GAH.L Regulatory News (GAH)

25 May 2016

Gable Holdings Inc.

Trading update

Potential related party transaction

and

Strategic review

Further to its trading update of 31 March 2016, the Board of Gable Holdings Inc. ("Gable" or the "Company") announces:

- Following receipt of new information, a £6 million provision against an ATE insurance policy receivable which will significantly impact the Company's results for the year ended 31 December 2015 (previously indicated as being a pre-tax loss of between £7 million and £8 million);

- An in principle agreement with Hogarth Underwriting Agencies Limited (a company wholly-owned by William Dewsall, Chief Executive of Gable) to provide £10 million of capital which will form part of Gable's regulatory capital;

- Gable continues to enjoy high levels of policy renewals and strong organic growth. A tight control over financial controls has led to enhanced cash collections and cash and short term investment balances currently exceed £70 million having stood at over £60 million as at 31 December 2015; and

- A full strategic review of the Company's business and structure in the context of the transitional provisions of Solvency II, which is likely to result in a fundamental restructuring of Gable

ATE insurance policy provision

In relation to the Company's results for the year ended 31 December 2015, which are shortly to be announced, the Board of Gable has recently received information relating to a specific ATE insurance policy under which Gable was entitled to receive a proportion of the damages awarded to the plaintiff estimated at £7.9 million. In the light of this information, the Board has concluded, with the support of its auditor, that it is prudent to provide for £6 million of the receivable balance. 

Recognition of the share of damages was made in 2012 following the successful award of damages in favour of the plaintiff (and therefore by extension Gable). The amount recognised was calculated at a significant discount to Gable's contractual share of the estimated total damages. Without the plaintiff referring the matter to Gable for consent as required under the terms of the ATE policy, the plaintiff and defendant reached an out of court settlement and Gable has recently discovered that this settlement is for a significantly lower value than that awarded on an interim basis by the US courts. Whilst Gable intends to dispute the legality of this out of court settlement, which may therefore result in Gable recouping some of the provision by securing its own damages award for breach of contract, Gable will make the £6 million provision against this receivable in its accounts for the year ended 31 December 2015. This will increase the anticipated loss before tax of the Company for the year ended 31 December 2015, which was previously indicated as being in the range of £7 million to £8 million.

This does not have an impact on the Company's strong underwriting performance for the year ended 31 December 2015 or the Company's cash and liquid investment balances at the period end. 

Related party transaction with Hogarth Underwriting Agencies Limited ("HUAL")

The Company further announces that it has reached an in principle agreement with HUAL to provide £10 million of capital to Gable's regulated subsidiary Gable Insurance AG ("GIAG") which will form part of GIAG's regulatory capital and which shall exist until the earlier of 31 December 2016 or the conclusion of the strategic reorganisation described below. 

HUAL is wholly owned by William Dewsall, Chief Executive of Gable, and acts as an insurance intermediary for the Group's UK construction account and routinely collects premiums and settles claims under a delegated authority from Gable. Accordingly, pursuant to Rule 13 of the AIM Rules for Companies such a guarantee will, once entered into, constitute a related party transaction.

Therefore, the independent directors of Gable are consulting with its nominated adviser Zeus Capital Limited to ensure that the terms of the transaction are fair and reasonable insofar as its shareholders are concerned. A further announcement will be made in due course.

Strategic review

The transitional provisions of Solvency II provide insurers with a two year transitional period ending 31 December 2017 in order to comply with Solvency II's new rules, including enhanced capital requirements. Gable has undertaken an extensive review of the implications on capital requirements under the Solvency II regime in conjunction with its actuarial advisors, Grant Thornton.

The new capital requirements are determined through a risk based analysis of expected future gross written premiums. As Gable writes small niche lines of business its Solvency II capital calculation does not receive material benefits from diversification of risk and this together with the rapid growth profile of the business leads to a capital requirement which is a multiple of that under Solvency I. Gable's own capital base is also risk weighted under Solvency II with certain material balances such as deferred acquisition costs (amounting to some £13 million) being disallowed under the new rules.

Having completed this assessment, the Board has concluded that raising sufficient additional capital for full Solvency II compliance is not possible for the existing business, its growth profile and structure as Solvency II appears to be incompatible with small niche European insurance business models.

Accordingly, the Board of Gable announces that it has commenced a full strategic review of the Company's business and operations. The Company has entered into discussions with a number of different parties, and is also maintaining a regular dialogue with its regulator the FMA in Liechtenstein, as regards the range of potential options open to the Company. At this stage, no firm conclusions have been reached, but the exercise is expected to lead to a fundamental restructuring of the Gable business. The Board has not restricted its considerations in any way and has not ruled out the potential sale of the Company as a whole or the disposal of a substantial proportion of the Company's trade and assets. Whilst the Board of Gable is encouraged by the range of available options and level of third party interest being shown in these, as well as the support of the FMA, there can be no certainty at this stage as to the outcome of these discussions and a further announcement will be made in due course, as appropriate.

Enquiries:

About Gable Holdings Inc.

Gable is a European non-life insurance company underwriting a comprehensive range of specialist policies for the commercial sectors in the UK, Denmark, France, Germany, Italy, Norway, Spain and Sweden. Gable benefits from a low-cost online underwriting platform and the Company has continued to successfully grow its business geographically whilst simultaneously exploiting a range of niche insurance segments which exist across the EU, which is delivered through the EU passporting mechanism. Gable Holdings Inc is quoted on the London Stock Exchange's AIM market. For further information please visit www.gableholdings.com.