GBGI.L Regulatory News (GBGI)

GBGI Limited

2017 Full Year Results

22 November 2017

GBGI Limited

("GBGI" or the "Company" and, together with its subsidiary undertakings, the "Group")

2017 Full Year Results

GBGI Limited (AIM: GBGI), a leading integrated provider of international benefits insurance, is pleased to announce its full year results for the twelve months ended 30 June 2017.

Financial Highlights

· Strong top line growth, with Gross Written Premiums ("GWP") up 19.4% to $183.5 million (FY 2016: $153.6 million)

· Track record of delivering superior underwriting performance drives higher retention rate, leading to growth in Net Written Premiums ("NWP") of 36.0% to $105.7 million (FY 2016: $77.7 million)

· Total revenues up 24.1% to $134.3 million (FY 2016: $108.2 million)

· Disciplined, consistent underwriting approach continues to be primary driver of profitability; operating income was $13.0 million in the period (FY 2016: $12.0 million). EBITDA was $13.6 million during the period (FY 2016: $12.3 million)

· Proven, profitable business model with profit before tax growing 29.8% to $13.9 million (FY 2016: $10.7 million)

· Strong balance sheet with solvency coverage of 150.4% at 30 June 2017

· Clear benefits from the July 2017 outlook upgrade by A.M. Best, with pathway to further positive changes

· Final dividend proposed of $0.06 per share1, reflecting an effective annualised pay-out ratio of 60% in line with the Company's stated dividend policy

Business Highlights

· Admission to AIM in February 2017, which generated gross proceeds of £32 million for the Group, improved corporate governance environment and overall transparency for commercial benefit

· Ongoing robust sales in the Latin American individual private medical market, offering a strong platform to increase group business and enter new countries in Latin America in FY 2018

· The TieCare International business won its largest-ever group medical insurance account, reinforcing its leading position in the international educational employee benefits segment

· The incorporation of GBG Assist and the acquisition of QHM established new revenue streams for the Group in the international customer service, claims processing and network provider segments

· In October 2017, Cathy Garner was appointed as Global Head of GBGI's Life and Long-Term Disability business, with a remit to drive sales and broaden distribution channels in this profitable vertical product line

· Reorganised management structure in GBGI's Chinese operations; now better positioned to offer high quality product and service offerings

Dividend

The dividend will be paid to shareholders on the register on the record date of 1 December 2017. A copy of the Dividend Currency Election form, which when completed should be sent to Link Asset Services, The Registry, Beckenham Road, Beckenham, Kent, BR3 4TU, can be found on the Company's website www.gbg.com/investors.

The shares will have an ex-dividend date of 30 November 2017 and the dividend is scheduled to be paid on 22 December 2017. The dividend is capable of being paid in sterling rather than US dollars, provided that the relevant shareholder has registered to receive their dividend in sterling under the Company's Dividend Currency Election or registers to do so by the close of business on 1 December 2017.

Change of accounting reference date

GBGI's Board has taken the decision to change its accounting reference date and financial year end from 30 June to 31 December to align its accounting year with the insurance policy year, thereby increasing reporting and management efficiencies. As a result of this change, GBGI's next financial reporting events will be as follows:

· Audited results for the 12 months to 31 December 2017

· Unaudited interim results for the 6 months to 30 June 2018

Thereafter, GBGI will report on a regular biannual reporting calendar based on a 31 December financial year end.

GBGI's CEO, Bob Dubrish, commented:

"I am delighted to report an excellent performance for GBGI's maiden set of annual results since listing on AIM in February this year. We have delivered strong growth in gross written premiums of 19.4% to $183.5 million, whilst remaining focused on writing high risk-adjusted return business and building on our core underwriting heritage and competencies. We have delivered growth of 34% in adjusted2 profit after tax and have declared a final dividend of $0.06 in line with our promises.

"Our ability to profitably grow our book of business is a testament to our flexible, agile, international operating model, which enables us to reach and serve large, underserved niche markets without significant upfront investment. Our strategic partnership with AXA has commenced well and we see this as a positive driver of our new business performance going forward.

"Trading since the period end has continued to be encouraging and in line with our expectations. We look forward with confidence and into the medium term, given the strength of our franchise and the scope we see for growth."

For further information please contact:

Key:

1 The dividend calculation is based on distributable profits of $13.5 million; number of shares in issue of 86,964,195; a 60% payout ratio; and a payment of two thirds as a final dividend.

2 Based on a Profit after Tax of $13.5 million plus $0.4 million of direct IPO related expenses 2017.

Notes to Editors

GBGI is a leading integrated provider of international benefits insurance, operating globally across over 120 jurisdictions. Trading principally as "The Global Benefits Group" or "GBG", the Group distributes and underwrites health, life and disability, and travel insurance, with a client base that spans multinational corporations, expatriates, local HNWIs, international schools, non-profit organisations and international students. GBGI is a fully integrated insurance group providing services from policy sales to claims administration and servicing and is committed to delivering high levels of customer service. GBGI is incorporated in Guernsey.

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement this inside information is now considered to be in the public domain.

Chairman's statement

Overview

I am delighted to introduce the maiden Annual Report and Accounts for GBGI for the year ending 30 June 2017. It has been a landmark year for the Company, having achieved a successful AIM listing in February 2017. This report covers the performance of the Group's pre-listing parent Saxton Lane from 1 July 2016 to 21 February 2017 and GBGI Limited from 22 February 2017 to 30 June 2017. Building on our proven growth track record, the Group grew gross written premiums to $183.5 million for the first time in its history, with revenue for the year growing 24 percent.

This performance has been achieved against the demanding backdrop of preparing the business for its admission to AIM and the consequent transition of the business to comply with the high-governance and ethical standards of the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies.

Over the past year we have delivered a strong financial performance, further strengthening our balance sheet and declaring a maiden dividend.

Progressive change

Reflecting on 2017 I am pleased with the significant strides made by GBGI. We have delivered on our business plans and have continued to distribute and underwrite medical, life and disability, and travel insurance across over 120 jurisdictions worldwide. The completion of our AIM listing earlier this year was a landmark event for the business. The funds raised have improved an already robust capital position, with our solvency coverage ratio standing at 150.4 percent at 30 June 2017 and A.M. Best, the ratings agency, upgrading its outlook on GBGI's Financial Strength rating in July 2017. The positive reputational benefits from the listing have already been felt in terms of commercial momentum.

Strategic and operational evolution

During the year we further diversified our business by risk, product, distribution partner and geography. We expanded our business into the Georgia region, via an investment with a local operator, whilst strengthening origination relationships worldwide. Our strategic reinsurance agreement with AXA, concluded in March 2017, offers both a fundamentally strong risk partner and a commercial arrangement, which will allow us to open up material new growth avenues. Good progress has already been made on this front.

Operationally we have been focused on adapting our business for current and future growth, investing in decentralising operations and augmenting our IT infrastructure to enable operational effectiveness.

Our aim is quite simply to offer the best possible levels of customer service, enabling high retention levels and future referrals from our distribution partners. Controlling our value chain via integrated operations is key and we support our policyholders via a global network of offices providing medically trained 24/7 support.

The Board and governance

The corporate governance environment of the business has undergone significant change during the year, in keeping with the requirements of being public and recognising the size and scope of the business today. In addition to my appointment as Non-Executive Chairman the Group welcomed Anne Gunther, Murray Wood and David Gibson as Non-Executive Directors effective from admission to AIM in February 2017. In July 2017 the Board welcomed Doug Trussler as a new Non-Executive Director and representative of our long term shareholder, Bison Capital.

To better align with our business model, we also have changed the Company's year-end date to 31 December from 30 June. That means our next Annual Report will be due out early in the second quarter of calendar year 2018.

Dividend

The profitability of our business combined with the strength of our solvency position have allowed us to declare a maiden dividend, in line with our stated policy. We have proposed a final dividend of $0.06 for the year to 30 June 2017 and looking forward we intend to adopt a progressive dividend policy.

Outlook

As I close my first financial year as Chairman we are pleased with the significant progress we have made. We are well positioned to build on our momentum as we look forward into 2018. We have a proven business model, strong financial profile and a drive to deliver sustainable growth that is underpinned by prudent underwriting - which gives us confidence in our ability to deliver enhanced shareholder returns for the future.

I would like to thank my fellow board members, the senior leadership team and all colleagues across the business for their contribution to a year of strategic evolution. It is their knowledge, skills and professionalism that delivers for customers and shareholders and it is my privilege as Chairman to work alongside them.

Bill Ward

Non-Executive Chairman

Chief Executive Officer's statement

The year to 30 June 2017 was transformative for GBGI, with the strategic progress made by the business over the years reflected in a successful listing on AIM in February 2017.

The Group has successfully carved out a differentiated niche in the global benefits market, offering the global reach of the multinational insurers combined with the flexibility and customer responsiveness of local brokers and managing agents. This differentiated proposition, underpinned by our international network of distribution partners, has propelled the ongoing growth of the business. We are careful to ensure that the levels of customer service exceed expectations and by operating across the value chain we seek to maintain close control over the service.

Over the past year we have benefitted from our focus on niche markets underserved by our competitors, and remain the only insurer quoted on the London Stock Exchange that derives all of its revenues from the international medical, life, disability and travel insurance markets.

Strong financial performance

Gross written premiums ("GWP") grew 19.4 percent to $183.5 million, driven by moderate rate increases and growth in policy count. An increase in the business we retain on balance sheet, underpinned by our consistent loss ratio track record, drove higher net earned premiums, up 29.3 percent to $91.4 million. Overall net revenues grew 24.2 percent to $134.3 million.

Our commitment to delivering underwriting profit to our reinsurers enabled by the quality of our underwriting operations and data history, led to continued strong insurance profits for the year. With the business growing rapidly we are focused on ensuring the appropriate level of investment in the operational infrastructure of the business. Investment in operations, including in staffing levels and training, led to the expense ratio increasing to 29.6 percent (FY 2016: 28.6 percent). This investment in growth will enable our growth plans to be undertaken from a position of platform strength. EBITDA in the year was $13.6 million, a growth of 10.6 percent during the year. Profit before tax increased 29.8 percent to $13.9 million (FY 2016: $10.7 million). Profit attributable to the Group after tax increased 29.8 percent to $13.5 million (FY 2016: $10.4 million).

Our underlying basic EPS was $0.18. This is a strong performance achieved against a backdrop of the successful IPO project. It is pleasing to deliver good returns for our shareholders whilst allowing for future investment and growth.

A more detailed commentary can be found in the Chief Financial Officer's review on pages 07 to 09.

A landmark year

The year to 30 June 2017 marked a number of important strategic milestones for the business. The Group was admitted to trading on AIM in February 2017. We increased our global reach by adding territories and deepening our operations in existing territories. We built out our managed service offering, a new revenue stream for us, and underpinned our risk profile via our strategic reinsurance agreement with AXA.

Admission to AIM

Our admission to AIM was an important milestone for the business. GBGI was originally founded in 1981. The Group has evolved in this time, growing in a controlled manner and establishing an international footprint without incurring a global fixed cost base.

Obtaining a public listing was important for us on a number of different levels, not least via the £32 million of capital raised to support expansion opportunities, but more fundamentally, as recognition that GBGI is a leader of standing and substance in the international benefits market. The listing has improved our corporate governance procedures and transparency of performance and position, factors welcomed by our regulator, ratings agency and commercial partners. Finally we were able to welcome new shareholders onto the register and I look forward to maintaining a close dialogue with our shareholders going forward.

Maximising our reach

In April 2017 we announced a new strategic partnership with a new Georgia-based insurance company. This new business, JSC Risk Management and Insurance Company, will target corporate insurance sectors both in Georgia and across Central and Eastern Europe. Whilst GBGI is already active in over 120 jurisdictions, we continually assess and conduct due diligence in territories where we are not currently active to determine if it is appropriate for shareholders to allocate resources and capital. I am pleased with the progress made in Georgia and it is a market demonstrating real potential.

In addition to entering new regions we also seek, where appropriate, to maximise opportunities in existing markets. The Group reaffirmed its position in Latin America and the Caribbean as a leader in the IPMI (International Private Medical Insurance) market. In 2017, the Group experienced solid revenue growth and profitability in the region, its largest geographical market.

Building upon our established brand and track record, GBGI has expanded its product footprint, targeting the corporate market in particular. We can clearly see the opportunities for further product and territory penetration in Latin America and we will seek to deliver on these opportunities whilst delivering a consistently high level of service to customers.

New income streams

Extending the product offering also presents a strategic growth opportunity and the Group acquired Quality Health Management (QHM), a Florida-based third party administration (TPA) firm in January 2017, as a complement to its GBG Assist business. The latter was launched in July 2016, providing worldwide customer support with access to assistance on a wide range of medical services, from basic enquiries to emergency medical situations, 24 hours a day and in over 180 different languages. Whilst GBG Assist services Group customers, it also offers its services to third parties under the QHM brand. The business has performed very well in its first year of operation and offers tangible growth opportunities, with low capital input.

Strategic partnership with AXA

In Q4 2016 the business signed a strategic partnership agreement with the global insurer, AXA. AXA is now the sole quota share reinsurance provider for the business.

In addition to a fundamentally sound balance sheet position, AXA also presents GBGI with a number of new business opportunities notably by providing access to fronting arrangements, broadening the Group's footprint.

I'm pleased to report that the partnership has started to yield positive results and is testament to GBGI's standing in the market.

TieCare International

The Group's educational division continued to perform well, cementing its positioning as a market leader in its segment. In the fiscal year, TieCare hit a new high in annual premium ($27.1 million) after completing its largest international school account sale. The division currently works with more than 150 international educational groups, a record for the Group. TieCare works primarily with U.S.-centric international schools, and is planning to redeploy marketing resources to move into additional educational segments and offer a broader product portfolio in 2018.

Benefitting from underwriting excellence

Over recent periods the business has sought to leverage its underwriting approach, agility and proven track record by retaining more of the risk it writes on balance sheet.

In the year to 30 June 2017 we retained circa 84 percent of the medical, life and disability business we wrote. Our underwriting performance is such that this has been a significant driver of profit growth, with our underwriting result contributing significantly to our operating profit.

We are careful to maintain the diversified nature of the book by both distributor and geography and we envisage a stable retention level of 84 percent looking forward.

Commitment to our customers

The foundations of our business have been built on ensuring we always deliver the highest levels of customer service. Our claims services are often needed at times of stress and hardship, and we remain committed to ensuring our customers are supported and cared for wherever in the world they may be. The growth of our in-house GBG Assist operations and our acquisition of QHM are testament to our investment in and commitment to ensuring the best possible outcomes for our customers.

Regulation and compliance

Our view is that the regulatory oversight across all our markets will continue to evolve. We monitor and evolve our risk and compliance activities to ensure we operate effectively and correctly.

Our people

As GBGI has expanded we have welcomed many new colleagues. Our aim is to attract and retain the best talent.

We now have some 302 colleagues and a culture that prioritises diligent, results-driven and collegial working practices. I would like to thank all our colleagues for their efforts during the year and subsequently.

Outlook

As increased globalisation and migration foster the long-term growth of the international benefits insurance sector, we have a number of strategic initiatives in place to build on our position. We see the opportunity to expand our Life and Disability business, and have recently hired a new vertical leader for this product. We continue our expansion plans in the student, travel and short-term medical markets which demonstrate strong demand characteristics. We are very well placed to leverage our flexible international operating base and strong funding position to continue to write profitable business. We approach 2018 and beyond with confidence in our ability to continue to deliver for our shareholders.

Summary

We will continue to enhance our position as a leading provider of global benefits insurance, globally. We start FY 2018 from a position of strength. We have a proprietary network of multi-year relationships with distributors worldwide, proven underwriting capability and performance and the balance sheet strength to grow the business whilst maintaining our dividend policy.

We are continuing to invest in the operations of the business to ensure we can deliver on our growth aspirations in an efficient, compliant manner. Our profitable, cash generative model continues to deliver, giving us confidence in our ability to deliver on our targets.

Bob Dubrish

Chief Executive Officer

Chief Financial Officer's review

Delivering financial performance

This is GBGI's maiden set of annual results since listing on AIM in February this year, and I am delighted to report a strong financial performance and robust financial position from which to grow the business in 2018 and beyond. These results once again demonstrate the excellent progress we have made in developing our business over the years from an agency model through to a full service, integrated insurer writing profitable insurance business across 120 jurisdictions.

Gross written premiums ("GWP") increased 19.4 percent from $153.6 million to $183.5 million, net revenues increased 24.2 percent from $108.2 million to $134.3 million, and our profit after tax was $13.5 million (FY 2016: $10.4 million). We further strengthened our balance sheet in the period, via ongoing profitability and the equity capital raised at the time of our IPO. This further strengthening was recognized by A.M. Best as it upgraded its outlook on our Financial Strength rating to B++ (Good) in July 2017. Our solvency position at 30 June 2017 stands at c. 150.4 percent*.

*Prescribed Capital Requirement using the solvency model supplied by the Guernsey Financial Services Commission (GFSC).

Trading highlights

EBITDA

The Group's earnings before interest, depreciation and amortisation (EBITDA) grew 10.6 percent for the year from $12.3 million in FY 2016 to $13.6 million in FY 2017. This increase is reflective of the Group's continuing ability to deliver operating income.

Income statement

Gross written premiums ("GWP")

We delivered strong growth in GWP during the year. GWP for the fiscal year to 30 June 2017 was $183.5 million, growth of 19.4 percent over the prior year period.

Medical remains the primary product line for the business, representing some 86 percent of GWP in the year (Inclusive of Travel). Performance in Travel, up 143.4 percent to $24.1 million was very encouraging whilst our high return Life and Disability continued to deliver profitable growth, increasing to $24.4 million.

Medical

Our medical insurance products include a variety of group and individual plans with a range of benefits and levels of cover including emergency evacuation, maternity cover, dental cover, wellness programmes and pre-existing conditions.

Total Medical GWP grew 12 percent in the year ended 30 June 2017 to $134.4 million (FY 2016: $120.0 million) as a result of premium growth across nearly all our geographic regions.

Life and disability

Our life insurance products are typically annually renewable term life policies, although a small number of policies with slightly longer terms (up to 18 months) may be written. Term life benefits are set at either a fixed sum or as a multiple of the insured's salary. We also write both long-term and short-term disability products with benefits typically set as a proportion of the insured's salary.

Total Life and Disability GWP grew 4 percent in the year ended 30 June 2017 to $24.4 million (FY 2016: $23.4 million).

Travel

We continued to experience strong growth in Travel, with growth in the core business supplemented by the addition of student based travel insurance products. Travel GWP was $24.1 million, a 143.4 percent increase over the prior year (FY 2016 $9.9 million).

Net written premiums ("NWP")

NWP grew 36.0 percent in the year ended 30 June 2017 to $105.7 million (FY 2016: $77.7 million). The growth in NWP reflects both growth in GWP and higher risk retention. Higher retention levels have been a contributing factor behind the growth in our profitability and reflects the consistency of our underwriting performance over a sustained period, the quality of our underwriting process and our rich data histories. Looking forward we expect retention levels to stabilise broadly around 60 percent for the next two policy years.

Total revenue

Total revenues grew 24.1 percent to $134.3 million in the year 2017, reflecting the overall growth of GWP across the medical products platform and the increased levels of retention of that premium. Commission and Fees income grew 14.4 percent to $42.9 million, marginally lower than GWP growth, but in line with expectations.

Expenses

Net claims were $47.3 million, a 26.0 percent increase over the prior year but within the relevant range when compared against the Group's increased level of retained risk premium.

In general, the Company's overall medical risk underwriting results for policy year 2016 (the major policy year that impacts the FY 2017 financial results) are producing profitability that is in line with our expectations. Although still early in the measurement period, the policy year 2017 medical underwriting results show an improving trend compared with the previous policy year. The underwriting results for life and disability continue to deliver excellent profitability, in line with the results from prior years.

Administrative expenses were $39.8 million, increasing 28.4 percent from $31.0 million in FY 2016. The increase in administrative expenses was driven by the continued investment in GBGI's operational platform and associated infrastructure, certain one-off expenses and IPO related expenses. The expense increases were offset to some degree by improved operational cost management processes that were implemented in the first half of the fiscal year.

Commission expenses increased 23.5 percent from $27.7 million to $34.2 million, broadly in line with the growth in retained risk premium, and in line with our expectations.

Profitability

Group operating income increased by 8.4 percent to $13.0 million (FY 2016: $12.0 million), driven by growth in our insurance book, increased risk retention levels, the excellent underwriting results and the impact of the implementation of enhanced internal cost management processes. Profit before tax increased 29.8 percent to $13.9 million (FY 2016: $10.7 million). Profit attributable to the Group increased 29.8 percent to $13.5 million (FY 2016; $10.4 million).

Earnings per share

Earnings per share (EPS) was $0.18, calculated with reference to post tax profit of $13.5 million and weighted average number of shares in issue of 73,643,652.

Dividend

In line with our stated policy, we have proposed a maiden final dividend at 30 June 2017 of $0.06 per share.

Our stated dividend policy is that the annual dividend will be a certain percentage of the distributable profit with one third paid as an interim dividend and two thirds as a final dividend. Given the timing of our listing in February 2017 GBGI did not pay an interim dividend but instead will be paying a final dividend of two thirds of 60 percent of the distributable profits for the financial year ending 30 June 2017.

Balance sheet

Net assets and working capital

Net assets at 30 June 2017 were $58.4 million (30 June 2016: $28.2 million), with growth driven by the combined effect of growth in GWP, cash generation, IPO related restructuring and equity raise.

Net cash

The Group's operating activities continue to be highly cash generative and during FY 2017 cash inflow from operating activities was $14.0 million. The business is prudently financed, in keeping with the commercial demands of our business. Net cash at 30 June 2017 was $76.2 million reflecting the operating performance in addition to the impact of the IPO proceeds.

Insurance liabilities and reserves

Total gross insurance liabilities as at 30 June 2017 of $118.9 million comprises $79.0 million of unearned premiums, which are deferred to be recognised in subsequent periods (30 June 2016: $65.1 million), and outstanding claims liabilities of $39.8 million (30 June 2016: $40.7 million). Unearned premiums increased 21.4 percent from the prior period due to timing of booked premium and the overall increase in GWP. Outstanding claim liabilities was approximately even to the prior period reflecting timing and overall improvements in the underwriting result.

The provisioning for outstanding claims liabilities is an area of significant judgement as it estimates the cost required to settle all unpaid claims, both reported and incurred but not reported (IBNR), at the balance sheet date. The Group manages this risk by applying a consistent reserving methodology to each of its product areas and measuring actual loss amounts against the reserves quarterly.

In addition, the Group engages an independent third party to review the reserves and reserve methodologies annually.

Reinsurance contracts

The Group uses excess of loss and quota share reinsurance arrangements to prudently manage its risk exposure, therefore protecting its solvency and underwriting capability. Excess of loss reinsurance is designed to prevent large claims from having a material impact on performance whilst our quota share arrangements allow us to benefit from our underwriting excellence without having to fully allocate capital to back the policy underwritten.

In recent periods, we have actively sought to increase our risk retention levels as our consistent underwriting performance gives us confidence that we are able to generate excellent underwriting returns. Overall, our proven approach to risk structuring is to maximise return whilst reducing volatility risk caused by the accumulation of losses and large individual claims.

Reinsurance assets, comprising reinsurers' share of outstanding claims liabilities, decreased 5.4 percent year on year to $22.7 million at 30 June 2017 (30 June 2016: $24.0 million) due to the Group's increased risk retention levels. Reinsurance assets have been impacted by our strategic decision to retain more of the risk across all of our product areas. However, we anticipate that we will maintain our current risk retention levels into the near future.

Solvency

The solvency position of the Group at 30 June 2017 was strong, with solvency coverage of approximately 150.4 percent at 30 June 2017. This provides a strong capital position for the business going forward and gives us confidence in our ability to meet our stated dividend policy.

Eric Dickelman

Chief Financial Officer

GBGI Limited

Consolidated statement of comprehensive income

For the year ended 30 June 2017

The accompanying notes form an integral part of these consolidated financial statements.

GBGI Limited

Consolidated statement of financial position

As at 30 June 2017

The accompanying notes form an integral part of this consolidated financial information. 

GBGI Limited

Consolidated statement of changes in equity

For the year ended 30 June 2017

The accompanying notes form an integral part of these consolidated financial statements. 

GBGI Limited

Consolidated cash flow statement

For the year ended 30 June 2017

The accompanying notes form an integral part of this consolidated financial information.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Accounting Policies

a) General information

GBGI Limited ('GBGI' or the "Group") was incorporated as Saxton Lane Company Limited in Guernsey in 2008 and is a multiple line insurance group writing substantially all lines of expatriate health insurance products and long term liability insurance products.

GBGI is a Guernsey corporation located at Level 5, Mill Court La Charroterie, St. Peter Port, Guernsey GY1 1EJ. Its registration number is 48728.

b) Basis of preparation

The financial statements represents the consolidated financial statements for the Group for each of the full two years ended 30 June 2017 and 2016. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') and IFRC Interpretations issued by the International Accounting Standards Board as adopted by the European Union.

The financial statements have been prepared using the historical cost convention. Outstanding claims liability and reinsurance and other recoveries are carried at Management's best estimate of the amounts at which these will be settled based on the information currently available to them. These policies have been consistently applied to all periods presented.

The preparation of the consolidated financial statements requires the use of certain critical accounting estimates. The areas involving a higher degree of judgement of complexity, or areas where assumptions or estimates are significant are disclosed in note 2 below.

The presentation currency of the financial statements is US Dollars, rounded to the nearest thousands ($'000) unless otherwise indicated. The Group's functional currency is US Dollars. The presentation and functional currency of the Group and its subsidiaries is deemed to be US Dollars.

c) Going concern

The Directors have prepared a cash flow forecast covering a period extending beyond 18 months from the financial statements presented as at 30 June 2017.

The Directors have taken into account the historical positive cash flows, growth in business and the inherent risks and uncertainties facing the business, and have derived forecast assumptions that are the Directors' best estimate of the future development of the business. For these reasons, they continue to adopt the going concern basis of accounting in preparing the consolidated financial statements. The consolidated financial statements do not include any adjustments that would result from the going concern basis of preparation being inappropriate.

d) New accounting standards and amendments

The new International Financial Reporting Standards ('IFRS') and International Standards ('IAS') and amendments detailed below are not mandatory until the effective dates stated. Early adoption is permitted where the standards has been endorsed by the EU.

The Group will apply the standards detailed above for the reporting periods beginning on the effective dates set out above.

New standards, interpretations and amendments not yet effective

The following new standards, interpretations and amendments, which are not yet effective and have not been adopted early in these financial statements, will or may have an effect on the Group's future financial statements:

● IFRS 9 Financial Instruments, effective annual periods beginning on or after 1 January 2018, endorsed by the EU. IFRS 9 is a replacement for IAS 39 'Financial Instruments' and covers three distinct areas. Phase 1 contains new requirements for the classification and measurement of financial assets and liabilities. Phase 2 relates to the impairment of financial assets and requires the calculation of impairment on an expected loss basis rather than the current incurred loss basis. Phase 3 relates to less stringent requirements for general hedge accounting.

The Group performed a high-level impact assessment of all three aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information being made available to the Group in the future. Overall, the Group expects no significant impact on its balance sheet and equity, except for the effect of applying the impairment requirements of IFRS 9. The group plans to defer the application of IFRS 9 until the earlier of the effective date of the new insurance contracts standard of 1 January 2021, applying the temporary exemption from applying IFRS 9 as introduced by the amendments.

Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

In September 2016, the IASB issued amendments to IFRS 4 to address issues arising from the different effective dates of IFRS 9 and the upcoming new insurance contracts standard. The amendments introduce two alternative options for entities issuing contracts within the scope of IFRS 4, notably a temporary exemption and an overlay approach. The temporary exemption enables eligible entities to defer the implementation date of IFRS 9 for annual periods beginning before 1 January 2021 at the latest. An entity may apply the temporary exemption from IFRS 9 if: (i) it has not previously applied any version of IFRS 9 before and (ii) its activities are predominantly connected with insurance on its annual reporting date that immediately precedes 1 April 2016. The overlay approach allows an entity applying IFRS 9 to reclassify between profit or loss and other comprehensive income an amount that results in the profit or loss at the end of the reporting period for the designated financial assets being the same as if an entity had applied IAS 39 to these designated financial assets. An entity can apply the temporary exemption from IFRS 9 for annual periods beginning on or after 1 January 2018. An entity may start applying the overlay approach when it applies IFRS 9 for the first time. The Group performed an assessment of the amendments and reached the conclusion that its activities are predominantly connected with insurance as at 30 June 2017. The Group intends to apply the temporary exemption in its reporting period starting on 1 July 2018.

● IFRS 15 Revenue from Contracts with Customers, effective annual periods beginning on or after 1 January 2018, endorsed by the EU, sets out to clarify the principles of revenue recognition and establish a single framework for revenue recognition. This standard replaces the previous standard IAS 11 Construction Contracts, IAS18 Revenue and revenue related IFRICs.

The Group expects to apply IFRS 15 fully retrospective. Given insurance contracts are scoped out of IFRS 15, the Group expects the main impact of the new standard to be on the accounting for income from investments. The Group does not expect the impact to be significant.

● IFRS 16 Leases, effective annual periods beginning on or after 1 January 2019, endorsed by the EU sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor'). IFRS 16 completes the IASB's project to improve the financial reporting of leases and replaces the previous leases Standard, IAS 17 Leases, and related Interpretations.

The impact of this new standard on the Group is still being considered.

● IFRS 17 Insurance Contracts, effective annual periods beginning on or after 1 January 2021 sets out the requirements that a company should apply in reporting information about insurance contracts it issues and reinsurance contracts it holds. IFRS 17 supersedes IFRS 4. IFRS 17 will provide comprehensive guidance on accounting for insurance contracts and investment contracts with discretionary participation features. For general insurance contracts, IFRS 17 will introduce mandatory discounting of loss reserves expected to be paid in more than one year as well as risk adjustment, for which confidence level equivalent disclosure will be required. Further, IFRS 17 is expected to have a significant impact on accounting for life insurance contracts as well as on the presentation of insurance contract revenue in the financial statements.

The impact of this new standard on the Group is still being considered.

e) Basis of consolidation

The consolidated financial statements incorporates the assets and liabilities of all entities controlled by the Group as at 30 June 2017 and 2016 and the results of all controlled entities for the financial years then ended. Control is the power over the investee, exposure, or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the investor's returns. The effects of all transactions between controlled entities are eliminated in full. Non-controlling interests in the results and equity of the controlled entities are shown separately in the consolidated statement of comprehensive income and consolidated statement of financial position.

Business combinations are accounted for using the acquisition method when control of an entity of business is obtained. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the controlled entity acquired, the difference is recognised directly in profit or loss.

Non-controlling interests in an acquiree are recognised at the non-controlling interest's proportionate share of the acquiree's net identifiable assets.

f) Insurance contracts

A contract is recognised as an insurance contract if it transfers significant insurance risk. Such contracts may also transfer financial risk. Insurance risk is transferred to the Group where it agrees to compensate a policyholder if a specified uncertain event, other than those caused by changes in a financial variable such as interest and foreign exchange rates, adversely affects the policyholder. All of the Group's insurance products are classified as insurance contracts.

The results are determined on an annual basis whereby the incurred cost of claims, commission and related expenses are charged against the earned proportion of premiums, net of reinsurance as follows:

i) Premiums written

Premiums written relate to business incepted during the year, together with any additional premiums arising on insurance contracts recognised in prior years. Written premiums include estimates of premiums due but not yet receivable or notified to the Group, less allowance for cancellations. Premiums are stated net of taxes collected on behalf of third parties.

ii) Unearned premiums

Unearned premiums represent the proportion of premiums written that relate to periods of insurance coverage to be provided in periods subsequent to the reporting date. Unearned premiums are earned as revenue over the period of the contract on a time apportionment basis, unless there is a marked unevenness in the incidence of risk over the period covered by the insurance. In these cases, premiums are recognised based on the assessed incidence of risk.

iii) Acquisition costs

Acquisition costs, which represent commissions due to internal employees and third party brokers for the sale of insurance policies are deferred and amortised over the period in which the related premiums are earned.

iv) Claims incurred

Claims incurred comprise claims and related expenses paid in the year and changes in the provisions for outstanding claims, including provision for claims incurred but not reported and related expenses, together with any adjustments to claims outstanding from previous years.

v) Claims provisions and related reinsurance recoveries

Provision is made at the reporting date for the estimated cost of claims incurred but not settled at the reporting date, including the cost of claims incurred but not yet reported to the Group. Although the Group takes all reasonable steps to ensure that it has appropriate information regarding its claim exposures, given the uncertainty in establishing claims provisions, it is likely that the final outcome will be different from the original liability established and may result in significant adjustments to the amounts provided. Adjustments to the amounts provided are reflected in the consolidated financial statements in the accounting period in which the adjustments are made.

The Group does not discount liabilities for unpaid claims.

The estimation of claims incurred but not recorded ('IBNR') is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Group, where more information about the claim event is generally available. The in-house underwriting team conducts the IBNR review using standard actuarial methodologies to evaluate and determine the IBNR reserves for of the Group.

vi) Reinsurance

The Group cedes reinsurance in the normal course of business, with retention limits set for each line of business. The contracts entered into by the Group with reinsurers, under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts, are classified as reinsurance contracts. Outward reinsurance premiums are recognised in the same accounting period as the related premium income. Reinsurance claims recoveries are recognised in the same accounting period as the related insurance claims are accounted for.

The amounts recoverable from reinsurers are estimated based upon the gross provisions, having due regard to their collectability and the terms of the related reinsurance contract. The reinsurance recoveries in respect of estimated claims incurred but not reported are assumed to be consistent with the historical pattern of such recoveries, adjusted to reflect changes in the nature and extent of the reinsurance program over time. The recoverability of reinsurance recoveries is assessed having regard to market data on the financial strength of each of the reinsurers.

Gains and losses on buying reinsurance are recognised immediately at the point of purchase and not amortised.

The reinsurers' share of claims incurred, in the profit or loss, reflects the amounts received or receivable from reinsurers in respect of those claims incurred during the period. The reinsurance premiums due are primarily premiums payable for reinsurance contracts and are recognised in the profit or loss as outward reinsurance premiums when due.

g) Foreign Currencies

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate of exchange at the reporting date.

Non-monetary items are measured at historical cost and are translated using the exchange rate at the date of the transaction and non-monetary items measured at fair value are measured using the exchange rate when fair value was determined.

The Group is exposed to gains and losses that result from the effect of changes in foreign currency exchange rates on foreign currency denomination transactions. Gains and losses which result from transactions denominated in foreign currency are reported in the consolidated statement of comprehensive income.

h) Property, plant and equipment

Property, plant and equipment is stated at cost (or deemed cost) less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to bringing the asset to its working condition for its intended use.

Property, plant and equipment are depreciated to their residual values over their useful lives. Depreciation is calculated on the straight line method to reduce their carrying value to the residual amount as follows:

The residual values, length of the economic lives and depreciation method applied are reviewed on a regular basis, and at least at every reporting date, and adjusted as appropriate. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property and equipment are determined by reference to their carrying amount.

i) Intangible assets

Costs of implementing new software systems are capitalised as incurred. Amortisation of software does not commence until the system is fully installed and operational. Intangible assets acquired are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The amortisable intangible assets represent computer software and development costs and are reported net of accumulated amortisation.

Costs of implementing new software systems are capitalised as incurred. Amortisation of software does not commence until the system is fully installed and operational.

The amortisable intangible assets are amortised on a straight-lined basis over its estimated useful life of 3-5 years and is assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation of intangible assets is carried out only when the implementation is complete and the asset is in use.

j) Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the fair value of consideration transferred over the Group's interest in the net fair value of the identifiable net assets, liabilities and contingent liabilities of the entity acquired and the fair value of non-controlling interest in the acquiree.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs, or groups of CGUs, that is expected to benefit from the synergies of the combination. Goodwill is tested for impairment annually, or more frequently if circumstances indicate impairment may have occurred. If the recoverable amount of the cash generating unit is less than its carrying amount. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to that unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss is recognised in profit or loss. Impairment losses so recognised are not subsequently reversed.

k) Cash and cash equivalents

Cash and cash equivalents include cash in hand and deposits held on call, together with other short term highly liquid investments which are not subject to significant changes in value and have original maturities of less than three months.

l) Tax

The charge for tax is based on the results for the year determined in accordance with the relevant tax laws and regulations that are enacted, or substantively enacted, at the reporting date in each jurisdiction.

Deferred tax is provided in full on all temporary differences arising between the carrying amounts in the consolidated financial statements and the tax bases of the assets and liabilities. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax is calculated based on the tax rates that have been enacted or substantively enacted at the end of the reporting period and which are expected to be in force when the relevant deferred tax asset is realised or the relevant deferred tax liability is settled. Deferred tax balances are not discounted.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority within the Group.

m) Employee benefits

Share-based payments

A transaction is accounted for as a share-based payment where the Group receives services from employees and pays for these in shares and similar equity instruments.

The Group makes equity-settled share-based payments to certain employees. Equity-settled share-based schemes are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant, measured by use of an appropriate valuation model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

The fair value determined at the grant date of the equity-settled share-based payments is expensed over the vesting period, based on the Group's estimate of shares that will eventually vest.

Share options are forfeited when an employee ceases to be employed by the Group.

Short-term employee benefits

Short-term employee benefits, including compensated absences, are benefits to be paid within one year after the end of the reporting period in which the related services are rendered. A liability and expense are recognised for the undiscounted amount expected to be paid for short-term employee benefits in the period in which the employee renders services in exchange for the benefits.

Other long-term employee benefits

The Group and its subsidiaries make payments to defined contribution benefit arrangements on behalf of employees. The charge to the profit or loss represents the amounts payable by the Group for the year. The assets relating to these arrangements are held separately to those of the Group.

n) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the Chief Executive Officer.

The Board considers that the Group's insurance activities constitute only one operating and reporting segment, as defined under IFRS 8. Management reviews the performance of the Group by reference to total results.

The total profit measures are operating profit and profit for the year, both disclosed on the face of the consolidated profit or loss. No differences exist between the basis of preparation of the performance measures used by management and the figures in the Group financial statements.

o) Financial assets

The Group's financial assets are loans and receivables. Financial assets are recognised when the Group becomes party to the provisions of the contract.

Loans and receivables

These investments are initially recognised at cost, being the fair value of the consideration paid for the acquisition of the investment. All transaction costs directly attributable to the acquisition are also included in the cost of the investment. After initial measurement, loans and receivables are measured at amortised cost less allowance for impairment. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Group's loans and receivables financial assets comprise all short-term trade and other receivables (excluding prepayments) and cash and cash equivalents included in the Statement of Financial Position.

Short term receivables are measured at cost, less any impairment. Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less.

Impairment of financial assets

All financial assets are assessed at the end of each reporting period as to whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset.

An impairment loss in respect of loans and receivables financial assets is recognised in the profit or loss and is measured as the difference between the asset's carrying amount and best estimate of the recoverable amount, which is an approximation of the amount that the Group would receive for the asset if it were to be sold at the reporting date.

In a subsequent period, if the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

p) Financial liabilities

The Group's financial liabilities are all categorised as loans and payables. Financial liabilities are recognised when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. 

Loans and payables

The Group's loans and payables comprise all trade and other payables (excluding other taxes and social security costs and deferred income), insurance liabilities, redeemable preferred shares and Class D shares. Short term payables are measured at cost. They represent balances where the Group is not able to avoid settlement in cash or another financial asset.

Shares issued by the Group are classified as a financial liability to the extent that they meet the definition of a financial liability. Both the redeemable preferred stock and Class D shares are classified as a financial liability as the Group has contractual obligation to deliver cash and, in this case, payment of dividends which are accrued and paid annually.

The redeemable preferred stocks and Class D shares, are measured initially at fair value, net of transaction costs and are measured subsequently at amortised cost and interest is recognised in profit or loss.

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

When an existing financial liability is replaced by another from the same party on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the profit or loss.

q) Commission and fees 

The Group earns a managing general underwriter and agency commission income for underwriting, marketing, and administration. Commission income is recognised as one unit of account on a pro-rata basis over the policy period. The Group also earns a fronting fee on the policies it writes. Fees vary from 3% to 5.5% of premiums written. Income is recognised on a pro-rata basis over the contract period and is included in commission and fees on the consolidated statements of income. The Group also charges a policy administrative fee, which is invoiced in addition to the insurance premium. Such fees are recognised as revenue over the policy term, which matches with the period the services are rendered.

Profit commission is a commission paid by the insurance and reinsurance carriers based on overall profit of business placed with the carriers during a particular contractual year. Profit commission is recorded at the earlier date of when the amounts are received from the reinsurance carriers or when the commission can be reasonably estimated and earned by the Group.

r) Share capital

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.

Apart from redeemable preferred stocks and Class D shares, the Group's common shares are classified as equity instruments. Any dividends paid for the redeemable preferred stocks and class D shares are classified as finance costs. Any dividends on the equity instruments are reported against the accumulated retained earnings in the statement of changes in equity.

s) Investment income

Interest income is recognised in the statement of profit or loss as it accrues and is calculated by using the effective interest rate method.

t) Deferred acquisition cost

Those direct and indirect costs incurred during the financial period arising from acquiring or renewing of insurance contracts and/or investment contracts are deferred to the extent that these costs are recoverable out of future premiums from insurance contract. All other acquisition costs are recognised as an expense when incurred.

Subsequent to initial recognition, this Deferred acquisition cost ("DAC") asset for life insurance is amortised over the expected life of the contracts as a constant percentage of expected premiums. DAC for general insurance and health products are amortised over the period in which the related revenues are earned. The deferred acquisition costs for reinsurers are amortised in the same manner as the underlying asset amortisation and is recorded in the statement of profit or loss.

Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method and are treated as a change in an accounting estimate.

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the statement of profit or loss.

DACs are derecognised when the related contracts are either settled or disposed of.

2. Critical accounting estimates, assumptions and judgments

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The key areas in which critical estimates and assumptions are applied are described below:

a) Liability for unpaid claims and loss adjustment expenses

The estimation of the ultimate liability arising from claims made under insurance contracts is the Group's most critical accounting estimate. There are several sources of uncertainty that need to be considered in the estimate of the liability that the Group will ultimately pay for such claims.

Provision is made at the reporting date for the estimated cost of claims incurred but not settled at the reporting date. The liability for outstanding claims includes the cost of claims reported but yet to be paid, claims incurred but not reported, and the estimated expenses to be incurred in settling claims. There is the potential that the amounts at which claims are settled could differ to the amounts at which they are currently provided.

The estimation of insurance liabilities is subject to considerable variability as it requires the use of informed estimates and judgments. These estimates and judgments are based on numerous factors, and may be revised as additional experience becomes available or as regulations change. The Group takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures.

In arriving at booked claims provisions, management also took into consideration changes or uncertainties which may create distortions in the underlying statistics or which might cause the cost of unsettled claims to increase or reduce when compared with the cost of previously settled claims including:

There is the potential that the amounts at which claims are settled and, the related reinsurance recoveries, could differ materially from the amounts at which they are disclosed in the consolidated statement of financial position.

The methods used to analyse past claim experience and to project future claim experience are largely determined by the available data and the nature of the portfolio. The projections given by the different methodologies assist in setting the range of possible outcomes. The most appropriate estimation technique is selected taking into account the characteristics of the business class and the extent of the development of each accident year.

b) Estimate of reinsurance recoveries

The Group's reinsurance premiums, loss expense and reserves related to reinsurance business are accounted for on a basis consistent with those used in accounting for the original policies issued and terms of the reinsurance contracts. Loss expenses related to ceded premiums have been netted against the total loss expenses which are included in expenses on the consolidated statements of income.

The Group also enters into a personal accident excess of loss reinsurance agreement where minimum deposit premiums are paid by the Group. The Group's gross loss reserve is ultimately based on management's reasonable expectations of future events as is the estimate of future recoveries from reinsurers. It is reasonably possible that the expectations associated with these amounts could change in the next year and that the effects of such changes could be material to the consolidated financial statements.

c) Intangible assets

Goodwill is subject to an annual impairment review and more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. This requires an estimation of the recoverable amount of the CGU to which goodwill is allocated. Details of the key assumptions used in the estimation of the recoverable amounts are contained in Note 17.

The key area in which critical judgements are applied are described below:

a) GBG Philippines

The Group's Directors have considered the power they exert over the Groups participation in GBG Philippines. Notwithstanding the fact the Group holds 28% of the shares it is their opinion that they have the power over the investee to affect the investor's returns and that GBGI controls GBG Philippines. As such GBG Philippines has been consolidated as if it were a subsidiary (see note 19).

3. Management of insurance and financial risk

The management of risk is a fundamental concern of the Group's management. This note summarises the key risks to the Group and the policies and procedures put in place by management to manage them. The components of insurance, market, credit, liquidity and operational risk are considered below:

a) Insurance Risk

Insurance risk refers to fluctuations in the timing, frequency, and severity of insured events relative to the expectations at the time of underwriting. Insurance risk can also refer to fluctuations in the timing and amount of claim settlements and reserves.

Insurance risk is historically the single most significant risk area within the Group. It is split between four principal key risks, which are all managed through the application of controls as well as the use of reinsurance to offset exposures through the transfer of risk. These four key risks are as follows:

Failure of pricing: The Group faces the risk of incorrect pricing of products resulting in financial losses or reduced profit, through being set too high (therefore losing market share) or too low (therefore resulting in an unacceptable profit contribution for that product). The Group seeks to manage this through the setting and review of pricing guidelines relevant to each business line and the application of a strict hierarchy of underwriting authorities is in place to ensure that policies are underwritten with management oversight.

Ineffective strategy/failure of product: When an inappropriate strategy or product is introduced for a specific business line or the Group as whole, there is an increased risk that material financial and reputational losses will occur. The Group seeks to manage this through the use of processes and procedures in place over the production, review and analysis of annual business.

Failure to manage risk aggregation/accumulation: The Group may be exposed to an increased likelihood of disproportionate losses for specific perils if insured risks are overly focused on a specific geographical area or type of policy cover. The Group seeks to manage this through the use of pre-bind rules and authorities to manage significant within line and cross-line exposures. 

Adverse reserve development: The Group may be exposed to reserve shortfalls or distortions through failing to set sufficient cash reserves or through failing to adopt a robust and consistent reserve strategy across products offered to insured and countries. The Group seeks to manage this through monitoring adherence to established policies and procedures in place governing claims reserving practices.

Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provisions and are in accordance with the reinsurance contracts. The Group purchases excess of loss insurance, as part of its risks mitigation programme to limit the maximum net loss.

Concentration of insurance risk

The Group monitors its operations to consider and manage any potential risk concentrations and manage any potential risk concentrations by reference to such analysis.

Impairment of insurance receivables 

No material amount is past due and impaired, hence, no material impairment is required to be made in the opinion of the directors.

Claims development

The loss development tables presented below show the cumulative provisions for insurance claims, whether reported or not, and related loss adjustment expenses arising for each accident year from 2012 onwards. The historical net insurance claims provision for all outstanding claims arising for accident years prior to 2012 are shown cumulatively as one figure in the left hand column. All amounts shown in the tables have been stated at constant exchange rates based on the rates prevailing at 30 June 2017.

Insurance Claims - Gross

As at 30 June 2017

Insurance Claims - Net of Reinsurance

As on 30 June 2017

Insurance Claims - Gross

As at 30 June 2016

Insurance Claims - Net of Reinsurance

As on 30 June 2016

The estimates of claim cost are presented at the end of 6 months because the policy year is different from the financial year.

Sensitivity analysis

Key assumptions

The Group develops these estimates for the claims liability on the assumption of the information which is currently available, including potential claims which have been reported to the Company, experience of the development of similar claims and case law. This includes assumptions made on the average claim costs, number of claims for each accident year, legislative changes, and changes in inflation rates, changes in patterns of claim incidence, reporting and payment.

The key assumptions selected are average claim costs or number of claims for each incident year as these factors can be quantified whereas other assumptions like legislative changes or change in patterns of claim incidence are not easily quantifiable. It is assumed that the increase or lower of one of these key assumptions by 5% will result in 2 possible scenarios:

(i) Scenario 1: the gross written premium increase or decrease by 5% but the loss reserve ratio remains the same; and

(ii) Scenario 2: The gross written premium increase or decrease by 5% but with no change to claims recoverable from reinsurers.

The 5% is the sensitivity rate that represents management's assessment of the reasonably possible change in the average claim cost or number of claims for each accident year in the next 12 months.

The following tables demonstrate the impact of a 5 percent change (lower/higher) in the following key assumptions, with all other assumptions held constant, to the profit before tax and equity for each reported year:

b) Market Risk

Market risk is the risk that the Group is adversely affected by movements in the value of its financial assets or liability arising from market movements such as interest rates and foreign exchange rates or other price risk. A description of the Group's principal risk relating to market risk is shown below, along with a summary description of controls the Group applies in seeking to mitigate this risk:

Currency risk

The Group sells less than 12% of its insurance policies to foreign customers in foreign currency denominations. At each period end, foreign currency monetary items are translated using the closing rate. Currency risk arises where assets and liabilities are settled in currencies other than the functional currency of the Group. Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group has no significant concentration of currency risk.

Sensitivity Analysis

The impact of 10% movement in the key foreign exchange rates of US$ as shown below will result in an increase/decrease of profit before tax and financial assets/ (liabilities) by $683,000 (2016: $679,000).

Impact of 10% movement in foreign exchange rate of $:

Fair value hierarchy

The Groups financial assets and liabilities are classified as loans and receivables. Therefore, a fair value hierarchy is not separately disclosed. In the opinion of the Directors the amounts at which the financial assets and liabilities are disclosed in the consolidated financial statements is a reasonable approximation of their fair value.

c) Financial Risk

A description of each of the Group's principal risks attached to financial risk is shown below; along with a summary description of controls the Group applies in seeking to mitigate these risks:

Credit risk

Credit risk is defined as the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group has exposure to credit risk principally through its holdings of reinsurance assets. No material insurance premium receivables are past due, hence no material impairment risk has been identified by the Directors. There has been no change in the Group's processes in respect of credit risk over the period.

The Group faces a risk of material losses if their main reinsurers fail or are unable to pay their contractual share of claims payable. The Group seeks to manage this through annual review of the financial strength and creditworthiness of reinsurance counterparties as well as tracking overall exposures to individual reinsurers. In addition, a list of approved reinsurers is maintained, and an established process is in place to ensure that approval is obtained before reinsurance cover is taken out with a reinsurer not on the approved list (this may include requiring collateralisation).

The Group faces a risk of material losses and cash flow issues if third party obligors are unable to pay amounts due. The Group seeks to manage this risk through the utilisation of processes and procedures in place to ensure that the Group only utilises approved bank operating accounts. In addition, the Group has controls in place to ensure that brokers used are subject to credit checks prior to and during the period where they provide services to the Group, where it is possible to do so.

The following table provides an analysis of the major categories of financial assets with credit risk exposure and the credit rating of those financial assets based upon the ratings published by various agencies i.e. Standard & Poor's or equivalent, Moody's Investors Service, Fitch Ratings and A.M. Best Company.

The financial assets and liabilities are classified as loan and receivables. The amounts disclosed are, in the opinion of management, comparable to fair value.

d) Liquidity risk

Liquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities, primarily insurance claims, as they fall due. This risk is mitigated by holding funds predominately in liquid financial assets i.e. cash and cash equivalents and constant monitoring of expected asset and liability maturities. The Group further manages this risk through monthly reviews of the Group cash accounts as well as review and approval of forward looking reviews of cash requirements into the next quarter. The Group's Treasury department is also operationally responsible to ensure that sufficient funding required for future expected cash requirements are available and that the sources of funding are appropriately diversified. There has been no change in the Group's processes in respect of liquidity risk over the period.

The following table provides an analysis of the maturity profile of financial liabilities, including insurance liabilities: