Helios Underw Regulatory News (HUW)

27 May 2022

Helios Underwriting plc

("Helios" or the "Company")

Final results for the year ended 31 December 2021

Helios, the unique investment vehicle which acquires and consolidates underwriting capacity at Lloyd's, is pleased to announce its audited final results for the year ended 31 December 2021.

Highlights

· 111% increase in the capacity portfolio to £232.7m (2020: £110.3m)

· Total comprehensive income for the year of £4.9m (2020: £4.3m)

· Helios retained capacity for 2022 open underwriting year of £171.9m (2021 year of account: £58.7m)

· Net tangible asset value of £1.57 per share (2020: £1.51 per share)

· Stop loss in 2022 continues to protect the downside and provides underwriting capital support

Helios Group Summary Profits

Nigel Hanbury, Chief Executive, commented:

"We have successfully navigated a challenging period, with reinsurance mitigating the COVID-19 losses and managing the volatility of the portfolio. This demonstrates our success in building a high quality portfolio of syndicate capacity. Our acquisition strategy has continued apace, with 28 LLV's purchased, for a total consideration of £26.5m.

"Our capacity portfolio has increased 111%, from £110m to £233m, and retained capacity increases at the outset of the underwriting year from £59m to £172m, an increase of 193%. This decision to increase the retained capacity substantially for the second year reflects the confidence in the timing of the market cycle and that it is now the right time to assume more underwriting risk for shareholders.

"It is pleasing to note that we have once again outperformed the Lloyd's market by an average of 4.9%.

"With the prospect of improving underwriting returns, together with the opportunity to continue to build the capacity portfolio, Helios is well placed to deliver value to shareholders in the future."

For further information, please contact:

Helios Underwriting plc

Nigel Hanbury - Chief Executive +44 (0)7787 530 404 / nigel.hanbury@huwplc.com

Arthur Manners - Chief Financial Officer +44 (0)7754 965 917

Shore Capital (Nomad and Broker)

Robert Finlay +44 (0)20 7408 4080

David Coaten

Buchanan (PR)

Helen Tarbet / Henry Wilson / George Beale +44 (0)7872 604 453

+44 (0)20 7466 5111

About Helios

Helios provides a limited liability direct investment into the Lloyd's insurance market and is quoted on the London Stock Exchange's AIM market (ticker: HUW). Helios trades within the Lloyd's insurance market writing approximately £233m of capacity for the 2022 account. The portfolio provides a good spread of business being concentrated in property insurance and reinsurance. For further information please visit www.huwplc.com.

Chairman's statement

In summary

· Total comprehensive income of £4.9m (2020: £4.3m)

· Net tangible asset value at £1.57 per share (2020: £1.51)

· A final dividend of 3p per share is being recommended (2020: 3p)

· Capital employed per share of £1.78 (2020: £1.70)

· Successful equity raise from new investors to raise £54m in April 2021

· The capacity retained by Helios increased to £172m (2020: £59m) an increase of over 193%

· 28 LLVs were acquired in 2021 for a total consideration of £27.3m (2020: 5 LLVs for £10m)

· Cumulative rate increases since 1 January 2017 in excess of 50% for the Helios portfolio

The board is pleased to announce results for the year ended 31 December 2021. The total comprehensive income for the year was £4.9m (2020: £4.3m), and the net tangible asset value of the Group has increased to £1.57 per share (2020: £1.51). Although these results show a pre-tax loss, they include the £8.1m profit on the revaluation of capacity but do not yet reflect the successful trading that has taken place over the last few years. The underwriting cycle typically can last for ten years of which three or four may be difficult. The Board believes that we are at the point of the underwriting cycle where the prospects for underwriting profitability are much improved.

It is important to understand that there is a three year lag in the recognition of underwriting profits in our accounts so at the moment we are still working through the results of difficult unprofitable years. Lloyd's has announced a return to profitability and is expecting better results in the next few years. Helios has matched the performance of Lloyd's, so we expect to mirror these substantial improvements.

Our strategy is to continue to build a 'blue chip' portfolio of underwriting capacity and during this year the Helios retained capacity fund has grown from £59m to £172m. Returning to the 'cycle clock,' it can be seen that increasing the retained capacity at this time in the cycle will bear fruit in future good years.

The majority of the fund is comprised of freehold capacity on well-established syndicates at Lloyd's. When these syndicates wish to grow their businesses, the existing owners of the capacity have pre-emptive rights to receive additional capacity pro rata to the scale of increase in the underlying business. The additional capacity is free and the value of this additional capacity increases our asset valuation but additional capital is required to meet funds at Lloyd's. This is a major benefit in holding freehold capacity.

Earlier in the cycle we reduced underwriting risk through 'Quota share reinsurance' which transfers the underwriting risk to a third party. In past years as much as 70% of the fund has been passed to reinsurers for which Helios receives a fee. We are now at the stage in the cycle where the market has become more profitable and so the underwriting risk retained by Helios has been increased and the amount ceded to reinsurers has reduced to 26% of the overall portfolio. We continue, however, to reduce risk through stop loss policies to protect against large unexpected losses. To date we have not needed to draw on these facilities.

Helios actively manages capital. We have a number of dials we can turn to increase or decrease our exposure. Fee income from risk ceded to reinsurers remains a core and attractive earnings stream that complements our underwriting returns. As the market cycle evolves, we evaluate opportunities to retain underwriting exposure or cede risk for fees. There is no doubt that over the years the nature of the underwriting risk has changed and frequency of large losses is up. In addition we have to contemplate claims, economic inflation, the ravages of climate change and for the first time, a pandemic. The Russian invasion of Ukraine will serve to stiffen resolve among carriers, to maintain pricing discipline given the unexpected nature of the potential losses.

Summary financial information

Most importantly, this hard market has not been born out of capital destruction but rather from judicious capacity deployment.

The net asset value (NAV) per share has continued to grow to 157p despite a large fundraising during the year when £54m was raised largely from new institutional investors. These funds have been used to build the capacity fund. NAV is made up of capacity valued at the annual Lloyd's auction and other assets including cash used to support underwriting.

The Helios share price generally trades at a premium to NAV which reflects future earnings and dividends. However, it is always a comfort to know that there is an asset backed safety net provided by the NAV.

As the most profitable part of the cycle will be shown in results in future years, we would expect the share price to reflect this with a higher premium.

The board recommends a 3p dividend in line with the existing policy. The payment of this dividend reflects the board's confidence in future cash flow despite the pre tax loss this year.

The opportunity

Helios represents an opportunity for investors to access an un-correlated asset class across a managed portfolio. Capital is deployed across a diversified portfolio of syndicates offering a favourable risk / return. Private capital is a significant feature of the Lloyd's market representing approx. 8.5% of market capacity for 2022 (or £3.4bn). Lloyd's has clearly stated that it values private capital but Lloyd's 2025 vision states that it must be "re-energised and provided on a more flexible and efficient basis". Helios is positioning itself to be that efficient access point and is uniquely able to drive 3rd party investment into Lloyd's.

The future strategy will exploit this opportunity to bring increased predictability to both cash flow and dividends. This is an exciting time for our company and we look forward to many years of profitable trading despite the dire economic outlook which engulfs the world at this time.

I would like to congratulate the executive team in delivering a top class portfolio of upper quartile investments in leading syndicates. In addition, your non-executive directors have played an important part in developing the future strategy.

Michael Cunningham

Non-executive Chairman

26 May 2022

Chief Executive's review

Highlights

· Net tangible asset value increased to £1.57 per share (2020: £1.51)

· The strategy of building a quality portfolio of syndicate capacity continues successfully as the portfolio increased from £110m to £233m - a 111% increase.

· The retained capacity increases at the outset of the underwriting year to £172m from £59m, an increase of 193%. This decision to increase the retained capacity substantially for the second year reflects the confidence in the timing of the market cycle and that it is now the correct time to assume more underwriting risk for shareholders.

· Added to the value of the capacity portfolio through pre-emptions and capacity revaluation, the main contributor to the growth in shareholder value

· Helios' portfolio underwriting results for 2019 underwriting year outperformed Lloyd's return on capacity by 5.6% and by an average of 4.9% for the last three closed underwriting years of account demonstrating the quality of the portfolio.

· Combined ratio for the overall portfolio is in line with the overall Lloyd's market combined ratio of 93.5%

· The improvement in underwriting conditions is continuing into 2022 after 17 consecutive quarters of price increases. Producing overall rate increases in excess of 50%.

· We continue to monitor events across Ukraine and Russia with respect to potential exposure within the capacity portfolio to losses in the political violence, aviation war and marine insurance classes, as well as the aviation and specialty reinsurance classes. This continues to be a complex and evolving situation and disclosures by our syndicates will be closely reviewed.

· With the prospect of improving underwriting returns, together with the opportunity to continue to build the capacity portfolio, Helios is well placed to deliver value to shareholders in the future.

Strategy

The building of a portfolio of participations on leading Lloyd's syndicates remains the strategic objective of the Group. During 2021 the key developments were:

· building the portfolio of capacity to £233m for 2022 by acquiring 28 LLVs in 2021, taking up freehold capacity offered for nil cost by way of pre-emptions amounting to £3.9m and building stakes on syndicates with good prospects offering tenancy capacity;

· maintaining the quality of the portfolio and getting access to the better managed syndicates at Lloyd's;

· taking advantage of the underwriting cycle and increasing the capacity retained by Helios as the prospects for improved underwriting margins remain;

· providing an income generating investment of Lloyd's underwriting capacity thereby generating returns in capital value and dividend income for shareholders; and

· providing a cost-efficient platform for participation at Lloyd's benefitting from no profit commission potentially payable to Lloyd's members' agent and taking advantage of increased scale and, therefore, cost efficiencies.

Acquisition strategy

Helios acquired 28 LLV's in 2021 having written to approximately 1,000 owners of LLVs asking them whether they would be interested in receiving an offer from Helios to buy their LLV. This project to approach the owners of LLV's directly had the advantage of:

· raising the profile of Helios as a potential purchaser of LLV's;

· allowing owners of LLV's who were potentially considering ceasing underwriting at Lloyd's to have the opportunity to realise the value of their investment quickly;

· allowing vendors a tax efficient exit if they wish to cease underwriting; and

· being an on-going exercise to offer owners of LLV's an alternative to investing at Lloyd's by taking Helios shares as part of the consideration.

As a consequence of the improved market conditions, the discounts achievable against the Humphrey valuations narrowed. In addition, the increase in the rate of corporation tax to 25% applied to the capacity value within an LLV, will reduce the accounting fair value for the acquisition.

During 2021 a further 28 LLV's were acquired.

The 28 (five in 2020) acquisitions in 2021 were purchased for a total consideration of £27.3m (£10m in 2020), of which £18m (£4.7m in 2020) was attributed to the value of capacity acquired. The improved prospects for underwriting profitability after four years of marginal results at Lloyd's have increased the competition for the available LLVs to the extent that some positive goodwill has been recognised. We will continue to build on the quality of the capacity portfolio as it is essential to acquire and retain the participations on the better managed syndicates.

Net tangible asset value per share

The growth in the net asset value per share remains a key management metric for determining growth in value to shareholders.

The capital employed per share, being the assets used to generate earnings which exclude the deferred tax liability on capacity value, is as follows:

The deferred tax provision on capacity value could potentially be incurred should the entire portfolio be sold. Given the strategy of the Group to grow the capacity fund, there is no intention to realise the full value of the portfolio. The capital employed by share is 22p (2020 -19p) higher than the net tangible asset value per share.

The value of capacity is subject to fluctuation and reflects the activity in the capacity auctions held in the autumn of each year.

Capacity value

The value of the portfolio of the syndicate capacity remains the major asset of the Group and an important factor in delivering overall returns to shareholders. The growth in the net asset value ("NAV"), being the value of the net tangible assets of the Group, together with the current value of the portfolio capacity, is a key management metric in determining growth in value to shareholders.

The average price per £ of freehold capacity reduced to 34p per £ of capacity as further capacity on syndicates with lower prices was acquired. In addition, the relationship capacity on "nil value"/non-traded syndicates continued to grow as Helios is able to demonstrate long term commitment to providing third party capital to growing syndicates.

The portfolio's syndicates offered pre-emption increases in capacity totalling £3.9m (2020: £10.7m) for no cost to take advantage of the improving market conditions. This free capacity on syndicates that have values at auction increased the value of the fund by £1.6m (2020: £2.4m).

We acquired capacity on lower priced syndicates such as syndicates 510, 2689 and 2121 where capacity of £24m was acquired for £2.6m and which could increase in value in the future.

We continued to take a new "limited tenancy" participation on the Apollo syndicates for £12m, on the MCI Accrisure syndicate for £10m and increasing the participation on the Beat syndicate by £4m and the Blenheim syndicate by £10m.

The Board recognises that the average prices derived from the annual capacity auctions managed by the Corporation of Lloyd's could be subject to material change if the level of demand for syndicate capacity reduces or if the supply of capacity for sale should increase.

A sensitivity analysis of the potential change to the NAV per share from changes to the value of the capacity portfolio is set out below:

Each 10% reduction in the capacity values at the 2022 auctions will reduce the NAV by approx. 7p per share (2020: 10p per share). The increase in capital base has reduced the impact on NAV per share from changes in capacity value. Any reduction in the value will be mitigated by any pre-emption capacity on syndicates that have a value at auction.

Underwriting result

The calendar year underwriting profit from the Helios retained capacity for 2021 has been generated from the portfolio of syndicate results from the 2019 to 2021 underwriting years as follows:

2021 was a year of uncertainty for everyone as the health impacts of the pandemic, and its economic and geopolitical effects, continued to reverberate around the world.

It was the year that the reality of climate change was felt with multiple large scale natural catastrophes, from the big freeze in Texas in February, to the floods in Europe during the summer, and wildfires across the globe. Today, there can be few people who doubt that climate change is having a demonstrable impact. Starting with the 2017 wildfires moving through a range of secondary perils and coming starkly into focus in 2021, climate change is altering the predictability of natural catastrophe risk.

Industry-wide estimates place insured losses from natural catastrophes between $105 billion and $130 billion making 2021 one of the costliest years on record. These events show the critical role the industry plays in delivering risk solutions that protect people, economies, and businesses from uncertainty. When the worst happens, it means disruption and hardship for many and we recognise the human impacts these events have.

The 2021 underwriting year result at 12 months represents an accounting loss of 3.9% (2020: loss 4.6%) on the retained capacity of £94m (2020 - £31m), a threefold increase in the retained capacity in comparison to last year. The increase in retained capacity and the share of the underwriting result for 2021 has impacted the overall result for the year. In addition, two supported syndicates had material exposure to the natural catastrophes during the year and these losses have been fully recognised in the year.

During 2021, the 2019 underwriting year midpoint result improved to a profit of 2.7% (2020 - Loss 2.15%) outperforming the average of the Lloyd's market by 5.8%. Given that losses from COVID-19 of 7% of capacity for the Helios portfolio have predominantly fallen on the 2019 underwriting year, the overall profit is encouraging. The midpoint estimate for the 2020 underwriting year at 31 December 2021 is a profit of 1% (2020: loss - 2.15%).

The portfolio achieved a Combined Ratio of 93.9% in comparison with the combined ratio for the Lloyd's market of 93.5%. The larger share of the 2021 year of account - a loss at the 12 month stage, will have impacted the Helios portfolio combined ratio.

The initial mid-point forecast for 2021 year of 1.9% has been impacted by the series of catastrophic losses that occurred in 2021. The improved Lloyd's market mid-point forecast of 4.2% indicates the remediation work that has been undertaken by the syndicates within the lower quartiles of performance is showing in the overall market estimates.

We would expect the gap in relative performance to narrow over the next 18 months as it has done in the past. The syndicates supported by third party capital have been more conservative in their published estimates over the 36 months to the close of the year of account due to the transparency of each syndicate result.

Other income

Helios generates additional income at Group level from the following:

Fees from the quota share reinsurers reflect the fee payable on the Funds at Lloyd's provided and profit commission relating to 2019 year of account has been accrued.

The intragroup reinsurance policies have been cancelled and the costs relating to the cancellation have been included.

Gain on bargain purchases has reduced as increase in deferred tax to 25% has reduced the fair value of the acquisitions.

Investment income was recognised by the syndicates and in the LLV's acquired. The Helios own funds have mostly remained in cash during this period of market dislocation.

Total costs

The costs of the Group comprise the operating expenses and the cost of the stop loss protection bought to mitigate the downside from large underwriting losses.

The profits that are recognised in the LLVs acquired in the year are included in the underwriting result and the pre-acquisition element is reversed out. The increase reflects the timing of completion of the acquisitions, mostly in the fourth quarter of the year and the larger number acquisitions made.

The increase in the stop loss costs reflects cover required for the larger portfolio reinsured and as £7.6m of additional underwriting capital was sourced in 2021 through a reinsurance contract at a cost of £0.8m.

The operating costs include the transaction costs from the 28 acquisitions and the additional operating costs of those LLV's. The infrastructure required to manage the larger portfolio is not expected to materially increase.

Quality of portfolio

We continue to focus ruthlessly on the best syndicates. Therefore, we strive to acquire LLVs with portfolios that comprise quality syndicates, as such we have to pay average auction prices. Participations on weaker syndicates in acquired portfolios are sold or discarded. The syndicate participations with the leading managing agents at Lloyd's account for 71% of the portfolio. Participations in syndicates managed by these managing agents represent shares in the better managed businesses at Lloyd's.

The underwriting results of the Helios portfolio have on average outperformed the Lloyd's market for the last three closed underwriting years by 4.9%. This material outperformance cannot be expected to be maintained.

The combined ratio for the Helios capacity portfolio was 93.9% (2020: 103.1%) with the Lloyd's market as a whole reporting its a combined ratio of 93.5%. Over the past three years Helios' calendar year combined ratio (before corporate costs) has outperformed Lloyd's by 4.4 percentage points a year. These incremental returns demonstrate the diversity and breadth of underwriting expertise within the businesses comprising the portfolio of syndicate capacity.

Reinsurance quota share

The use of quota share reinsurance to provide access to the Lloyd's underwriting exposures for reinsurers and private capital has not been expanded in 2021. The core of the panel of reinsurers remains XL Group plc and Everest Reinsurance Bermuda Limited.

This reinsurance has successfully reduced the exposure of Helios shareholders in recent years and assists in the financing of the underwriting capital. Helios has reduced the proportion of the capacity portfolio ceded for 2022 year of account. As market conditions continue to improve the Board will consider reducing the cession percentage further thereby increasing the Group's share of the underwriting. The capital raised recently has been used to increase the Group's share of the overall portfolio in this way.

The table shows that the Helios retained capacity has more than doubled in years 2 and 3 as further LLVs are acquired, and the older years are not reinsured. Capacity on underwriting years after 18 months of development is substantially "off risk" as the underlying insurance contracts have mostly expired.

The profits from the capacity on the older years are retained 100% by Helios.

Risk management

Helios continues to ensure that the portfolio is well diversified across classes of businesses and managing agents at Lloyd's.

The biggest single risk faced by insurers arises from the possibility of mispricing insurance on a large scale. The recent correction in terms and conditions and the actions of Lloyd's to force syndicates to remediate underperforming areas of their books demonstrate the mispricing that has prevailed over the past few years. The results of this remediation work by Lloyd's is starting to be reflected in the results announced by the syndicates supported.

These management teams have weathered multiple market cycles and the risk management skills employed should reduce the possibility of substantial under-reserving of previous year underwriting. There is acceptance that catastrophe exposures are generally under-priced and hence the syndicate managers have been reducing their catastrophe exposures.

We assess the downside risk in the event of a major loss through the monitoring of the aggregate net losses estimated by managing agents to the catastrophe risk scenarios ("CRS") prescribed by Lloyd's.

The individual syndicate net exposures will depend on the business underwritten during the year and the reinsurance protections purchased at syndicate level.

The aggregate exceedance probability ("AEP") assesses the potential impact on balance sheet across the portfolio from either single or multiple large losses with a probability of occurring greater than once in a 30-year period.

In addition, Helios purchases stop loss reinsurance for its 74% (2021 YOA: 53%) share of the portfolio with an indemnity of 10% of its share of the capacity and a claim can be made if the loss for the year of account at 36 months exceeds 7.5% of capacity.

The impact on the net asset value of Helios from the disclosed large loss scenarios are as follows:

The assessment of the impact of the specified events is net of all applicable quota share, stop loss reinsurance contracts and corporation tax but before the likely profits to be generated from the balance of the portfolio in any year.

Capital position

The underwriting capital required by Lloyd's for the Helios portfolio comprises the funds to support the Economic Capital Requirement of the portfolio and the Solvency II adjustments is as follows:

The available funds to support Helios' share of the underwriting have been supplemented by the capital raised in April 2021 and by entering into an excess of loss banking and reinsurance agreements for the Helios portfolio. These policies provide £20m (2021- £8.1m) of FAL to Helios at a cost of £900K per year. The FAL provided by using a secured bank facility and from reinsurers will only be exposed to loss if all the Helios "own FAL" is eroded. Therefore, this FAL sits on the top of the Helios capital stack has very limited exposure.

In addition to the current funds lodged at Lloyd's, Helios has available the following facilities to provide additional resources to fund the necessary capital requirements:

• a bank revolving credit bank facility of £10m; and

• the stop loss reinsurance contracts for the 2022 years of account could provide additional underwriting capital of approximately £20m.

Environmental, social and governance responsibility

Helios aims to meet its expectations of its shareholders and other stakeholders in recognising, measuring and managing the impacts of its business activities. As Helios manages a portfolio of Lloyd's syndicate capacity, it has no direct responsibility for the management of those businesses. Each managing agent has responsibility for the management of those businesses, their staff and employment policies and the environmental impact.

We support the Environmental, Social and Governance (ESG) strategy of Lloyd's who have outlined their ambition to integrate sustainability into all of Lloyd's business activities. They will take a leadership position being the insurer of the transition to make headway against the world's objective of reaching net zero by 2050. It is their intention to build a framework to help insurance businesses in the market to integrate ESG principles into their business activities and working with insurers on their net zero plans.

The Board is committed to a high standard of corporate governance and is compliant with the principles of the Quoted Companies Alliance's Corporate Governance Code (the "QCA Code"). The Directors have complied with their responsibilities under Section 172 of the Companies Act 2006 which requires them to act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole.

Nigel Hanbury

Chief Executive

26 May 2022

Summary financial information

The information set out below is a summary of the key items that the Board assesses in estimating the financial position of the Group. Given the Board has no active role in the management of the syndicates within the portfolio, the following approach is taken:

A) It relies on the syndicate financial information.

B) It calculates the amounts due to/from the quota share reinsurers in respect of their share of the profits/losses as well as fees and commissions due.

C) An adjustment is made to exclude pre-acquisition profits on companies bought in the year.

D) Costs relating to stop loss reinsurance and operating costs are deducted.

Year to 31 December 2021

Year to 31 December 2020

Summary balance sheet (excluding assets and liabilities held by syndicates)

See Note 28 for further information.

Cash flow

Consolidated statement of comprehensive income -Year ended 31 December 2021

The profit attributable to owners of the Parent, the total comprehensive income and the earnings per share set out above are in respect of continuing operations.

The notes are an integral part of these Financial Statements.

Consolidated statement of financial position -At 31 December 2021

Company number 05892671

The Financial Statements were approved and authorised for issue by the Board of Directors on 26 May 2022, and were signed on its behalf by:

Nigel Hanbury

Chief Executive

26 May 2022

The notes are an integral part of these Financial Statements.

Parent Company statement of financial position -At 31 December 2021

Company number: 05892671

The Financial Statements were approved and authorised for issue by the Board of Directors on 26 May 2022, and were signed on its behalf by:

Nigel Hanbury

Chief Executive

26 May 2022

The notes are an integral part of these Financial Statements.

Consolidated statement of changes in equity -Year ended 31 December 2021

The notes are an integral part of these Financial Statements.

Parent Company statement of changes in equity -Year ended 31 December 2021

The notes are an integral part of these Financial Statements.

Consolidated statement of cash flows -Year ended 31 December 2021

Cash held within the syndicates' accounts is £8,447,000 (2020: £3,534,000) of the total cash and cash equivalents held at the year end of £24,624,000 (2020: £8,495,000). The cash held within the syndicates' accounts is not available to the Group to meet its day-to-day working capital requirements.

Cash and cash equivalents comprise cash at bank and in hand.

The notes are an integral part of these Financial Statements.

Parent Company statement of cash flows -Year ended 31 December 2021

Cash and cash equivalents comprise cash at bank and in hand.

The notes are an integral part of these Financial Statements.

Notes to the Financial Statements - Year ended 31 December 2021

1. General information

The Company is a public limited company listed on AIM. The Company was incorporated in England and is domiciled in the UK and its registered office is 40 Gracechurch Street, London EC3V 0BT. These Financial Statements comprise the Company and its subsidiaries (together referred to as the "Group"). The Company participates in insurance business as an underwriting member at Lloyd's through its subsidiary undertakings.

2. Significant accounting policies

The principal accounting policies adopted in the preparation of the Group and Parent Company Financial Statements (the "Financial Statements") are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of preparation

The Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and interpretations issued by the IFRS Interpretations Committee ("IFRIC") as adopted by the UK international accounting standards, and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

No statement of comprehensive income is presented for Helios Underwriting plc, as a Parent Company, as permitted by Section 408 of the Companies Act 2006.

The Financial Statements have been prepared under the historical cost convention as modified by the revaluation of financial assets at fair value through profit or loss.

Use of judgements and estimates

The preparation of Financial Statements in conformity with IFRS requires the use of judgements, estimates and assumptions in the process of applying the Group's accounting policies that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting year. Although these estimates are based on management's best knowledge of the amounts, events or actions, actual results may ultimately differ from these estimates. Further information is disclosed in Note 3.

The Group participates in insurance business through its Lloyd's member subsidiaries. Accounting information in respect of syndicate participations is provided by the syndicate managing agents and is reported upon by the syndicate auditors.

Going concern

The Group and the Company have net assets at the end of the reporting period of £107,746,000 and £120,374,000 respectively.

The Company's subsidiaries participate as underwriting members at Lloyd's on the 2019, 2020 and 2021 years of account, as well as any prior run-off years, and they have continued this participation since the year end on the 2022 year of account. This underwriting is supported by Funds at Lloyd's totalling £48,913,000 (2020: £26,440,000), letters of credit provided through the Group's reinsurance agreements totalling £37,032,000 (2020: £39,536,000) and solvency credits issued by Lloyd's totalling £239,000 (2020: £107,000).

The Directors have a reasonable expectation that the Group and the Company have adequate resources to meet their underwriting and other operational obligations for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the annual Financial Statements. In arriving at this conclusion the Directors have taken into account the impact of COVID-19 both on the operating activities of the Group and on the Lloyd's market.

International Financial Reporting Standards

Adoption of new and revised standards

In the current year, the Group has applied new IFRSs and amendments to IFRSs issued by the IASB that are mandatory for an accounting period that begins on or after 1 January 2021.

IFRS 16 Amendments, Leases COVID 19 Related Rent Concessions: Lessees are provided with an exemption from assessing whether a COVID-19-related rent concession is a lease modification. The Group has not applied this exemption and the amendment has not had an impact on the Consolidated Financial Statements.

IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Amendments, Interest Rate Benchmark Reform Phase 2. The change relates to the modification of financial assets, financial liabilities and lease liabilities, specific hedge accounting requirements, and disclosure requirements applying IFRS 7 to accompany the amendments regarding modifications and hedge accounting. The amendment has not had a material impact on the Consolidated Financial Statements.

Amendments to IFRS 4: Insurance contracts - Deferral of IFRS 9. The amendments defer the fixed expiry date of the amendment to annual periods beginning on or after 1 January 2023.

New standards, amendments and interpretations not yet adopted

A number of new standards and amendments adopted by the UK, as well as standards and interpretations issued by the IASB but not yet adopted by the UK, have not been applied in preparing the Consolidated Financial Statements.

The Group does not plan to adopt these standards early; instead it will apply them from their effective dates as determined by their dates of UK endorsement. The Group continues to review the upcoming standards to determine their impact.

IFRS 9, Financial Instruments (IASB effective date 1 January 2018) has not been applied under IFRS 4 Amendment option to defer until IFRS 17 comes into effect on 1 January 2023.

IFRS 17 "Insurance Contracts" (IASB effective date 1 January 2023).

Amendments to IFRS 3 "Business Combinations", IAS 16 "Property, Plant and Equipment" and IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" (IASB effective date 1 January 2022).

IAS 1 Presentation of Financial Statements Amendments, Classification of Liabilities as Current or Non-current (IASB effective date 1 January 2023).

IAS 8 Accounting Policies Amendments, Changes in Accounting Estimates and Errors (IASB effective date 1 January 2023).

IFRS 9 "Financial Instruments" (IASB effective date 1 January 2018) has not been applied under the IFRS 4 amendment option. IFRS 9 provides a reform of financial instruments accounting to supersede IAS 39 "Financial Instruments: Recognition and Measurement".

Applying IFRS 9 "Financial Instruments" with IFRS 4 "Insurance Contracts" contained an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4. The Group meets the eligibility criteria and has taken advantage of this temporary exemption not to apply this standard until the effective date of IFRS 17.

Principles of consolidation, business combinations and goodwill

(a) Consolidation and investments in subsidiaries

The Group Financial Statements incorporate the Financial Statements of Helios Underwriting plc, the Parent Company, and its directly and indirectly held subsidiaries.

The Financial Statements for all of the above subsidiaries are prepared for the year ended 31 December 2021 under UK GAAP. Consolidation adjustments are made to convert the subsidiary Financial Statements prepared under UK GAAP to IFRS so as to align accounting policies and treatments.

No income statement is presented for Helios Underwriting plc as permitted by Section 408 of the Companies Act 2006. The profit after tax for the year of the Parent Company was £9,805,000 (2020: £2,636,000).

Subsidiaries are entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding or partnership participation of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Intra-group transactions, balances and unrealised gains on intra-group transactions are eliminated.

In the Parent Company's Financial Statements, investments in subsidiaries are stated at cost and are reviewed for impairment annually or when events or changes in circumstances indicate the carrying value to be impaired.

(b) Business combinations and goodwill

The Group uses the acquisition method of accounting to account for the acquisition of subsidiaries. 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. Acquisition costs are expensed as incurred.

The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is capitalised and recorded as goodwill. Following initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is tested for impairment annually or if events or changes in circumstances indicate that the carrying value may be impaired and recognised directly in the consolidated income statement. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly as revenue in the consolidated income statement as a gain on bargain purchase. The gain on bargain purchase is recognised within the operating profit, as acquiring LLVs at a discount to their net asset fair value, as is an important part of the predominant strategy for the Group. Insurance liabilities are not discounted on acquisition, when calculating their fair value, as these liabilities will likely all crystallise within three years due to the accounting framework Lloyd's syndicates operate under. Accordingly, any discount applied to insurance liabilities will not be material.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as Nigel Hanbury.

Foreign currency translation

Items included in the Financial Statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The Financial Statements are presented in thousands of pounds sterling, which is the Group's functional and presentational currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.

Foreign currency transactions and non-monetary assets and liabilities, including deferred acquisition costs and unearned premiums, are translated into the functional currency using annual average rates of exchange prevailing at the time of the transaction as a proxy for the transactional rates. The translation difference arising on non-monetary asset items is recognised in the consolidated income statement.

Certain supported syndicates have non-sterling functional currencies and any exchange movement that they would have been reflected in other comprehensive income. As a result of this has been included within profit before tax at consolidation level, to be consistent with the Group's policy of using sterling as the functional currency.

Monetary items are translated at period-end rates; any exchange differences arising from the change in rates of exchange are recognised in the consolidated income statement of the year.

Underwriting

Premiums

Gross premium written comprises the total premiums receivable in respect of business incepted during the year, together with any differences between booked premiums for prior years and those previously accrued, and includes estimates of premiums due but not yet receivable or notified to the syndicates on which the Group participates, less an allowance for cancellations. All premiums are shown gross of commission payable to intermediaries and exclude taxes and duties levied on them.

Unearned premiums

Gross premium written is earned according to the risk profile of the policy. Unearned premiums represent the proportion of gross premium written in the year that relates to unexpired terms of policies in force at the end of the reporting period calculated on a time apportionment basis having regard, where appropriate, to the incidence of risk. The specific basis adopted by each syndicate is determined by the relevant managing agent.

Deferred acquisition costs

Acquisition costs, which represent commission and other related expenses, are deferred over the period in which the related premiums are earned.

Reinsurance premiums

Reinsurance premium costs are allocated by the managing agent of each syndicate to reflect the protection arranged in respect of the business written and earned.

Reinsurance premium costs in respect of reinsurance purchased directly by the Group are charged or credited based on the annual accounting result for each year of account protected by the reinsurance.

Claims incurred and reinsurers' share

Claims incurred comprise claims and settlement expenses (both internal and external) occurring in the year and changes in the provisions for outstanding claims, including provisions for claims incurred but not reported ("IBNR") and settlement expenses, together with any other adjustments to claims from previous years. Where applicable, deductions are made for salvage and other recoveries.

The provision for claims outstanding comprises amounts set aside for claims notified and IBNR. The amount included in respect of IBNR is based on statistical techniques of estimation applied by each syndicate's in-house reserving team and reviewed, in certain cases, by external consulting actuaries. These techniques generally involve projecting from past experience the development of claims over time to form a view of the likely ultimate claims to be experienced for more recent underwriting, having regard to variations in the business accepted and the underlying terms and conditions. The provision for claims also includes amounts in respect of internal and external claims handling costs. For the most recent years, where a high degree of volatility arises from projections, estimates may be based in part on output from the rating and other models of the business accepted, and assessments of underwriting conditions.

The reinsurers' share of provisions for claims is based on calculated amounts of outstanding claims and projections for IBNR, net of estimated irrecoverable amounts, having regard to each syndicate's reinsurance programme in place for the class of business, the claims experience for the year and the current security rating of the reinsurance companies involved. Each syndicate uses a number of statistical techniques to assist in making these estimates.

Accordingly, the two most critical assumptions made by each syndicate's managing agent as regards claims provisions are that the past is a reasonable predictor of the likely level of claims development and that the rating and other models used, including pricing models for recent business, are reasonable indicators of the likely level of ultimate claims to be incurred.

The level of uncertainty with regard to the estimations within these provisions generally decreases with time since the underlying contracts were exposed to new risks. In addition, the nature of short-tail risks, such as property where claims are typically notified and settled within a short period of time, will normally have less uncertainty after a few years than long-tail risks, such as some liability businesses where it may be several years before claims are fully advised and settled. In addition to these factors if there are disputes regarding coverage under policies or changes in the relevant law regarding a claim this may increase the uncertainty in the estimation of the outcomes.

The assessment of these provisions is usually the most subjective aspect of an insurer's accounts and may result in greater uncertainty within an insurer's accounts than within those of many other businesses. The provisions for gross claims and related reinsurance recoveries have been assessed on the basis of the information currently available to the directors of each syndicate's managing agent. However, ultimate liability will vary as a result of subsequent information and events and this may result in significant adjustments to the amounts provided. Adjustments to the amounts of claims provisions established in prior years are reflected in the Financial Statements for the period in which the adjustments are made. The provisions are not discounted for the investment earnings that may be expected to arise in the future on the funds retained to meet the future liabilities. The methods used, and the estimates made, are reviewed regularly.

Quota share reinsurance

Under the Group's quota share reinsurance agreements, 70% of the 2020 Underwriting year, an average of 47% of the 2021 underwriting year and an average of 26% of the 2022 underwriting year of insurance exposure is ceded to the reinsurers. Amounts payable to the reinsurers are included within "reinsurance premium ceded" in the consolidated income statement of the year and amounts receivable from the reinsurers are included within "reinsurers' share of gross claims paid" in the consolidated income statement of the year.

Unexpired risks provision

Provision for unexpired risks is made where the costs of outstanding claims, related expenses and deferred acquisition costs are expected to exceed the unearned premium provision carried forward at the end of the reporting period. The provision for unexpired risks is calculated separately by reference to classes of business that are managed together, after taking into account relevant investment return. The provision is made on a syndicate-by-syndicate basis by the relevant managing agent.

Closed years of account

At the end of the third year, the underwriting account is normally closed by reinsurance into the following year of account. The amount of the reinsurance to close premium payable is determined by the managing agent, generally by estimating the cost of claims notified but not settled at 31 December, together with the estimated cost of claims incurred but not reported ("IBNR") at that date and an estimate of future claims handling costs. Any subsequent variation in the ultimate liabilities of the closed year of account is borne by the underwriting year into which it is reinsured.

The payment of a reinsurance to close premium does not eliminate the liability of the closed year for outstanding claims. If the reinsuring syndicate was unable to meet any obligations, and the other elements of Lloyd's chain of security were to fail, then the closed underwriting account would have to settle any outstanding claims.

The Directors consider that the likelihood of such a failure of the reinsurance to close is extremely remote and consequently the reinsurance to close has been deemed to settle the liabilities outstanding at the closure of an underwriting account. The Group will include its share of the reinsurance to close premiums payable as technical provisions at the end of the current period and no further provision is made for any potential variation in the ultimate liability of that year of account.

Run-off years of account

Where an underwriting year of account is not closed at the end of the third year (a "run-off" year of account) a provision is made for the estimated cost of all known and unknown outstanding liabilities of that year. The provision is determined initially by the managing agent on a similar basis to the reinsurance to close. However, any subsequent variation in the ultimate liabilities for that year remains with the corporate member participating therein. As a result, any run-off year will continue to report movements in its results after the third year until such time as it secures a reinsurance to close.

Net operating expenses (including acquisition costs)

Net operating expenses include acquisition costs, profit and loss on exchange and other amounts incurred by the syndicates on which the Group participates.

Acquisition costs, comprising commission and other costs related to the acquisition of new insurance contracts, are deferred to the extent that they are attributable to premiums unearned at the end of the reporting period.

Investment income

Interest receivable from cash and short-term deposits and interest payable are accrued to the end of the period.

Dividend income from financial assets at fair value through profit or loss is recognised in the income statement when the Group's right to receive payments is established.

Syndicate investments and cash are held on a pooled basis, the return from which is allocated by the relevant managing agent to years of account proportionate to the funds contributed by the year of account.

Other operating expenses

All expenses are accounted for on an accruals basis.

Intangible assets: syndicate capacity

With effect from 31 December 2020, the Group changed this policy so that syndicate capacity is revalued on a regular basis to its fair value which the directors believe to be the average weighted value achieved in the Lloyd's auction process. The increase in value of syndicate capacity between its fair value and its cost less impairment is taken to the revaluation reserve through the statement of comprehensive income net of any tax effect, as required by IAS 38.

Financial assets

(a) Classification

The Group classifies its financial assets in the following categories: at fair value through profit or loss, and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. The Group does not make use of the held-to-maturity and available-for-sale classifications.

(i) Financial assets at fair value through profit or loss

All financial assets at fair value through profit or loss are categorised as designated at fair value through profit or loss upon initial recognition because they are managed and their performance is evaluated on a fair value basis in accordance with the Group's documented investment strategy. Information about these financial assets is provided internally on a fair value basis to the Group's key management.

The Group's investment strategy is to invest and evaluate their performance with reference to their fair values. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as current assets, except for maturities greater than 12 months after the reporting period. The latter ones are classified as non-current assets.

The Group's loans and receivables comprise "other receivables, including insurance and reinsurance receivables" and "cash and cash equivalents".

The Parent Company's loans and receivables comprise "other receivables" and "cash and cash equivalents".

(b) Recognition, derecognition and measurement

Regular purchases and sales of financial assets are recognised on the trade date, being the date on which the Group commits to the purchase or sale of the asset. Financial assets are derecognised when the right to receive cash flows from the financial assets has expired or is transferred and the Group has transferred substantially all its risks and rewards of ownership.

Financial assets at fair value through profit or loss are initially recognised at fair value and transaction costs incurred expensed in the income statement.

Loans and receivables are initially recognised at fair value plus transaction costs and are subsequently carried at amortised cost less any impairment losses.

Fair value estimation

The fair value of financial assets at fair value through profit or loss which are traded in active markets is based on quoted market prices at the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regular occurring market transactions on an arm's length basis. The quoted market price used for financial assets at fair value through profit or loss held by the Group is the current bid price.

The fair value of financial assets at fair value through profit or loss that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity-specific estimates.

Unrealised gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the income statement within "net investment income".

The fair values of short-term deposits are assumed to approximate to their book values. The fair values of the Group's debt securities have been based on quoted market prices for these instruments.

(c) Impairment

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Asset carried at amortised cost

For loans and receivables, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument's fair value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss.

Cash and cash equivalents

For the purposes of the statements of cash flows, cash and cash equivalents comprise cash and short-term deposits at bank.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings, using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services, and amortised over the period of the facility to which it relates.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

Borrowing costs

Borrowing costs are recognised in the income statement in the period in which they are incurred.

Joint Share Ownership Plan ("JSOP")

On 16 August 2021, the Company issued and allotted 600,000 new ordinary shares of £0.10 each ("ordinary shares"). The new ordinary shares have been issued at a subscription price of 155p per ordinary share, being the closing price of an ordinary share on 16 August 2021, pursuant to the Helios Underwriting plc employees' Joint Share Ownership Plan (the "Plan").

The new ordinary shares have been issued into the respective joint beneficial ownership of (i) each of the participating Executive Directors as shown in Note 23 and (ii) the Trustee of JTC Employee Solutions Limited (the "Trust") and are subject to the terms of joint ownership agreements ("JOAs") respectively entered into between the Director, the Company and the Trustee. The nominal value of the new ordinary shares has been paid by the Trust out of funds advanced to it by the Company with the additional consideration of 145p left outstanding until such time as new ordinary shares are sold. The Company has waived its lien on the shares such that there are no restrictions on their transfer.

The terms of the JOAs provide, inter alia, that if jointly owned shares become vested and are sold, the proceeds of sale will be divided between the joint owners so that the participating Director receives an amount equal to the amount initially provided by the participating Director plus any growth in the market value of the jointly owned Ordinary Shares above a target share price of 174.8p (so that the participating Director will only ever receive value if the share sale price exceeds this).

The vesting of the award will be subject to performance conditions relating to growth in Net Tangible Asset Value per share measured over the three calendar years from the Net Tangible Asset per share disclosed as at 31 December 2021 of 151p.

The percentage of Jointly Owned Shares that vest shall be dependent on the average growth in Net Tangible Asset Value per share during the three financial years ending 31 December 2023. The vesting percentage shall be determined on the Average Growth in Net Tangible Asset Value per share. If the Average Growth in Net Tangible Asset Value does not exceed 5%, then no awards vest, and if the Average Growth in Net Tangible Asset Value exceeds 20% or above, then 100% of the awards vest.

The Plan was established and approved by resolution of the Remuneration Committee of the Company on 13 December 2017 and provides for the acquisition by employees, including Executive Directors, of beneficial interests as joint owners (with the Trust) of ordinary shares in the Company upon the terms of a JOA. The terms of the JOA provide that if the jointly owned shares become vested and are sold, the proceeds of sale will be divided between the joint owners on the terms set out above.

Current and deferred tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case tax is also recognised in other comprehensive income or directly in equity, respectively.

Current tax

The current income tax charge is calculated on the basis of the tax laws enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management establishes provisions when appropriate, on the basis of amounts expected to be paid to the tax authorities.

Deferred tax

Deferred tax is provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements.

However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for.

Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

Other payables

These present liabilities for services provided to the Group prior to end of the financial year which are unpaid. These are classified as current liabilities, unless payment is not due within 12 months after the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

Share capital and share premium

Ordinary shares are classified as equity.

The difference between the fair value of the consideration received and the nominal value of the share capital issued is taken to the share premium account. Incremental costs directly attributable to the issue of shares or options are shown in equity as a deduction, net of tax, from proceeds.

Where the Company buys back its own ordinary shares on the market, and these are held in treasury, the purchase is made out of distributable profits and hence shown as a deduction from the Company's retained earnings.

Dividend distribution policy

Dividend distribution to the Company's shareholders is recognised in the Group's and the Parent Company's Financial Statements in the period in which the dividends are approved by the Company's shareholders.

3. Key accounting judgements and estimation uncertainties

In applying the Company's accounting policies, the Directors are required to make judgements, estimates and assumptions in determining the carrying amounts of assets and liabilities. These judgements, estimates and assumptions are based on the best and most reliable evidence available at the time when the decisions are made, and are based on historical experience and other factors that are considered to be applicable. Due to the inherent subjectivity involved in making such judgements, estimates and assumptions, the actual results and outcomes may differ. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.

The measurement of the provision for claims outstanding is the most significant judgement involving estimation uncertainty regarding amounts recognised in these Financial Statements in relation to underwriting by the syndicates and this is disclosed further in Notes 4 and 7.

The management and control of each syndicate is carried out by the managing agent of that syndicate, and the Group looks to the managing agent to implement appropriate policies, procedures and internal controls to manage each syndicate.

The key accounting judgements and sources of estimation uncertainty set out below therefore relate to those made in respect of the Group only, and do not include estimates and judgements made in respect of the syndicates.

4. Risk management

The majority of the risks to the Group's future cash flows arise from each subsidiary's participation in the results of Lloyd's syndicates. As detailed below, these risks are mostly managed by the managing agents of the syndicates. The Group's role in managing these risks, in conjunction with its subsidiaries and members' agent, is limited to a selection of syndicate participations, monitoring the performance of the syndicates and the purchase of appropriate member level reinsurance.

Risk background

The syndicates' activities expose them to a variety of financial and non-financial risks. The managing agent is responsible for managing the syndicate's exposure to these risks and, where possible, introducing controls and procedures that mitigate the effects of the exposure to risk. For the purposes of setting capital requirements for the 2019 and subsequent years of account, each managing agent will have prepared a Lloyd's Capital Return ("LCR") for the syndicate to agree capital requirements with Lloyd's based on an agreed assessment of the risks impacting the syndicate's business and the measures in place to manage and mitigate those risks from a quantitative and qualitative perspective. The risks described below are typically reflected in the LCR and typically the majority of the total assessed value of the risks concerned is attributable to insurance risk.

The insurance risks faced by a syndicate include the occurrence of catastrophic events, downward pressure on pricing of risks, reductions in business volumes and the risk of inadequate reserving. Reinsurance risk arises from the risk that a reinsurer fails to meet its share of a claim. The management of the syndicate's funds is exposed to investment risk, liquidity risk, credit risk, currency risk and interest rate risk (as detailed below), leading to financial loss. The syndicate is also exposed to regulatory and operational risks including its ability to continue to trade. However, supervision by Lloyd's and the Prudential Regulation Authority provides additional controls over the syndicate's management of risks.

The Group manages the risks faced by the syndicates on which its subsidiaries participate by monitoring the performance of the syndicates it supports. This commences in advance of committing to support a syndicate for the following year, with a review of the business plan prepared for each syndicate by its managing agent. In addition, quarterly reports and annual accounts, together with any other information made available by the managing agent, are monitored and if necessary enquired into. If the Group considers that the risks being run by the syndicate are excessive, it will seek confirmation from the managing agent that adequate management of the risk is in place and, if considered appropriate, will withdraw support from the next year of account. The Group also manages its exposure to insurance risk by purchasing appropriate member level reinsurance.

(a) Syndicate risks

(i) Liquidity risk

The syndicates are exposed to daily calls on their available cash resources, principally from claims arising from its insurance business. Liquidity risk arises where cash may not be available to pay obligations when due, or to ensure compliance with the syndicate's obligations under the various trust deeds to which it is party.

The syndicates aim to manage their liquidity position so that they can fund claims arising from significant catastrophic events, as modelled in their Lloyd's realistic disaster scenarios ("RDS").

Although there are usually no stated maturities for claims outstanding, syndicates have provided their expected maturity of future claims settlements as follows:

(ii) Credit risk

Credit ratings to syndicate assets (Note 28) emerging directly from insurance activities which are neither past due nor impaired are as follows:

Syndicate assets (Note 28) emerging directly from insurance activities, with reference to their due date or impaired, are as follows: