Charles Taylor Regulatory News (CTR)

PRESS RELEASE

Charles Taylor Consulting plc

Announcement of results for year ended 31 December 2011

Consolidated financial highlights

For the year ended 31 December 2011

Note:

1) The adjusted figures exclude non-recurring items as follows: 

- customer relationships amortisation of £1.8m (2010: £2.1m)

- Group CEO recruitment and transition costs of £0.7m (2010: £nil); and

- a loss on the disposal of Crescendo Holdings Limited of £0.3m (2010: £nil)

2) The final dividend is payable on 25 May 2012 to shareholders on the register on 13 April 2012

"2011 was a watershed year for Charles Taylor. We welcomed David Marock, our new Group Chief Executive Officer, to the business in July and he has made an immediate, positive impact. David initiated a thorough business review and planning process to identify and capture profitable growth by building on the Group's strong fundamentals. The new strategy is already delivering benefits."

Rupert Robson

Chairman

Business highlights

·; Professional Services revenue and operating segment profit increase

·; Large prior year profit from non-life Insurance Companies Run-off did not reoccur, reducing profit before tax. Minimal impact on earnings per share

·; Earnings per share down predominantly due to higher tax charge in Professional Services businesses

·; Ongoing initiative to drive down debt delivers early results

·; Final dividend of 6.75p, maintaining the full year dividend at 10.00p

·; New growth strategy for Professional Services

·; Run-off strategy to focus on life run-off with no further non-life acquisitions

Chairman's Statement

2011 was a watershed year for Charles Taylor. We welcomed David Marock, our new Group Chief Executive Officer, to the business in July and he has made an immediate, positive impact. David initiated a thorough business review and planning process to identify and capture profitable growth by building on the Group's strong fundamentals. The Board has now reviewed the findings, considered the opportunities available and agreed our priorities for growth.

The new strategy is already delivering benefits, with initiatives to drive organic growth underway across the Group and action taken to drive down debt reducing the Group's borrowings at the year end. We have also taken important steps in clarifying our run-off business strategy and as a result have decided not to acquire further non-life run-off insurance companies. The Group's new strategy is set out in this report and we will keep shareholders informed of progress as part of our reporting throughout 2012.

Results

Revenue was up 3% to £102.5m (2011: £99.1m). Group adjusted profit before tax was down 37% to £9.2m (2010: £14.6m) (statutory profit before tax 2011: £6.4m, 2010: £12.5m, down 49%). This was largely as a result of the non-reoccurrence of the large run-off profits generated in 2010. The Professional Services businesses continued to perform well, with revenue up 3.6% and operating segment profit up 3.9% on the year.

Adjusted earnings per share were down 10% at 19.86p (2010: 22.00p) (statutory earnings per share 2011: 12.79p, 2010: 16.79p, down 24%), principally as a result of a higher tax charge in the Professional Services businesses. The non-reoccurrence of the large run-off profits generated in 2010 had a minimal impact on earnings per share.

Dividend

It is proposed that a final dividend of 6.75p per share (2010: 4.46p) be paid on 25 May 2012 to shareholders on the register on 13 April 2012. When added to the interim dividend of 3.25p per share (2010: 5.54p), this results in a total dividend per share for the year being maintained at 10.00p (2010: 10.00p).

Gearing and cash flow

Net debt at 31 December was £34.0m, compared to £36.3m at the previous year end and £38.6m at the half year. This figure includes £2.4m borrowed in the year to finance the acquisition of Alico Isle of Man Limited, which is expected to be repaid in 2012. Free cash flow for the year was £7.9m compared to £10.9m in 2010. Less cash was released from the closed life insurance business this year and our initiative to drive down debt did not commence until the second half. The initiative had an immediate, positive impact on second half cash flow.

Board

I am pleased to welcome Gill Rider to the Board as a Non-Executive Director. Gill worked for Accenture for 27 years, latterly as Chief Leadership Officer. Most recently, she spent five years as Director General in the UK government's Cabinet Office and as Head of the Civil Service Capability Group. Judith Hanratty stood down from the Board in 2011 after nine years' service. I would like to thank Judith for her substantial contribution to the development of the Group and to wish her well for the future.

Corporate governance

The Board is committed to high standards of governance. The Board provides leadership for the Group and is responsible for setting strategy, monitoring performance and ensuring that the necessary resources are in place to meet our objectives.

I would like to point to several areas which the Board chose to emphasise in its work during 2011. The first was the selection of our new Group Chief Executive Officer, a comprehensive process that we undertook with the assistance of a leading executive search firm. Following on from that, the Board spent a considerable amount of time on the development of the Group's strategy. This was a process led by the new Group Chief Executive Officer but subject to extensive debate and challenge at Board level. In addition, the Board spent an increased amount of time on the identification and management of risk during 2011. This is of course a continuing effort but the environment over the last four years has meant that risk management in the Group is subject to significantly increased scrutiny by the Board.

I am satisfied that our Board has a broad and diverse range of complementary skills and specialised knowledge, which enables us to achieve high standards of corporate governance.

Current Trading and Outlook

Overall trading for the year to date has started satisfactorily. We believe that the Group is well positioned to capitalise on its position as a leading provider of professional services to the insurance market. We have a clear strategy for delivering profitable growth and are implementing initiatives to drive down debt and improve the Group's cash flow, which are already showing real signs of progress. I am confident that the business will perform well despite the difficult economic environment.

2011 has been a year of positive change and development at Charles Taylor. This progress has been achieved by the hard work and commitment of everyone in the Group in continuing to deliver the excellent standards of professional services to our clients on which our reputation is built. I would like to offer all staff my sincere thanks for their efforts over the year.

Rupert Robson

Non-Executive Chairman

22 March 2012

Group Chief Executive's Report

Since joining the Group in July 2011, my belief that Charles Taylor is a fundamentally strong business, offering significant growth potential, has been reinforced. It has high quality businesses with longstanding client relationships and a skilled and committed professional staff. It is equally clear the Group has not realised its full potential in recent years, which has held back returns for shareholders. I am fully committed to reversing this trend, delivering real business growth and increasing shareholder value.

Business strategy

Our new business strategy sets out how we will identify and capture growth for our core Professional Services businesses, which comprise Management Services, Adjusting Services and Insurance Support Services. We have also decided upon our approach to our Insurance Company Run-off businesses.

Professional Services business: Our core business is providing highly technical, specialised professional services to the insurance market. We already enjoy leadership positions in a number of our business areas, notably mutual insurance management, larger and more complex insurance adjusting, claims management and outsourced insurance services in the Lloyd's market. We have also established strong niche offerings in other related professional services, but these are still being developed.

Strategic approach: Our strategic approach is to seek organic growth by capitalising on our areas of strength through offering related services to our clients, building our niche businesses to leadership positions, and by realising the significant, unrealised potential for cross referral and joint working across the Group. We are well positioned for organic growth and believe the demand for the professional services offered by the Group is substantial. We will also consider longer-term strategic options to enter new insurance-related professional services business lines.

Run-off strategy: The market for the acquisition of closed non-life insurance businesses is highly competitive. Further, we do not appear to have any competitive ownership advantages over other market participants. As a result we have decided not to acquire further non-life businesses. We do, however, believe that we have a competitive advantage in acquiring and operating niche offshore life run-off businesses, thereby creating value for the Group, and we will to continue to seek out such opportunities.

Implementation: We have already started initiatives in each of our businesses focused on capturing attractive growth opportunities. We have strengthened the leadership of the Group with the creation of an Executive Committee, the appointment of Alistair Groom and Joe Roach as Co-Heads of the Management Services business and the formation of a new senior leadership team in our Adjusting Services business. Recognising we are a people business, we are continuing to invest in talent management to recruit and retain top professionals and to develop the next generation. We have started to drive down debt through a more robust and effective approach to billing and cash collection in our Adjusting Services business. This is having a positive effect on the Group's working capital.

Corporate identity: We are introducing a new global corporate identity for the Group and the new look and feel of this report is the first step in articulating and demonstrating this identity, which creates a single consistent identity for all our businesses. It will help us to project a strong and cohesive image to the market and support our drive to increase joint working and cross-referral across the Group by emphasising the synergies between our businesses. We are also proposing to change the Company's name to Charles Taylor plc from Charles Taylor Consulting plc at the AGM on 15 May 2012.

Business reporting: To ensure the Group is presented in a clear and unambiguous manner we are reorganising the way we describe and report on our Management Services and Insurance Support Services businesses. With effect from January 2012 our Management Services businesses delivers our end-to-end business management services for insurance companies while the Insurance Support Services business provides professional services which our clients can access on a stand-alone basis, such as outsourced claims management. This involves moving our investment management, captive management and specialty risk businesses from Management Services to Insurance Support Services.

The businesses are now being managed in line with this new structure which is reflected in the business model and strategy sections of this report. IFRS requires us to present the business review for 2011 on the previous structure. We will start reporting our statutory numbers on the new basis from 2012.

2011 performance

Professional Services

The Group's Professional Services businesses delivered overall revenue up 3.6% to £101.4m (2010: £97.9m) and operating segment profit up 3.9% to £11.6m (2010: £11.2m).

The Management Services business increased revenue by 3% on the year but operating segment profit reduced to £6.3m (2010: £7.0m). We earned increased fees from our mutual insurance company clients but profits were impacted by increased costs against budget and difficult market conditions for our captive management and specialty risk businesses.

The Adjusting Services business delivered a strong result in 2011 with total revenue up 6% on the previous year at £50.0m (2010: £47.0m) and operating segment profit up 25% at £5.7m (2010: £4.6m). This was driven by a good performance in energy and marine and an upturn in aviation, while Non Marine delivered a result slightly down on 2010.

The Insurance Support Services business's total revenue was slightly down on the previous year at £12.0m (2010: £12.7m) and overall the business made an operating segment loss of £0.3m (2010: £0.2m loss). This was principally due to the non-life run off servicing business not being successful in winning new business. Despite this, good progress was made in 2011 with a solid improvement in the performance of a number of our service areas. In particular, the former Axiom business, acquired by the Group as a loss making business in 2009, renamed Charles Taylor Insurance Services, and absorbed into the Insurance Support Services business, delivered an operating profit in 2011. We will build on this progress in 2012 by implementing our plans to deliver profitable growth.

Insurance Companies Run-off

The business delivered an overall operating segment loss of £0.7m (2010: profit of £5.4m). This had a negligible impact on earnings per share because the results were largely attributable to third parties. The life insurance business performed profitably and we successfully completed the acquisition of another closed life business, Alico Isle of Man Limited. We expect to be able to pay down the debt used to finance this acquisition later in 2012 when its consolidation into our existing life company generates cash. The non-life insurance businesses made a loss and we have decided to make no further acquisitions in this sector.

Balance Sheet

We have a clear balance sheet focus and have taken a number of important steps to further strengthen our position. These include improving our working capital, by reducing debt and by capping the Group's obligations to pay deferred consideration to the original vendors of specific run-off insurance companies owned by the Group.

The liabilities of our defined benefit pension schemes have risen over the year, principally as a result of lower discount rates. The Bank of England's Quantitative Easing programme has driven down yields on gilts and high quality corporate bonds, which are used to measure the scheme's liabilities. Having previously closed all our defined benefit schemes to new members, we closed the largest scheme to future accrual from 1 July 2011. We have recovery plans in place for these scheme deficits.

Our good performance from Professional Services and robust debt reduction initiatives have had a positive impact on our balance sheet and we believe we can deliver the Group's new business strategy from within our existing financial resources.

Outlook

I firmly believe that the Group is well positioned to achieve long term organic growth from our core professional services businesses and to make shorter term opportunistic gains from the acquisition of offshore life insurance companies in run-off. While our full organic growth potential will take time to be realised, we have already started to implement many of our strategic initiatives and I am excited about the Group's prospects for 2012 and beyond.

David Marock

Group Chief Executive Officer

22 March 2012

Our business model - how we generate value over the longer term

Charles Taylor has a long established business model which delivers reliable revenues through the delivery of professional services predominantly on a fee based model. We also create value through the consolidation and efficient management of run-off insurance companies.

Our business model

We deliver highly regarded professional services to the global insurance market…

We deliver professional services to clients in the global insurance market. The Group offers services across the whole insurance company value chain and operates through three Professional Services businesses: Management, Adjusting and Insurance Support Services. Our principal services are the end-to-end management of mutual insurance companies, the adjusting of large and complex insurance claims, and the provision of outsourced technical insurance services to clients worldwide. We also own and provide professional services to insurance companies which are closed to new business.

…by highly experienced, technically excellent staff

Our services are usually highly technical and specialist in nature and we differentiate ourselves through the quality of our people, their professional expertise, and their commitment to service excellence. Many of our professional staff are graduates or hold professional qualifications. Our senior employees also offer superior technical knowledge gained through many years' practical experience.

…through offices located where our clients need us

Insurance is a global business and we have offices strategically located around the world to be near where our clients are based and to be able to provide our services where they are required. We have almost 900 staff in 47 offices spread across 23 countries in the Americas, Asia Pacific, Europe and the Middle East.

…with our Professional Services revenue principally provided by fees

We are typically remunerated through professional fees arrangements, which are adapted to suit the differing needs of our different clients. We also create value through the consolidation and efficient management of run-off insurance companies.

…thereby delivering sustainable long term profitable growth and shareholder value

Our shareholders seek sustainable long term returns, and it is our responsibility to ensure that our business model supports this. We aim to increase revenue and profit from our professional services, principally through organic growth.

We are enthusiastic about the potential for long term growth in the market for insurance services. Global trade flows will continue to grow, driving an increasing demand for insurance and the services that support insurers and insureds. We believe that Charles Taylor is embedded within the fabric of the international insurance market and accordingly is well positioned to benefit from these trends.

Our business model is underpinned by our core values:

·; Excellence

We recruit, retain, and develop highly skilled, technically excellent professional staff.

·; Partnership

We have a partnership mind-set and work closely with our clients to deliver mutually beneficial outcomes.

·; Quality

We have a genuine pride in delivering high quality work. We live by our reputation in professional services and it is this focus on quality which underpins our offering to clients.

·; Support

We work within a supportive, collegiate culture across the Group.

Our Professional Services businesses

Management Services

The Management Services business provides end-to-end management of insurance companies.

We deliver a complete outsourced management service covering every aspect of the companies' operations from the management of underwriting and claims, the provision of regulatory, accounting and administrative operations, corporate governance and company secretarial services.

Adjusting Services

The Adjusting Services business provides loss adjusting services across four main sectors: energy, marine, aviation and non marine along with average adjusting services for ship owners.

The business primarily focuses on larger and more complex commercial losses arising from major insured incidents and claims.

Insurance Support Services

The Insurance Support Services business provides professional services which enables our clients to select the specific stand-alone services they require:

·; Outsourced insurance support services

·; Insurance company run-off services

·; Investment management

·; Captive management

·; Specialty risks

Our run-off business

The Insurance Companies Run-off business owns insurance companies which are closed to new business and runs off their liabilities in an orderly manner.

Our business strategy for long term growth

We will deliver growth in revenue, profit and shareholder value by focusing on Professional Services. Our business strategy is to achieve leadership positions in all the Group's Professional Services businesses in which the Group operates and extend the number of insurance services we provide. While our focus is on Professional Services we also seek tactical opportunities to acquire offshore life insurance companies in run-off which we believe will provide near term cash releases.

Developing our business strategy

In 2011 we undertook a review of our business to identify how Charles Taylor would deliver long-term, sustainable growth. The review:

·; evaluated each of our businesses to identify which offered compelling opportunities for growth in its market and whether our business model gave us sustainable competitive advantages over other market participants.

·; consulted with all of the Group's staff to identify opportunities for growth and areas for business improvement.

·; delivered structured business plans for each of our businesses and support teams.

Our vision

Our vision is to become the professional service provider of choice to the global insurance market by:

·; building a substantially larger professional services business in sectors where superior technical skills matter.

·; achieving leading market positions for each of our businesses and expanding into growing economies and markets where we are currently underrepresented.

·; establishing new services and associated revenue sources within our existing business model.

·; capitalising on the opportunities for cross referral and business synergies between our businesses and across our international network.

Professional Services business strategy

We concluded that Charles Taylor has significant competitive advantages in delivering specialist professional services to insurers, their clients and advisers on a worldwide basis. We have now set out our vision and business strategy for delivering sustainable growth.

Our Professional Services business strategy has three key elements:

1. Reinforce the foundations: strengthen the Group's core capabilities and support services to underpin growth.

2. Create growth in the core Professional Services businesses: achieve leadership positions in all the Group's businesses and develop new, closely-related, insurance services.

3. Explore medium term strategic options: develop new professional services business lines, organically, through joint ventures or through M&A opportunities.

Reinforce the foundations

Charles Taylor isfundamentally a people business; we have a high quality, technically excellent professional staff with a strong ethos of service to our clients. Underlying our strategy is a belief in developing our staff and providing a supportive environment which allows entrepreneurial ideas to flourish.

We will reinforce our business management structures to provide the right conditions to deliver growth. Our business plan initiatives focus on the following key strategic initiatives: People, Leadership, Joint working and Business development & marketing.

Create growth in the core Professional Services businesses

Charles Taylor has a strong Professional Services business, providing a full range of services in all areas of the insurance value chain, and benefiting from long-standing, loyal client relationships.

We enjoy market leading positions in a number of our business areas and have strong niche offerings in other related professional services. Our strategic approach is to seek organic growth by building our niche businesses into leadership positions and capitalising further on our areas of strength by offering new and expanded services to clients of those businesses.

We have adopted a clear approach to identifying opportunities for growth in our business plans. The most straightforward is to deliver more of our existing services to existing clients, through greater marketing, increased joint working and cross-referrals. We have also identified opportunities to develop new related services for existing clients and sell existing services to new clients.

Explore medium term strategic options

We believe that organic growth offers the best potential for development. However we will also consider other opportunities to deliver medium term sustainable growth. These may include developing new professional services for the insurance market, exploring joint ventures to extend our service offering and the consideration of well-targeted, M&A opportunities. We will only take initiatives forward where we are confident that they will be a good fit strategically, culturally and financially.

Our run-off business strategy

Our primary focus is on building our Professional Services business. However, we have also adopted a new strategic approach to run-off, which will capitalise on opportunities in the offshore life insurance run-off sector and reduce our exposure to non-life insurance run-off sector.

Offshore life run-off

UK offshore life insurance companies were primarily established in the Channel Islands and Isle of Man to provide investment, savings, life insurance or critical illness cover to individuals in a tax efficient manner. A number of these offshore life businesses have been closed and placed into run-off. Through our Isle of Man business, we own one of the few offshore life aggregators actively making acquisitions. We are thus well positioned in this market where potentially attractive opportunities appear likely. So, we will continue to seek such acquisitions.

Non-life run-off

Following a review of our competitive position in the non-life run-off market, we have concluded that we do not appear to have any competitive ownership advantages over other market participants. As a result we have decided not to acquire further non-life businesses. We will continue to run off the insurance companies owned by the Group, while also exploring other options available to us.

We do, however have an excellent reputation and strong service capability in managing life and non-life insurance companies through our Insurance Support Services business and we will continue to provide these services as part of our Insurance Support Services business.

Professional Services review

Charles Taylor's three Professional Services businesses, Management Services, Adjusting Services and Insurance Support Services delivered revenue up 3.6% to £101.4m (2010: £97.9m) and operating segment profit up 3.9% to £11.6m (2010: £11.2m).

The Management Services business delivered a solid performance, our Adjusting Services business delivered a good performance and the Insurance Support Services business made important steps towards achieving profitability.

Professional Services performance 2011

This review reports on the performance of the businesses in 2011 on the same basis as previous years, that is, before the move of investment management, captive management and specialty risk businesses from the Management Services to the Insurance Support Services business in 2012.

Management Services business

The Management Services business provides end to end insurance management services to our insurance company clients.

We deliver a complete outsourced management and operational service to our mutual insurance company clients, reporting directly to their independent boards of directors. This covers every aspect of the companies' operations from underwriting, claims management and delivery of safety services to regulatory, accounting and administrative operations, investment management, corporate governance and company secretarial services.

The mutuals we manage are the Standard Clubs, Signal and SCALA.

This review includes those insurance services that have been within Management Services but which are moving to Insurance Support Services in 2012: investment management, captive management and specialty risks.

The business employs 241 staff and operates from offices in Europe, Asia and the Americas.

Key points

·; Revenue up by 3% to £39.4m.

·; Operating segment profit down 11% to £6.3m due to higher costs, principally in meeting more stringent regulatory requirements for the Standard Clubs, and a difficult market for our captive management and specialty risk businesses.

·; Growth of underlying businesses of mutual insurance company clients along with associated fee income.

·; Successful restructure of the five Standard Club entities into two principal underwriting entities to mitigate the impact of increasing regulatory requirements.

·; Robust Signal performance with 13 new members representing $185m additional payroll p.a..

·; Lower revenue and profit from SCALA.

·; Investment management business performed well.

Our mutual management businesses had a busy year, securing important new members for our mutual insurance company clients, responding to regulatory change, delivering effective underwriting performance, promoting safety services and managing significant insurance claims.

We are remunerated by fees to manage the mutual insurance companies. Growth in the size of the mutuals, the number of services we deliver and the volume of work generally lead to growth in management activities and hence the level of management fees. Our margins are affected by our activities during the year. At times we need to invest additional resources to meet our clients' requirements which increases our expenses and reduces margins, while conversely delivering our services more efficiently against the management budgets increases our return. Increased on-going expenses are factored into subsequent fee negotiations, and in effect are investments in growth which is reflected in future years' fee income.

Overall the Management Services business delivered increased revenue of 3% on the year as a result of increased fee income from our clients. Operating segment profit was reduced at £6.3m (2010: £7.0m) as a result of higher costs, principally in meeting more stringent regulatory requirements, for the Standard Clubs, and a difficult market for our captive management and specialty risk businesses.

The Standard Clubs provide protection and indemnity insurance to over 9% of world shipping. We have managed the clubs for 126 years, delivering increased membership and a strong underlying performance. Ship owners are attracted by the clubs' financial strength and quality reputation and at the end of the 2011 policy year, insured gross tonnage had grown to 131g mt up from 121g mt in 2010. A significant project in 2011 involved restructuring the five club entities into two principal underwriting entities - Standard Europe and Standard Asia, to limit the impact of increasing regulatory requirements and the demands of the EU's Solvency II Directive.

Signal is the largest provider of Longshore workers' compensation insurance to the US maritime industry and has been managed by Charles Taylor since it was founded. The performance of the mutual remained robust in 2011. Growth in payroll reported by the members to Signal is an effective measurement of growth and in 2011 this increased by over 8% from $2.3bn p.a. to $2.5bn p.a. The mutual also saw strong new business growth with 13 new members joining in the 2010/11 membership year, representing $185m p.a. additional payroll. The 2011/12 year has also started strongly for new business.

SCALA provides workers' compensation cover to the majority of Canada's ship owners. In 2011, this business delivered slightly lower revenue and profit than 2010.

Other management services. The investment management business performed well, but the captive management and specialty risk businesses found trading conditions difficult. Demand for new captive insurance companies was slow due to adverse market conditions. We saw a slight improvement in our risk management business and our coverholder business launched new niche insurance products, albeit these delivered limited revenue in 2011.

Adjusting Services business

The Adjusting Services business provides loss adjusting services across four main sectors: energy, marine, aviation and non marine and average adjusting services for shipowners.

The business focuses on larger and more complex losses arising from major onshore and offshore energy incidents, maritime casualties, aircraft losses, large infrastructure losses, financial institution frauds and other property and casualty losses.

The Adjusting Services business employs 372 staff and operates from offices in Europe, Asia, the Middle East and Americas.

Key points

·; Revenue up 6% to £50.0m.

·; Operating segment profit up 25% to £5.7m.

·; Driving down debt initiative achieves progress.

·; Strong energy adjusting performance winning good share of offshore energy losses.

·; Marine adjusting achieved high caseloads.

·; Aviation adjusting delivered increased revenue and profits.

·; Non Marine result slightly down on 2010.

The Adjusting Services business maintained a high overall level of quality instructions in 2011, being appointed on a number of the largest energy losses in the world in 2011. It delivered a strong result driven largely by the good performance in energy adjusting, supported by a good marine performance and an improved performance from aviation loss adjusting. Total revenue was up 6% on the previous year at £50.0m (2010: £47.0m) and operating segment profit was up 25% at £5.7m (2010: £4.6m).

High levels of work in progress (WIP) and slow payment of fee invoices are issues that affect many loss adjusting businesses which handle large and complex losses, particularly in the international insurance markets. The early indications are that our initiatives to drive down working capital requirements in the business with more rapid invoice issuing, coupled with faster cash collections, are delivering results. Working capital management will remain an important focus throughout 2012.

Energy adjusting: Energy adjusting delivered a good performance in 2011, winning a good share of offshore energy losses and making important progress in growing its onshore energy business. In particular, major new instructions were secured following losses in the North Sea, Canada and Nigeria.

Marine adjusting: Marine adjusting achieved a good result in 2011, against a background of difficult shipping market conditions. The business is made up of one of the largest average adjusters in the world and it also achieved high caseloads in its marine loss adjusting business, particularly in the UK and Asian offices, and in its ports and terminals business.

Aviation adjusting: Aviation adjusting had a good year, delivering increased revenue and profits. The business is seeking growth from regions where major aircraft fleets are based, including Asia and the Middle East, where the volume of claims is growing. The small aviation asset management business, which forms part of the aviation adjusting business also delivered an improved performance after a disappointing 2010.

Non Marine adjusting: Non Marine delivered a result slightly down on 2010. The London-based financial institutions group had a strong year, winning a high volume of claims resulting from fraud and commercial crime cases. Overall business from property and casualty losses was down, largely as a result of difficult global economic conditions, which is believed to have reduced claims volume in the sector.

Insurance Support Services business

The Insurance Support Services business provides professional support services to clients in the Lloyd's, London and international insurance markets. It delivers services to more than half of all Lloyd's managing agents.

It also delivers our non-life and offshore life run-off servicing services from London, Dublin and the Isle of Man. The business is the leading provider of third party life insurance administration on the Isle of Man.

This review does not include the other management services that are moving from Management Services in 2012: investment management, captive management and specialty risks.

The business employs 130 staff and operates from offices in the UK, Isle of Man and Republic of Ireland.

Key points

·; Revenue down 6% to £12.0m.

·; Operating segment loss worsened by 41% to £0.3m.

·; Good progress in insurance outsourcing.

·; Strong revenues from static claims contract.

·; Higher levels of staff utilisation and lower expenses in London outsourcing office.

·; Poor performance in non-life run-off servicing addressed.

·; Life run-off servicing expected to benefit from Alico acquisition.

The Insurance Support Services business produced total revenue slightly down on the previous year at £12.0m (2010: £12.7m) and overall the business made an operating segment loss of £0.3m (2010: £0.2m loss). This was principally due to the non-life run-off servicing business not being successful in winning new business. Despite this result, good progress was made in 2011, with a solid improvement in the performance of a number of our service areas. In particular, the former Axiom business, acquired by the Group as a loss making business in 2009, renamed Charles Taylor Insurance Services and absorbed into Insurance Support Services, delivered an operating profit in 2011. We will build on this progress in 2012 by implementing plans to deliver profitable growth through initiatives such as expanding our claims management services, further developing our coverholder management services and launching new services for Managing General Agencies.

Managed claims services: Our managed claims services delivered a notable performance, with strong revenues from our remit to review static claims for the Lloyd's market, which commenced in April 2011.

Coverholder services: Our outsourced support services provision for underwriters and brokers was ahead of budget and is generating positive interest in its services from the market.

Financial reporting service: We are the largest and longest established provider of outsourced accounting services to Lloyd's managing agents and corporate members of Lloyd's. After a weaker performance in 2010, this business was ahead of budget in 2011.

Non-life run-off servicing: Non-life run-off servicing had a poor year in 2011, with high business management costs and a disappointing new business record. We have now taken action to reduce management costs. We will continue to seek profitable non-life run-off servicing contracts in 2012.

Offshore life run-off servicing: Our offshore life run-off servicing operation in the Isle of Man had a solid year, in line with 2010. We anticipate that the business will benefit from increased servicing revenues in 2012 following the acquisition of Alico Isle of Man by our Insurance Companies Run Off business.

Insurance Companies Run-off review

The Insurance Companies Run-off business owns life and non-life insurance companies which are closed to new business and runs off their liabilities in an orderly manner. It is supported by our Insurance Support Services business, which provides it with run-off servicing.

The business owns a life insurance company in the Isle of Man which acquires and integrates UK offshore life insurance companies in run-off. It enjoys a strong market position, being one of the only offshore life businesses capable of acquiring these businesses.

It also owns two non-life insurance companies in the UK, and one non-life company in the Republic of Ireland.

Key points

·; Revenue down 6% to £3.6m

·; Operating segment profit down 112% to loss of £0.7m.

·; Life insurance business performed solidly.

·; Successful completion of Alico Isle of Man Limited acquisition.

·; Liability to deferred consideration successfully capped.

·; Non-life businesses experienced adverse claims developments.

·; The Group will not seek further non-life run-off acquisitions.

The Insurance Companies Run-off business had a mixed year in 2011. The life insurance run-off business performed solidly, albeit less so than in 2010, while the non-life insurance run-off businesses made an overall loss. In total, the business delivered a small operating segment loss of £0.7m (2010: operating segment profit of £5.4m). However, this had a negligible impact on earnings per share in either 2011 (0.08p) or 2010 (0.43p) because the operating results are largely distributed to non-controlling interests.

During the year, we reached agreement with the original vendors of one of the non-life businesses and the life business to simplify the basis of their entitlement to deferred consideration and make it entirely contingent on the cash flows from the life business after any further acquisition costs. The maximum amount potentially payable under the new agreement is capped at £8.0m and the total deferred consideration liability including sums to which other third parties are entitled on a contingent basis is now £9.3m (2010: £10.5m).

The Group will continue to seek opportunities to acquire closed offshore life insurance companies, but will not acquire further non-life businesses.

The life run-off business on the Isle of Man continues to operate profitably. In November we completed the acquisition of Alico Isle of Man Limited, which provides investment life insurance products and was closed to new business in 2008. We have rationalised its operations by integrating its management into our insurance services business and are in the process of transferring the life business into our life run-off insurance company. The acquisition had little impact on 2011 results as it occurred so late in the year.

The non-life run-off businesses made an overall loss for the year. Their fourth quarter results experienced a variety of adverse developments and Cardrow suffered a number of small losses mainly attributable to legal costs concerning third party personal injury claims.

Finance Director's Report

Results

The results for the year are summarised in the following table and explained in more detail in the Professional Services review and the Insurance Companies Run-off review (see also notes 2 and 3).

The main reason why adjusted profit before tax was significantly lower than 2010 was that, as expected, the large insurance run-off profits generated in 2010 by Cardrow, the motor insurer, did not recur. The impact of this on earnings per share was minimal because of the large non-controlling interests in Cardrow. Adjusted earnings per share reduced by 10% because of a higher tax charge in the Professional Services businesses, resulting primarily from deferred tax differences.

These adjusted financial measures exclude material non-recurring items and acquired customer relationship intangible charges. The adjustments were as follows:

Statutory profit before tax was £6.4m (2010: £12.5m). The £6.1m difference compared to 2010 represents the large movement in Insurance Run-off profits (2011: £0.7m loss, 2010: £5.4m profit), which, as explained above, had little impact on earnings per share. The difference between statutory profit before tax and adjusted profit before tax is explained as follows:

Net debt, cash flow and financing

Net debt reduced by £2.3m over the year, with the rate of reduction accelerating in the second half. This largely reflects the implementation of plans to improve the Adjusting Services business's working capital through focusing on raising invoices more rapidly, improving debt collection processes and benefiting from the capabilities available through our Insurance Support Services business.

Net debt includes £2.4m borrowed to finance the acquisition of Alico Isle of Man Limited, which is expected to be repaid in 2012 following court approval of the business transfer into our Life Run-off insurance company.

Free cash flow for 2011 was £7.9m (2010: £10.9m). The reduction in free cash flow largely arose in the first half of the year, when, as explained in our interim report, Adjusting Services accrued income (that is unbilled work in progress) increased by £2.2m. Billing and collection of fees were a strong focus of attention for the second half and our initiatives had a very positive impact over that period. Adjusting Services cash collections were much more successful in the second half of the year (H2: £31.2m; H1: £26.9m), but were still £1.8m below 2010 for the year in total. Another factor is that the closed life insurance business released less cash in 2011 (£1.8m) than in the prior year (£2.2m). 

The Group's principal banking facilities were agreed in January 2009 for a five-year term and outstanding senior term debt at year end was £16.0m. The Group also has £12.0m of senior revolving credit facilities for general corporate purposes, £10.0m of committed overdraft facilities in the UK and £6.8m of overseas facilities. Total headroom on committed facilities at year end was £4.9m (2010: £7.0m). Interest rates are mostly linked to three-month LIBOR plus margins of 1.75-2.5%. The Group entered into an interest rate swap in early 2009 which fixes LIBOR at 2.96% on the loan finance for the five-year term.

Retirement benefit schemes

The retirement benefit obligation in the Group balance sheet at 31 December 2011 was £34.8m, compared to £24.5m at the previous year end and £24.2m at 30 June 2011. The principal cause of this significant increase is the lower discount rate used. The discount rate was 4.7% at 31 December 2011 compared to 5.4% at the previous year end and 5.3% at the half year. The discount rate is derived from market yields at the balance sheet date. There are multi-year programmes in place to recover pension scheme deficits fully on a regulatory funding basis and funding costs are reflected in management fees charged by the Group where appropriate. The Charles Taylor & Co Ltd Retirement Benefits scheme, which represents 74% of the total balance sheet deficit, was closed to future service accrual from 1 July 2011. Employer contributions in the year were £3.0m (2010: £2.9m) compared to current service cost of £0.5m (2010: £0.8m).

Dividends

The proposed final dividend for 2011 is 6.75p (2010: 10.00p) so that the total dividend for the year is 10.00p, the same as the full year 2010 dividend.

Foreign exchange

The Group manages its exposure to foreign currency fluctuations by the use of forward foreign exchange contracts and options to sell currency in the future. The contracts open during the year and at the year-end were to protect the Group's exposure to movements between £ sterling and the US$, the Singapore $ and the Canadian $.

The US$ profits of the Group were translated at 1.60 in 2011 (2010: 1.55). Results were not materially affected by movements in exchange rates between 2010 and 2011 since a stronger US$ was offset by the weakening of other currencies, especially the Australian $ and Singapore $.

Taxation

During 2011, the effective tax rate on statutory profit was 28.4% (2010: 15.2%). The Group's tax charge for the year consists of two main elements: the tax charge on UK and overseas profits and deferred taxation relating to the recognition and use of deferred tax assets by the Group. A much smaller value of new deferred tax assets was recognised in 2011 than in 2010, both as the expected future utilisation of UK tax losses increased less in 2011 than in 2010 and because the benefit of US tax deductions relating to historic acquisitions has now been recognised in full. The net deferred tax credit in 2011 was £0.1m (2010: £1.2m). The underlying tax rate, which is calculated on adjusted profit and excludes prior year tax adjustments and the recognition of new deferred tax assets, was 18.5% (2010: 19.9%).

George Fitzsimons

Finance Director

22 March 2012

FINANCIAL STATEMENTS

Consolidated income statement

Adjusted earnings per share figures are shown in the consolidated financial highlights on page 1.

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

The financial statements were approved by the Board of directors and authorised for issue on 22 March 2012.

George Fitzsimons

Director

22 March 2012

Cash Flow Statement

Consolidated Statement of Changes in Equity

The capital reserve and merger reserve arose on formation of the Group and are non-distributable capital reserves.

Own shares relate to shares held by the Charles Taylor Employee Share Ownership Plan Trust ("ESOP"). There were no such shares held at 31 December 2011. At 31 December 2010 86,655 such shares were held and the market value was £144,281.

The trustee of the ESOP is the Codan Trust Company Limited, an independent professional trust company registered in Bermuda. The ESOP is a discretionary trust for the benefit of employees of the Group and provides a source of shares to distribute to the Group's employees (including executive directors and officers) under the Group's various bonus and incentivisation schemes, at the discretion of the trustee acting on the recommendation of a committee of the board.

The assets, liabilities, income and costs of the ESOP are incorporated into the consolidated financial statements.

There are no significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances other than company law requirements dealing with distributable profits, and in the case of the insurance companies regulatory permissions and solvency limits.

Notes to the financial statements

1. Accounting policies

Basis of accounting

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2011 or 2010, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the Company's Annual General Meeting.

The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498 (2) or (3) Companies Act 2006.

2. Segmental information

Identification of segments

For management and internal reporting purposes the Group is currently organised into four operating businesses whose principal activities are as follows:

·; Management Services business - mutual management, captive management, investment management and specialty risk management.

·; Adjusting Services business - energy, aviation, non marine and marine (including average) adjusting.

·; Insurance Support Services business - non-life and life insurance support services.

·; Insurance Companies Run-off business - non-life and life insurance companies closed to new business.

As noted in the Chief Executive's Report, captive management, investment management and specialty risk management will be reported as part of Insurance Support Services from 2012 onwards.

Management information about these divisions is regularly provided to the Group's chief operating decision maker to assess their performance and to make decisions about the allocation of resources. Accordingly, these businesses correspond with the Group's operating segments under IFRS 8 "Operating Segments". Businesses forming part of each business which might otherwise qualify as reportable operating segments have been aggregated where they share similar economic characteristics and meet the other aggregation criteria in IFRS 8.

In the Management Services business, a higher proportion of revenue arises in the second half of the financial year. There is no significant seasonality or cyclicality in the other businesses.

Measurement of segmental results and assets

Transactions between reportable segments are accounted for on the basis of the contractual arrangements in place for the provision of goods or services between segments and in accordance with the Group's accounting policies. Reportable segment results and assets are also measured on a basis consistent with the Group's accounting policies. Operating segment profit includes an allocation of central costs across the four businesses and excludes non-recurring adjusting items. Reconciliations of segmental results to the Group profit before tax are set out below.

Information about major customers

The Group derived revenue of £23.3m (31 December 2010: £20.5m) from one external customer which accounts for more than 10% of Group revenue, and is included within the Management Services business.