Last checked at 28 Mar 2007 07:03
Omega Insurance Holdings Limited28 March 2007 28 March 2007 OMEGA INSURANCE HOLDINGS LIMITED PRELIMINARY RESULTS FOR THE 12 MONTHS ENDED 31 DECEMBER 2006 Omega Insurance Holdings Limited ("Omega" or "the Group"), the internationalinsurance group based in Bermuda, is pleased to announce a 92% increase inprofits. Financial Highlights •Net written premiums: US$88.9 million (2005: US$6.8 million) •Profit before tax: US$22.0 million (2005: US$11.5 million) •Earnings per share: US$0.12 (2005: US$0.30) •Assets per share: US$1.80 (2005: US$1.64) •Syndicate 958 combined ratio: 72% (2005: 93%) Operating Highlights •Establishment of new Bermudian Group holding company in conjunction with Group reorganisation •Established and launched Omega Specialty, a Bermudian insurance company •Incorporation of Omega US, a US surplus lines insurer •Syndicate 958 forecasting continued unbroken underwriting profitability Outlook •Group structure now optimal from strategic, operational and financial perspectives •Attractive market conditions in Omega's key areas of focus •No changes to underwriting strategy and discipline Richard Tolliday, Chief Executive of Omega, commented: "These are excellentresults. They mark a transition for Omega but demonstrate one thing veryclearly: in planning and implementing the changes to the Group in 2006, we haveremained focused on disciplined underwriting in areas where we have provenexpertise and experience and a truly exceptional track record. The Group isideally placed now to grow the business by building upon these foundations. Welook forward with confidence. " Enquiries: Omega Insurance Holdings Limited +1 404 513 4063Richard Tolliday, CEO John Coles, Threadneedle Communications +44 (0)20 7936 9604 Chairman's Statement Last year I wrote to you as Chairman of the Omega Group for the first time sincethe Group had become publicly traded. This year is also a first, since I writeto you now, following the reorganisation of the Group under a scheme ofarrangement that became effective in November 2006, as Chairman of the Group'snew Bermudian holding company, Omega Insurance Holdings Limited. I am verypleased to be reporting such important and valuable developments for the Groupin 2006. We have continued to lay excellent foundations for the future growth ofthe Group and have coupled that with very strong financial performance. 2006 was a year in which both our results and our operational activitiesemphasised that the Group is well advanced in its transition from a businesssolely focused around the successful activities of its Lloyd's managing agencyto becoming an international insurance business deploying its own capital insupport of its underwriting in multiple operating units in major world markets.That journey began with the flotation of the Group in April 2005 and the capitalraised both then and in December of 2005. In one way this continuing transitionlends difficulty to making detailed comparisons with past performance, evencomparing 2006 with 2005. In another way, it highlights clearly the strong bondof continuity with the past with which we drive forward the progress of Omega. Summary of result Our profit before tax of US$22.0 million was up 92% on 2005 (US$11.5 million).This reflects the deployment of the capital raised in 2005 in the establishmentof Omega Specialty Insurance Company Limited in Bermuda and the earnings fromits first year of underwriting. The earnings stream from our own underwritingwill of course take time to mature but it already now forms the largestcomponent of our results. The underwriting result for the year was US$14.2million (2005: US$0.3 million). 2006 enjoyed robust underwriting conditions and, unlike 2005, benign lossexperience. This is clearly reflected in the combined ratio of Syndicate 958 for2006 of 72% compared with 93% for 2005. Both 2004 and 2005 were years ofsignificant insured losses. I am particularly pleased to report that Omega'sSyndicate 958 has closed its 2004 year of account at a profit of 7.61% ofcapacity and is forecasting a profit of between 5% and 10% for the 2005 year ofaccount. We are forecasting a profit for the Syndicate's 2006 year of account ofbetween 12.5% and 20%. Many in the insurance industry will be reporting handsomeprofits for 2006 but it is the relative consistency of results across the goodand bad years and relative outperformance of the market across the cycle thathas been the hallmark of Omega. Placing and Reorganisation In October 2006 Omega Underwriting Holdings Limited (then named OmegaUnderwriting Holdings PLC) completed a placing and raised £32.8 million (US$62million), net of expenses, from institutional investors. These funds were raisedin order to capitalise our new US based insurance company, Omega US Insurance,Inc. This company, which will become operational later in 2007, will writesurplus lines insurance business of a similar nature to that underwritten withinSyndicate 958's portfolio. Concurrent with the placing we effected thereorganisation of the Group by means of a scheme of arrangement under whichOmega Insurance Holdings Limited, a Bermudian holding company, was establishedas the holding company of the Group. On 16 March 2007 Omega Specialty Insurancewas transferred to and became a direct subsidiary of Omega Insurance Holdings.Omega obtained the necessary consent from H.M. Treasury for the transfer ofOmega Specialty by Omega Underwriting Holdings Limited in the UK. All parts of the reorganisation have now been completed and the Omega Group nowhas a corporate structure that is optimal from a strategic, operational andfinancial perspective. It is hard to overestimate the importance and value ofthis to the Omega Group in the coming years. I would like to express our gratitude for the support and commitment that theOmega Group has continued to receive from its investors. Dividend In September 2006 the Omega Underwriting Holdings PLC Board was pleased todeclare a special interim dividend of 4.1p per share which was paid toshareholders in November 2006. This represented both the interim and finaldividend for the 2006 year. The special interim dividend of 4.1p was paid on ashare capital base approximately three times the size of the 3.5p specialinterim dividend paid in 2005 which also served as both interim and finaldividend for 2005. These dividend payments reflect very clearly not only the increased earningspotential of the Group but also the confidence your Board has in the current andfuture prospects of the Company. They are important also as a signal of theimportance your Board attaches to the payment of dividends as part of totalshareholder return. Going forward, the Board intends to pay out a substantialpart of the Group's earnings as dividends. Strategy The Omega Group is now an international insurance and reinsurance group,headquartered in Bermuda with operations in Bermuda, London, the United Statesand Cologne. The corporate strategy of the Group is to complement its Lloyd'sbusiness by growing underwriting businesses that are supported by Omega's owncapital. Given the geographic focus of Omega's premium base in the US, and theaim of building businesses complementary to the Syndicate, the Board regardsBermuda as a natural location for the holding company to be based. The operational strategy of Omega can be summed up quite briefly: It is tocontinue to underwrite business of the type we have always written in London,applying the same disciplines we always have, but to create the opportunities ofattracting a greater share of that business by taking ourselves proactively tothe marketplaces, other than London, where large parts of that business aretransacted. 2006 was another year of significant change for Omega. It is thereforeappropriate for me to reiterate my key message of last year. We believe that wehave a very clear understanding of the disciplines and approach to underwritingwith which we have steered a profitable course through multiple cycles of theinsurance market and on which the Group's record of success has been built. Weintend to adhere to those disciplines as we go forward. In short, we havechanged a lot about Omega and enhanced our ability to create and seizeopportunities; we have not changed any of the key factors to our success. Outlook The profound changes wrought upon the insurance markets by the hurricane lossesin 2004 and of course those in 2005, including Katrina, continue today. It ismost certainly true that margins and conditions are not universally robust andsome lines of business have seen quite material weakening during 2006 and into2007. There are signs in the market that some may be inclined to extrapolatefrom the experiences of 2006 and judge their pricing and appetite for exposureon one benign year. That said, the areas which form the key focus of Omega's underwriting continueto offer very satisfactory terms and conditions and opportunities for attractiveprofitability. The continuing dearth of conventional retrocessional cover onappropriate terms and conditions from acceptable security underpins a continuingdiscipline in the underwriting of target areas. We will be carrying a netunearned premium reserve of US$25.5 million forward from 2006. The premium waswritten at good rates, and substantially all of this will be earned in 2007.With strong continued trading conditions in our key lines, this affords goodprospects for 2007. The Syndicate in London expects to write gross premiums in 2007 of up to US$570million, including the development of a new offshore energy account, and is nowcomplemented by Omega Specialty in Bermuda, which we expect to write grosspremiums of US$200 to US$250 million for 2007. Work is advanced in theoperational build-out of Omega US. We are, therefore, very positive about theoutlook going forward. In 2005 and 2006 we have been investing in the future. We have efficiently andeffectively built out our structure and we are continuing to develop ouroperations in 2007. We expect these labours to bear more fruit in 2007 andmature in the years beyond. Board We were very pleased to welcome Nicholas Warren to the Board as a non-executivedirector in 2006. Nick contributes an understanding of the insurance industryand, as a Bermudian resident, a particular depth of understanding of the Bermudamarket. In December 2006 we were also delighted to be able to announce the appointmentof Penelope James as Group Finance Director. She will be taking up her new rolein May 2007 and will be appointed to the Board. The Omega Team 2006 was another extraordinary year in the development of the Group. Our goal ofan optimal strategic structure was achieved and, at the same time, an unstintingfocus was very successfully maintained upon our core activity of underwriting.This reflects the combination of skills and experience which comprise the Omegateam and the drive, energy and enthusiasm with which they are applied by everymember of it. Outstanding achievements from an outstanding team. Consequently,on behalf of the entire Board, I would like to record our thanks for theseachievements and express the confidence and optimism with which we look forwardto the future. W. Fiederowicz Review of Operations and Financial Results Introduction to Omega Insurance Group Omega is an underwriting group headquartered in Bermuda with operations inBermuda, London, the United States and Cologne. The Group's origins centred on the management of its Lloyd's Syndicate 958 whichhas an exceptional record of unbroken underwriting profit in every closed yearof account since its establishment in 1980. The Group receives fees and profitcommissions for the management of the Syndicate. In 2005 Omega began theexecution of its strategy to change the focus of the Group from being primarilya manager of the third party capital supporting the Syndicate to become aninsurance and reinsurance operation with a significant amount of its own capitalat risk. In April 2005 the Group was floated and admitted to trading on AIM.£18.2 million, net of expenses, was raised from institutional investors. InDecember, Omega completed a second placing and raised a further £85.8 million,net of expenses. In February 2006, US$172 million was committed to thecapitalisation of Omega Specialty, the Group's Bermudian insurance company. InOctober 2006, Omega raised £32.8 million (US$62 million), net of expenses withwhich to capitalise Omega US, the Group's newly formed US insurance company. In 2006, the year under review, the Group's profit before tax was US$22.0million (2005: US$11.5 million) and after tax was US$15.1 million (2005: US$11.7million). This result is the first for the Group to reflect earnings from thedeployment of its own capital in support of its own underwriting in OmegaSpecialty. 2006 is, therefore, very much a transitional year for Omega. Goingforward the earnings from the Group's own underwriting will become more fullydeveloped. In 2006 they already represent the largest component of the Group'sprofit but are not yet indicative of full earning potential. The underwritingresult for the year under review was US$14.2 million compared with US$0.3million in 2005. The underwriting result includes the support by Omega Specialtyof our own corporate member's 15.2% share of Syndicate 958 for the 2006 year ofaccount. Income from managing agency activities, comprised of fees and profitcommissions, net of agency expenses was US$5.0 million for the year. Thecontribution in 2005 of managing agency activities was US$12.0 million butincluded some one off gains from the introduction of a change in our recognitionof those revenue streams, to bring us more in line with our peers. Income frominvestments was US$11.8 million (2005: US$2.1 million). In executing the Group's strategy of becoming an insurance operation with itsown capital at risk, certain objectives were seen as key. The businesses intowhich the Group would deploy its capital should be complementary to its existingLloyd's business and involve no departure from Omega's long-establishedunderwriting discipline and focus. The development of those businesses shouldenable the Group to extend its reach into the markets from which it alreadysourced business for the Syndicate. The decision was therefore taken toestablish Omega Specialty in Bermuda and, subsequently, to establish Omega US inthe United States. Bermuda has emerged as the premier global market for a numberof the types of insurance and reinsurance business that Omega underwrites.Establishing operations in the US will afford access to business that would nototherwise be shown to the Group. A majority of the Group's premium income is, and has been historically, derivedfrom business in the US (2006: 61%). In conjunction with the establishment ofthe Group's operations in Bermuda and the US, Omega concluded that the Groupwould be more appropriately headquartered in Bermuda, where the focus is thedevelopment of the Bermuda and US businesses. Bermuda is seen as the keylocation for the headquarters of groups whose principal business, like Omega's,is the insurance and reinsurance of US based corporations and US based risks.Beyond its strategic importance as a leading insurance market, the attractionsof Bermuda to the Group include its proximity and transport links to the US, theinsurance expertise, lower brokerage rates, good commercial and legalinfrastructure and the regulatory and tax environment. The Chairman of Omega andthe Group's Chief Executive are on the boards of both Omega Specialty and OmegaUS. The Chief Executive has relocated to the US and spends the majority of histime in Bermuda and the US. On 9 November 2006 a scheme of arrangement became effective under which OmegaInsurance Holdings Limited, a Bermuda company, became the holding company of theOmega Group. Shareholders in Omega Underwriting Holdings PLC, the previousholding company received an equal number of shares in Omega Insurance Holdingswhich was admitted to trading on AIM also on 9 November 2006. In order to provide the Group under its new holding company with a structurethat is strategically, operationally and financially optimal, Omega sought andgained consent from H. M. Treasury for the transfer of both Omega Specialty andOmega US from Omega Underwriting Holdings in the UK to Omega Insurance Holdingsin Bermuda. Omega US was transferred to Omega Insurance Holdings by a dividendin specie of its shares from Omega Underwriting Holdings in December 2006. OmegaSpecialty was transferred, also by means of a dividend in specie, on 16 March2007 to become a direct subsidiary of Omega Insurance Holdings. The planned reorganisation of the Group as set out to shareholders in the OmegaUnderwriting Holdings Scheme Circular in 2006 has now been completed.The main operating units within the Group are: - Omega Specialty Insurance Company Limited ("Omega Specialty"), a Bermudian insurance company; - Omega US Insurance, Inc. ("Omega US") a US insurance company; - Omega Underwriting Agents Limited ("Omega Underwriting Agents"), a Lloyd's managing agent, managing Syndicate 958; - Omega Europe GmbH, ("Omega Europe"), a company based in Cologne dedicated to servicing and developing our European and international reinsurance business; and - Omega Dedicated Limited ("Omega Dedicated"), a Lloyd's corporate member supplying capital exclusively to Syndicate 958. Underwriting Performance 2006 was a year in sharp contrast to the previous two years in terms of lossactivity. This is most readily reflected in the combined ratio of Syndicate 958,being 72% for 2006, compared with 93% for 2005. The underwriting performance in2006 reflects both the low level of incurred losses and the absence of any majorinsured catastrophes as well as the strong market conditions following the lossactivity in 2004 and 2005. The market in 2006 was not such that all classes of insurance were subject touniversally hard terms and conditions. Competition was apparent in areas such asinternational property insurance and reinsurance. Omega reduced its exposures inthese classes of business. However, the areas of key focus in Omega's portfoliotraded at very attractive terms and conditions and robust margins. The lack ofavailability of retrocessional reinsurance cover acted to underpin the market'sdiscipline. There was little retrocessional cover available that was onappropriate conditions, at economic terms or from security of acceptablequality. Omega's portfolio has an inherent balance created by a diversity of bothgeographic exposure and business class. This balance has been a majorcontributor to the record of unbroken underwriting profitability, shown in theresults of Syndicate 958, which demonstrates relatively low volatility ofresults. In the circumstances, given the strong trading conditions on so much of Omega'sportfolio and the diversified balance inherent in the portfolio, it was judgedreasonable and appropriate for Omega's underwriting operations to bear increasednet exposures. ----------- ----------- 2006 2005 US$'000 US$'000 ----------- -----------Gross premiums written 115,619 58,402 ----------- ----------- Net earned premium 66,972 7,345Claims incurred, net of reinsurance (32,152) (4,748)Net operating charges (20,654) (2,333) ----------- -----------Underwriting profit 14,166 264 ----------- ----------- 2006 2005 -------- -------- US $'000 US $'000Geographical analysis of gross written premium by location of riskUS 70,978 34,616UK 15,369 7,567Other EU countries 15,463 9,607Other 13,809 6,612 --------- -------- 115,619 58,402 --------- -------- 2006 2005Class analysis of written premium US$'000 US$'000Non-marine property insurance 26,232 11,367Property catastrophe treaty reinsurance 35,955 18,384Property per risk treaty reinsurance 9,389 6,201Professional indemnity insurance 8,601 4,255Motor insurance and reinsurance 8,363 3,789Marine insurance and reinsurance 13,290 8,069Liability insurance and reinsurance 7,001 2,642Other 6,788 3,695 -------- -------- 115,619 58,402 -------- -------- Non-marine Property Insurance (23 per cent of gross premiums written in 2006): The account remains core to Omega and is comprised of predominantly low value,commercial risks. In 2006 the market for this class experienced significanthardening, particularly in catastrophe exposed areas in the US. Non-US propertyinsurance experienced a weakening. Although Omega seeks to avoid significantcatastrophe exposures in its property insurance book, nonetheless the account ispredominantly US risks and overall was written at very attractive terms andconditions. Property Catastrophe Treaty Reinsurance (31 per cent of gross premiums writtenin 2006): The focus of this account in which Omega is an established underwriter is thereinsurance of smaller to medium sized insurance companies. In a similar way tothe insurance account, catastrophe reinsurance treaties with US exposures weresignificantly re-rated in 2006, following the impact of Hurricane Katrina in2005, whereas competition intensified for some international areas. Omegareduced its non-US exposures but was extremely pleased with the terms obtainedfor its US reinsurance account. Gross aggregate exposures in most peak zoneswere reduced relative to 2005 but income was increased. Net exposures werelarger proportionately than in 2005. Property Per Risk Treaty Reinsurance (8 per cent of gross premiums written in2006): This account is written with a methodology and approach consistent with thatemployed on the Property Catastrophe Treaty Reinsurance account, with a similarbias towards the US and reinsuring smaller to medium sized insurers. Professional Indemnity Insurance (7.5 per cent of gross premiums written in2006): Omega is an established leader in this class of business with its accountfocused predominantly on small assureds in the US. The account experienced amodest easing of rates but premiums remained at attractive levels. Motor Insurance and Reinsurance (7 per cent of gross premiums written in 2006): The majority of the insurance element of the account is vehicle physical damagecover in the US and the reinsurance is comprised of reinsurances of European andUK motor insurers, covering both physical damage and liability. The marketconditions in 2006 continued to be strong. Marine Insurance and Reinsurance (11.5 per cent of gross premiums written in2006): The account is comprised principally of reinsurances of the direct marineaccounts of insurers, with more than half being on an excess loss basis and theremainder being proportional. In the wake of the impact of Hurricanes Katrina,Rita and Wilma on the marine market, there were significant revisions to thepricing and structuring of marine reinsurance programmes, affording some veryattractive opportunities in this account. This business class also includesOmega's insurance of yachts and small craft. Liability Insurance and Reinsurance (6 per cent of gross premiums written in2006): Most of the liability insurance underwritten by Omega is the restricted coveragegiven in conjunction with the writing of commercial property insurances. Thereinsurances are of European and UK general liability insurers on a risk excessbasis. Whilst the reinsurance business did not experience the strengthening ofrates and terms to which the property sector was subject, margins werenonetheless maintained. Other (6 per cent of gross premiums written in 2006): Classes categorised as "other" include Omega's underwriting, on either aninsurance or reinsurance basis, of satellites, aviation hull war, fine art,personal accident and kidnap and ransom. Omega underwrites these classes on anopportunistic basis and therefore expands and contracts the individual lines ofbusiness according to the market conditions. Omega Specialty Omega Specialty is a directly held and wholly owned subsidiary of OmegaInsurance Holdings and received its licence from the Bermuda Monetary Authorityin February 2006 as a Class 3 insurer. It was capitalised at US$172 million andis rated A- (Excellent) by A.M. Best. During 2006 Omega Specialty wrote gross premiums of US$105.5 million. This wascomprised predominantly of: - a reinsurance of Omega Dedicated through which Omega Specialty assumed the risk of the majority of the share of Syndicate 958's capacity owned by the Group; and - a 10% quota share reinsurance of Syndicate 958's whole account. The total of gross written premiums is lower than the previous estimate ofUS$145 million but the single largest component of the revision is a change inthe Group's approach to recognition of written premium in respect of smallbusiness binding authority facilities. Only that part of the total twelve monthpremium expected to be generated by a particular facility that relates to risksattaching to the facility in that same calendar year as the inception of thefacility contract itself are now included in the estimate of gross writtenpremiums for the year in which the facility attaches. The premium derived fromrisks attaching in the next calendar year is included in the written premiumestimate for the following year. Importantly, this adjustment has had no effecton the earned premiums and therefore no effect on the result for 2006, becausenone of the written premium that relates to risks attaching to the facilitiesduring 2007 would have been earned in 2006. 2006 has been an excellent start for Omega Specialty and solid foundations havebeen laid down that will serve the company well into the future. Its combinedratio for 2006 of 80% is not typical of other Bermudian insurers, particularlythose whose first year of trading was 2006. The majority of Bermudian insurershave portfolios heavily weighted towards catastrophe reinsurance and theircombined ratios will reflect starkly the lack of major loss activity in 2006.Omega Specialty's account has an inherent diversity and balance, reflecting itsproportional protection of Omega Dedicated and Syndicate 958's whole account.Its earnings will therefore be relatively more consistent and subject to lessvolatility than an account more focused on catastrophe reinsurance. OmegaSpecialty also employs the same prudently conservative approach to recognitionof profits and reserving as that historically associated with the Group. For 2007, Omega Specialty has renewed the reinsurance of Omega Dedicated and the10% quota share reinsurance of Syndicate 958. In addition, Omega Specialty hasunderwritten a 10% qualifying quota share of Syndicate 958's gross wholeaccount. This contract had the effect of increasing the capacity of theSyndicate from £249 million to £274 million. This increase in capacity allowedthe Syndicate to expand its underwriting to include an account focused onoffshore energy. Omega Specialty is also developing its account of third-party reinsurances. Thecompany is seeking to underwrite reinsurance business similar in type andcomposition to that underwritten by Syndicate 958. Cedants are predominantly USdomiciled and smaller to medium sized insurance companies. Omega Specialty hasbeen pleased with the response it is receiving from both intermediaries andcedants. For 2007 Omega Specialty expects to write gross premiums of between US$200million and US$250 million. Syndicate 958 Syndicate 958 was established in 1979 to commence underwriting for the 1980 yearof account. It has closed every year of account since its formation at anunderwriting profit, creating an exceptional record of outperformance of theinsurance market across the underwriting cycles. The Syndicate has a capacity of£274 million for 2007 and is rated A (Excellent) by A.M. Best. Some 84% of the 2006 year of account capacity of Syndicate 958 is supported bythird-party Names. Omega's own capital supports 15.2% of 958's stamp. The effective capacity shown below includes a qualifying quota share reinsurancewritten by OSIL. Syndicate 958 - Capacity and profit forecasts Year of account 2007 2006 2005 2004Capacity £249m £249m £224m £224m Effective Capacity £274m Omega Dedicated share of capacity 16.4% 16.4% 12.9% 1.9%Omega Group retained share of capacity 15.2% 15.2% 0.5% 0.4%Omega Group retained share of effectivecapacity 22.9% Profit after standard personal expenses(* forecasts) 12.5% - 20%* 5% - 10%* 7.6% The table above shows that the Syndicate has produced a profit for 2004 and isforecasting a profit for 2005 despite the major hurricanes experienced in thosetwo years. In 2004 Hurricanes Charley, Frances, Jeanne and Ivan all visiteddamage upon Florida. The following year Hurricanes Katrina, Rita and Wilmabrought devastation to the US Gulf coast and Florida. The Syndicate's portfolio has a diversity of both business class and geographicspread providing an inherent balance which is reflected in the low volatility ofits results relative to the Lloyd's market as a whole. 100% syndicate figures and ratios US$'000 Syndicate 958 business 2006 2005 2004Gross premium written 462,755 438,407 378,159Net premiums earned 339,862 362,695 287,930Technical result before personal expenses 96,038 37,738 43,280Claims ratio 41% 64% 50%Expense ratio 31% 29% 35%Combined ratio 72% 93% 85% The Syndicate combined ratio is stated before exchange movements and standardmember personal expenses. Omega US Omega US Insurance is the Group's newly established US surplus lines insurer,domiciled in Delaware and intending to underwrite on a surplus lines basis, inall other US states once the company has been granted the requisite eligibilityin each state. At a capitalisation of US$50 million, from the proceeds of the placing inOctober 2006, the company will be seeking a rating from A.M. Best in the nearfuture. Omega US will be seeking to develop a book of business very similar incomposition to the US property insurance account underwritten by Syndicate 958.It will be targeting small-sized, commercial, property-orientated business andseeking to underwrite predominantly in those geographic areas in the US that arenot directly accumulatory with the Group's peak catastrophe zones. It isintended that Omega US be developed in a way that is complementary to Syndicate958 and will be seeking business that would not in any event have been offeredto the Syndicate in London. The Group is delighted to have secured the services of John Curry as VicePresident of Underwriting of Omega US. Prior to joining Omega John was SeniorVice President of Underwriting and Marketing for United America IndemnityInsurance Group. He has 33 years of experience in the US insurance industry,focused very particularly on those areas of business which Omega US intends topursue. No business was written by Omega US in 2006. Omega Europe The Group established its operations in Germany in late 2003 to complement thedevelopment of Omega's European reinsurance account. Based in Cologne, it offersclients access to all of the Omega group's services and is able to facilitatethe placement and servicing of reinsurance business with Syndicate 958. The team in the Omega offices in Cologne offers a single point of contact forall enquiries relating to reinsurance business of either a proportional ornon-proportional basis. They are able to inform clients/brokers of the rates,terms and conditions offered by the Omega Group's underwriters and provideconfirmation of the line that will be underwritten. Following the placement of business with Syndicate 958, the team in Cologneagain offer a single point of contact for delivering documentation, wordings andaccounting information. Clients are able to contact the team in Cologne on allmatters, including the processing of all premiums and claims. Whilst market conditions in international reinsurance business are beingadversely impacted by competition driven in part by the quest for diversity, theGroup is pleased with the access Omega Europe provides to attractive businessthat would not otherwise be seen. People The Group's exceptional achievements and record are the product of its talentedand experienced people. Its remarkable record of retaining key members of staffcontinues. Staff turnover in 2006 was again below 3%. Simultaneous with the expansion of the Group's operations, the management teamhas been strengthened in the past twelve months with appointments to the rolesof: • Group Finance Director (to start in May 2007);• Group Chief Operating Officer;• Group Compliance Officer;• Managing Director of OUAL;• Vice-President of Underwriting for its newly established US operation;• Offshore Energy and Onshore Power Underwriter; and• Binding Authority Manager. The successful record of Omega and its approach to business, together with itsenhanced international profile, make the Group attractive as an employer toindividuals of the quality that it is seeking to employ. Outlook It is most certainly the case that underwriting conditions are not uniformacross all classes of business in 2007. Some areas of business have alreadyexperienced quite significant softening, driven largely by competition for risksthat are thought, by some at least, to be less hazardous or to offer diversityfrom peak catastrophe accumulations. The absence of insured catastrophe lossesin 2006 would appear to have generated an excessive degree of comfort in someunderwriters with the levels of risk they are prepared to run. That said, judgedagainst the past, an encouraging level of discipline is still being displayed bythe market as a whole in key areas. Much commentary has been published on the legislation passed in Florida inFebruary 2007 which increased the levels of coverage provided by thestate-funded Florida Hurricane Catastrophe Fund. Opinions have varied as to theeffect of the reform on the conventional reinsurance industry and differingestimates have been provided as to the total of the reinsurance premiums thatmight be lost from the conventional market. The nature of the Group's Floridareinsurance portfolio, which is weighted towards protecting commercial insurers,rather then homeowner writers, and the attachment point of many of thereinsurances underwritten by Omega mean that Omega does not anticipate amaterial reduction in its reinsurance premium income for 2007 as a result of theFlorida legislation. Philip Thorpe-Apps joined the Group in January 2007 to develop an accountfocused predominantly on offshore energy and onshore power risks. This isconsistent with Omega's focus upon transparent, short-tail business and anopportune expansion into a well-rated area of business. The prospects for Omega for 2007 and beyond are particularly positive. There area number of reasons why this is the case: - Omega's key underwriting accounts are focused in areas, both in terms of business class and geography, where market conditions remain most robust and margins continue to afford the prospect of healthy returns - The Group is now positioned with an efficient operating structure that provides it with access to the major markets of London, Bermuda and the US and will optimise its earnings - Omega will drive forward by building upon the key factors that have made it exceptionally successful to date, including its disciplined focus upon the quality and consistency of its underwriting and the prudent approach to the management of risk. Since its flotation in 2005 Omega has retained an unwavering focus upon itsunderwriting, clearly demonstrated in its results, whilst at the same timeinvesting time and resource for the future. As the Group matures into itsenhanced structure that investment can be expected to yield handsome rewards. Financial Review Table of financial highlights 2006 2005 US$'000s US$'000s Gross written premium 115,619 58,402Net earned premium 66,972 7,345 ------------- ------------ Underwriting result 14,166 264Investment return 10,990 1,931Managing agents activities 4,989 12,019Group expenses (8,110) (2,717) ------------- ------------Profit before tax 22,035 11,497 ------------- ------------Profit after tax 15,103 11,686 ------------- ------------ Per share amounts- Net tangible assets US$1.80 US$1.64- Earnings US$0.12 US$0.30 - Dividend 4.1 pence 3.5 pence The earnings per share figure is based on the weighted average number of sharesin issue during the reporting period. The capital raising during December 2005created 82 million new shares and is the major component in the significantincrease in the weighted average number of shares in issue to 125 million sharesin 2006, from 39 million in 2005. The earning patterns applied to insurancepremium means that the full effect of utilising this capital will not be seenuntil 2007. Overview of financial result The Group has recognised a significant profit before tax of US$22.0 million(2005: US$11.5 million) during the year, principally derived from the Group'sincreased level of retained (or own) underwriting. As reported in last years accounts the Group has deployed the majority of thecapital raised during 2005 in the formation and capitalisation of OmegaSpecialty Insurance Limited. Omega Specialty secured an AM Best rating of A- andcommenced underwriting in early 2006. In 2006 Omega Specialty wrote bothspecific reinsurances of Syndicate 958 and a reinsurance of the corporate name,Omega Dedicated Limited, which underwrites solely on Syndicate 958. Theunderwriting result (as discussed below) is reflective of the excellent resultsof Syndicate 958 and its continued profitable track record. The managing agency continues to contribute positively to the group result,again reflective of the positive underwriting results of Syndicate 958. 2006 is in effect a year of transition for the Omega Group. For the first time,through Omega Specialty, its new underwriting platform in Bermuda, Omega beganto retain a material proportion of the underwriting that had historically beenconducted on behalf of the third party capital supporting Syndicate 958. In October 2006 a further £32.8 million (US$62 million) net of expenses wasraised by way of an additional placing to establish a US subsidiary, Omega USInsurance Company, Inc., another platform which will begin underwriting in 2007. This year also saw the formation of a new holding company, Omega InsuranceHoldings Limited, domiciled in Bermuda whose shares were admitted to trading onAIM on 9 November 2006, replacing by a one for one exchange those of OmegaUnderwriting Holdings. These transactions combine to provide the Omega Group with an optimalunderwriting and financial structure as the underwriting account matures andgrows into 2007 and 2008. The extent of the change in the Group's structure and operations complicates thecomparisons of the 2006 result with those of the previous year. During the year under review the Group has adopted a reporting currency of US$in recognition of the change in the Group, both in terms of income streams andtransactions. All of the comparatives within the financial statements have beenrestated to reflect this. Omega Underwriting Holdings PLC paid a special interim dividend to theshareholders on the register as at 20 October 2006 of 4.1 pence per share. Thisdividend represented the interim and final dividend for 2006. Underwriting result During the year under review the Group had the following main sources ofunderwriting income. Firstly Omega Specialty supports the Group's own share of the underwriting inSyndicate 958 via a reinsurance of the dedicated corporate vehicle OmegaDedicated Limited. The balance of the corporate name's participation in theSyndicate is not reinsured through to Omega Specialty and is principally writtenby third parties. Secondly, Omega Specialty underwrote reinsurances of Syndicate 958 predominantlya direct quota share reinsurance contract. The Syndicate typically purchasedreinsurance from third party reinsurers. However in the wake of the 2004 and2005 catastrophe experiences and the impact this had on the reinsurance marketno suitable reinsurance cover with appropriate terms and conditions at economicrates was offered to the Syndicate. Omega Specialty was able to offer a wholeaccount quota share reinsurance to the Syndicate.As a consequence of Omega Specialty's underwriting, the Group's retained netearned premium has increased to US$67.0 million (2005 - US$7.3 million). Of thenet earned premium US$64.5 million relates to the 2006 year of account ofSyndicate 958. As reported earlier, the benign loss experience experienced over the last 12months has resulted in an excellent underwriting result being reported for OmegaSpecialty's first year of operation. The underwriting result of the Group for the year is US$14.2 million (2005 -US$0.3 million) before investment income. Future prospects Presently a significant proportion of Omega Specialty's underwriting is onlyfully recognised 18 to 24 months after the relevant year of account has begun.As a consequence each year will not only benefit from its own careful riskselection but the prudent risk selection from the previous years which continuesto earn through into the next calendar year. This is, in part, reflected by netunearned premium of US$25.5 million on the year end balance sheet relating tothe 2006 year of account. For 2007 Omega Specialty has renewed the whole account quota share reinsuranceof the Syndicate. In addition the Group announced in January 2007 that OmegaSpecialty has entered into a qualifying quota share arrangement with Syndicate958. This QQS will allow Syndicate 958 to increase its capacity by £25 millionin order to develop a new marine and energy insurance account. The Group's third underwriting platform Omega US, complementing the Bermudianand London operations is planned to commence underwriting during 2007. This willfurther enhance the Group's international presence and relationships with itskey markets. Managing agency Omega Underwriting Agents receives income from its managed syndicate by way of amanaging agent's fee and a profit commission. The agency fee reimburses the Agency for the management of a year of account.The year of account is normally closed at the end of the third year with work onthe closure of that year of account continuing into the first quarter of thefourth year. The agency fee is therefore recognised over the three open years ofa year of account and an element in the fourth year reflecting the closing ofthe year of account and the associated reporting. Profit commissions are payable to the Agency by its managed syndicate (Syndicate958) upon closure of a profitable underwriting year, three years after eachunderwriting year has commenced. In accordance with generally acceptedaccounting practice the Agency recognises the profit commission ahead of itsreceipt. Consistent with the Group's conservative strategy any such recognitionis always on a prudent basis and in line with the published forecasts. The Managing Agency income can be further summarised as follows: Managing agent income 2006 2005 US$'000 US$'000Profit commission recognised in the period 7,588 8,277Additional profit commission recognised upon a change inrecognition policy - 5,073 Agency fees 3,218 2,803Expenses net of other income (5,817) (4,134) 4,989 12,019 The one-off additional recognition in 2005 for US$ 5 million was as a result ofthe Agency adopting a new basis of recognition in line with the profile of theunderlying risks written. This additional recognition during 2005 distorts theyear on year comparison. The profit commission recognised during 2006 isconsistent with the underlying performance of the Syndicates 2004 and 2005 yearsof account which although remaining profitable have suffered above averagehurricane activity. Future prospects No profit commission has been recognised within these results on the 2006 yearof account. The current estimate for 2006 is a range of 12.5% to 20% return. Themajority of the profit commission on this result will flow through to earningsin 2007 and the remainder in 2008. The Managing Agent derive fees and profit commission based on the capacity ofthe managed Syndicate which for 2007 is £249 million and for 2008 will reflectthe incorporation of the qualifying quota share reverting to the Syndicate. Investment return The Group's investments comprise directly owned investments supporting theunderwriting businesses, and the Group's share of the Syndicate investments. All of Omega's financial investments are managed under the guidance of the GroupInvestment Committee which is responsible for setting the investment strategy,guidelines and approving the appointment of investment managers. The cautious investment strategy is designed to avoid excessive fluctuations innon-underwriting results and is intended to ensure that shareholders' capital isavailable for deployment in support of Omega's underwriting. The syndicate investments are outsourced to investment managers under thedirection of the managing agent finance committee. A conservative investmentstrategy is applied to these funds reflecting the short-tail nature of theGroup's insurance portfolio and the annual venture nature of Lloyd's Syndicates. The investment return for the period has principally derived from funds used tocapitalise Omega Specialty in Bermuda; funds raised at the end of the year tocapitalise Omega US; and the share of the Syndicate funds and funds used tosupport the UK operations. These have been analysed further below. Funds and returns thereon are as follows: Funds Income Average Return US$'000 US$000 % Omega Specialty Bermuda 180,526 8,221 5.6% Corporate funds 73,606 1,929 3.3% Syndicate funds 50,135 1,636 4.1% 304,267 11,827 The investment contribution during 2006 from Omega Specialty was US$8.2 million.The majority of investments were placed in AAA mutual funds which returned 5.5%. Within corporate funds the group is holding US$49.0 million cash at the year endwhich was used to capitalise the new US entity subsequent to the year end. Future strategy The Group will continue to pursue a conservative investment strategy withinvestment in primarily short-duration, high-grade, fixed-income securities. It is intended that the management of the Group's capital will be outsourced toinvestment specialists, under strict guidelines. The investment strategy of theGroup and Syndicate funds will continue to seek to maximise the investmentreturns but only to the extent consistent with the principal aims ofdiversification of risk, the preservation of capital and liquidity of funds. Group expenses 2006 2005 US$'000 US$'000Other group expenses (7,009) (2,586) Cost of Finance (minority interests) (1,101) (131) Group expenses (8,110) (2,717) The Group undertook a major reorganisation in 2006 by means of a scheme ofarrangement and Omega Insurance Holdings Limited was established as the holdingcompany. In addition Omega US and its direct holding company were established,and the subsidiary companies in the US and Bermuda were transferred to OmegaInsurance Holdings Limited to achieve the optimal corporate structure. Increasedexpenses comprise some of the incidental costs associated with thisreorganisation and a general increase in the operating costs of the largergroup. Costs associated with the additional raise along with most of the reorganisationcosts of the Group have been taken to the share premium account. A resolution toreduce the share premium account of Omega Insurance Holdings and create acontributed surplus (which is treated as distributable reserve) will be put tothe Annual General Meeting. Cost of finance represents the profit attributable to the minority interests ofthe subsidiary company: Omega Dedicated Limited. Foreign exchange A foreign exchange gain of US$5.2 million has been taken directly to reserves inthe statement of total recognised gains and losses. This mainly represents therevaluation of sterling funds held in Omega Underwriting Holdings Limited(previously Omega Underwriting Holdings PLC) prior to their allocation to othergroup companies. Going forward, foreign exchange differences relating to thetranslation of foreign Group companies will continue to be recognised in thestatement of total recognised gains and losses, but it is intended that Groupsurplus funds will be transferred to the holding Company and held in US$. Taxation The Group's effective tax rate for 2006 reflects the fact that Omega SpecialtyInsurance Limited was a controlled foreign company ('CFC') for UK tax purposesduring the year and therefore its profits are subject to UK taxation (by beingapportioned to Omega Underwriting Holdings Limited). In order to reduce the taximpact of this, Omega Specialty has followed an 'acceptable distribution policy'in respect of 2006, whereby 90% of its net chargeable profits have beendistributed to Omega Underwriting Holdings Limited with the effect that theseprofits are subject to an effective tax rate of 27% rather than the statutory UKrate of 30%. As previously reported during the 2005 calendar year on the introduction ofOmega Dedicated (No. 2) Limited ("Omega Dedicated 2") into the Group, £7.9million of unrelieved UK tax losses became available. The available losses wereoffset against the Group's 2005 calendar year profits. As a consequence only a minimal UK current tax charge was incurred on theGroup's profit for the 2005 calendar year. Future taxation Since the year end Omega Specialty Insurance Limited, as previously explained,became a direct subsidiary of Omega Insurance Holdings Limited on 16 March 2007.Accordingly since that date any profits generated by Omega Specialty InsuranceLimited should not be subject to UK tax by way of apportionment under the UK CFCrules. Additionally any distributions made by Omega Specialty Insurance Limitedafter that date should not be taxable in the UK. This is expected to result in amaterial reduction in the Group's effective tax rate for 2007 and future years. Dividend policy Following the Group's strong interim results, and in advance of both the issueof new ordinary shares in October 2006 and the scheme of arrangement becomingeffective in November 2006, the Board of Omega Underwriting Holdings PLC waspleased to declare a special interim dividend of 4.1p per share payable to thoseshareholders on the register of that company on 20 October 2006. This was a 17per cent increase in the level of the special interim dividend declared inNovember 2005 (3.5p per share). Both dividends represented the interim and finaldividends for the 2005 and 2006 years respectively. The special interim dividend of 4.1p was paid on a share capital baseapproximately three times the size of the 3.5p special interim dividend paid in2005. This reflects not only the increased earnings potential of the Group butalso the Board's confidence in the current and future prospects of the Company.In this Company's admission document in 2006 we stated that is the intention ofthe Directors to pay out a substantial part of Omega's distributable profits asdividends. Going forward, the Board intends to declare dividends followingpublication of interim and final results on a calendar basis but also to declarespecial dividends when individual events or levels of Group profitability leadto such dividends being an appropriate course of action. The Board intends thatthere be an active management of the Group's capital base. Future dividends will be declared in US dollars but a pounds sterling electionwill be made available to those shareholders who wish to receive payments inpounds sterling. The currency exchange rate applying to pounds sterling dividendelections in the future will be notified to shareholders at the relevant futuredate. Balance sheet The continued strength and make up of the balance sheet over the last calendaryear are testament to the Group's increased deployment of capital tounderwriting and also the raising of US$62 million net of expenses in October2006 to fund our new US operations. The consolidated balance sheet of the Group includes its share of the assets andliabilities of Syndicate 958. These assets and liabilities relate to theSyndicate's open years of account and remain with the Syndicate until closure ofthe year at which time the result is released to the Group. Of the total consolidated assets of the Group US$115 million relate to theassets of the Syndicate. Cash and investments have increased by over US$98 million during the year. TheUS$62 million net capital raised in November 2006 obviously forms the largestpart of that increase. Cash and investments also include the Group's share ofthe Syndicate cash and investments and the majority of the increase reflects theGroup's underwriting on the 2006 year of account. Funds at Lloyd's, representing cash deposits at Lloyd's and cash and cashalternatives held at the bank to support a letter of credit deposited atLloyd's, are included within cash. Consolidated Profit and Loss Account - General Business Technical Account Year ended 31 December 2006 Notes 2006 2005 US$'000 US$'000Earned premiums, net of reinsurance Gross premiums written 1 115,619 58,402Outward reinsurance premiums (26,680) (51,561) ----------- -----------Net premiums written 88,939 6,841 Change in the provision for unearned premium: Gross amount (16,403) (11,892)Reinsurers' share (5,564) 12,396 ----------- ----------- 66,972 7,345 Allocated investment return transferred from thenon-technical account 2 9,857 277 Reinsurers' share of allocated investment return (819) (144) ----------- -----------Total technical income 76,010 7,478 ----------- -----------Claims incurred, net of reinsurance Claims paid: Gross amount (41,311) (12,847)Reinsurers' share 34,975 10,434 ----------- ----------- (6,336) (2,413) ----------- ----------- Change in the provision for claims: Gross amount (11,049) (49,415)Reinsurers' share (14,767) 47,080 ----------- ----------- (25,816) (2,335) ----------- ----------- (32,152) (4,748) Net operating expenses 3 (24,357) (10,796)Reinsurers' share of net operating expenses 3,703 8,463Investment expenses and charges (36) (7)Reinsurers' share of investment expenses and charges 18 4 ----------- -----------Total technical charges (52,824) (7,084) ----------- -----------Balance on technical account - general business 23,186 394 ----------- ----------- Consolidated Profit and Loss Account - Non-Technical Account Year ended 31 December 2006 Notes 2006 2005 US$'000 US$'000 Balance on the technical account - general 23,186 394business Investment income 11,843 2,363Realised gains and losses on investments (58) (184)Unrealised gains and losses on investments 42 (68)Investment expenses and charges - (33)Allocated investment return transferred to thegeneral business technical account 2 (9,857) (277)Other income 4 11,787 16,919Other charges, including amortisation (14,908) (7,617) ----------- ----------Profit on ordinary activities before tax 22,035 11,497Tax (charge)/credit on profit on ordinary 7 (6,933) 189activities ----------- ----------Profit on ordinary activities after taxattributable to shareholders of the Group 15,102 11,686 ----------- ----------Earnings per share - basic 8 US$0.12 US$0.30Earnings per share - diluted 8 US$0.12 US$0.30 The profit and loss account relates entirely to continuing activities. Consolidated Statement of Total Recognised Gains and Losses Year ended 31 December 2006 2006 2005 US$'000 US$'000Profit attributable to shareholders of the Group 15,102 11,686Exchange difference on retranslation of foreign currency net assets 5,166 - ----------- ----------Total recognised profits for the year 20,268 11,686 ----------- ---------- Consolidated Balance Sheet As at 31 December 2006 Notes 2006 2005 US$'000 US$'000 ASSETSIntangible assetsSyndicate participations 9 - 29 -------- ----------- - 29 -------- -----------InvestmentsFinancial investments 12 222,919 48,153Deposits with cedingundertakings - 105Funds held in overseasdeposits 171 948 -------- ----------- 223,090 49,206 -------- -----------Reinsurers' share of technical provisionsProvision for unearnedpremiums 8,437 1,873Claims outstanding 21,059 31,387 -------- ----------- 29,496 33,260 -------- -----------DebtorsDebtors arising out ofdirect insurance operations 15,688 14,906Debtors arising out ofreinsurance operations 32,158 8,961Other 13 17,154 12,807 -------- ----------- 65,000 36,674 -------- -----------Other AssetsTangible assets 10 211 83Cash at bank and in hand 11 81,348 156,929 -------- ----------- 81,559 157,012 -------- -----------Prepayments and accrued incomeDeferred acquisition costs 8,623 4,663Other prepayments andaccrued income 14 5,992 4,960 -------- ----------- 14,615 9,623 -------- -----------Total assets 413,760 285,804 -------- ----------- Consolidated Balance SheetAs at 31 December 2006 Notes 2006 2005 US$'000 US$'000LIABILITIESCapital and reserves Called up share capital 15 14,736 10,392Share premium account 247,418 170,471Own shares 23 (98) (127)Profit and loss account 3,066 14,501 --------- --------Shareholders' funds 16 265,122 195,237 --------- --------Technical ProvisionsProvision for unearned premiums 33,929 14,629Claims outstanding 69,525 54,796 --------- -------- 103,454 69,425 --------- --------CreditorsCreditors arising out of direct insurance operations 6,506 3,091Creditors arising out of reinsurance operations 16,910 7,628Other creditors including taxation and social 17 13,697 7,399security --------- -------- 37,113 18,118 --------- --------Accruals and deferred income 18 8,071 3,024 --------- --------Total liabilities and shareholders' funds 413,760 285,804 --------- -------- --------- -------- Net assets per share US$1.80 US$1.64Net tangible assets per share US$1.80 US$1.64 --------- -------- Consolidated Statement of Cash Flows Year ended 31 December 2006 Notes 2006 2005 US$'000 US$'000 Net cash inflow from operating activities 20 47,471 24,728 Return on Investments and Servicing of Finance Servicing of finance (455) (140) TaxationCorporation tax paid (1,547) (1,119) Capital expenditure and financial investmentPurchase of tangible fixed assets (193) (72)Purchase and sale of investments 22 (173,900) (45,887) Equity dividendsEquity dividends paid (9,337) (2,350) FinancingIssue of ordinary share capital 65,801 189,198Costs of issue (3,808) (10,196)Reorganisation and listing costs (5,197) - ---------- ---------Net cash (outflows)/inflows 21 (81,165) 154,162 ---------- --------- Accounting Policies Basis of PreparationThe consolidated accounts are prepared in accordance with UK Generally AcceptedAccounting Practice ("UK GAAP"), and with the Statement of Recommended Practiceon Accounting for Insurance Business issued by the Association of BritishInsurers (the "ABI SORP") dated December 2005 and amended in 2006, except thatforeign exchange differences arising from underwriting operations are includedin the technical account rather than the non-technical account as recommended bythe ABI SORP. Where the Group participates in insurance business as a member of Lloyd's theGroup's share of the technical result, assets, and liabilities of the syndicateon which it participates are included on an annual accounting basis. The parent company has taken advantage of the exemption from presenting separatefinancial statements for a Bermudian registered company that preparesconsolidated accounts. Basis of Consolidation and AccountingThe consolidated accounts incorporate the accounts of Omega Insurance HoldingsLimited and all its subsidiary undertakings ("the Group") drawn up to 31December 2006. Omega Insurance Holdings Limited was formed in August 2006 and became the newparent company of the Group as a result of the Group reorganisation in November2006. The comparative figures represent the Group as at 31 December 2005 andincorporate the accounts of Omega Underwriting Holdings PLC and all itssubsidiary undertakings at that date. The Group has changed its functional and reporting currency from sterling to USdollars with effect from 1 January 2006. The comparative figures have beenpresented in US dollars applying the rates set out in note 26. The US dollarmore accurately reflects the currency of the underlying operations of the Groupfrom 1 January 2006, the date from which the Group retains a more substantialvolume of the underwriting risk. PremiumsWritten premiums comprise the total premiums receivable for the whole period ofcover under contracts incepting during the financial year, together withadjustments arising in the financial year to premiums receivable in respect ofbusiness written in previous financial years. All premiums are shown gross of commission payable to intermediaries and areexclusive of taxes and duties levied thereon. Outwards reinsurance premiums are accounted for in the same accounting period asthe premiums for the related direct or inwards business being reinsured. Written premiums are earned over the period of the policy on a timeapportionment or more appropriate basis, having regard to the exposure of therisk. Unearned Premiums ProvisionThe provision for unearned premiums represents the proportion of gross writtenpremium which is estimated to relate to exposures in subsequent financialperiods. ClaimsClaims incurred comprise the estimated cost of all claims occurring during theperiod, whether reported or not, including related direct and indirect claimshandling costs and adjustments to claims outstanding from previous periods. The provision for claims outstanding is made on an individual case basis and isbased on the estimated ultimate cost of all claims notified but not settled bythe balance sheet date, together with the provision for related claims handlingcosts. The provision also includes the estimated cost of claims incurred but notreported at the balance sheet date based on statistical methods. The estimationprocess includes the use of statistical projections based on previous claimshistory, case by case reviews of notified losses, and the use of securityratings to help assess the financial ability of reinsurers to pay thereinsurance recoveries anticipated of them. The provision for claims outstanding is based on information available at thebalance sheet date. Significant delays are experienced in notification andsettlement of certain claims and accordingly the ultimate cost of such claimscannot be known with certainty at the balance sheet date. Subsequent informationand events may result in the ultimate liability being less than, or greaterthan, the amount provided. Any differences between provisions and subsequentsettlements are dealt with in the technical account - general business of laterperiods. Deferred Acquisition CostsAcquisition costs, comprising commission and other costs related to theacquisition of insurance contracts are deferred to the extent that they areattributable to premiums unearned at the balance sheet date. Unexpired RisksProvision is made where the cost of claims and expenses arising after the end ofthe financial period from contracts concluded before that date is expected toexceed the provision for unearned premiums, net of deferred acquisition costs,and premiums receivable. Quota share reinsurancesOmega Dedicated Limited is reinsured through a quota share reinsurance contractwith a third party on the 2005 year of account. The revenue relating to thethird party reinsurer has been included on the reinsurers share line ofpremiums, claims, provisions and expenses. The net balance due to the thirdparty reinsurer under the quota share contract has been included under creditorsarising out of reinsurance operations. Omega Specialty Insurance Limited reinsures Syndicate 958 through a quota sharereinsurance contract. Where this represents a reinsurance of third party namesthis is accounted for in the same way as other insurance business. Investment ReturnInvestment return comprises all investment income, realised investment gains andlosses and movements in unrealised gains and losses, net of investment expenses,charges and interest. Realised gains and losses on investments are calculated as the differencebetween sale proceeds and purchase price. Unrealised gains and losses oninvestments represent the difference between the valuation at the balance sheetdate and their valuation at the previous balance sheet date or purchase price ifacquired during the year, together with the reversal of previously recognisedunrealised gains and losses in respect of investments disposed of in the currentyear. Investment return is included initially within the non-technical account. Anallocation to the technical account is made to reflect the investment return onthe Group's share of Syndicate investments and funds supporting the underwritingparticipation. Other incomeOther income includes fees and profit commission charged by the Group to thirdparty members of Syndicate 958. Agency fees are charged to a year of account and earned over four years untilits expected closure, in line with the services provided. Profit commission is receivable on closure of the relevant Lloyd's year ofaccount, normally after three years. It is accrued during the second and thirdyears of account when it is reasonably certain that further development will notresult in its reversal. InvestmentsInvestments are stated at their current values at the end of the year. Listedinvestments are included in the balance sheet at mid-market value. Deposits withcredit institutions are included at cost. Deferred TaxDeferred tax is recognised in respect of all timing differences that haveoriginated but not reversed at the balance sheet date where transactions orevents have occurred at that date that will result in an obligation to pay more,or a right to pay less tax. Deferred tax assets are recognised only to the extent that the directorsconsider that it is more likely than not that there will be suitable taxableprofits from which the future reversal of the underlying timing differences canbe deducted. Deferred tax is measured on an undiscounted basis at the tax rates that areexpected to apply in the periods in which timing differences reverse, based ontax rates and laws enacted or substantively enacted at the balance sheet date. Syndicate ParticipationSyndicate capacity purchased at auction is capitalised at cost and amortised ona straight-line basis over its estimated useful life of 5 years. Amortisation ischarged from the first accounting period following acquisition. The carryingvalue is reviewed for impairment if events or changes in circumstances indicatethat the carrying value may not be appropriate. DepreciationDepreciation is charged to write off the cost of all tangible fixed assets, inequal annual instalments over their estimated useful lives at the followingrates:- Office furniture 20% per annum Computer equipment 33% per annum LeasesRentals payable under operating leases are taken to the profit and loss accounton a straight line basis over the lease term. Pension CostsThe Group operates a defined contribution pension scheme. Contributions arecharged to the profit and loss account as they become payable in accordance withthe rules of the schemes. Foreign CurrenciesTransactions in foreign currencies are recorded at the rates of exchangeprevailing on the dates of the transactions. At each balance sheet date,monetary assets and liabilities that are denominated in foreign currencies areretranslated at the rates prevailing at the balance sheet date. Gains and lossesarising on retranslation are included in the technical account when related tounderwriting operations and the non-technical account when arising from othersources. On consolidation the financial statements of Group companies with non-US dollarfunctional currencies have been translated using the closing rate method. Assetsand liabilities are translated into US dollars at the rates ruling at thebalance sheet date. Profit and loss account figures are translated into USdollars at average rates of exchange ruling during the year, which approximateto actual exchange rates. Exchange differences arising from the translation offoreign Group companies are recognised in the statement of total recognisedgains and losses. Forward Exchange ContractsWhen deemed appropriate by management the Group may enter into forward exchangecontracts to guarantee the rate of exchange receivable on income denominated incurrencies other than the Group's reporting currency. These contracts areentered into to limit the downside of any currency fluctuation and are notspeculative in nature. For reporting purposes any income protected is reportedat the guaranteed rate of the relevant contract. Own SharesOwn shares are stated at cost and shown as a deduction from shareholders' funds.No gain or loss is recognised in the profit and loss account, or statement oftotal recognised gains and losses, on the purchase, sale, issue or cancellationof the company's shares. Share Based PaymentsIn accordance with Financial Reporting Standard ("FRS") 20 the fair value ofequity-settled share-based payments to employees is determined at the date ofgrant and is expensed on a straight-line basis over the vesting period based onthe Group's estimate of shares or options that will eventually vest. In the caseof options granted, fair value is measured by a binomial model the materialinputs of which are set out in note 24. Notes to the Accounts 1. Segmental information Gross premiums Gross premiums Gross claims Gross operating Reinsurance Total written earned incurred expenses balance 2006 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Non-marineproperty insurance 26,232 17,101 (9,072) (5,526) (1,461) 1,042 Property catastrophetreaty reinsurance 35,955 36,324 (10,380) (7,575) (5,622) 12,747 Property per risk treaty reinsurance 9,389 7,833 (5,570) (1,978) (299) (14) Professional indemnityinsurance 8,601 4,765 (2,924) (1,812) (306) (277) Motor insuranceand reinsurance 8,363 8,458 (6,339) (1,762) (107) 250 Marine insuranceand reinsurance 13,290 12,910 (9,467) (2,799) (244) 400 Liability insuranceand reinsurance 7,001 5,364 (3,361) (1,475) (212) 316 Other 6,788 6,461 (5,247) (1,430) (82) (298) -------- ------- -------- -------- -------- -------Total 115,619 99,216 (52,360) (24,357) (8,333) 14,166 -------- ------- -------- -------- -------- ------- Gross premiums Gross premiums Gross claims Gross operating Reinsurance Total written earned incurred expenses balance 2005 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Non-marineproperty insurance 13,205 8,229 (6,651) (2,452) 1,062 188 Property catastrophetreaty reinsurance 16,539 14,715 (29,669) (3,071) 16,731 (1,294) Property per risk treaty reinsurance 6,573 5,571 (8,161) (1,221) 3,328 (483) Professional indemnityinsurance 4,517 2,353 (1,233) (839) (252) 29 Motor insuranceand reinsurance 4,210 3,969 (2,598) (782) (116) 473 Marine insuranceand reinsurance 7,309 6,629 (10,640) (1,357) 6,263 895 Liability insuranceand reinsurance 2,460 1,848 (1,201) (457) (58) 132 Other 3,589 3,196 (2,109) (667) (96) 324 -------- ------- -------- -------- -------- -------Total 58,402 46,510 (62,262) (10,846) 26,862 264 -------- ------- -------- -------- -------- ------- 2006 2005 US$'000 US$'000Geographical analysis of gross premiums written by locationof riskUS 70,978 34,616UK 15,369 7,567Other EU countries 15,463 9,607Other 13,809 6,612 --------- --------- 115,619 58,402 --------- --------- --------- ---------Analysis of Profit and loss account by income streams 2006 2005 US$'000 US$'000 Underwriting activities 14,166 264Investment activities - net allocated to technical account 9,020 130 --------- ---------Technical result 23,186 394Investment activities - net retained in non-technicalaccount 1,970 1,801Managing agency activities 4,989 12,019Other group expenses (8,110) (2,717) --------- ---------Profit on ordinary activities before tax 22,035 11,497 --------- --------- Investment return is comprised of return on investments less any associatedexpenses relating to the management of the funds. Return on investments relatingto underwriting activities is transferred to the technical account. Managing agency activities relate specifically to the profit, net of expensesand group management fees, of the management of Syndicate 958. Other group expenses primarily represent the additional expenses of the OmegaGroup. 2. Allocated investment return transferred to general business technical account 2006 2005 US$'000 US$'000Investment returnInvestment income 11,843 2,363Realised investment gains and losses (58) (184)Unrealised investment gains and losses 42 (68)Investment expenses and charges - (33) ---------- ---------- 11,827 2,078 ---------- ---------- Investment return attributable to:Syndicate investments 1,636 277Group funds 10,191 1,801 ---------- ---------- 11,827 2,078 Investment return transferred to the general businesstechnical account (9,857) (277) ---------- ---------- 1,970 1,801 ---------- ---------- 3. . Net operating expenses - technical account 2006 2005 US$'000 US$'000 Syndicate operating expenses 1,846 843Corporate member's personal expenses 1,653 1,086Brokerage and other business acquisition expenses 19,151 8,867Corporate operating expenses 1,331 -Syndicate differences on foreign exchange 376 - ---------- ----------Net operating expenses 24,357 10,796 ---------- ---------- 4. Other income - non-technical account 2006 2005 US$'000 US$'000 Profit commission - current recognition policy 7,588 8,277Profit commission - change in recognition policy - 5,073 ---------- ----------Profit commission 7,588 13,350Fees 3,218 2,803Management charges to Syndicate 967 881Foreign exchange (47) (155)Miscellaneous 61 40 ---------- ----------Total other income 11,787 16,919 ---------- ---------- During 2005 the Group reviewed the earning profile of profit commissionreceivable and aligned it with the earning profile of the business underwrittenby the Syndicate. This resulted in a one-off recognition of additional profitcommission of US$5,073,000 during 2005. 5. Staff costs including directors' remuneration 2006 2005 US$'000 US$'000 Wages, salaries and profit related pay 10,698 6,577Social security costs 982 786Other pension costs 775 541 ---------- ------------Total staff costs 12,455 7,904 ---------- ------------ Staff costs reimbursed by syndicate (5,724) (5,440) ---------- ------------ Staff costs retained 6,731 2,464 ---------- ------------ A further charge for share options issued to employees and directors is expensedto the profit and loss account. The details and amounts are set out in note 24. Average number of employees employed by the Group during the year 2006 2005 Number Number Underwriting activities 17 16Management and administration 16 15 ---------- ---------Total staff employed 33 31 ---------- --------- Total directors' remuneration in the year 2006 2005 US$'000 US$'000 Emoluments 3,479 1,560Company contributions paid to money purchase pensionscheme 146 131 ---------- -----------Total directors' remuneration 3,625 1,691 ---------- ----------- The aggregate gains made by directors on exercise of share options during 2006was US$521,000 (2005 - US$ nil). In respect of the executive directors two (2005 - two) were members of theGroup's defined contribution pension scheme The emoluments of the highest paiddirector were as follows: 2006 2005 US$'000 US$'000 Emoluments 1,559 687Company contributions to money purchase pension scheme 65 59 ---------- ----------- 6. Auditors' remuneration 2006 2005 US$'000 US$'000 Audit of the financial statements 386 252Local statutory audits of subsidiaries 156 67Other services pursuant to legislation 331 327Corporate finance services 696 800Taxation services 35 62 ---------- ----------- Total 1,604 1,508 ---------- -----------The payments for Corporate finance services were principally in relation to thereorganisation of the Group and the raising of additional capital. 7. Taxation on profit on ordinary activities 2006 2005 US$'000 US$'000(a) Analysis of charge/(credit) in period Current tax:UK corporation tax on profits of the period 2,635 187Profits taxed under foreign jurisdiction 40 33Adjustment in respect of prior periods - 35 ---------- -----------Total current tax (see (b) below) 2,675 255 Deferred tax creditOrigination and reversal of timing differences 4,258 (444) ---------- -----------Tax charge/(credit) for the period 6,933 (189) ---------- -----------(b) Factors affecting tax charge for the periodProfit on ordinary activities before tax 22,035 11,497 ---------- ----------- Profit on ordinary activities multiplied by standard rateof corporation tax in the UK of 30%: 6,611 3,449 Utilisation of tax losses - (4,239)Expenses not deductible for tax purposes 362 566Adjustments in respect of overseas tax rates (65) -Origin and reversal of timing differences (4,258) 444Adjustments in respect of exchange translation 25 -differencesAdjustments to tax charge in respect of prior period - 35 ---------- -----------Current tax charge for the period 2,675 255 ---------- ----------- The Group's effective tax rate for 2006 reflects the fact that the majority ofthe Group's profits were taxable within the UK. The Group's 2005 effective taxrate benefited from the inclusion of £7.9 million of unrelieved tax lossesarising from Omega Dedicated (No.2)Ltd. Moving forward the Group's effective tax rate is expected to fall asunderwriting profits are earned in lower tax jurisdictions. (c) Deferred taxDeferred tax is attributable to temporary timing differences arising on thefollowing: Underwriting Share options Other Total profits US$'000 US$000 US$000 US$000At 1 January 2006 415 (429) (3) (17)Movements in year 4,626 (225) (143) 4,258Foreign exchangetranslation differences - (60) - (60) -------- ---------- ----------- ---------At 31 December 2006 5,041 (714) (146) 4,181 -------- ---------- ----------- --------- There are no unrecognised deferred tax items. 8. Earnings per share The calculation of basic earnings per share is based on the profit aftertaxation for the year of US$15,102,000 (2005 - US$11,686,000) and on 124,817,278(2005 - 39,029,457) ordinary shares, being the weighted average number ofordinary shares in issue during the year. The number of shares for the purposes of calculating diluted earnings per shareamounted to 127,868,344 (2005 - 39,531,593) to reflect the dilutive effect ofthe future exercise of share options as detailed in note 24. 9. Intangible assets Syndicate participation rights 2006 2005 US$'000 US$'000CostAt 1 January 149 149Additions - - -------- ---------At 31 December 149 149 -------- ---------AmortisationAt 1 January 120 91Charge for the period 29 29 -------- ---------At 31 December 149 120 -------- ---------Net Book ValueAt 1 January 29 58 -------- ---------At 31 December - 29 -------- --------- 10. Tangible assets Computer Office Total equipment furniture US$'000 US$'000 US$'000CostAt 1 January 220 41 261Currency revaluations 28 7 35Additions 51 142 193 --------- --------- ---------At 31 December 299 190 489 --------- --------- ---------DepreciationAt 1 January 153 25 178Currency revaluations 25 6 31Charge for the period 52 17 69 --------- --------- ---------At 31 December 230 48 278 --------- --------- ---------Net Book ValueAt 1 January 67 16 83 --------- --------- ---------At 31 December 69 142 211 --------- --------- --------- 11. Cash at bank and in hand 2006 2005 --------- --------- US$'000 US$'000Share of syndicate cash 7,741 4,498Group cash 73,607 152,431 --------- --------- 81,348 156,929 --------- --------- 12. Financial Investments 2006 2005 Historical Market Historical Market Cost Value Cost Value US$'000 US$'000 US$'000 US$'000Debt securities and other fixedincome securities 41,807 41,681 48,212 48,153Deposits with creditinstitutions 181,238 181,238 - - ------- -------- ------- ------- 223,045 222,919 48,212 48,153 ------- -------- ------- ------- All of the above securities are listed on recognised exchanges. AAA mutual fundsrepresent the majority of deposits with credit institutions. Group financial investments include investments held by Group companies and theGroup's share of syndicate assets. 2006 2005 US$'000 US$'000Group investments 181,238 31,118Syndicate investments 41,681 17,035 -------- ---------Market value at 31 December 222,919 48,153 -------- --------- 13. Other debtors 2006 2005 US$'000 US$'000Trade debtors 47 213Due from syndicate members 775 657Other syndicate debtors 6,672 1,703VAT recoverable 263 341Deferred tax 860 17Profit commission closed years 8,409 9,589Other debtors 128 287 -------- --------- 17,154 12,807 -------- ---------Of the amounts shown in deferred tax a significant proportion is recoverable inmore than one year. 14. Other prepayments and accrued income 2006 2005 US$'000 US$'000Syndicate's prepayments - 29Other prepayments 41 115Accrued investment income 267 344Profit commission 5,684 4,472 -------- --------- 5,992 4,960 -------- --------- Profit commission includes US$5,684,000 (2005: US$4,472,000) which is due aftermore than one year. 15. Share capital Omega Insurance Holdings Limited Omega Underwriting Holdings PLC 2006 2006 2005 2005 Number US$ Number £Authorised: Ordinary commonshares of US$0.10 each 1,000,000,000 100,000,000 - - Ordinary commonshares of £0.05 each - - 177,000,000 8,850,000 Allotted and fullypaid: Ordinary commonshares of US$0.10 each 147,355,563 14,735,556 - - Ordinary commonshares of £0.05 each - - 120,840,411 6,042,020 During the year a group reorganisation took place when Omega Insurance HoldingsLimited became the holding company of the Group. Movement in year relevant to equity shareholders in Omega Group Ordinary common shares of £0.05 in Omega Number Par ValueUnderwriting Holdings PLC: ---------- -------------------------------------Shares in issue at 1 January 2006 120,840,411 £6,042,020Issue of new shares in placing October 2006 26,515,152 £1,325,758 ---------- ----------Shares replaced with Omega Insurance HoldingsLimited shares in November 2006 (147,355,563) £(7,367,778) ---------- ---------- Ordinary common shares of US$0.10 in OmegaInsurance Holdings Limited:Shares issued to replace Omega UnderwritingHoldings PLC shares in November 2006 147,355,563 US$14,735,556 -------------- ----------Shares in issue at 31 December 2006 147,355,563 US$14,735,556 -------------- ---------- 16. Reconciliation of movement in shareholders' funds Share Share Own Merger Profit Total capital premium shares reserve and loss US$'000 US$'000 US$'000 US$'000 US$'000 US$'000Balance at 1January 2005 963 - - - 4,505 5,468 Profit for the year - - - - 11,686 11,686 Special interim dividend of 3.5pence per ordinary share - - - - (2,350) (2,350) Issue of fullypaid bonus shares 771 - - - (771) - Issue of new sharecapital net of costs 8,531 170,471 - - - 179,002 Share based payments - - - - 1,431 1,431 Issue and purchase of own shares 127 - (127) - - - -------- ---------- --------- ----- --------- --------- Balance at 1January 2006 10,392 170,471 (127) - 14,501 195,237 Vesting of own shares - - 42 - (42) - Issue of new share capital 2,493 63,308 - - - 65,801 Costs of issue - (3,808) - - - (3,808) Share based payments - - - - 2,158 2,158 Special interim dividend of 4.1pence per ordinary share - - - - (9,337) (9,337) Group reorganisation (12,885) (229,971) 85 - 242,771 - Establishment ofOmega InsuranceHoldings Limited 14,736 393,329 (98) (140,714) (267,253) - Reorganisationand listing costs - (5,197) - - - (5,197) Transfer merger reserve - (140,714) - 140,714 - - Profit for the year - - - - 15,102 15,102 Currency translationdifferences - - - - 5,166 5,166 --------- ------ ------- ------ ------- ------- Balance at 31December 2006 14,736 247,418 (98) - 3,066 265,122 --------- ------- ------ ------- ------- ------- A resolution to convert part of the share premium account into a contributedsurplus distributable reserve will be put to the Annual General Meeting. 17. Other creditors including taxation and social security 2006 2005 US$'000 US$'000Trade creditors - 979Due to Syndicate members 3,772 433Other Syndicate creditors 2,830 4,217Corporation tax 1,629 370Other tax and social security costs 204 170Deferred tax 5,041 -Other creditors 221 1,230 ---------- ---------- 13,697 7,399 ---------- ---------- Of the amounts shown in deferred tax a significant proportion is due in morethan one year. Of the amounts shown in other creditors US$nil (2005: US$466,000)is due in more than one year. 18. Accruals and deferred income 2006 2005 US$'000 US$'000Syndicate accruals 223 206Other accruals 5,761 1,170Deferred income - underwriting fees 2,087 1,648 ---------- ---------- 8,071 3,024 ---------- ----------Deferred income includes US$1,062,000 (2005: US$870,000) which will berecognised in revenue after more than one year. 19. Lease commitments At 31 December 2006, annual commitments under non-cancellable operating leasesare set out below: 2006 2005 ---------- --------- US$'000 US$'000Land and Buildings - operating leases which expire:----------------------------- ---------- ---------Between two and five years 159 177 ---------- --------- Of the commitments due under operating leases approximately 50% (2005: 62%) willbe reimbursed by the syndicate under the Group's management. 20. Reconciliation of profit on ordinary activities before tax to netcash inflow from operating activities 2006 2005 US$'000 US$'000 Operating profit before taxation 22,035 11,497Depreciation of tangible assets 69 91Amortisation of intangible assets 29 29Realised and unrealised gains and losses 16 252Charge in relation to share option awards 2,158 1,431(Increase) in debtors (27,483) (26,660)(Increase)/decrease in reinsurers' share oftechnical 3,764 (31,849)provisions(Increase) in prepayments and accrued income (4,992) (7,243)Increase in creditors 13,222 15,356Increase in technical provisions 34,029 60,427Increase in accruals and deferred income 5,047 1,397Foreign exchange differences (423) - ---------------- ----------Net cash inflow from operating activities 47,471 24,728 ---------------- ---------- 21. Analysis of net funds 1 January 2006 Cash flow Market value 31 December and currency 2006 movements ----------------------------------------------------------- US$'000 US$'000 US$'000 US$'000Cash at bankand in hand 156,929 (81,165) 5,584 81,348Investments 49,206 173,900 (16) 223,090 -------- ---------- -------- -------- 206,135 92,735 5,568 304,438 -------- ---------- -------- -------- 22. Analysis of Cash Flow 2006 2005 ----------- --------- US$'000 US$'000Financial investments:Net portfolio investments (149,423) (31,118)Increase in share of Syndicate assets (24,477) (14,769) ----------- --------- (173,900) (45,887) ----------- --------- 23. Own shares During 2005 an Employee Share Trust was set up with 1,470,924 ordinary shares ofOmega Underwriting Holdings PLC of 5p. The shares held in the trust will, subject to vesting, be issued to meet thelong term incentive plan options granted at nil cost as set out in note 24,Options A. During the year 490,308 options have vested, and the remainingoptions were renewed to be options over the shares of Omega Insurance HoldingsLimited. Consequently, at the year end 980,616 US$0.10 ordinary shares of OmegaInsurance Holdings Limited are held in the Employee Trust and the full valueUS$98,061 is included as a reduction in shareholders funds as disclosed in notes16 and 24. All shares are subject to allocation by the Trustee of the EmployeeShare Trust under the direction of the Remuneration Committee. 24. Share Incentive Plans During the year ended 31 December 2006, the Group operated two Share IncentivePlans, under which share options have been granted to employees as describedbelow. There are no cash settlement alternatives. Long term Date Exercise Exercisable Vesting conditionsincentive plan granted price period Option A 6 April 0p 6 April 2006 None 2005 to 6 April 2015 Option B 6 April 115p 6 April 2007 TSR performance 2005 to 6 April 2015 Option C 8 April 115.5p 8 April 2007 TSR performance 2005 to 8 April 2015 Option D 21 January 0p 5 December 2008 Two independent performance 2006 to 21 January 2016 conditions Executive plan Option E 6 April 116.5p 6 April 2009 TSR performance 2005 to 6 April 2015 Option F 8 April 115.5p 8 April 2009 TSR performance 2005 to 8 April 2015 Option A "nil cost option" is exercisable in 3 equal tranches on 6 April 2006, 6April 2007 and 6 April 2008. The first tranche was exercised during 2006.Option B "market value option" is exercisable in 3 equal tranches on 6 April2007, 6 April 2008, and 6 April 2009.Option C "market value option" is exercisable in 3 equal tranches on 8 April2007, 8 April 2008, and 8 April 2009.Option D "performance related nil cost option" is exercisable as follows: onehalf on 5 December 2008 expiring on 21 January 2016, one third on 5 December2009 expiring on 21 January 2016, and one sixth on 5 December 2010 expiring on21 January 2016.Option E and Option F are "market value options". Total number of shares under options: Options outstanding at Options outstanding at 1 Jan 2006 Granted Forfeited Exercised Expired 31 Dec 2006 ----------- -------- ------- ------- -------- --------Long Term Incentive Plan Option A 1,470,924 - - (490,308) - 980,616Option B 1,483,635 - - - - 1,483,635Option C 14,740 - - - - 14,740Option D - 3,600,000 - - - 3,600,000 ExecutivePlanOption E 103,004 - - - - 103,004Option F 374,214 - (14,750) - - 359,464 Options B, C, E, and F are subject to the TSR Performance condition - for theoptions to vest, average annual total shareholders returns (TSR) over therelevant performance period must be at least equal to the greater of: a) thepercentage change in the Retail Prices Index (RPI) over the relevant performanceperiod plus 5 per cent; and b) 10 per cent. The relevant performance period isthe time between the date at which the options were granted and date from whichthey are first exercisable as shown above. Options D are subject to two independent performance conditions. The firstperformance condition attaches to 75% of the options granted and relates to theaverage compound annual percentage growth in the Group's TSR over the particularperformance period. The second performance period attaches to 25% of the optionsgranted and relates to the Group's TSR relative to the constituents of acomparator group identified by the Group over the particular performance period. The weighted average share price at the date of exercise for shares exercisedduring the period was 130.9p. The options outstanding at 31 December 2006 had arange of exercise price of 0p to 116.5p, a weighted average exercise price of34.2p (2005 65.64p), and a weighted average remaining contractual life of 9.17years (2005 9.25 years). Fair Value of options Inputs to the Valuation model The fair values of equity settled awards granted under the Long Term IncentivePlan and Executive Plan have been calculated using a variation of the Binomialoption pricing model that takes into account the specific features of these twoShare Incentive Plans. The following principal assumptions were used in thevaluation. Grant date 2006 options 2005 options----------------- ---------------- ----------------Share price at date of grant 127.5p 115p - 116.5pExpected dividend yield 2.50% 0.5% - 2.5%Expected volatility 25% 10% - 25%Risk-free interest rate 4.10% 4.2% - 4.25%Employee turnover 5% - 7% 0.5% - 5% Volatility has been based on the following: (i) the annualised volatility of the Group's shares since its floatation on theAIM market, which was calculated at 5.3% in 2005 and 12.6% in 2006.(ii) the volatility of comparable listed companies in the insurance sector,based on historical share price information from the London Business School fora ten year period dating back to 1995. These average volatility figures rangedfrom 25% to 50% over a 3, 5, 7 and 10 year period.(iii) the Group's current shareholder base which, being made up of institutionalinvestors, has resulted in a low level of transactions in the Group's shares andthe likelihood of the investor base changing over time resulting in an increasedvolume of transactions in the Group's shares and a consequent increase involatility, which is usual for AIM listed securities. Based on the above information, figures of between 10% and 25% have been usedfor volatility over the course of the lives of the options, reflecting theincrease in the volatility of the Group's share prices from its current lowlevel. Based on the above assumptions, and after allowing for the effects of the TSRperformance criteria by performing Monte Carlo simulations, the fair values ofthe options granted are estimated to be: Weighted average fair value2005 Long Term Incentive Plan 'Nil cost' options 113.387p2005 Long Term Incentive Plan 'market value'options 13.909p2005 Executive Plan 'market value' options 14.318p2006 Long Term Incentive Plan options 50.73p Expense arising from share-based payments Based on the above fair values and the Group's expectations of employeeturnover, the expense arising from share options granted to employees wasUS$2,158,000 for the period ended 31 December 2006 (2005: US$1,431,000). Therewere no other share-based payment transactions. 25. Derivative financial instrumentsIn 2005 the Group entered into foreign exchange contracts in order to manage theGroup's exposure to income arising in a currency other than sterling, thefunctional and reporting currency at that time. As at 31 December 2006 thematurity dates and quantum of the contracts were as follows: -------------- ------------ 31 December 31 December 2006 2005 Amount Amount protected protected US$'000 US$'000Expiring within one year 2,250 6,750Expiring between one and five years - 2,250 ----------------- --------------- The fair value of derivatives at 31 December 2006 is US$196,000. 26. Exchange rates The exchange rates used in translating foreign currency amounts in thepreparation of these account are: 2006 2005 ------------- -------------- Average rate Year end rate Average rate Year end rate US$ US$ US$ US$£1 sterling isequivalent to 1.84 1.96 1.82 1.72Euro 1 isequivalent to 1.25 1.32 1.25 1.18Can$ 1 isequivalent to 0.88 0.86 0.82 0.86 As stated in the accounting policies the Group's reporting currency has beenchanged to United States dollars with effect from 1 January 2006. The prior period financial statements have been restated to reflect the changein reporting currency. Profit and loss account items have been translated at the2005 average rate of exchange, and balance sheet and capital items, includingcapital raised during 2005, have been translated at the rate of exchange rulingon the date of change of functional currency, the 2005 year end rate.Translation differences arising are recognised as an expense the Profit and Lossaccount. 27. Group consolidated profit and loss account - non technical account forthe period 9 November 2006 to 31 December 2006 The period 9 November 2006 to 31 December 2006 covers the period represented inthese financial statements that Omega Insurance Holdings Limited was theultimate holding company of the Group. The non technical account and the movement in the profit and loss reserve forthis period is set out below: 9 November to 31 December 2006 US$'000Balance on the technical account - general business 3,563Investment income 659Other income 1,583Other charges, including amortisation (3,361) ----------Profit on ordinary activities before tax 2,444Tax charge on profit on ordinary activities (1,028) ----------Profit on ordinary activities after tax attributable toshareholders of the Group 1,416 Share based payments 307Currency translation differences taken direct toreserves 1,343 ----------Profit and loss reserve 3,066 ---------- 28. Related party transactions W M Fiederowicz, the non-executive Chairman, has participated as a Name onSyndicate 958 since 1996. He underwrites capacity of £194,524 on the 2006 yearof account (2005 - £175,247), and this participation continues for the 2007 yearof account. A facility to borrow US$50 million was granted to Syndicate 958 by OmegaSpecialty Insurance Company Limited. The facility was drawn down in full on 22February 2006 and repaid on 3 October 2006. Drawn amounts attracted a rate ofinterest of 1.1% above LIBOR. The facility expired in February 2007. Nicholas Warren, one of the non-executive directors of the Company, is employedas a Senior Vice President with International Advisory Services Ltd. Thiscompany provide general accounting, administration and information technologyservices to the Group and charged US$230,000 in respect of these services to theGroup during 2006 Directors' interests in the shares of the Group are set out in the Directors'Report. 29. Consolidated entities The following entities are consolidated within these financial statements. Subsidiary Country of Proportion of Nature ofundertakings as Incorporation voting rights and Businessat 31 December shares held 2006 Omega UnderwritingAgents Limited UK 100% Lloyd's managing agent Omega DedicatedLimited UK 100% Lloyd's corporate member Omega SpecialtyInsurance Company Bermuda 100% Insurance companyLimited OmegaUnderwritingInvestmentsLimited UK 100% Dormant company Omega Europe Germany 100% European underwriting agentGmbH Omega UnderwritingHoldings Limited UK 100% Intermediate holding company Omega USHoldings, Inc. USA 100% Intermediate holding company Omega USInsurance, Inc. USA 100% Insurance company Omega EuropeHoldings Limited UK 100% Dormant company Omega AdministrationServices Limited UK 100% Service company to other members of Omega GroupOmega Dedicated(No 2) Limited UK 100% Lloyd's corporate member - ceased underwriting All holdings are related to ordinary shares. 30. Financial information and posting of accounts The financial information set out above does not constitute the Group'sstatutory accounts for the year ended 31 December 2005 or 2006, but is derivedfrom those accounts. The audited Annual Report and Accounts for 2006 are expected to be posted toshareholders on 1 May 2007. The Annual General Meeting will be held on 1 June2007. The preliminary Results were approved by the Board on 27 March 2007. This information is provided by RNS The company news service from the London Stock Exchange
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Orascom Inv Information
- This share is currently suspended. It was suspended at a price of 0.014
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| Date | Source | Headline | |
|---|---|---|---|
| 1st May 2024 | 9:56 am | RNS | OIH OGM Invitation Notice of Change |
| 30th Apr 2024 | 8:46 am | RNS | OIH OGM Invitation |
| 29th Apr 2024 | 7:00 am | RNS | OIH BOD Summary |
| 18th Dec 2023 | 7:00 am | RNS | OIH BOD Summary |
| 27th Nov 2023 | 7:00 am | RNS | OIH BOD Summary |
| 15th Nov 2023 | 9:40 am | RNS | OIH BOD Summary |
| 2nd Oct 2023 | 10:25 am | RNS | OIH Press Release |
| 21st Sep 2023 | 8:09 am | RNS | OIH BOD Summary |
| 31st Aug 2023 | 11:39 am | RNS | OIH BOD Summary |
| 15th Aug 2023 | 8:29 am | RNS | OIH BOD Summary |
| 19th Jun 2023 | 7:30 am | RNS | Suspension - Orascom Investment Holding S.A.E. |
| 15th Jun 2023 | 9:17 am | RNS | OIH BOD Summary |
| 1st Jun 2023 | 9:45 am | RNS | OIH BOD Summary |
| 31st May 2023 | 9:47 am | RNS | OIH BOD Summary |
| 16th May 2023 | 8:05 am | RNS | OIH BOD Summaries |
| 16th May 2023 | 8:04 am | RNS | OIH OGM Summaries |
| 9th May 2023 | 7:00 am | RNS | OIH Announces a Partnership with BluEV |
| 2nd May 2023 | 12:06 pm | RNS | IFRS Dec 2020 including audit report |
| 2nd May 2023 | 7:00 am | RNS | OGM Postponement Notice |
| 27th Apr 2023 | 9:29 am | RNS | OIH IFRS December 2020 |
| 27th Apr 2023 | 9:27 am | RNS | OIH BOD Summary |
| 12th Apr 2023 | 1:07 pm | RNS | OIH OGM Invitation |
| 4th Apr 2023 | 9:44 am | RNS | OIH BOD Minutes Summaries |
| 5th Dec 2022 | 8:20 am | RNS | OIH's BOD Summary |
| 21st Nov 2022 | 4:41 pm | RNS | Second Price Monitoring Extn |
| 21st Nov 2022 | 4:35 pm | RNS | Price Monitoring Extension |
| 16th Nov 2022 | 9:42 am | RNS | OIH BOD Summary |
| 26th Oct 2022 | 9:33 am | RNS | OIH Press Release |
| 26th Oct 2022 | 8:58 am | RNS | OIH Press Release |
| 26th Oct 2022 | 8:54 am | RNS | OIH BOD Summaries |
| 18th Oct 2022 | 10:47 am | RNS | OIH BOD Summaries |
| 16th Jun 2022 | 9:15 am | RNS | OIH Board Meeting Summary |
| 9th May 2022 | 9:46 am | RNS | OIH OGM Summary |
| 31st Mar 2022 | 9:45 am | RNS | OIH OGM Invitation |
| 31st Mar 2022 | 9:37 am | RNS | OIH Board Meeting Summary |
| 25th Feb 2022 | 4:41 pm | RNS | Second Price Monitoring Extn |
| 25th Feb 2022 | 4:36 pm | RNS | Price Monitoring Extension |
| 21st Feb 2022 | 4:40 pm | RNS | Second Price Monitoring Extn |
| 21st Feb 2022 | 4:35 pm | RNS | Price Monitoring Extension |
| 15th Nov 2021 | 8:20 am | RNS | OIH BOD Minutes Summary |
| 11th Oct 2021 | 7:29 am | RNS | OIH Press Release |
| 13th Sep 2021 | 9:34 am | RNS | OIH BOD Summary |
| 7th Jul 2021 | 9:17 am | RNS | OIH BOD Summary |
| 5th Jul 2021 | 9:30 am | RNS | OIH's OGM Summary |
| 16th Jun 2021 | 10:06 am | RNS | OIH Press Release |
| 1st Jun 2021 | 10:12 am | RNS | OIH's OGM Invitation |
| 1st Jun 2021 | 7:00 am | RNS | OIH BOD Summary |
| 28th Apr 2021 | 9:32 am | RNS | OIH BOD Summary |
| 16th Feb 2021 | 12:23 pm | RNS | OIH's Announcement |
| 11th Feb 2021 | 7:30 am | RNS | Suspension Orascom Investment Holding S.A.E |
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