GBGI.L Regulatory News (GBGI)

GBGI Limited

19 September 2018

Interim Results

19 September 2018

GBGI Limited

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

Interim Results

GBGI Limited (AIM: GBGI), a leading integrated provider of international benefits insurance, is pleased to announce its interim results for the six months ended 30 June 2018.

Financial Highlights

· Gross Written Premium ("GWP") for H1 at US$74.9m, representing a growth year over year (when adjusted for the Group's exit from the Angolan market in 2017 and a strategic non-renewal of a reinsurance programme) of 10% (H1 adjusted FY17: US$68.1m)

· Increased retention of risk premium, with Net Written Premiums ("NWP") increasing 42.9% to US$42.6m (H1 FY17: US$29.8m)

· Consistent performance across all income streams, with total revenues up 2.2% to US$73.8m as compared to US$72.2m in the equivalent prior year period

· Continuation of underwriting performance and discipline, with policy year loss ratios continuing to improve for each policy year since 2014

· Adjusted Profit before Tax at US$3.3m (H1 FY17: US$8.7m). Adjusted EBITDA was US$3.6m during the period. Of the previously reported $2.8m in CY 2018 non-recurring, one-off expenses, approximately US$2.1m was incurred in H1, including a US$1.5m investment in the Group's distribution channels.

· Strong financial position, with solvency coverage1 of 147.1% at 30 June 2018

· Dividend in line with policy set out FY2017 results, the Company declares an interim dividend of US$.014 per share, to be paid in October 2018. 

Business Highlights

· Secured multi-million medical insurance account with an international company in the oil and gas sector. Business encompasses insuring employees and dependents in 12 countries

· Highly successful renewal season for TieCare International division, which renewed 113 of 118 (95.7%) of its international educational clients with group medical, life or disability coverage. In addition, added 5 new clients

· GBG Assist/QHM landed a major Bermuda-based account to provide assistance services and direct-bill access for the client over the next year

· Strategic partnership with AXA, which began in October 2016 and covers collaboration across reinsurance, client referrals and new market access, makes key administrative advancement on opportunities in Mexico

GBGI's CEO, Bob Dubrish commented:

"Although our first-half financial results were down from prior year, we anticipate that GWP and underlying net income (adjusted for certain one-off non-recurring expenses) for CY 2018 will be broadly in line with management expectations.

"There remains a clear market demand for our innovative, international benefits insurance solutions, and we have the people and infrastructure in place to serve these markets. Our ability to have business in 120 jurisdictions is testament to the worldwide expertise that we have developed.

 "We will continue to leverage our 10 worldwide offices and our diverse portfolio of distributors, insurance partners, medical networks and third party administrators to deliver bespoke solutions that are in line with customer needs.

"Our commitment to underwriting discipline continues with the delivery of excellent loss ratio performance over the interim period. Our underwriting results underpin our highly profitable business, and we expect continued positive underwriting performance momentum through the end of CY 2018."  

For further information please contact:

Key

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

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.

Review of the Interim Period

Positioned for profitable growth

This is the Company's second set of interim results as a listed company following our IPO on AIM in February 2017.

Our business was originally founded in 1981; we have a rich heritage and a successful track record in the international benefits insurance market. We have in place a global network of trusted intermediaries who introduce business to us. The quality of our underwriting, as demonstrated by our consistent loss ratio performance, has given us the confidence to increase our retention levels in a measured manner in recent years. We currently retain circa 60% of the health, life and disability business we write, supported by our quota-share partners. These higher retention levels, supplemented by our scalable distribution platform as well as the opportunities arising out of our strategic arrangement with AXA, have added further impetus to our already sustainable profitable growth story. Our balance sheet is strong, with a solvency coverage ratio1 of 147.1 % and a "Strong" rating from our ratings agent, A.M. Best. We believe the strength of our balance sheet gives us a highly resilient growth platform.

Our differentiated business model is robust, profitable and cash generative and positions us for profitable growth in the future.

Sustainable profitability supported by a strong balance sheet

Our first half performance was disappointing but not entirely unexpected. Several premium programs that were expected to book in H1 2018 did not and were, instead, booked later in the half or are expected to book in H2 2018. For H1, the Company recorded GWP of US$ 74.9m. When adjusted for the Group's decisions to exit Angola and a strategic non-renewal of a reinsurance programme, the Group's GWP was up 10% year on year to the adjusted H1 2017 GWP.

Higher retention levels, supported by our proven underwriting excellence, drove Net Written Premium growth of 42.9% to US$42.6m. However, total revenues, including underwriting fees and commission grew only 2.2% to US$73.8m. This was due to the lower commissions and fees mix associated with the GEP that was recorded in H1 2018. Underwriting performance, the bedrock our profitability, has continued to improve year on year.

Operating costs increased by US$4m to US$24.6m reflecting the growth in the business and ongoing investment in operations to support both our sales efforts and continued outstanding service levels and US$2.1m of certain one-offs (inclusive of a $1.5m investment in our distribution channel). In terms of sales support, the Company has made several new regional sales hires over the last 6 to 12 months to address the growth potential that we are seeing within our markets. Operationally, the Group made the decision last year to continue to build out its service offering by decentralizing into regional operational support hubs, and add to its already substantial provider network. To that end investments were made throughout the regions in terms of people, process and technology, resulting in higher costs but improved service levels and, as a result, gains in premium persistency levels. The combination of the full integration of the QHM acquisition (completed in March 2017), continued investment in our provider network and investment in certain operational areas will allow the Group to more fully execute against its strategy of building the fee-based business.

Our capital position has been reinforced through profitability at GIL. Our solvency coverage ratio1 at 30 June 2018 was 147.1%, up nearly 20points (16.1%) from the PCR at December 31, 2017 (126.7%). GIL's balance sheet strength gives us significant headroom to grow the business further through possible increased risk retention beginning in 2020.

Diversified by product, customer and geography

The Group provides its solutions across over 120 jurisdictions via a scalable distribution model incorporating nearly over 100 independent distributors. This network has been built up over many years, and the strength of the relationships is an important component of our success. The Group's primary product remains Health, which contributed 92% to GWP in the period.

In the Latin American market, the Group's largest market, we have been pleased with the rapid progress in group health sales, a direct result of our strategy to cross-sell into existing intermediaries. The AXA reinsurance relationship is also yielding benefits to the Group allowing for the development of certain regional markets for group IPMI premium.

The Group retrenched in Africa by exiting out of Angola and entering into a partnership with a leading Egyptian insurance company to develop and distribute health insurance products in Egypt. The Group is monitoring the developments in other markets in Africa looking for opportunities for specialty and micro-insurance products along with the traditional IPMI products.

In the Asia Pacific region, we hired a new, experienced Regional Managing Director to replace a retiring manager with the charge of developing fronting arrangements and taking advantage of market opportunities in Vietnam and Thailand, enabling us to develop and distribute health, life and disability products in those countries.

In the Central and Eastern European region, the Group has continued to build off its strong relationship with its fronting partners to address new opportunities. These relationships and a new strategic relationship with Acibadem is fueling our growth strategy in the region and allowing for the development and distribution of health, life and disability products across a number of territories.

In the Middle East (GCC countries), the Group continued to build a profitable but modest book of medical and life business. New TPA relationships also were established and the Group made introductory progress with potential partners in a new region in which it currently does not operate.

Although the Group continues to grow its global reinsurance business, the Group, as part of its risk assessment process, made a strategic decision in H1 2018 to not renew a certain reinsurance programme that had contributed significantly to its loss expense in 2017. The impact to GWP in H1 was approximately US$5.5m.

Despite increased competition from global insurance carriers and brokers, TieCare International continued to demonstrate that it is the market leader in the international school segment by renewing 95.7% of its 118 existing group clients and adding 5 new group clients.

Although the Group first entered the international student market segment in 2015, Management decided, in 2017, to allocate resources and investment into this market through the new hire of a Regional Vice-President and expansion of the sales team from 2 to 6. This decision has yielded positive results contributing US$ 2.0 m of GWP in the period.

As noted earlier, GBG Assist, the Group's assistance offering to third party insurers, built out its offering via the bolt-on acquisition of QHM in 2017, a third party administrator (TPA) located in Florida. This acquisition provided GBG Assist with a platform from which to more broadly market and administer its services.

The Group's Travel book has continued its rapid expansion in GWP with growth in the Europe markets and Latin America.

The Group benefits from having a diversified book of business across a wide breadth of products, customers and geographies. Its scalable and flexible distribution model is allowing the Group to write business and allocate capital across this diversified offering set so as to maximise risk adjusted returns.

Commitment to operational excellence and high service levels

GBGI's integrated operations gives it control over the core aspects of the value chain. We pride ourselves on being there for our customers when they need us most … at the time of a claim. We support our policyholders via a global network of offices providing medically-trained 24/7 support.

We continued our strategic process of decentralising operations into the regions through additional levels of staffing, training and building of information technology infrastructures. Whilst this has an impact on operational costs, we viewed this as necessary investment in the foundations of our business, enabling us to maintain the levels of support and assistance which sets our offering apart.

Consistent underwriting performance

GBGI's underwriting performance for the first half of the fiscal year continued to underpin profitability levels.

At June 30, 2018, GBGI's health business had the following overall loss ratio trends for the open policy years 2014 through 2017.

Strong solvency position

GBGI's solvency calculation, as measured by the Prescribed Capital Requirement (PCR), as at 30 June 2018 was 147.1% and 509.6% as measured against the Minimum Capital Requirements (MCR) using the solvency model supplied by the Guernsey Financial Services Commission ("GFSC"). These results are based on the GBG Insurance Ltd balance sheet. 

Dividend

In line with policy set out FY2017 results, the Company declares an interim dividend of US$0.014 per share.

Payment of the interim dividend of US$0.014 per share will be made on 26 October 2018. The ex-dividend date will be 27 September 2018 and the associated record date will be 28 September 2018.

Strategic initiatives

The Group has a number of strategic initiatives under way to support its clear growth strategy. These include:

· growing the International Students health business via strategic hiring and a refined marketing plan;

· reinvigorating growth in China through new product development and leveraging off the existing strategic relationship;

· building on our momentum in Group Health in Latin America via ongoing distributor training and using the AXA fronting.

We have continued the process to decentralize operations into regional headquarters. This decentralisation will provide continuous improvement to the Group's service offering by putting the operations closer to the clients. However, GBG India's highly trained staff will remain as the Group's Centre for Operational Excellence, providing back-office support in enrollment, fulfillment and claims processing, regional training and audit as necessary.

Financial Statements

The interim financial statements presented herein comprises the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, and consolidated statement of cash flows prepared on the basis of the accounting policies set out in the Group accounts for the period ended 30 June 2018. It is unaudited but has been reviewed by the auditor using agreed upon procedures.

This information does not constitute statutory accounts for the purpose of section 435 of the Companies Act of 2006. A copy of the statutory accounts for the year ended 30 June 2018, reported under International Financial Reporting Standards, as adopted for use in the European Union, is available for review at the GBGI Corporate headquarters located at Level 5, Mill Court, La Charroterie, St. Peter Port, Guernsey GY 1 1EJ.

A copy of this Interim Statement is being sent to all shareholders and copies are available for collection indefinitely from the GBGI Corporate headquarters or at the Group's website (www.gbg.com).

Outlook

We are seeing continued momentum in the second half of the current fiscal year, giving us confidence that we can continue to grow our business in both existing and new territories, with Gross Written Premiums trending well and a solid revenue outlook for the full year. We expect further investment in operations to support both our sales efforts and outstanding service levels and we remain confident in the outlook for the business and the ability to continue to deliver profitable growth.

GBGI Limited

Consolidated statements of comprehensive income

GBGI Limited

Consolidated statement of financial position

GBGI Limited

Consolidated statement of changes in equity

GBGI Limited

Consolidated cash flow statement

The accompanying notes form an integral part of these 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.

The unaudited consolidated financial statements for the six months ended 30 June 2018 of the Group have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting." The accounting policies used to prepare the unaudited consolidated financial statements comply with International Financial Reporting Standards as adopted by the European Union and International Financial Reporting Interpretations Committee Interpretations issued by the International Accounting Standards Board as adopted by the European Union and are consistent with those set out in the notes to the consolidated financial statements in the 2017 Annual Report of the Group.

The unaudited consolidated financial statements for the six months ended 30 June 30 2018, should be read in conjunction with the Group's 2017 Annual Report.

b) Basis of preparation

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 ($000s) 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 12 months from the financial statements presented as at 30 June 2018.

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

i) Standards, amendments and interpretations effective or early adopted as at 1 January 2018 and relevant for the Group's operations

Below are the new accounting standards or amendments to and interpretations of standards relevant to the Group that have been implemented for the financial year beginning 1 January 2018, with no material impact on the Group's financial position or performance. Amendments resulting from the IASB annual improvements project have no impact on the Group's financials.

The new International Financial Reporting Standards ('IFRS') and International Accounting 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.

IFRS 15 Revenue from Contracts with Customers, establishes the principles that are applied when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. IFRS 15 does not apply to revenues relating to insurance contracts, lease contracts and financial instruments. The Group has assessed the impact of revenue recognition for insurance related services and other services in scope of IFRS 15 such as administrative, claims, risk engineering and asset management services. Based on the analysis performed by the Group, there is no material impact on the Group's financial position or performance.

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

● 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, not yet endorsed by the EU, 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.

e) Basis of consolidation

The consolidated financial statements incorporates the assets and liabilities of all entities controlled by the Group as at 30 June 2018 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:

Equipment 5 years

Furniture and fixtures 5-7 years

Leasehold improvements 7 years or lease term, if shorter

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.

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 nontransferability, 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 benefitsShort-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:

· changes in patterns of claim incidence, reporting and payment;

· the impact of inflation (both economic/wage and superimposed);

· changes in the mix of business;

· the impact of large losses;

· medical and technological developments;

changes in policyholder behavior.

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 6.

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 Group's 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. The Directors have the ability to control the operation, additional funding, and business decision making of GBG Philippines. As such GBG Philippines has been consolidated as if it were a subsidiary.

3. Segment Information

For management purposes, the Group has categorised all its revenue and profit in one reportable segment - provision of specific and customised health, disability, life and travel insurance products to meet the needs of expatriates, third country local nationals, and high net worth local nationals worldwide.

In the normal course of business, the Group engages in reinsurance ceded transactions as part of its overall underwriting strategy. Reinsurance includes quota share, excess of loss, and facultative treaties on all policies written. Reinsurance ceded does not discharge the Group from its liabilities to the original policyholders in respect of the risk being reinsured.

Geographic segment

The following analysis of the Group's total revenue is based on the geographic location of the Group operating entities, the corresponding segment assets are based on the geographical location of the Group's non-current assets and loss reserves (gross, reinsurers share and net). The Group does not have the geographical analysis of the revenue by location of the customers and the cost to produce this information would be excessive.

Total revenue

Non-current assets (excluding income tax assets)

Loss reserve

4. Commission expense

5. Income tax expense

GBGI and GIL are assessed at the Company standard rate of 0% in accordance with the Guernsey corporate income tax regime.

The Group does not file a consolidated return with its foreign subsidiaries. The Group files US federal and state returns and its foreign subsidiaries file returns in their respective jurisdictions. GBG files a consolidated US federal income tax return with its subsidiaries ICS, GBGH, GBG US, GAS, GIS and GBGC. Income taxes currently payable are based on the taxable income for the period.

Income tax expense for the periods ended 30 June 2018 and 2017 are shown below:

i) Analysis of the tax charge for the period

ii) Analysis of the factors affecting the tax (credit)/expense for the period

The tax assessed for the period is lower than the standard rate of corporation tax in United States. The differences are explained below:

The Group has US federal and US state carried forward losses and accelerated temporary differences excluding the tax amortisation of goodwill amounting to $36,230,000 and $31,924,000 as at 30 June 2018, and $26,899,000 and $25,135,000 as at 30 June 2017. The losses are available to offset future taxable income which expires in varying amounts beginning in 2033 for US federal and state tax purposes. Any foreign net operating losses do not expire. As the timing and extent of taxable profits are uncertain, the deferred tax asset of $11,255,000 arising on these losses and accelerated temporary differences has not been recognised in the consolidated financial statements.

Deferred tax asset and liabilities

6. Intangible assets - goodwill

Included in the intangible assets is the balance of goodwill as of 30 June 2018 and 31 December 2017 of $4,618,817 and $4,618,817, respectively. The goodwill balance relates to the acquisition of the business assets of TieCare International, Inc. and GBG Holdings, Inc. in November 2005 and the acquisition of Quality Health Management, LLC in January 2017.

Goodwill and impairment review

The Group has goodwill that has been acquired through business combinations but does not hold any intangible assets that have indefinite lives.

The approach of the Group is to test impairment at the cash generating unit ('CGU') level. This is the lowest level of unit at which the Group is effectively able to manage and monitor performance, cash flow and goodwill. The Group has one CGU, namely the insurance business.

The goodwill has been allocated for impairment testing purposes to this cash generating unit. The valuation is performed on a value-in-use basis.

In order to evaluate the recoverable amounts relating to the CGU based on value in use, the following key information should be noted.

· The recoverable amounts have been determined using the cash flow forecast from its most recent financial plans projected for a five-year period and then with a terminal value, with a discount rate applied.

· The financial plans have been prepared at the cash generating unit level based on historical trends adjusted for expected events. These individual plans have been aggregated as the basis for the cash flow forecast.

· The discount rate has been calculated as the weighted average cost of capital. The post-tax discount rates calculated was 14.0%.

· The perpetual growth rate of 3% reflects the maturity, penetration and profile of the cash generating unit. The growth rate is consistent with forecasts included in industry reports specific to the industry in which the CGU operates.

Sensitivity to changes in assumptions

With regard to the assessment of value in use for the insurance cash generating unit, management does not believe a reasonably possible change in any of the above key assumptions would cause the carrying value of the units to exceed the recoverable amount, as the recoverable amount exceeded the carrying value.

No impairment was recognised for the periods ended 30 June 2018 and 30 June 2017.

7. Cash and cash equivalents

In its capacity as a managing general agent, the Group collects premiums from its customers. The Group deducts its administrative fees and the authorised commissions associated with the sale of the policies and claims administration from these premiums. The net premium not reserved for claims payment is then remitted to the respective carriers. Unremitted insurance premiums are held in a fiduciary capacity until the Group disburses them and is classified as restricted cash. The Group invests these unremitted funds only in cash and money market accounts.

8. Net insurance liabilities

This impact of the reinsurance arrangements entered into by the Group can be seen in the consolidated statement of comprehensive income and the statement of financial position.

The Group establishes claim reserves, which are estimates of future payments of reported and unreported claims and claim adjustment expenses, with respect to insured events that have occurred. Reserving is a complex process dealing with uncertainty, requiring the use of informed estimates and judgements. Any changes in estimates or judgements are reflected in the results of operations in the year in which estimates and judgements are changed.

9. Contingent liabilities

In the normal course of business, the Group engages in reinsurance ceded transactions as part of its overall underwriting strategy. Reinsurance includes quota share, excess of loss and facultative treaties on all policies written. Reinsurance ceded does not discharge the Group from its liabilities to the original policyholders in respect of the risk being reinsured. The Group believes its reinsurance companies are financially stable.

The Group is also involved in certain claims and legal proceedings which have arisen in the normal course of business. Management does not believe that the outcome of any current pending claims or legal proceedings in which the Group is currently involved will have a material adverse effect on the Group's consolidated financial position, results of operations or cash flows.

In January 2018, the Group entered into an agreement with five managing general agents. The agreements stipulate that the agents will receive target based incentives in three equal installments over the next three years. The range of these payments is $89,000 - $520,000, a maximum total payments of $967,000, for each year beginning in 2018.

10. Events after the reporting period

There have been no material events subsequent to the period end and up to 14 September 2018, the date of approval of the financial statements by the Board of Directors.