Helios Underw Regulatory News (HUW)

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

Helios Underwriting plc

("Helios" or the "Company")

Interim Results for the Six Months Ended 30 June 2022

Helios Underwriting plc, the unique investment vehicle which provides investors with exposure to the Lloyds insurance market through an actively managed portfolio of syndicate capacity, announces its unaudited results for the six months ended 30 June 2022, during which it continued its strategy of driving portfolio growth and future shareholder value, building on its recent rapid growth in retained capacity.

· Gross written premiums increased by 133% to £124m (30 June 2021 - £53m) reflecting the increase in the capacity portfolio

· Further rate increase achieved by Lloyds' of 7.7% over the six month period which together with greater discipline encouraged by the Franchise Board at Lloyd's market, has bolstered the prospects for profitable underwriting

· 76% improvement in the underwriting result to £3.3m with a 94.5% combined ratio

· The increase in the underwriting exposure in 2022 to £172m of retained capacity will contribute to the underwriting result in the future.

· Investment losses of £3.5m have been booked in the first six months driven by mark to market investment losses as interest rates have increased, which has masked the improvement in the underwriting margins, although higher yields on both syndicate and Group funds will benefit future returns

· Operating costs of £3.6m include non-recurring costs of £0.7m relating to a contemplated significant acquisition and increased reinsurance costs given the increase in the underwriting exposure

· Operating loss is £3.4m (30 June 2021 - a loss of £0.4m)

· The net tangible asset value per share is £1.49 per share (31st December 2021 - £1.57 per share)

Chairman's statement

Six months ended 30 June 2022

Nigel Hanbury, Chief Executive, provides the following overview:

"The steady improvement in current market conditions continues to open up exciting windows of opportunity for Helios. The progress in underwriting conditions over five years is being reflected in the improved underwriting margins.

"The results are skewed as a consequence of the recent 133% growth in our retained capacity and a cautious approach to reserving, as we would expect, by our portfolio. With the passage of time, we are confident that our portfolio will demonstrate outperformance against a prudent reserving strategy. The impact of the increased yields on the Group investments will make a contribution in the future.

"Mark to market losses within syndicates' investment bond portfolios have also impacted results. Rising interest rates will help negate that with improved returns from fixed income in future periods.

"We have increased our retained capacity to £172m for the 2022 underwriting year to take advantage of the current market conditions. We are confident that we can continue to demonstrate our ability to achieve attractive shareholder returns over the next few years."

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

Robert Finlay +44 (0)20 7601 6100

David Coaten

Gallagher (Financial Adviser)

Alastair Rodger +44 (0)20 3124 6033

Buchanan

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

+44 (0)20 7466 5111

The combined underwriting result continues to recover as the underlying profitability starts to be recognised. The potential losses from Ukraine have been recognised to the extent that they are known. The events in Ukraine continue to unfold and the full extent of the insured losses have yet to be fully recognised.

The increase in the gross written premiums reflect the growth of the capacity portfolio to £233m for the 2022 underwriting year. The combined portfolio ratio of 94.5% has been impacted by the early stage contribution of the 2022 underwriting year.

The underwriting contribution from the 2020 and 2021 underwriting years reflects the expected development of those years after recognising underwriting losses at an early stage. 2022 to date represents an initial loss due to the higher proportion of expenses and reinsurance costs allocated to the first six months of the underwriting year. The future recognition of the Net Earned Premiums from 2022 year, given the increased underwriting exposure, will benefit the underwriting result for the full year.

Operating costs have increased to £2.4m as a potential significant acquisition was contemplated in the period where costs of due diligence were incurred of £0.7m and as £20m (2021-£7.6m) of additional underwriting capital has been sourced through a bank facility adding a further £0.2m to the costs. The stop loss for Helios retained capacity continues to be bought which has a 10% indemnity to protect the Group from a loss excess of 7.5% loss for the 2022 underwriting year. The increase in the retained capacity of 84% to £172m contributed to the increase in the stop loss costs incurred.

Helios's share of the syndicate investments incurred a loss in the first six months of 2.8% as interest rates increased and this has masked the improvement in underwriting margins. Group investment funds remained in cash and targeted investments have since been made. The Group funds will continue to earn interest for the balance of the year. The Group's share of the syndicate investments is expected to continue to increase to reflect the growth of the capacity portfolio.

The positive momentum in both insurance and reinsurance pricing has continued into 2022. The improvement in underwriting conditions over the last five years will provide a platform for better prospects for underwriting margins over the next few years.

Helios has increased its retained capacity to £172m for the 2022 underwriting year to take advantage of the current market conditions. The proportion of the capacity reinsured has been reduced while the capital provided by the reinsurers has remained steady. The quota share reinsurers fund their share of the capital requirements and pay Helios a fee and a profit commission. The strategy of building a portfolio of underwriting capacity that can be accessed by alternative sources of capital is expected to be developed in the future as we regard this as an attractive opportunity to increase the fee income generated from the portfolio. 

Helios has received preliminary indications of pre-emptions for the 2022 year of account from the syndicates supported of £21m which are subject to approval by Lloyd's and could increase the capacity portfolio for the 2023 year of account to £254m - an increase of 9%.

The value of the capacity portfolio, using the 2021 weighted average prices, including the value of the expected pre-emptions for 2023 (using the 2021 weighted average capacity prices) could increase to £72m - an increase of 20%. Should the average auctions prices in 2022 decrease by 10%, the net tangible asset value per share should still increase by 5.37p.

Impact of pre-emptions on capacity portfolio

It is expected that there will continue to be demand for the top syndicates that make up a significant proportion of the Helios Capacity Fund at the Lloyds Capacity Auctions that take place later this year. Our strategy of building a portfolio of syndicate capacity continues to rely on the flow of LLVs for sale at reasonable prices. The discounts achieved to the Humphrey Valuations have decreased as both Vendor expectations of future value have increased and as other purchasers have realised the value of the potential future profitability of these capacity portfolios. There are over 17 LLV's for sale at present and it is expected that we will be able to conclude further acquisitions this year.

The net tangible asset value per share is £1.49p per share (Dec 2021 - £1.57p per share). The net assets include a deferred tax provision of £13m on the value of the capacity portfolio. The reduction of corporation tax rate to 19%, will reduce the deferred tax provision by £3.5m and increase the net tangible asset per share by 4.7p.

IFRS 17

The Company's consolidated accounts are presently prepared in accordance with current IFRS applicable to the insurance industry. In May 2017, the IASB published its standard on insurance accounting (IFRS 17, 'Insurance Contracts') which replaces the current IFRS 4 standard. Some targeted amendments to this standard, including to the effective date, were issued in June 2020 and December 2021. IFRS 17, 'Insurance Contracts', as amended, will have the effect of introducing fundamental changes to the statutory reporting of insurance entities that prepare accounts under IFRS from 2023. Given compliance with IFRS will not be feasible due to the UK GAAP based Lloyd's information provision and syndicate disclosures, the Board is considering alternative arrangements including the use of an alternative standard, including UK GAAP. The Board is confident that an appropriate alternative will be available and a further announcement will be made in due course.

Financial results summary

Six months ended 30 June 2022

Period to 30th June 2022

Period to 30th June 2021

Year to 31 December 2021

Summary Balance Sheet

The summary Group balance sheet excludes items relating to syndicate participations. See Note 15 for further information.

Summary Group Cash Flow

The summary group cash flow sheet excludes items relating to syndicate participations. See Note 15 for further information.

Net tangible asset per share

Interim condensed consolidated statement of comprehensive income

Six months ended 30 June 2022

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

The notes are an integral part of these Financial Statements.

Interim condensed consolidated statement of financial position

Six months ended 30 June 2022

The Financial Statements were approved and authorised for issue by the Board of Directors on 28 September 2022, and were signed on its behalf by

Nigel Hanbury

Chief Executive

The notes are an integral part of these Financial Statements.

Interim condensed consolidated statement of changes in equity

Six months ended 30 June 2022

The notes are an integral part of these Financial Statements.

Interim condensed consolidated statement of cash flows

Six months ended 30 June 2022

Cash held within the syndicates' accounts is £23,085,000 (2021: £9,871,000) of the total cash and cash equivalents held at the end of the period £36,064,000 (2021: £62,143,000). 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.

Notes to the financial statements

Six months ended 30 June 2022

1. General information

The Company is a public limited company quoted on AIM. The Company was incorporated in England, is domiciled in the UK and its registered office is 40 Gracechurch Street, London EC3V 0BT. The Company participates in insurance business as an underwriting member at Lloyd's through its subsidiary undertakings.

These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2021 were approved by the board of directors on 26 May 2022 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. The financial statements have been reviewed, not audited

2. Accounting policies

Basis of preparation

The Condensed Consolidated Interim Financial Statements have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) and in accordance with UK adopted International Accounting Standard (IAS) 34 Interim Financial Reporting, in accordance with the requirements of the Companies Act 2006.

The Condensed Consolidated Interim Financial Statements are prepared for the six months ended 30 June 2022.

The Condensed Consolidated Interim Financial Statements for the six months ended 30 June 2022 and 2021 are unaudited, but have been subject to review by the Group's auditors. The Condensed Consolidated Interim Financial Statements have been prepared in accordance with the accounting policies adopted for the year ended 31 December 2021, and the adoption of new and amended standards as set out further below.

The Condensed Consolidated Interim incorporate the Financial Statements of Helios Underwriting plc, the Parent Company, and its directly and indirectly held subsidiaries (see note 10).

The underwriting data on which these Condensed Consolidated Interim Financial Statements are based upon has been supplied by the managing agents of those syndicates which the Group supports. The data supplied is the 100% figures for each syndicate. The Group has applied its share of the syndicate participations to the gross figures to derive its share of the syndicates transactions, assets and liabilities.

Significant accounting policies

The Condensed Consolidated Interim Financial Statements have been prepared under the historical cost convention as modified by the revaluation of the financial assets at fair value through the profit and loss. The same accounting policies, presentation and methods of computation are followed in these Condensed Consolidated Interim Financial Statements as were applied in the preparation of the Group Financial Statements for the year ended 31 December 2021.

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 2022.

Amendments to IFRS 3: Business combinations - Reference to the Conceptual Framework. IFRS 3 is updated so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework. They also add to IFRS 3 a requirement that, for transactions and other events within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 to identify the liabilities it has assumed in a business combination. Lastly, they add to IFRS 3 an explicit statement that an acquirer does not recognise contingent assets acquired in a business combination.

Amendments to IAS 16: Property, Plant and Equipment. The changes introduced amend the standard to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss.

Amendments to IAS 37: Provisions, Contingent Liabilities and Contingent Assets. The changes specify that the 'cost of fulfilling' a contract comprises the 'costs that relate directly to the contract'. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts.

Annual Improvements to IFRS Standards 2018-2020 Cycle. The pronouncement contains amendments to four International Financial Reporting Standards (IFRS 1, IFRS 9, IFRS 16 and IAS 41) as result of the IASB's annual improvements project

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.

Notes to the financial statements

Six months ended 30 June 2022

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).

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).

IAS 12 Income Taxes - Deferred Tax related to Assets and Liabilities arising from a Single Transaction (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.

IFRS 17 "Insurance Contracts" (IASB effective date 1 January 2023) - This replaces IFRS 4 and requires an IFRS reporter to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts. It also requires that profits are recognised as insurance services are delivered (rather than when premiums are received) and for the IFRS reporter to provide information about insurance contract profits the company expects to recognise in the future.

3. Segmental information

Nigel Hanbury is the Group's chief operating decision-maker. He has determined its operating segments based on the way the Group is managed, for the purpose of allocating resources and assessing performance.

The Group has three segments that represent the primary way in which the Group is managed, as follows:

• syndicate participation;

• investment management; and

• other corporate activities.

The Group does not have any geographical segments as it considers all of its activities to arise from trading within the UK.

No major customers exceed 10% of revenue.

Net earned premium within 2022 other corporate activities totalling £383,000 (2021: £951,000 Net insurance claims and loss adjustment expenses - 2019, 2020 and 2021 years of account) represents the 2020, 2021 and 2022 years of account net Group quota share reinsurance premium payable to Hampden Insurance Guernsey PCC Limited - Cell 6. This net quota share reinsurance premium payable is included within "reinsurance premium ceded" in the Consolidated Statement of Comprehensive Income of the period.

4. Operating profit before impairments of goodwill and capacity

Pre-acquisition relates to the element of results from the new acquisitions before they were acquired by the Group.

* The underwriting year of account results represent the Group's share of the syndicates' results by underwriting year of account before corporate member level reinsurance and members' agents charges.

5. Insurance liabilities and reinsurance balances

Movement in claims outstanding

Movement in unearned premium 

Included within other movements are the 2019 and prior years' claims reserves reinsured into the 2020 year of account on which the Group does not participate and currency exchange differences.

Movement in claims outstanding

Movement in unearned premium 

Included within other movements are the 2018 and prior years' claims reserves reinsured into the 2019 year of account on which the Group does not participate and currency exchange differences.

Movement in claims outstanding

Movement in unearned premium 

Included within other movements are the 2018 and prior years' claims reserves reinsured into the 2019 year of account on which the Group does not participate and currency exchange differences.

6. Net investment income

Included within Investment income are investment losses of £3,560,000 from Syndicate participations.

7. Income tax charge

Analysis of tax charge/(credit) in the period

The income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used is 19.00% (2021: 19.00%). 

On 23 September 2022, the Chancellor announced that next year's increase in the corporation tax rate from 19% to 25% will be cancelled. The deferred tax asset provided in the financial statements has been calculated at 25% being the substantively enacted corporation tax rate at the Balance Sheet date. The maximum impact of the reduction in the corporation tax rate is a reduction in the deferred tax asset of £3.5m.

8. Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders after tax by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share is calculated by dividing the net profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period, plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

Earnings per share has been calculated in accordance with IAS 33 "Earnings per share".

The earnings per share and weighted average number of shares used in the calculation are set out below:

* Diluted loss per share is not permitted to be reduced from the basic loss per share.

9. Dividends paid or proposed

It was proposed and agreed at the AGM on 29 June 2022 that a dividend of 3p would be payable.

10. Investments in subsidiaries