reach 90% of business plantargets. Rates are holding up well but increased competition for business iscreating pressure on premium signings and clients are retaining more of theoriginal risk. The cargo account has not developed as we had expected withexisting markets competing hard for premium on both open market and facilitybusiness. We will reassess this account as part of the 2008 business plan. Other For the six months ended 30 June 2007, the Other account had an underwritingprofit of £1.5 million up from £0.9 million in 2006. For the first half of2007, Syndicate 2 had an underwriting profit of £1.1 million arising fromfavourable development principally on 2001 and prior years' aviation and energyclaims compared with an underwriting profit of £0.4 million in the first half of2006. The remaining business performed in line with plan. Syndicate 780 - Net notified loss ratio at 6 months (excluding IBNR) Year of 1993 1994 1995 1996 1997 1998 1999 2000account% netnotified 6.3% 17.0% 4.2% 8.8% 7.2% 17.4% 15.3% 8.4% Year of 2001 2002 2003 2004 2005 2006 2007account% netnotified 12.2% 2.0% 4.6% 8.9% 12.7% 4.6% 10.6% The net notified loss ratio of 10.6% was affected by European Windstorm Kyrilllosses but does not yet reflect any notified claims from the UK floods orAustralian storms. Catastrophe Exposure At 1 July 2007, Syndicate 780's exposure to any one of the major Lloyd'sRealistic Disaster Scenarios (RDS) is summarised below compared with the 2007business plan: Florida Wind Gulf of USA North East European Wind Japan Quake Los Angeles Mexico Wind Quake Industry loss Scenario $111 bn $108 bn $71 bn $31.5 bn $52 bn $78 bn Estimated netloss as % ofcapacity(2007 plan) 16% 19% 19% 16% 9% 16% 1 July 2007 14% 19% 18% 16% 12% 15% The RDS at 1 July 2007 are in line with 2007 business plan guidelines except forJapanese quake, where the Syndicate increased its writing of Japanese businessas part of its diversification away from US catastrophe events. Expenses For the six months ended 30 June 2007, the underwriting expense ratio (excludingacquisition costs and the impact of exchange gains) was 8.5%, compared with 8.9%for the first six months of 2006. Investment Return For the six months ended 30 June 2007, the investment return increased to £6.1million (H1 2006: £5.7 million), reflecting an improved interest rateenvironment in the US and UK. Throughout the period, the US dollar portfolio duration was maintained short,between 0.69 and 0.86 years. The US dollar portfolio is now wholly invested ingovernment or government guaranteed securities, with an overall return on USbonds of 2.4% (annualised return of 4.8%). Neither the syndicates nor theCompany invest in asset backed or mortgage securities, equities or derivatives. Sterling funds were held mainly in AA rated bank corporates (including Funds atLloyd's which are invested by Lloyd's in a pooled money market fund) achieving areturn of 2.6% (annualised return of 5.2%). Subsequent to 30 June 2007, £22.4 million of Advent Re's cash funds (included incorporate cash and cash equivalents below) were invested in short term UStreasury bills held in trust accounts as collateral for cedants' policy limits. Our investment mix as at 30 June 2007 is shown below. 30 June 30 June 31 December 2006 2007 2006 (Restated) (Restated) Syndicate Corporate Total Total TotalInvestment mix £'000 £'000 £'000 £'000 £'000 Debt securities 67,184 - 67,184 85,389 78,838 Cash and cashequivalents 46,296 133,126 179,422 175,532 164,547 Total 113,480 133,126 246,606 260,921 243,385 Capital Management 30 June 31 December 2007 2006 £'000 £'000 Long term debt - subordinated 24,173 24,675- senior 22,031 22,607 46,204 47,282 Shareholders' funds 92,556 88,986 Debt to equity ratio 50% 53% Debt to total capital ratio 33% 35% Interest coverage 4.0 x 7.4 x The Company continues to maintain its debt to total capital ratio below 35% inaccordance with its stated policy. On 14 May 2007, Standard & Poor's raised its Lloyd's Syndicate Assessment onAdvent Underwriting - Syndicate 780 to 2 (outlook positive) from 2 (outlooknegative) reflecting improvements made to the Syndicate's underwriting controlsand the re-underwriting of its portfolio to prevent repetition of the historicallevels of volatility and severe losses from 2001 and 2005 when it wasdisproportionately affected by severe industry losses. Standard & Poor'scommented on Advent's proactive management strategy to achieve more consistentand less volatile operating results although its change in business mix has notbeen tested by a major catastrophe event. 2007 Business Plan update The first half is the key underwriting period for Syndicate 780 with premiumswritten (net of brokerage) to date (at business plan exchange rates) of £114.6million or 95% of the premium income expected to be written at this stage. Thepremiums underwritten of £114.6 million consist of £79.6 million recognised aspremiums written in these interim statements and £35.0 million which is inrespect of "premiums written but unincepted" business, principally relating toProperty Insurance binders and Reinsurance Treaty quota share accounts, wherethe premiums will be recognised as written over the second half of 2007 and in2008. Based on current projections, we expect to write premiums of approximately £125million to £127.5 million (net of brokerage) for the 2007 underwriting year (atbusiness plan exchange rates) up from £120 million to £125 million at the end ofthe first quarter. This represents more than 95% of Syndicate 780's 2007 planpremium income of £130.5 million. Our premiums written, and ultimately underwriting profits, are likely to beadversely affected by the weaker US dollar with approximately 75% of premiumswritten denominated in US dollars. For Lloyd's planning and monitoringpurposes, Syndicate 780's 2007 business plan used an exchange rate of US$1.77/£1. At the 30 June 2007 exchange rate of US$2.01/£1, the current premium incomeforecast for Syndicate 780's 2007 year of account would range from £114 millionto £116 million. 2008 Business Plan The 2008 underwriting plans for Syndicate 780 and Advent Re will depend upon theunderwriting environment that emerges after the current hurricane season. In theabsence of any major catastrophes, we would expect rates, terms and conditionsto soften for 2008. Accordingly, we have submitted Syndicate 780's preliminary2008 business plan to Lloyd's with an indicated reduction of 10% in capacityfrom £150.6 million for the 2007 year of account to £135 million for the 2008year of account. There are currently no major changes to the lines of businessto be written by Syndicate 780. For 2008, Advent will own all of Syndicate 780's capacity and expects to have alarger Bermuda based trading platform through Advent Re. This provides us withflexibility to react to the existing market conditions before finalising our2008 underwriting plans in October. Should there be significant catastropheactivity in the second half of the year, Advent would expect to be able to takeadvantage of the subsequent market conditions. Outlook The insurance and reinsurance markets continue to undergo significant change asparticipants react to changing distribution of insurance products, the way inwhich insurers purchase reinsurance given pricing, terms and conditions, theincreased involvement of capital markets in the securitisation of insurancerisk, and the geographical dynamics for the placement of reinsurance business.Advent is well placed to take advantage of market opportunities through its longestablished Lloyd's platform and its trading platform in Bermuda. Market conditions remain favourable in our principal lines of business withincreased competition affecting rates and premium signings. The continuing weakUS dollar will adversely impact profitability which could lead to increasedcompetition for business as non US market participants seek to make up theshortfall. If there is a benign claims environment in the second half of 2007as there was in 2006, with a low level of catastrophe losses, we expect there tobe further pressure on pricing, terms and conditions going into 2008. We expect to be in a better position to comment more definitively on currentmarket conditions and our 2008 underwriting plans when we issue our thirdquarter interim report to shareholders at the end of October 2007. We are alertto opportunities in the market place while maintaining underwriting disciplinein the face of increased competition for business. Brian F CaudleChairman 27 July 2007 CONSOLIDATED INCOME STATEMENT For the six months ended 30 June 2007 Note Six months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000IncomeGross premiums written 4 96,072 90,433 115,356Net premiums written 4 76,658 66,154 88,201Net premiums earned 4 42,577 40,029 81,694Investment income 5 6,053 5,693 12,681Other operating income 309 460 1,054Total Income 48,939 46,182 95,429 ExpensesNet claims incurred 4 (27,196) (26,614) (43,073)Acquisition costs (7,642) (6,034) (17,666)Operating expenses (3,607) (3,550) (6,882)Profit on exchange 316 4,350 4,041Other corporate costs (1,836) (2,173) (5,436)Total Expenses (39,965) (34,021) (69,016) Operating Result 8,974 12,161 26,413Interest on debt (2,234) (1,713) (3,560)Profit before tax 6,740 10,448 22,853Tax 7 (3,283) (3,121) (6,842)Profit for the periodattributable to equityshareholders 3,457 7,327 16,011 Earnings per ordinary share- Basic and diluted 6 0.9p 2.0p 4.3p CONSOLIDATED BALANCE SHEETAt 30 June 2007 Note 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000AssetsCash and cash equivalents 5 179,422 175,532 164,547Financial investments 5 67,184 85,389 78,838Other receivables 10,043 8,971 9,520Insurance and reinsurance assets - Reinsurers' share of outstanding claims 4 21,335 50,908 33,317 - Reinsurers' share of unearned premiums 4 14,692 19,704 4,457- Debtors arising from insurance and reinsurance operations 79,915 94,316 45,321Deferred tax asset 18,371 26,020 21,654Property and equipment 704 622 562Intangible assets 8 7,835 5,343 8,062Total assets 399,501 466,805 366,278 EquityShare capital 6 20,329 18,481 20,329Share premium account 60,662 53,527 60,662Capital redemption reserve 21,065 21,065 21,065Other reserves (2,773) (2,978) (2,886)Retained earnings (deficit) (6,727) (18,868) (10,184)Total shareholders' equity 92,556 71,227 88,986 LiabilitiesInsurance and reinsurance liabilities - Outstanding claims 4 171,226 253,517 193,101 - Unearned premiums 4 68,639 58,456 24,322 - Creditors arising out of insurance andreinsurance operations 17,560 27,919 6,798Trade and other payables 3,316 4,791 5,789Syndicate bank loan - 11,580 -Long term debt 6 46,204 39,315 47,282Total liabilities 306,945 395,578 277,292 Total liabilities and shareholders' equity 399,501 466,805 366,278 CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the six months ended 30 June 2007 Capital re-demption reserve 30 June 30 June 2006 31 Dec Share Share Other Retained 2007 (unaudited) 2006 capital premium reserves earnings (unaudited) (unaudited) Total Restated Total Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 January 20,329 60,662 21,065 (2,886) (10,184) 88,986 34,581 34,581 Profit for the period - - - - 3,457 3,457 7,327 16,011 Proceeds from issue ofshares (Note 6) - - - - - - 29,268 38,251 Share based payments - - - 113 - 113 51 143 Balance at end of 20,329 60,662 21,065 (2,773) (6,727) 92,556 71,227 88,986period CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 30 June 2007 Note Six months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000 Net cash (outflow) inflow from operating activities 9 14,784 12,050 (5,954) Interest received 2,633 1,003 4,206Interest paid (2,252) (1,635) (3,427)Net taxation received - 151 150Net purchased tangible fixed assets (290) (261) (421)Purchase of syndicate capacity - - (1,499)Net cash (outflow) inflow before financing 14,875 11,308 (6,945) Cash inflow from financingIssue of ordinary share capital - 30,000 39,582Share issue expenses - (732) (1,331)Issue of loan notes - 15,073 25,277Loan note issue expenses - (453) (792)Syndicate bank loan - 11,580 - - 55,468 62,736 Net increase in cash and cash equivalents 14,875 66,776 55,791Cash and cash equivalents at beginning of period 164,547 108,756 108,756Cash and cash equivalents at end of period 5 179,422 175,532 164,547 NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. BASIS OF PREPARATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS These interim consolidated financial statements should be read in conjunctionwith the Company's consolidated financial statements for the year ended 31December 2006 as set out on pages 40 to 75 of the 2006 Report and Accounts. These interim financial statements have been prepared using accounting policiesconsistent with International Financial Reporting Standards (IFRS) and inaccordance with International Accounting Standards (IAS) 34 Interim FinancialReporting. The Company adopted IFRS in preparation of its interim consolidated financialstatements for the three months ended 31 March 2007, with effective applicationfrom 1 January 2006. Accordingly, the comparative financial informationpresented has been restated to an IFRS basis. As required upon the adoption ofIFRS, note 10 sets out the reconciliations of the balance sheets at 1 January2006 (the opening IFRS balance sheet) and at 31 December 2006 (the last UK GAAPbalance sheet) and the profit for the year ended 31 December 2006 between IFRSand UK GAAP, together with explanations for the changes made. Accounting policies With the exception of the specific accounting policies listed below, theaccounting policies applied under IFRS are unchanged from the accountingpolicies applied under UK GAAP in the preparation of the Company's consolidatedfinancial statements for the year ended 31 December 2006 and which are set outon pages 46 to 49 of the 2006 Report and Accounts. The application of IFRS has changed the format and presentation of the primaryfinancial statements resulting in some terminology changes. The profit and lossaccount which was previously classified between a technical account and anon-technical account under UK GAAP has been renamed as the Income Statementunder IFRS with no further reference to the technical or non-technical account. Financial investments The Company currently holds short term government or government guaranteedsecurities. Accordingly, all financial investments have been classified as "fair value through income" on the basis that short term assets are bought withthe intention to resell. Purchases and sales of investments are recognised onthe trade date, being the date at which a commitment to buy or sell the assethas been made. Investments are initially recognised at fair value, and aresubsequently re-measured at fair value based upon quoted bid prices. Changes tothe fair value are included in the income statement for the period in which theyarise. If the Company decides to purchase long term fixed income or equity securities,management expects that these securities will be classified as "held for sale"with any changes in fair value being included as a separate component ofshareholders' equity as "Unrealised gain or loss on investments, net of tax"during the period in which they arise. Foreign currency translation All monetary assets and liabilities expressed in foreign currencies aretranslated into sterling at the closing rates of exchange at the balance sheetdate. Non-monetary assets and liabilities, including unearned premiums anddeferred acquisition costs, are translated into sterling at historic rates ofexchange. Foreign currency transactions are translated at the average rate ofexchange during the year. Assets and liabilities of foreign subsidiaries are translated at the period endexchange rate. Exchange differences arising from the retranslation of suchassets and liabilities are recorded as a separate component of shareholders'equity in the "Currency Translation Account". To the extent that such netassets have been effectively hedged by the Company's long term debt as is thecase with the Company's investment in Advent Re, any currency differences on theretranslation of the long term debt are also recorded in equity. Other foreignexchange gains or losses are reported in the Income Statement. Hedging Transactions are classified as hedging transactions when the followingconditions for hedge accounting can be met: • there is a formal designation and documentation of the hedging relationshipand the Company's risk management objective and strategy for undertaking thehedge; • the hedge is expected to be highly effective in achieving offsetting changesin fair value attributable to the hedged risk, consistent with the originallydocumented risk management strategy for that hedging relationship; and • the effectiveness of the hedge can be reliably measured. Cash and cash equivalents Cash at bank, short term bank deposits and any highly liquid short terminvestments with a maturity date of 90 days or less at the date of purchase thatare generally not subject to risk of changes in fair value are categorised asCash and Cash Equivalents in the balance sheet at fair value. Intangible assetsPurchased capacity Purchased syndicate capacity is considered to have an indefinite life and, assuch, is not subject to annual amortisation, but is reviewed annually for anyimpairment in value. Any such impairment will be charged to the incomestatement in the period during which it is identified. The purchased syndicate capacity has been initially recognised at cost andsubjected to an impairment review. The carrying value is the original cost lessaccumulated impairment losses. The consideration payable of £1.2 million to third party capital providers on 30June 2008 is a finite life asset and accordingly, is amortised to expenses asthe gross premium income is earned on the 2007 year of account to which thepayment relates. Goodwill The goodwill is included on the basis of deemed cost which is considered to bethe carrying value under UK GAAP at the date of transition to IFRS, less anysubsequent impairment losses. These unaudited interim consolidated financial statements have been prepared inaccordance with the accounting policies set out above and do not include alldisclosures required for statutory accounts. In management's opinion, thefinancial statements include all disclosures necessary for the fair presentationof the Company's interim results. Conversion to IFRS Since IFRS became mandatory for fully listed public companies in 2005, UK GAAPhas converged with IFRS such that the only adjustment relates to theamortisation of indefinite life intangible assets and goodwill. In accordancewith IAS 38, 'Intangible Assets', all intangible assets with an indefinite lifeare no longer amortised, but are subject to an annual impairment review. Thedirectors, having regard to currently available information, consider that thenet book value of the intangible assets at 1 January 2006 represents therecoverable amount. The effect of this change in accounting policy, in respectof purchased capacity, has been to increase net earnings for the year ended 31December 2006 by £0.1 million, while opening retained earnings as of 1 January2006 are unchanged. For goodwill, as permitted on the first time adoption of IFRS, the Company haschosen to not restate the historical merger basis of combination for AdventUnderwriting to an acquisition basis as the transaction occurred prior to 31March 2004. Any subsequent business combinations will be accounted for underthe acquisition method. The effect of the change in accounting policy forgoodwill has been to increase net earnings for the year ended 31 December 2006by £0.5 million, while opening retained earnings as of 1 January 2006 areunchanged. Under UK GAAP, Deposits with Credit Institutions, which are of a short termnature, were included as part of Investments. IAS 7 'Cash Flow Statements',defines cash equivalents as short term, highly liquid investments that aresubject to insignificant risk of change in value and are readily convertible tocash. As a result, these assets are now included in 'Cash and Cash Equivalents'on the balance sheet resulting in a reclassification of £1.6 million fromInvestments to Cash and Cash Equivalents on the IFRS balance sheet at 31December 2006. Status of the interim financial statements The interim financial statements have been reviewed by the Company's auditorsPricewaterhouseCoopers LLP. These interim financial statements do notconstitute accounts as defined in section 240 of the Companies Act 1985 ("theAct"). The results for the year ended 31 December 2006 are based on the Company's UKGAAP statutory accounts. These accounts have subsequently been converted toIFRS as set out above and in note 10. The IFRS comparatives have not beensubject to audit. The UK GAAP accounts received an unqualified audit opinionfrom the Company's auditors, and did not contain a statement under section 237(2) or (3) of the Act. The Company accounts for the year ended 31 December 2006have 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 accounts were: 30 June 2007 30 June 2006 31 December 2006 Period Period Period Period Period Period average End average end average end rate rate rate rate rate rate US dollar 1.97 2.01 1.79 1.85 1.84 1.96Euro 1.48 1.49 1.46 1.45 1.47 1.48Canadian dollar 2.24 2.13 2.04 2.06 2.09 2.28 The Company had foreign exchange gains and losses which were recorded in theconsolidated income statement as follows: Six Six months 2007 months 2006 Year 2006 £'000 £'000 £'000 Underwriting activities 284 4,963 6,991Corporate activities 32 (613) (2,950)Net gain 316 4,350 4,041 At 30 June 2007, the Company's asset and liability positions in its majorforeign currencies were as follows: 30 June 2007 (unaudited) US$m £m CDN$m •m Total assets 493.9 134.8 23.8 12.2 Total liabilities (480.5) (52.1) (14.4) (13.2) Net assets (net liabilities) 13.4 82.7 9.4 (1.0) 31 December 2006 (unaudited) US$m £m CDN$m •m Total assets 467.5 109.4 20.2 12.3 Total liabilities (434.7) (41.3) (9.9) (13.4) Net assets (net liabilities) 32.8 68.1 10.3 (1.1) 3. BUSINESS SEGMENT Six Six months months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Underwriting profit Syndicate 780 - Non MarineUnderwriting Year of Account2007 - open (401) - -2006 - open 3,396 6,625 20,3752005 - open 661 1,897 1,5242004 and prior closed - (166) (706)Total Syndicate 780 3,656 8,356 21,193 Syndicate 2 - MarineUnderwriting Year of Account2002 - run-off (180) (159) 992001 - run-off 1,306 597 (228)Total Syndicate 2 1,126 438 (129) Advent Re operating costs (366) - - Managing AgencyAgency fees 178 223 301Recharged to Syndicates 131 237 753 309 460 1,054 OtherInvestment income 6,053 5,693 12,681Interest on debt (2,234) (1,713) (3,560)Corporate expenses (1,836) (2,173) (5,436)Corporate foreign exchange gain (loss) 32 (613) (2,950) Profit before tax 6,740 10,448 22,853 4. INSURANCE RISK MANAGEMENT Insurance segment results The underwriting results of Advent Re are included in the Non Marine Reinsurancesegment from 1 January 2007, the date it commenced writing business. The othersegment includes the results of Syndicate 2. Acquisition costs representingbrokerage, are allocated to each segment on a direct basis while operating costsare allocated based on gross premiums written. For catastrophe exposed business, including multiple peril coverage, the Companyrecognises premium as earned based on the underlying exposure to catastrophe.As a result, a greater proportion of premium income on catastrophe exposedbusiness is earned in the second half of the year when the company is exposed togreater risk of hurricane related losses. Non-Marine Property Re-insurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000 Six months 2007 (unaudited)Gross premiums written 61,243 15,629 15,405 3,795 96,072Net premiums written 47,634 11,938 13,043 4,043 76,658Net premiums earned 22,103 11,490 6,291 2,693 42,577Net claims incurred (17,015) (4,961) (4,593) (627) (27,196)Acquisition costs (2,663) (3,317) (1,243) (419) (7,642)Operating expenses (2,299) (587) (579) (142) (3,607)Profit on Exchange 181 46 46 11 284Underwriting profit (loss) 307 2,671 (78) 1,516 4,416Combined ratio 99.4% 77.2% 102.0% 44.1% 90.3% Non-Marine Property Re-insurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000 Six months 2006 (unaudited,restated)Gross premiums written 64,168 12,485 13,216 564 90,433Net premiums written 47,224 8,951 9,685 294 66,154Net premiums earned 28,192 7,038 4,467 332 40,029Net claims incurred (20,654) (3,724) (2,878) 642 (26,614)Acquisition costs (2,871) (2,134) (900) (129) (6,034)Operating expenses (2,519) (490) (519) (22) (3,550)Profit on Exchange 3,522 685 726 30 4,963Underwriting profit 5,670 1,375 896 853 8,794Combined ratio 79.9% 80.5% 79.9% (157.4)% 78.0% Non-Marine Property Re-insurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000 Year 2006 (unaudited, restated)Gross premiums written 73,104 26,422 14,129 1,701 115,356Net premiums written 52,599 22,621 11,205 1,776 88,201Net premiums earned 54,639 15,963 9,378 1,714 81,694Net claims incurred (25,837) (8,947) (7,857) (432) (43,073)Acquisition costs (9,259) (5,663) (2,365) (379) (17,666)Operating expenses (4,361) (1,576) (843) (102) (6,882)Profit on Exchange 4,430 1,601 856 104 6,991Underwriting profit (loss) 19,612 1,378 (831) 905 21,064Combined ratio 64.1% 91.4% 108.9% 47.2% 74.2% Provision for claims (a) Net incurred claims Six Six months months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Paid claims - Gross amount 45,399 90,617 157,141 - Reinsurers' share (11,031) (45,912) (61,475) 34,368 44,705 95,666 Change in provision for claims - Gross amount (18,593) (56,154) (105,387) - Reinsurers' share 11,421 38,063 52,794 (7,172) (18,091) (52,593)Net incurred claims 27,196 26,614 43,073 (b) Outstanding claims Unearned Claims Total Premiums outstanding £'000 £'000 £'000 GrossAt 1 January 2007 (audited) 24,322 193,101 217,423Exchange adjustments (3,281) (3,281)Movement in provisions- current year 44,317 (27,787) 72,104- prior year (982) (982)- paid claims (45,399) (45,399)At 30 June 2007 (unaudited) 68,639 171,226 239,865 Reinsurance amountAt 1 January 2007 (unaudited) 4,457 33,317 37,774Exchange adjustments (561) (561)Movement in provisions- current year 10,235 626 10,861- prior year (1,016) (1,016)- paid recoveries (11,031) (11,031)At 30 June 2007 (unaudited) 14,692 21,335 36,027 NetAt 30 June 2007 (unaudited) 53,947 149,891 203,838At 31 December 2006 (audited) 19,865 159,784 179,649At 30 June 2006 (unaudited) 38,752 202,609 241,361 For the six months ended 30 June 2007, improvement in prior years claims, net ofreinstatement premiums, amounted to £0.1 million (2006: adverse development of£3.0 million). The net claims outstanding are further analysed between notified outstandingclaims and incurred but not reported claims (IBNR) below: 30 30 31 June June December 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Notified outstanding claims 101,665 147,666 114,654Claims incurred but not reported 48,226 54,943 45,130Claims outstanding 149,891 202,609 159,784 The breakdown of the gross and net claims reserves by category of claims is setout below. 30 June 2007 (unaudited) 30 June 2006 31 December 2006 (unaudited) (unaudited) Gross Net Gross Net Gross Net £'000 £'000 £'000 £'000 £'000 £'000 Large catastrophe provisions, 77,689recently incurred 113,182 46,149 37,143 66,308 44,800All other short tail provisions 52,251 49,273 56,486 55,817 50,372 49,647Long-tail provisions (casualty) 25,478 25,478 26,147 26,147 24,311 24,311Syndicate 2 provisions 47,348 37,997 57,702 42,956 52,110 41,026Total 171,226 149,891 253,517 202,609 193,101 159,784 Reinsurance recoverable At 30 June 2007, the Company's reinsurance recoverable on outstanding claimsamounted to £21.3 million, a decrease of £12.0 million since 31 December 2006,with reinsurers with the following risk ratings by AM Best (or equivalent S&Prating in the absence of an AM Best rating): Risk Rating Reinsurance recoverable £'000 % A+ 7,945 37.2Lloyd's 2,306 10.8A 6,903 32.4A- 24 0.1Trust fund backed 1,854 8.7BBB or below and Non Rated 2,303 10.8 Total 21,335 100.0 Included in other debtors are the following reinsurer balances. Syndicate 780 Syndicate 2 Total £'000 £'000 £'000Due on paid losses 3,352 8,614 11,966Provision for uncollectible reinsurance - (3,825) (3,825) Net 3,352 4,789 8,141 The total provision for uncollectible reinsurance amounted to £4.0 million at 30June 2007 (£4.3 million at 31 December 2006), of which £3.8 million was inrespect of paid losses (£3.9 million at 31 December 2006) and £0.2 million wasin respect of outstanding losses (£0.4 million at 31 December 2006). 5. FINANCIAL RISK MANAGEMENT NET INVESTMENT INCOME Six Six months months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Investment IncomeIncome 5,942 5,807 12,092Gain on sale of investments 191 108 504Unrealised gains on investments 67 198 517 6,200 6,113 13,113 Investment expenses and chargesInvestment management expenses (47) (50) (105)Loss on sale of investments (48) (146) (281)Unrealised losses on investments (52) (224) (46) (147) (420) (432)Net investment income 6,053 5,693 12,681 FINANCIAL INVESTMENTS Six Six Months months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Fair Value Debt securities and other fixed income securities- government and government guaranteed 67,184 78,663 75,930- corporate and other - 4,325 2,908- asset backed securities - 2,401 - 67,184 85,389 78,838 Purchase Price Debt securities and other fixed income securities- government and government guaranteed 67,151 78,474 75,490- corporate and other - 4,339 2,976- asset backed securities - 2,401 - 67,151 85,214 78,466 All financial investments are held by the Company's managed syndicates. Alldebt securities and other fixed income securities are listed on recognised stockexchanges. All financial investments are classified as fair value throughincome including short term fixed maturity securities. CASH AND CASH EQUIVALENTS 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000 Corporate cash at bank 14,200 14,790 5,541Corporate funds held by Lloyd's 94,366 108,360 113,541Advent Re cash at bank 24,560 - 19,132Syndicates' cash at bank 40,430 45,706 21,195Syndicates' overseas deposits 3,406 3,681 3,539Syndicates' deposits with credit institutions 2,460 2,995 1,599Total cash and cash equivalents 179,422 175,532 164,547 6. CAPITAL MANAGEMENT SHARE CAPITAL Authorised Allotted, Called-Up and Fully Paid 30 30 31 30 30 June 31 June June December June December 2007 2006 2006 2007 2006 2006 £'000 £'000 £'000 £'000 £'000 £'000 Ordinary shares of 5p each 50,000 50,000 50,000 20,329 18,481 20,329 Number of shares ('000s) 1,000,000 1,000,000 1,000,000 406,570 369,609 406,570 EARNINGS PER ORDINARY SHARE Six Six months months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated Profit after tax for the period (£'000) 3,457 7,327 16,011Weighted average number of shares in issue 406,570 364,637 369,579Basic and diluted earnings per share 0.9p 2.0p 4.3p LONG TERM DEBT 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 US$34 million due 3 June 2035 16,388 17,831 16,821Euro 12 million due 3 June 2035 7,785 8,004 7,854 Total subordinated notes 24,173 25,835 24,675 US$26 million due 15 January 2026 12,409 13,480 12,742US$20 million due 15 December 2026 9,622 - 9,865 Total senior notes 22,031 13,480 22,607 Total loan notes 46,204 39,315 47,282Weighted average interest rate 9.27% 9.09% 9.19% The Company's US$34 million and Euro 12 million aggregate principal amount ofunsecured subordinated notes (the "USD Subordinated Notes" and "EuroSubordinated Notes" respectively) are due 3 June 2035 and are callable by theCompany at any time, in whole or in part, after 3 June 2010. The notes bear interest at 3 month EURIBOR plus 3.85% for the Euro SubordinatedNotes (8.02% at 30 June 2007) and 3 month USD Libor plus 3.9% for the USDSubordinated Notes (9.26% at 30 June 2007). Payment of interest may, at theoption of the Company, be deferred for up to 20 consecutive quarters. The Subordinated Notes rank on a winding-up of the Company in priority todistributions on all classes of share capital and rank pari passu with eachother but are subordinated in right of payment to the claims of allunsubordinated creditors of the Company (including, where applicable, allpolicyholders of the Syndicate). The Company's senior loan notes of US$26 million, (the "Senior Notes tranche 1")are due 15 January 2026 and are callable by the Company at any time, in whole orin part, after 16 January 2011. The Senior Notes tranche 1 bear interest at 3month USD Libor plus 4.5% (9.86% at 30 June 2007). The Company's senior loan notes of US$20 million (the "Senior Notes tranche 2")are due 15 December 2026 and are callable by the Company at any time, in wholeor in part, after 15 December 2011. The Senior Notes tranche 2 bear interest at3 month USD Libor plus 4.15% (9.51% at 30 June 2007). The Senior Notes tranche 1 and the Senior Notes tranche 2 rank on a winding-upof the Company in priority to distributions on all classes of share capital andsubordinated loan notes, and rank pari passu with each other but aresubordinated in right of payment to the claims of all unsubordinated creditorsof the Company (including, where applicable, all policyholders of theSyndicate). The Subordinated Notes and Senior Notes are listed on the Channel Islands StockExchange. FUNDS AT LLOYD'S (FAL) The Funds held by Lloyd's represent monies deposited with the Corporation ofLloyd's (Lloyd's) to support the Company's underwriting activities. These fundsare subject to a Lloyd's deposit trust deed which gives Lloyd's the right toapply these monies in settlement of any claims arising from the Company'sunderwriting at Lloyd's. In addition to the Company's FAL of £94.4 million at 30 June 2007, a majorshareholder, Fairfax Financial Holdings Limited (Fairfax), has deposited FAL of£51.9 million at 30 June 2007 (£65.5 million at 31 December 2006) to support theCompany's underwriting for the 2001 to 2005 underwriting years pursuant to aFunding Agreement dated 16 November 2000. Any underwriting profits arising fromthe business supported by the Fairfax FAL are receivable by the Company which isalso responsible for the payment of any losses arising. On 29 June 2007,Lloyd's released £9.8 million of Fairfax FAL concurrent with the closure ofSyndicate 780's 2004 year of account. The FAL and the overseas deposits are not available for use by the Company forordinary cash flow purposes. The Company paid its share of Syndicate 780's cash call on the 2004 year ofaccount of £19.4 million from its FAL on 29 June 2007. Syndicate 780 hasdeclared an interim profit distribution on its 2006 year of account of 9% ofcapacity. The Company's share of £10.8 million which is held in holding companycash available to pay the remaining 2005 year of account losses in June 2008. 7. INCOME TAXES 30 30 31 December June June 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000 Analysis of charge in periodUK corporation tax - (75) -Overseas taxation - 2 (718)Deferred tax 3,283 3,194 7,560Total taxation 3,283 3,121 6,842 In its Finance Bill on 21 March 2007, the UK government announced that it would: a) Repeal section 107 on the disclaimer of reserves with transitionalrules that allow a final disclaimer of reserves for the year ending 31 December2007, and which is capped at 10% of the net technical reserves at that date. b) Make technical changes to Lloyd's specific tax rules to ensure thattrading losses transfer between companies under common control. As a result,Advent Capital Limited's trading losses at 31 December 2008 (resulting from theclosure of the 2005 and prior years of account) will be transferable to AdventCapital (No. 3) Limited and be available for offset against its own futuretrading profits from the 2006 and subsequent years of account. c) Reduce the corporate tax rate from 30% to 28% effective 1 April 2008. On 26 June 2007, with the third reading of the Finance Bill, these tax changesare now considered to be substantively enacted for financial reporting purposes.Accordingly, the tax charge for the six months ended 30 June 2007 includes a£1.4 million expense for this change in tax rate. In addition, these tax changes significantly reduce the uncertainty referred toin note 6 of the 2006 Report and Accounts relating to the period over which theCompany would have the technical ability to recover 2005 and prior tax losses. 8. INTANGIBLE FIXED ASSETS Goodwill Purchased on Acquisition Capacity Total £'000 £'000 £'000 Fair ValueAt 30 June 2007 (unaudited) 4,148 3,687 7,835At 31 December 2006 (unaudited, restated) 4,148 3,914 8,062At 30 June 2006 (unaudited, restated) 4,148 1,195 5,343 The consideration payable of £1.2 million to third party capital providers on 30June 2008 is a finite life asset and accordingly, is amortised to expenses asthe gross premium income is earned on the 2007 year of account to which thepayment relates. The accounting treatment of intangible assets is discussed further in Note 10. 9. RECONCILIATION OF PROFIT BEFORE TAX TO NET CASH INFLOW (OUTFLOW) FROM OPERATING ACTIVITIES Six Six months months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Profit before tax 6,740 10,448 22,853Movement in:- insurance and reinsurance receivables (32,847) (276) 81,557- other receivables 65 5,443 5,148- insurance and reinsurance payables 33,204 (25,443) (141,114)- trade and other payables (2,455) 1,489 1,856Debt interest 2,234 1,713 3,560Investment income (3,221) (3,290) (6,747)Unrealised investment return 15 (25) (470)Net sale of investments 11,639 23,660 30,656Depreciation 148 689 909Amortisation of debt issue costs 11 25 69Amortisation of capacity 227 - -Amortisation of share option costs 113 51 143Foreign exchange movements on financing (1,089) (2,434) (4,374) 14,784 12,050 (5,954) 10. RECONCILIATION OF BALANCE SHEET AND INCOME STATEMENTS PREPARED UNDERIFRS TO THOSE PREVIOUSLY PREPARED UNDER UK GAAP The table below sets out the changes, as discussed in note 1, to the reportedprofit for the year ended 31 December 2006 and a reconciliation of the balancesheet at 31 December 2006. There is no change to reserves at 31 December 2005. Reported Adjustment for Adjustment to Reported under UK GAAP intangible recoverable under IFRS asset amount amortisation £'000 £'000 £'000 £'000 Profit after tax 15,352 1,656 (997) 16,011Purchased capacity 3,773 1,138 (997) 3,914Goodwill 3,630 518 - 4,148Total assets 365,619 1,656 (997) 366,278Total shareholders equity 88,327 1,656 (997) 88,986Total liabilities and shareholders 365,619 1,656 (997) 366,278equity In accordance with IFRS, the book value of goodwill at the date of transition toIFRS has been used as fair value. The original cost of capacity has beenreviewed and impaired to the value shown in the balance sheet. Independent review report to Advent Capital (Holdings) PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises the Consolidated IncomeStatement, Consolidated Balance Sheet, Consolidated Statement of Changes inEquity and Consolidated Cash Flow Statement for the six months then ended andrelated notes. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the AIMRules for Companies. This interim report has been prepared in accordance with the InternationalAccounting Standard 34, 'Interim financial reporting'. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the company for the purposeof the AIM Rules for Companies and for no other purpose. We do not, in producingthis report, accept or assume responsibility for any other purpose or to anyother person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. PricewaterhouseCoopers LLPChartered AccountantsLondon27 July 2007 Notes: (a) The maintenance and integrity of the Advent Capital (Holdings) PLC website is the responsibility of the directors; the work carried out by theauditors does not involve consideration of these matters and, accordingly, theauditors accept no responsibility for any changes that may have occurred to theinterim report since it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock Exchange