Last checked at 18 Nov 2009 07:00
Omega Insurance Holdings Limited
Interim Management Statement as at 18 November 2009
Omega Insurance Holdings Limited ("Omega" or "the Company"), the international insurance and reinsurance group, today announces its Interim Management Statement (IMS).
Highlights for the year to date
5% growth in gross written premium in the first 9 months of 2009 to $247 million (2008: $236 million)
Gross written premium of $27 million by Omega US (2008: $3 million), demonstrating steady underlying growth
Strong growth of third party business in Bermuda to $66 million (2008: $39 million)
Benign claims experience in the year to date
Steady rating environment in our core lines of business continues, giving a positive outlook for the full year 2009 and beyond
Successful capacity offer announced in July 2009 and subsequent purchase at the November auction taking the Group's share of Syndicate 958 to 38.8% from 16.4% for the 2010 year of account onwards
Announcement today that Walter Fiederowicz will step down as Chairman with a successor expected to be in place before 1 January 2010
Announcement today that current Board member, Christopher Clarke will assume the role of Senior Independent Director
Appointment of Daria Vanous as Group Chief Underwriting Officer and Active Underwriter for Syndicate 958
Richard Tolliday, Chief Executive of Omega, commented:
"I am delighted that business performance in the year to date has been strong and all key indicators suggest that this will continue for the full year. Growth in the US and Bermuda, combined with our increasing participation in Syndicate 958, underpins Omega's potential to deliver strong growth in 2010 and beyond. The rating environment has been, and remains, steady in our core lines offering substantial margins. Our loss ratios reflect the absence of major claims experience so far in 2009."
Group gross written premium
Segmental and class of business gross written premium for the nine months to 30 September 2009 and the corresponding period in 2008 was as follows:
| Nine months to 30 September 2009 $'m | Nine months to 30 September 2008 $'m | % growth | |||
| Gross written premium by segment | |||||
| Third party Bermuda reinsurance | 66 | 39 | 69% | ||
| Omega US | 27 | 3 | 800% | ||
| Participation in and reinsurance of Syndicate 958 | 154 | 194 | -21% | ||
| Total | 247 | 236 | 5% | ||
| Gross written premium by class of business | |||||
| Non marine property insurance | 43 | 60 | -28% | ||
| Property catastrophe reinsurance | 103 | 69 | 49% | ||
| Property per risk treaty reinsurance | 17 | 14 | 21% | ||
| Professional indemnity insurance | 7 | 10 | -30% | ||
| Motor insurance and reinsurance | 11 | 13 | -15% | ||
| Marine insurance and reinsurance | 27 | 45 | -40% | ||
| Liability insurance and reinsurance | 25 | 15 | 67% | ||
| Other | 14 | 10 | 40% | ||
| Total | 247 | 236 | 5% |
Market Environment
Premiums have benefitted from the continuing rate increases in catastrophe exposed lines of business. Omega has written a higher proportion of catastrophe exposed business than in the previous year, taking advantage of the attractive rating environment. Rate increases in non-US catastrophe business generally remain lower than we would want to see in order to justify increasing our previously reduced participation in that area.
In the US surplus lines market, where most of our non-marine property business is sourced, the rating environment remains steady with significant increases again restricted to the catastrophe exposed business.
Other areas such as professional indemnity continue to see considerable rate pressure. We have chosen to continue to reduce our exposure in such weaker areas, demonstrating our ability to flex our diversified portfolio in response to market conditions.
Growth in Third Party Bermuda Reinsurance Business
In the first nine months of 2009, Omega Specialty wrote $66 million (September 2008: $39 million) of third party business. This is predominantly US catastrophe exposed treaty excess of loss business. Omega Specialty continues to build its profile and relationships in that market. It has also been able to gain business as a result of clients wishing to spread their exposure across a wider range of counterparties.
Omega Specialty continues to grow its team and has a stronger balance sheet as a result of deployment of capital from the capital raise which was announced in December 2008. We expect the third party book to continue to grow and develop even in a steady rating environment.
Growth in the US
Omega US gross written premium of $27 million for the nine month period (September 2008: $3 million) demonstrates the rapid and continued growth of the platform. With the infrastructure and team now in place, the business is solely focussed on developing its underwriting activities with an intention of more than doubling its 2009 premium by 2011 if the rating environment remains steady as we anticipate.
Syndicate derived business
Business derived from the Syndicate is a combination of the Group's share of Syndicate 958 underwriting, through ownership of Syndicate capacity, and Omega Specialty's quota share reinsurance of the Syndicate.
Gross written premium from this source has fallen compared to the prior year from a combination of reduced Syndicate underwriting and the effect of the removal of inflated quota share arrangements on the 2007 year of account.
Within the Syndicate, the proportion of strongly rated US catastrophe exposed business increased but we have made reductions in other areas where rates have been lower than we would like. The Syndicate has also withdrawn from marine excess of loss business.
In addition, as highlighted in our half year results, 2008 premiums were inflated by the one-off step up in the 2007 year of account quota share arrangements with Syndicate 958. The 2007 year of account quota share percentage was 27.5%; for all subsequent years it has been 20%.
In 2010 and in 2011, business derived from the Syndicate will increase as a result of the Group's increased share of Syndicate 958 following the successful capacity offer in July 2009 and our further purchase of capacity in the November auction.
Board developments
Walter Fiederowicz has informed the Board that he intends to step down as Chairman of Omega in order to devote more time to his other business commitments. Mr Fiederowicz has confirmed he will remain as Chairman until the appointment of a successor.
The Board has appointed Korn/Ferry to conduct the search for a new Chairman who is expected to be appointed by the end of the year.
Mr. Fiederowicz has been the Chairman of Omega, and the predecessor holding companies of the Omega group, since 2003. He led the Board through the Group's initial public offering on AIM in 2005, the reorganisation of the Group as a result of which Omega became the Bermudian holding company in November 2006, and the move to the London Stock Exchange's Main Market and the capacity offer in July 2009. In addition, there have been four successful capital raises under his stewardship of the Board (including as part of the 2005 initial public offering), together with the establishment of the Omega Group's Bermuda and US operating subsidiaries.
The Board is extremely grateful to Mr Fiederowicz for his commitment and service that have contributed so significantly to Omega's success and achievements in its important first years as a public company.
The Board has also appointed Christopher Clarke as Senior Independent Director with immediate effect. Mr. Clarke was appointed as a Non-Executive Director of the Group in March 2005, is Chairman of the Investment Committee and is a member of the Audit Committee.
Claims
With the 2009 US wind season not having produced any significant insured losses, and Omega not underwriting in those areas of the market that have seen large losses, 2009 to date has been benign from a claims perspective. As a result, strong returns are expected in the catastrophe exposed lines in particular. There has been minimal prior year development.
Investments
In line with our previously stated investment strategy, we have remained extremely cautious with our investment selection, prioritising preservation of capital over seeking enhanced returns. We have maintained a strategy of holding only US treasuries, high quality highly diversified, senior corporate debt and cash. Whilst there has been steadying and growth in the markets during the first half of 2009, we remain cautious about both recessionary and inflationary pressures in the US economy and continue to prioritise a low risk, short duration portfolio.
Our overall investment income of $15 million for the period includes a gain of $5.9 million on foreign currency forward contracts taken out to protect the proceeds of the capital raise, in the period before their conversion into dollars, and a gain of $0.4 million on forward contracts entered into by the Syndicate in 2009 to protect brought forward currency gains on 2007 year of account profits.
Excluding these gains on foreign currency forwards, we have seen an investment return of 1.6% in the period (2.1% annualised). Given the composition of the portfolio we continue to forecast an investment return reflecting US Government bond short duration yields for our full year result.
| Cash, investments and investment income | 30 September 2009 Funds $'000 | Nine month average Funds $'000 | Income as at $'000 | Nine month average return % | |||
| Total before foreign exchange hedging contracts | 620,173 | 577,395 | 8,983 | 1.56% | |||
| Foreign exchange hedging contracts | 424 | 6,341 | |||||
| Total including foreign exchange hedging contracts | 620,597 | 15,324 |
Our cash balances have continued to reduce as the balances held to deal with the financing of the capacity offer have been utilised. They are expected to continue to reduce through the remainder of the year.
Group investments including the Group's share of Syndicate investments at 30 September 2009 can be analysed as follows:
| Asset Type | Group Share of Syndicate $m | Other Group investments $m | Total Group $m | |||
| Government Bonds | 33 | 277 | 310 | |||
| Government Agencies | 10 | 0 | 10 | |||
| Other Government Guaranteed | 12 | 42 | 54 | |||
| Corporate Bonds | 15 | 79 | 94 | |||
| Deposits with Credit Institutions | 9 | 75 | 84 | |||
| Cash Deposits* | 9 | 60 | 69 | |||
| Total | 88 | 533 | 621 |
*Cash and deposits includes a foreign exchange hedging contract of $0.4m
Underwriting and corporate expenses
Expenses remain in line with forecast prior to one off items as follows:
The Group incurred costs of $2.4 million as part of the process for admission to the Main Market which became effective on 7 July 2009. A further amount of $2.2 million was incurred in relation to the purchase of Syndicate capacity and is reflected in the cost of Syndicate capacity acquired in July and recognised as an intangible asset.
Dividend
An interim dividend of US 6 cents per share was paid on 28 October 2009 to shareholders on the register at 2 October 2009. This represents a pay-out ratio of 70% for the first half of 2009. The Board has confirmed its intention to declare a dividend at the full year again reflecting a 70% pay-out for the period, demonstrating its ongoing commitment to returning the majority of profits to shareholders.
Successful Capacity Offer
On 2 July 2009, we announced the take up of our successful capacity offer which resulted in our participation in Syndicate 958 increasing to 34.7% for the 2010 year of account onwards (2009 year of account: 16.4%).
Subsequently, in November 2009, Omega entered the Lloyd's auction process offering to subscribe for up to £20 million of capacity on Syndicate 958, offering members 35.6p per Pound of 2010 capacity. This offer was equivalent to the 40p cash offer made earlier in the year which applied to capacity prior to pre-emption and therefore included pre-emption rights.
Omega entered the auction to give members an option to dispose of capacity should they wish to do so after the announcement of the change in Chief Underwriting Officer. However, positive endorsements of Daria Vanous and her team by the members' agents meant that, through this auction process, the Group acquired only £10.4 million of capacity thereby increasing its share of the Syndicate capacity by a further 4.1% to 38.8%.
The total consideration, and associated transaction costs, of the capacity purchased in July and November, of $39 million, have been capitalised as an intangible asset.
As previously stated, the remainder of the proceeds from the capital raise will be deployed in supporting growth in the Omega US and Omega Specialty platforms, and in supporting the additional underwriting as a result of the successful capacity offers.
Outlook
On 29 October we announced the appointment in October of Daria Vanous, Active Underwriter of Syndicate 958, as Chief Underwriting Officer, to succeed John Robinson. It is pleasing to make such an appointment from within the Group's existing pool of talent as part of a natural progression.
Daria shares and promotes the values which have been the core of Omega's philosophy and strategy and she is supported by a skilled and experienced team of 19 underwriters across our platforms. The disciplined focus on underwriting for profit not volume in areas where the Group has a proven track record and conservative approach to risk management will continue and drive future success.
The board remains very positive about the future. As Omega deploys fully its capital across 2010, the Group offers a strong growth story. US catastrophe reinsurance rates remain near their all time high. We believe rating will remain firm and hence the book should continue to offer strong returns. Surplus lines insurance rates, though under greater pressure, remain steady and continue to offer an attractive return.
Media Enquiries:
Byron Ousey/Michael Turner, Kreab Gavin Anderson +44 (0)20 7074 1800
Notes to Editors
Daria Vanous
Daria Vanous joined the Omega group in 2003 as a property reinsurance underwriter, prior to which she was chief executive of Europa Re in Cologne. She joined Europa Re in 1999, having begun her career in reinsurance in Oslo working first with Storebrand and then Uni-Polaris and has in total more than 24 years' experience as an underwriter.
Christopher Clarke
Christopher Clarke was appointed as a non-executive Director of the Group in March 2005 and is a member of the Audit and Investment Committees of the Board. He was a non-executive Director of The Weir Group PLC from 1999 to the end of 2008 where he was also a member of the audit and remuneration committees. Mr. Clarke has been a Deputy Chairman of the Competition Commission since 2004, having been a member since 2001. Formerly an investment banker, he was a director of Samuel Montagu & Co. Limited from 1982 to 1996 and of HSBC Investment Banking until 1998. Mr. Clarke is a graduate of Cambridge University and of the London Business School.
The Omega Group
Omega became the holding company of the Omega group of companies (the "Omega Group") on 9 November 2006 when the scheme of arrangement of Omega Underwriting Holdings PLC (the Omega Group's previous holding company and now wholly-owned by Omega) ("OUH") became effective. On the same date the Common Shares of Omega were admitted to trading on AIM, the admission of OUH's shares to trading on AIM was cancelled and OUH was re-registered as a private limited company.
On 7 July 2009, the common shares of Omega were admitted to the Official List of the London Stock Exchange and to trading on its main market for listed securities. On the same date, the admission of Omega's common shares to trading on AIM was cancelled.
The Omega Group, through its wholly owned subsidiary, Omega Underwriting Agents Limited, acts as a Lloyd's managing agent for Syndicate 958 and in February 2006 established a new insurance and reinsurance business, Omega Specialty Insurance Company Limited ("Omega Specialty"), based in Bermuda. In September 2006 Omega incorporated a new surplus lines insurer, Omega US Insurance, Inc. ("Omega US Insurance"), in Delaware which is held under a Delaware incorporated intermediate holding company Omega US Holdings, Inc.
Syndicate 958
Syndicate 958's capacity for the 2009 year of account is £249 million and is £280 million for the 2010 year of account. The Syndicate has made an underwriting profit in every closed year of account since its inception in the 1980 year of account. The Syndicate has focused predominantly on short-tail, diversified property orientated insurance and reinsurance with a focus on small to medium sized insureds, with whom the Omega Group has built long-standing track records.
On 13 July 2009, the A.M. Best Company, Inc. reaffirmed the Syndicate's Financial Strength Rating of 'A' (Excellent) and an Issuer Credit Rating of 'A+' (Excellent).
Omega Specialty
Omega Specialty received its licence from the Bermuda Monetary Authority in February 2006 as a Class 3 insurer and has been reclassified as a Class 3B insurer. It was capitalised at US$172 million. Since then, Omega Specialty's premium income has been predominantly derived from its reinsurance of Syndicate 958 and the Omega Group's Lloyd's corporate member, Omega Dedicated, together with its increasing book of third party reinsurances where it seeks to underwrite business of a similar type and composition to be complementary to that underwritten by Syndicate 958.
On 13 July 2009, the A.M. Best Company, Inc. reaffirmed Omega Specialty's Financial Strength Rating of 'A-' (Excellent).
Omega US Insurance
Omega US Insurance is an insurance company licensed in the state of Delaware and underwrites on a surplus lines basis in other US States. Omega US Insurance is currently eligible to write business in 42 US jurisdictions (including on an admitted basis in Delaware) and applications are pending in further states. It was capitalised at US$50 million from the net proceeds of a share placing by OUH in October 2006.
On 3 December 2007, Omega US Insurance received a Financial Strength Rating from A.M. Best Company, Inc. of 'A-' (Excellent). The rating was reaffirmed on 3 February 2009.