Helios Underw Regulatory News (HUW)

28 September 2023

Helios Underwriting plc

("Helios" or the "Company")

Interim Results for the Six Months Ended 30 June 2023

Helios Underwriting plc is an investment vehicle which provides shareholders with participation in the Lloyd's insurance market through an actively managed spread portfolio of syndicate capacity, announces its unaudited results for the six months ended 30 June 2023.

· Gross written premiums increased by 28% to £160 (HY 2022 - £124m) reflecting the increase in the capacity portfolio

· Further rate increase achieved by the Lloyd's market of 9.1% (HY 2022 7.7%) over the six month period continuing the excellent market conditions at Lloyd's.

· 252% improvement in the underwriting result to £11.6m (HY 2022- £3.3m) with an 88% combined ratio

· The increase of 33% in the underwriting exposure in 2023 Year of Account to £244m of retained capacity will contribute to the underwriting result in the future.

· Investment returns of £3.1m (HY 2022 - losses £3.5m) have been booked in the first six months benefiting from the increased interest rates

· Operating profit is £6.0m (30 June 2022 - a loss of £3.4m)

· The net tangible asset value per share is £1.54 per share (FY 2022 - £1.52 per share)

Martin Reith, Chief Executive, provides the following overview:

"The continued improvement in market conditions presents exciting opportunities for Helios. The portfolio is positioned to benefit from pricing and market discipline and underwriting profits are now being recognised from five years of improved underwriting margins. We are confident that given market discipline, we should continue to see favorable returns across our portfolio. The resilience of these conditions seem to be more sustainable and we fully expect our portfolio to thrive.

"The results are a little skewed as a consequence of the recent rapid 33% growth in our retained capacity in 2023 and a cautious approach to reserving adopted within our portfolio. With the passage of time and as the better loss ratio premium earns through, 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."

Helios Underwriting plc

Martin Reith - Chief Executive

Arthur Manners - Chief Financial Officer +44 203 965 6441

Numis

Giles Rolfe +44 (0)20 260 1000

Charles Farquhar

Buchanan

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

+44 (0)20 7466 5111

Chairman's statement

Six months ended 30 June 2023

Helios Underwriting plc is the only listed vehicle where investors can own a share in a company with a broad spread of Lloyd's syndicate participations and where the Funds at Lloyd's (FAL) ratio is less than 50% meaning that for every £1 of capital at work it underwrites £2 or more in capacity.

Under the direction of our new Chief Executive, Helios has plans to continue its growth and broaden still further into insurance underwriting activities at a time when market conditions are attractive.

These conditions give us confidence to return capital to shareholders, initially through a share buyback programme and the Board will be reviewing the dividend policy in the future.

The combined underwriting result has improved substantially as the underlying profitability of the portfolio starts to be recognised. Given the improved terms on property and property catastrophe business achieved at the beginning of the year, the impact of worldwide natural catastrophes in the period has been muted.

The figures in the above table are gross of pre-acquition

The increase in the gross written premiums reflect the growth of the capacity portfolio to £310m for the 2023 underwriting year. The combined portfolio ratio of 88% is in line with the combined ratio for the Lloyds market of 85% and has improved substantially given the contribution of the profitability from the 2022 year.

6 months to 30th June

The underwriting contribution from the 2022 underwriting years reflects the expected development of those years after recognising underwriting losses at an early stage. 2023 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 2023 year, given the increased underwriting exposure, will benefit the underwriting result in the future.

The excess of loss costs has increased in line with the additional funds provided by reinsurers and by banks. Operating costs have been impacted by the additional resources taken on to manage the larger portfolio

Helios's share of the syndicate investments has increased by 43% since 30 June 2022 and has generated a positive return of 1.71% in the first 6 months of the year in comparison to a negative yield of 2.8% in the comparative period last year. 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.

Helios Retained Capacity

The positive momentum in both insurance and reinsurance pricing has continued into 2023 as the property and property reinsurance rates increased significantly at the beginning of the year. The improvement in underwriting conditions over the last five years will provide a platform for better prospects for underwriting returns over the next few years.

Helios has increased its retained capacity to £244.5m for the 2023 underwriting year, an increase of 42% 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 2023 year of account from the syndicates supported of £14.5m which are subject to approval by Lloyd's. The value of the capacity portfolio, using the 2022 weighted average prices, including the value of the expected pre-emptions for 2023 (using the 2022 weighted average capacity prices) could increase to £69m - an increase of 10%. 

Wild-fire Defense Syndicate

Helios became the cornerstone FAL provider in a new SIAB 1996 which commenced underwriting from July this year underwriting £6m of capacity for 2023 year of account. WDS provides insurance cover to commercial businesses located in California for the risks of wildfire. Their intervention techniques have saved may properties from destruction and provide much needed cover in this challenging environment.

Acquisitions in 2023 to date

Four acquisitions have been completed to date increasing the portfolio by £8m of capacity.

*Completed after 30th June 2023

** includes the cash consideration plus the proprietors loans assumed by the group

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. 

 Capital Position as at 30th June 2023

The improvement in the Solvency position of the capacity portfolio, increasing the solvency credits to £21m as profits have been recognized within the supported syndicates. Surplus solvency credits of £10m have recently been released to improve the free cash position of the Company.

Return of Capital to Shareholders

Helios is committed to returning capital to shareholders. The Board has already announced a share repurchase program and is actively considering other mechanisms to achieve this goal. This will also potentially include the review and increase of our dividend policy.

The Company has allocated £1million recently for the buyback of its shares as the share price is below tangible book value. The Board believes that while the share price remains at these levels it is in shareholders' interests to continue to buy back shares in the market.

The net tangible asset value per share is £1.54p per share (Dec 2022 - £1.52p per share). The net assets include a deferred tax provision of £14m on the value of the capacity portfolio.

Financial results summary

Six months ended 30 June 2023

Financial results summary continued

Six months ended 30 June 2023

Summary Balance Sheet

The summary Group balance sheet excludes items relating to syndicate participations. See Note 16 for further information.

Summary Group Cash Flow

The summary group cash flow sheet excludes items relating to syndicate participations. See Note 16 for further information.

Financial results summary continued

Six months ended 30 June 2023

Net tangible asset per share

Interim condensed consolidated statement of comprehensive income

Six months ended 30 June 2023

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 2023

The Financial Statements were approved and authorised for issue by the Board of Directors on 27 September 2023, and were signed on its behalf by:

Martin Reith

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 2023

The notes are an integral part of these Financial Statements.

Interim condensed consolidated statement of cash flows

Six months ended 30 June 2023

Cash held within the syndicates' accounts is £26,240,000 (30 June 2022: £23,085,000) of the total cash and cash equivalents held at the end of the period £28,200,000 (30 June 2022: £36,064,000). 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 2023

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 consolidated 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 2022 were approved by the board of directors on 25 May 2023 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.

2. Accounting policies

Basis of preparation

These Financial Statements have been prepared in accordance with United Kingdom Accounting Standards (UK GAAP), including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", FRS 103 "Insurance Contracts", FRS 104 "Interim Financial Reporting", and the Companies Act 2006 and Schedule 3 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations, relating to insurance.

The 31 December 2022 and 30 June 2022 Financial Statements were prepared under International Financial Reporting Standards (IFRSs) and the prior period figures have been amended to reflect the changes in the reporting framework (see note 17).

The Condensed Consolidated Interim Financial Statements are prepared for the six months ended 30 June 2023.

The Condensed Consolidated Interim Financial Statements for the six months ended 30 June 2023 and June 2022 are unaudited, but have been subject to review by the Group's auditors.

The Condensed Consolidated Interim Financial Statements 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 syndicate's transactions, assets and liabilities.

Going concern

The Group has net assets at the end of the reporting period of £117,150,000 (31 December 2022: £115,119,000).

The Company's subsidiaries participate as underwriting members at Lloyd's on the 2021, 2022 and 2023 years of account, as well as any prior run-off years, and they intend to continue this participation in the 2024 year of account.

The Directors have a reasonable expectation that the Group 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 Financial Statements.

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 Statement of Comprehensive Income.

The 31 December 2022 and the 30 June 2022 Financial Statements were prepared in accordance International Financial Reporting Standards (IFRSs). The 30 June 2023 Financial Statements have been prepared in accordance with United Kingdom Accounting Standards (UK GAAP), including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", FRS 103 "Insurance Contracts" and FRS 104 "Interim Financial Reporting".

The reason for this change in reporting framework is that it is not possible for the directors to obtain financial information in respect of the underlying syndicate participations that would be required to comply with IFRS 17 "Insurance Contracts" which is effective under IFRS for accounting periods beginning on or after 1 January 2023. (see note 17).

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 2022 except the following as a result of the conversion from IFRS to UK GAAP:

- positive goodwill which is taken to the Consolidated Statement of Financial Position (CSOFP) is now amortised over the its estimated useful life of three years (see note 17).

- goodwill on bargain purchases which was taken straight to the Consolidated Statement of Comprehensive Income (CSOCI) under IFRS is now capitalised and taken the CSOFP and amortised over its estimated useful life of three years (see note 17).

Notes to the financial statements

Six months ended 30 June 2023

3. Segmental information

Martin Reith and Nigel Hanbury are the Group's chief operating decision-makers. They determine 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 2023 other corporate activities totalling £4,378,000 (2022: £383,000 - 2020, 2021 and 2022 years of account) represents the 2021, 2022 and 2023 years of account net Group quota share reinsurance premium payable to HIPCC 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.

Notes to the financial statements

Six months ended 30 June 2023

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.

Notes to the financial statements continued

Six months ended 30 June 2023

5. Insurance liabilities and reinsurance balances

Movement in claims outstanding

Movement in unearned premium 

Included within other movements are the 2020 and prior years' claims reserves reinsured into the 2021 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 2019 and prior years' claims reserves reinsured into the 2020 year of account on which the Group does not participate and currency exchange differences.

6. Net investment income

Included within Investment income are investment gains of £3,160,000 (2022: £3,560,000 investment losses) from Syndicate participations.

Notes to the financial statements continued

Six months ended 30 June 2023

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 23.50% (2022: 19.00%). 

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 2023 that a dividend of 3p would be payable. The Dividend was paid post period end on 14 July 2023 totalling £2,320,000 and has been accrued in these financial statements.

10. Investments in subsidiaries

Notes to the financial statements continued

Six months ended 30 June 2023

10. Investments in subsidiaries (continued)

 (i) Helios UTG Partner Limited, a subsidiary of the Company, owns 100% of Salviscount LLP, Inversanda LLP, Fyshe Underwriting LLP, Nomina No 505 LLP, Nomina No 321 LLP Nomina No 084 LLP, Nomina No 533 LLP, Nomina No 070 LLP, Nomina No 469 LLP, Nomina No 536 LLP, Nomina No 472 LLP, Nomina No 110 LLP, Kunduz LLP. Nomina No 348 LLP and Gould Scottish Limited Partnership. The cost of acquisition of these LLPs is accounted for in Helios UTG Partner Limited, their immediate parent company.

(ii) RBC CEES Trustee Limited was an incorporated entity in year 2017 to satisfy the requirements of the Joint Share Ownership.

Notes to the financial statements continued

Six months ended 30 June 2023

11. Share capital and share premium

 (i) Number of shares

(ii) The partly paid ordinary shares are not entitled to dividend distribution rights during the year.

12. Related party transactions

A number of subsidiary companies have entered into quota share reinsurance contracts for the 2021, 2022 and 2023 years of account with protected cell companies of HIPCC Limited.

Nigel Hanbury, a Director of Helios Underwriting plc and its subsidiary companies, is also a director and majority shareholder in HIPCC Limited. Hampden Capital plc, a substantial shareholder in Helios Underwriting plc, is also a substantial shareholder in HIPCC Limited - Cell 6. Under quota share agreements between Cell 6 and certain Helios subsidiaries, the Group accrued a net reinsurance premium payable of £1,736,000 (31 December 2022: £1,921,000 recoverable) during the period.

In addition, HIPCC provide stop loss, portfolio stop loss and HASP reinforce policies for the company.

HIPCC Limited acts as an intermediary for the reinsurance products purchased by Helios. An arrangement has been put in place so that 51% of the profits generated by HIPCC (being Nigel Hanburys share) in respect of the business relating to Helios will be repaid to Helios for the business transacted for the 2021 and subsequent underwriting years.

13. Ultimate controlling party

The Directors consider that the Group has no ultimate controlling party.

Notes to the financial statements continued

Six months ended 30 June 2023

14. Acquisition of Lloyd's Limited Liability Vehicles

During the period, the company has acquired the following Lloyd's Limited Liability Vehicles either directly, or indirectly:

15. Syndicate participations

The syndicates and members' agent pooling arrangements ("MAPA") in which the Company's subsidiaries participate as corporate members of Lloyd's are as follows: