Helios Underw Regulatory News (HUW)

25 September 2015

Helios Underwriting plc

("Helios Underwriting" or the "Company")

Interim results for the six months ended 30 June 2015

Helios Underwriting plc, which provides investors with a limited liability direct investment into the Lloyd's insurance market, announces its unaudited results for the six months ended 30 June 2015.

Financial results summary

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About HUW

HUW 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). HUW's subsidiary underwriting vehicles trade within the Lloyd's insurance market as corporate members of Lloyd's writing £27 million of capacity for the 2015 account. The portfolio provides a good spread of classes of business being concentrated in property insurance and reinsurance. For further information please visit www.huwplc.com.

Chairman's Statement

During the first half of 2015 we continued to implement our strategy of building our portfolio of capacity through the purchase of another four entities in exchange for cash and shares, plus two further entities which were acquired post June 2015 in exchange for shares. This brings our total 2015 acquisitions to six, increasing the portfolio capacity by £6.3m in 2015 to date, an increase of 31%. We will continue to retain the risk on the mature underwriting years on the capacity that we acquire in a financial year. We believe that we can benefit from the improvements in profit expectations by the underlying syndicates.

Our first half year figures have been affected by the increased reinsurance expenditure on Stop Loss policies incurred in the first half, which is consistent with our strategy of trading with lower risk on the most recent open underwriting years. This is intended to limit our exposure in the event of a major loss to less than 10% of shareholder equity. The Group retains full exposure to changes in open years of account on the entities acquired during the year, which should help advance second half year profits.

Our quota share arrangement whereby 70% of the risk on the most recent open years is ceded to reinsurers will continue into 2016 due to current market conditions. This provides the reinsurers with access to Lloyds' capacity and the capital provided gives Helios the flexibility to deploy its resources in building its portfolio.

Having acquired some 19 vehicles since inception the Board has examined the advantages of the consolidation of vehicles, and has decided that Helios would be well served with just one trading vehicle from the start of 2016. This will ease the administrative burden as well as improving our capital ratios.

The Parent Company's adjusted net assets plus Humphrey & Co valuation of the Group's underwriting subsidiaries at the period end is £16.4m, up from £14.7m at December 2014. This equates to £1.83 per share, up from £1.72.

Vehicles have recently sold at premiums to the Humphrey & Co valuations, but there are still a significant number for sale which may lead to more modest prices.

Sir Michael Oliver

Non-executive Chairman

24 September 2015

Condensed Consolidated Statement of Financial Position

At 30 June 2015

Condensed Consolidated Income Statement

Six months ended 30 June 2015

The (loss)/profit and earnings per share set out above are in respect of continuing operations.

The accounting policies and notes are an integral part of these Condensed Consolidated Interim Financial Statements.

Condensed Consolidated Statement of Cash Flows

Six months ended 30 June 2015

The accounting policies and notes are an integral part of these Condensed Consolidated Interim Financial Statements.

Condensed Statement of Changes in Shareholders' Equity

Six months ended 30 June 2015

For the six months ended 30 June 2015

For the six months ended 30 June 2014

For the twelve months ended 31 December 2014

The accounting policies and notes are an integral part of these Condensed Consolidated Interim Financial Statements.

Notes to the Interim Financial Statements

Six months ended 30 June 2015

1. 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 International Accounting Standard (IAS) 34 Interim Financial Reporting.

The Condensed Consolidated Interim Financial Statements are prepared for the six months ended 30 June 2015.

The Condensed Consolidated Interim Financial Statements incorporate the results of Helios Underwriting plc, Hampden Corporate Member Limited, Nameco (No. 365) Limited, Nameco (No. 605) Limited, Nameco (No. 321) Limited, Nameco (No. 917) Limited, Nameco (No. 229) Limited, Nameco (No. 518) Limited, Nameco (No. 804) Limited, Halperin Limited, Bernul Limited, Dumasco Limited, Nameco (No. 311) Limited, Nameco (No. 402) Limited, Updown Underwriting Limited, Nameco (No. 507) Limited, Nomina No 035 LLP, Nomina No 342 LLP, Nomina No 380 LLP, Nomina No 372 LLP and Helios UTG Partner Limited.

The Condensed Consolidated Interim Financial Statements for the six months ended 30 June 2015 and 2014 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 2014.

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. 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 2014. The new standards and amendments to standards and interpretations effective after 1 January 2015, as disclosed in the Annual Report for the year ended 31 December 2014, have not had a significant impact on the Condensed Consolidated Interim Financial Statements at 30 June 2015.

2. Segmental information

The Group has three segments which represent the primary way in which the Group is managed:

· Syndicate participation;

· Investment management;

· 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 2015 other corporate activities totalling £800,000 (2014: £76,000) includes the net Group quota share reinsurance premium payable to Hampden Insurance PCC (Guernsey) Limited - Cell 6 for the 2013, 2014 and 2015 underwriting years of account of £400,000 (2014: £26,000). Also included is the stop loss premium payable to Hampden Insurance PCC (Guernsey) Limited - Cell 7 for the 2015 underwriting year of account of £181,000 (2014: £50,000), the Hampden aggregate stop loss policy premium payable to Hampden Insurance PCC (Guernsey) Limited - Cell 1 for the 2013, 2014 and 2015 underwriting years of account of £212,000 (2014: £nil) and Chaucer Syndicate 1176 premium for the 2015 underwriting year of account of £7,000 (2013: £nil).

Syndicate participation represents the Groups direct share of the underlying syndicate's results for the period. 

3. Insurance liabilities and reinsurance balances

Movement in claims outstanding 

Movement in unearned premium

Included within other movements are the 2012 and prior years' reinsured into the 2013 year of account on which the Group does not participate and currency exchange differences.

4. Net investment income

5. Income tax expense

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 20% (2014: 21.49%). Material disallowed terms have been adjusted for in the income tax calculation.

6. Earnings per share

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

The Group has no dilutive potential ordinary shares.

Earnings per share have been calculated in accordance with IAS 33.

Reconciliation of the earnings and weighted average number of shares used in the calculation is set out below.

7. Dividends

During the period a dividend of 5.1p per share (2014: 4.5p per share) was paid totalling £457,000 (see note 10).

8. Financial assets at fair value

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

As at 30 June 2015, the Group held £20,817,000 (31 December 2014: £19,742,000) Level 1 Financial Assets and £4,571,000 (31 December 2014: £3,235,000) Level 2 Financial Assets. The Group has no Level 3 investments (31 December 2014: £nil).

9. Share capital and share premium

10. Retained earnings

11. Acquisition of limited liability vehicles

In order to increase the Group's underwriting capacity, the Company has, since the balance sheet date, acquired 100% of the voting rights (either directly or indirectly) of the following Limited Liability Vehicles:

Nameco (No. 311) Limited

On 8 January 2015 Helios Underwriting plc acquired 100% of the issued share capital of Nameco (No. 311) Limited for a total consideration of £926,000. Nameco (No. 311) Limited is incorporated in England and Wales and is a corporate member of Lloyd's.

The acquisition has been accounted for using the acquisition method of accounting. After the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition, the fair value of the net assets was £982,000. Negative goodwill of £56,000 arose on acquisition and has been immediately recognised as goodwill on bargain purchase in the income statement. The following table explains the fair value adjustments made to the carrying values of the major categories of assets and liabilities at the date of acquisition:

Nameco (No. 402) Limited

On 20 February 2015 Helios Underwriting plc acquired 100% of the issued share capital of Nameco (No. 402) Limited for a total consideration of £823,000. Nameco (No. 402) Limited is incorporated in England and Wales and is a corporate member of Lloyd's.

The acquisition has been accounted for using the acquisition method of accounting. After the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition, the fair value of the net assets was £778,000. Goodwill of £45,000 arose on acquisition. The following table explains the fair value adjustments made to the carrying values of the major categories of assets and liabilities at the date of acquisition:

Updown Underwriting Limited

On 13 March 2015 Helios Underwriting plc acquired 100% of the issued share capital of Updown Underwriting Limited for a total consideration of £1,202,000. Updown Underwriting Limited is incorporated in England and Wales and is a corporate member of Lloyd's.

The acquisition has been accounted for using the acquisition method of accounting. After the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition, the fair value of the net assets was £1,259,000. Negative goodwill of £57,000 arose on acquisition and has been immediately recognised as goodwill on bargain purchase in the income statement. The following table explains the fair value adjustments made to the carrying values of the major categories of assets and liabilities at the date of acquisition:

Nameco (No. 507) Limited

On 12 June 2015 Helios Underwriting plc acquired 100% of the issued share capital of Nameco (No. 507) Limited for a total consideration of £900,000. Nameco (No. 507) Limited is incorporated in England and Wales and is a corporate member of Lloyd's.

The acquisition has been accounted for using the acquisition method of accounting. After the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition, the fair value of the net assets was £983,000. Negative goodwill of £83,000 arose on acquisition and has been immediately recognised as goodwill on bargain purchase in the income statement. The following table explains the fair value adjustments made to the carrying values of the major categories of assets and liabilities at the date of acquisition:

12. Related party transactions

Helios Underwriting plc has provided inter-company loans to its subsidiaries which are repayable on three months' notice provided it does not jeopardise each subsidiary's ability to meet its liabilities as they fall due. All inter-company loans are therefore classed as falling due within one year. The amounts outstanding as at 30 June 2015 are set out below:

The Limited Liability Vehicles are 100% subsidiaries of the Company (either directly or indirectly) and have entered into a management agreement with Nomina plc. Jeremy Evans, a Director of Helios Underwriting plc and its subsidiary companies, is also a Director of Nomina plc. Under the agreement, Nomina plc provides management and administration, financial, tax and accounting services to the Group for an annual fee of £108,000 (2014: £66,000).

The Limited Liability Vehicles have entered into a member's agent agreement with Hampden Agencies Limited. Jeremy Evans, a Director of Helios Underwriting plc and its subsidiary companies, is also a Director of Hampden Capital plc which controls Hampden Agencies Limited. Under the agreement the Limited Liability Vehicles will pay Hampden Agencies Limited a fee based on a fixed amount, plus a fee which will vary depending upon the total level of Group underwriting capacity. In addition, some Limited Liability Vehicles will pay profit commission on a sliding scale from 1% of the net profit up to a maximum of 10%. The total fees payable for 2015 and 2014 are set out below:

The Group has entered into a 50% quota share reinsurance contract for the 2013 underwriting year of account and a 70% quota share reinsurance contact for the 2014 and 2015 underwriting years of account with Hampden Insurance PCC (Guernsey) Limited, a company registered in Guernsey.

Nigel Hanbury, a Director of Helios Underwriting plc and its subsidiary companies, is also a Director and majority shareholder in Hampden Insurance PCC (Guernsey) Limited. Hampden Capital Plc, a substantial shareholder in Helios Underwriting plc is also a substantial shareholder in Hampden Insurance PCC (Guernsey) Limited. Under the agreements, the Group accrued a net reinsurance premium payable of £400,000 during the period. A total cumulative amount owed to Hampden Insurance PCC (Guernsey) Limited of £886,000 (31 December 2014: £486,000) has been recognised in the balance sheet.

The underwriting year of account quota share reinsurance contract that each group subsidiary participates in is detailed below:

13. 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:

14. Group owned net assets

The Group balance sheet includes the following assets and liabilities held by the syndicates on which the Group participates. The syndicate assets are subject to trust deeds for the benefit of the relevant syndicates' insurance creditors. The table below shows the split of the Group balance sheet between Group and syndicate assets and liabilities.

15. Events after the reporting period

Share issue

On 3 July 2015, 84,027 new shares were issued in settlement of the script dividend approved at the 2015 AGM.

Nameco (No 76 Limited)

On 27 August 2015 Helios Underwriting plc acquired 100% of the issued share capital of Nameco (No 76) Limited for a total consideration of £1,083,000. The consideration was satisfied by additional issued shares in the Company. No information is available at present to accurately determine the fair value of the net assets acquired. Nameco (No 76) Limited is incorporated in England and Wales and is a corporate member of Lloyd's.

Kempton Underwriting Limited

On 27 August 2015 Helios Underwriting plc acquired 100% of the issued share capital of Kempton Underwriting Limited for a total consideration of £1,280,000. The consideration was satisfied by additional issued shares in the Company. No information is available at present to accurately determine the fair value of the net assets acquired. Kempton Underwriting Limited is incorporated in England and Wales and is a corporate member of Lloyd's.