Helios Underw Regulatory News (HUW)

28 Mar 2008 07:01

Hampden Underwriting Plc28 March 2008 Hampden Underwriting PLC ("Hampden Underwriting" or the "Company") Preliminary Results for the year ended 31 December 2007 Hampden Underwriting, which provides investors with a limited liability directinvestment into the Lloyd's insurance market, announces its preliminary resultsfor the year ended 31 December 2007. These are the Company's first results sinceits admission to AIM in September 2007. Highlights * Successful Admission to AIM in September 2007 raising a total of of £7.4 million * Acquisition of underwriting capacity of £5.1m through arrangements made by Hampden Agencies Limited ("HAL") in September 2007 * Acquisition of a corporate member with underwriting capacity of £0.3 million in January 2008 * Company commenced underwriting on 1 January 2008 * Unique quoted underwriting vehicle offering investors a direct exposure to Lloyd's underwriting Commenting upon these results Chairman, Sir Michael Oliver said: "Hampden Underwriting provides an excellent opportunity to invest in a quotedvehicle participating in a diverse spread of syndicates at Lloyd's and a strongfoundation has been established for the business through the acquisition of theunderwriting portfolio and a corporate member. We believe that there aresignificant opportunities for the business through acquisitions of othercorporate members and investment in Lloyd's related products which will enhanceour market presence and generate attractive returns for shareholders." Enquiries Hampden Underwriting Jeremy Evans 020 7863 6567 Smith & Williamson Azhic Basirov 020 7131 4000Corporate Finance Limited David Jones Joanne du Plessis Cardew Group Tim Robertson 020 7930 0777 Shan Shan Willenbrock David Roach Chairman's Statement It is with great pleasure that I present our results for the period ended 31December 2007. This is the Company's first set of results since its admission toAIM in September 2007 and our offer for subscription which closed in October,when we successfully raised £7.4 million. The period covered by the financialaccounts is prior to the Company's commencement of underwriting on 1 January2008. Hampden Underwriting has been incorporated to provide a limited liability directinvestment into the Lloyd's insurance market. Hampden Agencies Limited ("HAL"),the largest provider of third party capital to the Lloyd's market advising over£1.2 billion of capacity in 2008, was appointed by Hampden Underwriting asLloyd's adviser to Hampden Underwriting's wholly owned subsidiary, HampdenCorporate Member ("HCM") which will trade within the Lloyd's insurance market asa corporate member. The rationale for establishing Hampden Underwriting was to exploit an obviousgap in the market and provide an opportunity to invest in a quoted companyunderwriting via a diverse spread of syndicates at Lloyd's. Hampden Underwritingis currently the only quoted company vehicle whose principal objective is toparticipate in a spread portfolio of Lloyd's syndicates rather than manage thesesyndicates itself. To achieve our objective of generating attractive shareholder returns HampdenUnderwriting will pursue a three part strategy: • Underwriting in its own right via HCM.• Acquisition of other corporate members of Lloyd's when suitable opportunities arise.• Investment in other Lloyd's related products and opportunities. During the period under review, I am pleased to report that we have delivered onthe first part of our strategy by acquiring an underwriting portfolio of £5.1m.The portfolio provides a good spread of classes of business being concentratedin property insurance, reinsurance and motor business, where rating conditionsare more favourable. HAL considers that the syndicates in the portfolio provideopportunities for good returns to be made. The cost of purchasing this capacityamounted to £1.0 million and as at 31 December 2007, Hampden Underwriting heldcash of £3.6 million and investments of £2.5 million (including £2.0 million ondeposit as funds at Lloyd's). In January this year, we acquired a small corporate member which hasunderwriting capacity of £0.3 million. There is already a market in the sale andpurchase of corporate members, in which HAL is active. The Company believes thatthe right acquisitions could lead to some significant capital gain accruing fromthe syndicate participations owned by the corporate members acquired and enhancethe market presence of Hampden Underwriting itself. The Company will continue toexplore other acquisition opportunities as they arise. We have also been approached by a number of other Lloyd's related entities witha view to investment by HCM. It is encouraging therefore that at such an earlystage in the Company's public life that all three of its strategies are beingactively promoted. Lloyd's has entered 2008 in a strong position. Lloyd's operating performance inrecent years has been excellent, comparing favourably with its competitors. From2003-2006, the average combined ratio was the best in its peer group at 95.75%(this is the standard measure of profitability for the insurance industry whichmeasures the percentage of premiums paid out in claims and expenses). Ratingagencies Fitch Ratings and Standard & Poor's upgraded Lloyd's insurer financialstrength to A + (Strong) in the second quarter of 2007. Lloyd's improvedfinancial position has enabled it to reduce its central charges by at least 0.5%on capacity for 2008 with an equivalent benefit to investors' returns. The current outlook for Lloyd's is that market conditions are becoming morechallenging with the exception of UK motor. However, most classes of businessremain historically well-rated and HCM participates in some of the bestperforming syndicates in the Lloyd's market. I would like to take this opportunity to thank everyone who provided support toour Initial Public Offering last year. I would also like to thank HampdenAgencies for their commitment and hard work in assisting in the establishment ofthe Company and for their ongoing advice as Members' Agent. 2008 will be the first full year of trading and we have begun the yearpositively by acquiring an underwriting portfolio and a corporate member whichwe believe provides a good spread across classes of business. Looking ahead, webelieve there are significant opportunities for acquisitions and investment inother Lloyd's related products. The Board believes Hampden Underwriting has madea good start and is in a strong position to generate attractive returns forshareholders. Lloyd's Adviser's Report HAL'S ROLE AS ADVISER TO HCM Hampden Underwriting has been incorporated to provide a limited liability directinvestment into the Lloyd's insurance market. Hampden Agencies Limited ("HAL"),the largest provider of third party capital to the Lloyd's market, has beenappointed by Hampden Underwriting as Lloyd's adviser to Hampden Corporate Member("HCM"). HCM's principal underwriting exposure for 2008 is through a managedportfolio, MAPA 7208, in which other clients of HAL also participate. Theobjective of HAL in managing MAPA 7208 is to seek underwriting profits on a wellspread portfolio across a number of syndicates and classes of business atLloyd's. About HAL HAL is a wholly owned subsidiary of Hampden Capital Plc which in turn is asubsidiary of Hampden Holdings Limited (HHL), a privately owned company whichinvests in businesses specialising in the insurance sector. HHL's origins in the private client business at Lloyd's date back to 1998 whenit acquired Falcon Agencies, which was established in 1994. Following a seriesof acquisitions, HAL has become the largest Members' Agent at Lloyd's. HAL, hasa successful track record of outperforming the Lloyd's market average result andis renowned for its focus on customer service and proactive management of itsclients' investments at Lloyd's. HAL currently provides advice to approximately 1,200 investors at Lloyd's with atotal underwriting capacity of £1.2 billion. Its principal client base is madeup of high net worth investors, most of whom now use Limited Liability Companiesor Limited Liability Partnerships to underwrite at Lloyd's. HAL also acts onbehalf of a number of larger corporate investors with underwriting capacity of£288 million. LLOYD'S INSURANCE MARKET Lloyd's operating performance in recent years has been excellent, comparingfavourably with its competitors. From 2003 to 2006 the average combined ratio(the standard measure of profitability of the industry which excludes investmentincome) was the best in its peer group at 95.75%. Lloyd's has entered 2008 in a stronger position relative to its competitors.This has been recognised by the rating agencies with both Fitch Ratings andStandard & Poor's upgrading Lloyd's insurer financial strength rating to A +(Strong). Lloyd's improved financial position has enabled it to reduce itscentral charges by at least 0.5% on capacity for 2008 with an equivalent benefitto investors' returns. 2008 PORTFOLIO ANALYSIS HCM's main underwriting participation for the 2008 underwriting year is through£5.1m of capacity which it acquired in HAL's managed portfolio, MAPA 7208. Inaddition, it has acquired a small participation of £0.1m capacity on Hiscox's"sidecar" catastrophe reinsurance syndicate, Syndicate 6103, and recentlyannounced an acquisition of another corporate member which providesapproximately a further £0.3m of capacity. The total capacity acquired by MAPA 7208 for 2008 was £44.7m. The average priceof capacity at auction rose from 11.7p per pound at the 2006 auctions to 25.2pper pound in 2007. Despite being the biggest purchaser at auction, HAL's MAPAManager was able to control the acquisition cost successfully, paying an averageof 19.6p per pound of capacity, compared with the average price at which thecapacity acquired traded in the three auctions of 20p per pound. The spread of syndicates in MAPA 7208 is similar to those of HAL's existingMAPAs with a weighting towards those syndicates graded A and B with the largestlines being on Kiln Syndicate 510, Omega Syndicate 958 and MAP Syndicate 2791,all of which are syndicates with excellent track records, specialising in areasof the market where rating conditions are more favourable. Including the Hiscox "sidecar", HCM's current portfolio is concentrated inproperty insurance, reinsurance and motor business. These are the classes whererating conditions are most favourable, with motor business providing a balanceto the catastrophe exposed business and starting to show an increase in rates.The portfolio also includes exposure to US and non US liability business wherethe rates are under more pressure but where there are still opportunities forgood returns to be made. HAL considers that the portfolio provides a good spreadof classes of business in the current market conditions. PORTFOLIO CLASS OF BUSINESS SPLIT FOR 2008 ACCOUNT Percentage of Total Gross PremiumReinsurance 22.7US$ Property 17.6Motor 12.5US$ Liability 9.2Energy 8.6Non US$ Property 8.2Marine General 6.8Non US$ Liability 5.0Aviation 4.3Accident & Health 2.9Pecuniary Loss 2.2 Based on Syndicate Business plan information of gross premium income by riskcode. This information is not made available by Syndicate 6101 which issupported through MAPA 7208; as such the data for this syndicate has beenestimated. TOP 10 SYNDICATE HOLDINGS Syndicate Managing Agent 2008 2008 HCM 2008 HCM 2008 Major Category Syndicate Portfolio Portfolio % of Business Provisional Capacity of Total Capacity £'000s £'000s 510 R.J.Kiln & Co.Ltd 587,974.7 686.5 13.5 US$ Property958 Omega Underwriting 249,432.4 667.8 13.1 Reinsurance Agents Ltd2791 Managing Agency 400,001.5 644.6 12.6 Reinsurance Partners Ltd6101 Argenta Syndicate 101,063.2 559.7 11.0 US$ Property Management Ltd623 Beazley Furlonge Ltd 158,000.0 387.8 7.6 US$ Non-Marine Liability260 KGM Underwriting 53,698.3 255.7 5.0 Motor Agencies Ltd557 R.J.Kiln & Co.Ltd 120,054.2 246.3 4.8 Reinsurance218 Equity Syndicate 420,768.1 235.1 4.6 Motor Management Ltd609 Atrium Underwriters 215,521.2 229.6 4.5 Energy Ltd33 Hiscox Syndicates Ltd 700,000.0 228.9 4.5 US$ Property ------- ----Subtotal 4,142.0 81.2 ------- ----Portfolio Total 5,100.0 100.0 ------- ----- Based on Syndicate Business plan information of gross premium income by riskcode. This information is not made available by Syndicate 6101 which issupported through MAPA 7208; as such the data for this syndicate has beenestimated. CATASTROPHE REINSURANCE In reaction to the hurricanes in 2004 and 2005, catastrophe exposed business wassubstantially re rated in 2006 with the world rate online index published by thereinsurance broker Guy Carpenter increasing by 32% in 2006. Reinsurance businesscomprised 34% of Lloyd's business for 2006, making Lloyd's the world's fifthlargest reinsurer. We continue to be positive on profit prospects for 2008 asrates and demand for coverage remain substantially higher than in 2005 althoughbelow the peak levels of 2006. With this opportunity in mind HAL advised HCM totake a small additional participation on a reinsurance "sidecar" syndicatemanaged by the respected Hiscox agency for 2008. We expect that there will be further opportunities for HCM to participate in"sidecar" syndicates over time which are likely to become available in discreetclasses of business following a major loss. Such opportunities generally improvethe probability and level of achievable profit from underwriting insurance. PORTFOLIO RISK MANAGEMENT HAL manages the portfolio risk by diversification across classes of business,syndicates and Managing Agents as well as controlling the down side, in theevent of a major loss, by monitoring the aggregate losses estimated by ManagingAgents to realistic disaster scenarios. HAL considers risk in the context ofpotential return and would seek to reduce this exposure to catastrophe losses ifit considered market conditions were becoming increasingly competitive. Lloyd's has utilised Realistic Disaster Scenarios since 1995 to evaluateexposure at both syndicate and market level. In 2005, two new scenarios werecreated, one of which was the $60bn Gulf of Mexico scenario (since revised to$108bn), which proved its worth in enabling Lloyd's to manage the impact fromHurricanes Katrina and Rita. The table below shows the aggregated impact atportfolio level for HCM of the ten largest net exposures (after reinsurance) toevents modelled for 2008. These exposures provide a guide to potential downsiderisk but do not measure projected loss since they exclude the results of thebalance of the account. PORTFOLIO REALISTIC DISASTER SCENARIO AGGREGATES FOR 2008 ACCOUNT:TOP 10 NET EXPOSURES GROSS AND NET OF REINSURANCE Gross Loss as Final Net Loss as Percentage of Percentage of Capacity CapacityGulf of Mexico Windstorm 39.3 17.72 Events - NE Windstorm 34.4 16.5Florida Windstorm - Pinellas 37.5 16.5Los Angeles Earthquake 34.4 15.4San Francisco Earthquake 35.0 15.3Florida Windstorm - Miami 34.0 14.4European Windstorm 21.9 12.2New Madrid Earthquake 23.2 11.72 Events - Carolina Windstorm 21.4 11.4Japanese Earthquake 15.4 8.6 Based on Syndicate Business plan information of Projected Realistic DisasterScenario Exposures. This information is not made available by Syndicate 6101which is supported through MAPA 7208; as such the data for this syndicate hasbeen estimated. MARKET OUTLOOK The current outlook for underwriting at Lloyd's is that market conditions inmost classes of business are becoming challenging, with rates "softening", butnot yet soft. The main exceptions are aviation and UK liability where bothmarkets are "soft" and motor where rates are beginning to rise. We expect bottomline profitability in 2008 to be supported by both releases from prior years andinvestment returns on increased funds at syndicate level, relative tounderwriting capacity with many syndicates having reduced their capacity for2008 in line with market conditions. However, the decline in interest rates,particularly in the US, is likely to have an adverse impact on this year'sinvestment yield. HAL continues to believe that syndicates supported by HCM havesufficiently well rated businesses to produce a good return although, as ever,profitability is vulnerable to major catastrophe losses which the industry didnot suffer from in 2006 and 2007. Group Income Statement For the Period 1 August 2006 to 31 December 2007 2007 Total Note £'000 Net investment income 2 174 -----Revenue 174 -----Other operating expenses 85 -----Operating profit before tax 3 89 -----Income tax expense 27 -----Profit attributable to equity shareholders 62 -----Earnings per share for profit attributable to equityshareholders Basic and diluted 4 0.83p ----- The profit and earnings per share set out above are in respect of continuingoperations. Group Balance Sheet At 31 December 2007 2007 Note £'000AssetsIntangible assets 5 981Financial investments 6 2,486Other receivables 112Cash and cash equivalents 3,552 -----Total assets 7,131 -----LiabilitiesOther payables 40Current income tax liabilities 27 -----Total liabilities 67 -----Shareholders' equityShare capital 7 741Share premium 7 6,261Retained earnings 62 -----Total shareholders' equity 7,064 -----Total liabilities and shareholders' equity 7,131 ----- Group Cash Flow Statement Period ended 31 December 2007 Cash flow from operating activities 2007 £'000 Results of operating activities (85)Changes in working capital:(Increase)/decrease in other receivables (112)Increase/(decrease) in other payables 40 -----Cash generated from operations (157)Interest paid -Income tax paid - -----Net cash outflow from operating activities (157) -----Cash flows from investing activitiesPurchase of intangible assets (981)Proceeds from sale of intangible assets -Purchase of financial investments (2,385)Amounts owed by subsidiary undertakings - Interest received 73 -----Net cash used in investing activities (3,293) -----Cash flows from financing activitiesNet proceeds from issue of ordinary share capital 7,002Interest expense - -----Net cash used in financing activities 7,002 -----Net increase in cash, cash equivalents and bank 3,552overdraftsCash, cash equivalents and bank overdrafts on -incorporation -----Cash and cash equivalents at 31 December 2007 3,552 ----- Statement of Changes in Shareholders' Equity Period ended 31 December 2007 Group Ordinary Preference Share Retained Total Share Share Premium Earnings Capital Capital £'000 £'000 £'000 £'000 £'000On incorporation - - - - -Profit for the period - - - 62 62Share issue expenses charged to - - (411) - (411)equity -----------------------------------------Total profit for the period - - (411) 62 (349)attributable to equityshareholdersNew preference shares issued - 50 - - 50New ordinary shares issued 741 - 6,672 - 7,413Preference shares redeemed - (50) - - (50) -----------------------------------------At 31 December 2007 741 - 6,261 62 7,064 ----------------------------------------- Notes to the Financial Statements Period ended 31 December 2007 1. Accounting policies The principal accounting policies adopted in the preparation of the financialinformation set out in this announcement are set out in the full financial statements for the period ended 31 December 2007 (the "Financial Statements"). Basis of preparation The Financial Statements have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS"), incorporating IFRIC interpretationsendorsed by the European Union (EU) and with those parts of the Companies Act1985, applicable to companies reporting under IFRS. The Financial Statementscomply with Article 4 of the EU IAS regulation. The Financial Statements are prepared for the period from 1 August 2006, thedate of incorporation, to 31 December 2007. These are the first set of FinancialStatements prepared by the Group and Parent Company. The Financial Statements have been prepared under the historical cost conventionother than as stated in the Financial Statements. The preparation of Financial Statements in conformity with generally acceptedaccounting principles requires the use of estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the FinancialStatements and the reported amounts of revenues and expenses during thereporting period. Although these estimates are based on management's bestknowledge of the amount, event or actions, actual results ultimately may differfrom these estimates. The Group participates in insurance business through its Lloyd's corporatemember. Accounting information in respect of syndicate participations isprovided by the syndicate managing agents and is reported upon by the syndicateauditors. International Financial Reporting Standards At the date of authorisation of these Financial Statements the following IFRSsand IFRICs had been published by the IASB but were not yet effective: • IFRS 8 Operating Segments; • IFRIC 11 IFRS 2 - Group and Treasury Share Transactions; and • IFRIC 12 Service Concession Arrangements. The Directors anticipate that the adoption of IFRS 8 in future periods and theinterpretations IFRIC 11 and 12 will have no material impact on the FinancialStatements except for additional disclosures. The Group has not yet adopted IFRS 4 on the basis that the Group did notcommence underwriting until 1 January 2008. 2. Net investment income 2007 £'000Investment income at fair value through income statementUnrealised (losses)/gains on financial investments at fair 101value through income statementBank interest 73 ---- 174 ----3. Operating profit before tax 2007 £'000Operating profit before tax is stated after charging:Directors' remuneration 26Auditors' remuneration - audit of the Parent Company and 12 Group Financial Statements - services relating to taxation 2 During the period an amount of £20,000 was charged to the share premium accountfor services rendered by the auditors on the AIM admission. The Group has no employees. 4. Earnings per Share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary sharesoutstanding during the period. The Company has no dilutive potential ordinary shares. Earnings per share have been calculated in accordance with IAS 33. Reconciliations of the earnings and weighted average number of shares used inthe calculations are set out below. 2007 £'000 Profit for the period 61,676 ---------Weighted average number of shares in issue 7,413,376 ---------Basic and diluted earnings per share 0.83p 5. Intangible assets Syndicate Capacity £'000CostOn incorporation -Additions 981 ----As at 31 December 2007 981 ----AmortisationOn incorporation -Charged in the period - ----As at 31 December 2007 - ----Net book valueAs at 31 December 2007 981 ----On incorporation - ---- 6. Financial investments 2007 £'000 Investment in subsidiary undertaking -Other financial investments 2,486 ----- 2,486 ----- Other investments includes approximately £2m held at Lloyd's in order to supportthe group's underwriting. The Company was interested in the following principal subsidiary at 31 December2007 which is incorporated in England and Wales. Principal Activity Class of Held Shares by the Company Hampden Corporate Member Lloyd's Corporate Ordinary 100%Limited Member Other financial investments 2007 Market Value Cost £'000 £'000 Equity shares 435 334 Deposits with credit institutions (cash 2,051 2,051at bank) ------------- 2,486 2,385 -------------Listed investments included in the above 435 334 ------------- 7. Share capital and share premium Ordinary Preference Total shares shares £'000 £'000 £'000Authorised Ordinary shares of 10p each and 5 50 55preference shares of 50p each on incorporation AIM admittance increase in authorised 2,945 - 2,945share capital, 4 September 2007 ----------------------------- Ordinary shares of 10p each and preference 2,950 50 3,000shares of 50p each at 31 December 2007 ----------------------------- Allotted, called up and fully paid Ordinary Preference Share Total shares shares premium £'000 £'000 £'000 £'000 2 Ordinary shares of 10p each on - - - -incorporation AIM admittance increase in ordinary 741 - 6,261 7,002shares Paid up preference shares of 50p each - 50 50 Redeem preference shares of 50p each - (50) (50) ------------------------------------Total ordinary share capital and share 741 - 6,261 7,002premium account at 31 December 2007 ------------------------------------ Share issue expenses of £410,800 were charged to the share premium account inthe period. During the period the Company issued 50,000 £1 redeemable preference shares toHampden Agencies Limited. These shares were redeemed at par out of the publicissue of shares. 8. The financial information set out in this announcement does not constitutestatutory accounts but has been extracted from the Financial Statements which have not yet been delivered to the Registrar. The Group's annual report and financial statements will be posted to shareholders shortly. Further copieswill be available from the Company's registered office: Hampden House, GreatHampden, Great Missenden, Buckinghamshire, HP16 9RD. This information is provided by RNS The company news service from the London Stock Exchange