Orascom Inv Regulatory News (OIH)

RNS Number : 8098R

Omega Insurance Holdings Limited

31 August 2010

 

For immediate release

31st August 2010

Omega Insurance Holdings Limited

Interim results for the six months ended 30 June 2010

Omega Insurance Holdings Limited ("Omega" or "the Group") today announces interim results for the six months ended 30 June 2010.

Financial highlights

·; Loss before tax of US$34.2 million (H1 2009: Profit of US$22.9 million)

·; Gross premiums written growth of 30.2% to US$244.1million (H1 2009: US$187.5 million)

o Significant growth due to participation on Syndicate 958 rising to 38.8%

o Cautious growth in newer platforms

o Income earnings are weighted towards the second half of the year

·; Net loss ratio of 100.1% (H1 2009: 52.0%)

o Losses due to catastrophe events and high incidence of large losses, combined with low premium earnings in the first half of the year

o Strengthening of prior year reserves by $12.0 million

·; Combined ratio of 128.3% (H1 2009: 82.5%)

·; Investment return (before derivative gains) of 1.4% (H1 2009: 0.7% )

·; Basic earnings per share of (13.3)cents (H1 2009: 9.1cents)

·; Return on average equity of (6.9)% (H1 2009: 4.2%)

·; Interim dividend of 6.0 cents per share (H1 2009: 6.0 cents)

 

 

Operational highlights

·; New Chairman and Board in place

·; Geoffrey Johnson has been appointed to the Group Board with effect from 1 September 2010 and new non-executive directors have been appointed to the underwriting agency board

·; Another Group non-executive director is being appointed

·; Focus on building quality of resources and infrastructure to most efficiently manage risk and return

 

Commenting on the interim results, Richard Pexton, Chief Executive Officer of Omega said:

 

"The first half of the year experienced a number of significant catastrophes, combined with a challenging rating environment. These catastrophe losses, together with the lag that currently exists in 2010 premium earnings, have had a major effect on our half year results. In response we continue to monitor the rating environment closely and maintain our selective and focused approach to underwriting. We do not believe now is the right time for significant growth. This is the time to position ourselves for a correction in the market.

 

"After completion of the business review encompassing underwriting, corporate governance and operations we have concluded that Omega remains a strong underwriting platform. Despite the losses we have sustained during this period our business is robust we are confident about our strategy and the future prospects for the Group. With this background the Board is comfortable to maintain the dividend."

 

 

 

Media Enquiries:

David Haggie/Juliet Tilley, Haggie Financial +44 (0)20 7417 8989

 

Analyst Enquiries:

David Coles, Head of Investor Relations, Omega +44 (0)20 7767 3000

 

 

 

Key Performance Indicators

 

	Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
Gross premiums written	US$244.1m	US$187.5m	US$265.8m
Net earned premiums	US$105.6m	US$90.1m	US$195.5m
Basic earnings per share	(13.3) US cents	9.1 US cents	18.6 US cents
Investment return	1.4%	0.7%	2.8%
Group combined ratio	128.3%	82.5%	81.4%
Dividend per share	6.0 US cents	6.0 US cents	12.5 US cents
(Loss) / profit before tax	US$(34.2)m	US$22.9m	US$47.1m
Net assets	US$445.1m	US$485.7m	US$496.0m
Return on equity	(6.9)%	4.2%	9.8%
Net assets per share	$1.83	$2.01	$2.04

 

 

Group Overview

The first half of 2010 has been a period of abnormal loss activity for the insurance industry. The Omega results reflect these losses, in particular those relating to the earthquake in Chile, the explosion on the Deepwater Horizon oil rig and the loss of the Aban Pearl submersible. There were also less material losses resulting from Hailstorms in Australia and the US, in addition to increased attritional activity.

The Syndicate has reduced its writings, especially in catastrophe exposed areas, reflecting market conditions. In Bermuda and the US business growth targets have been limited to ensure new business remains focused in areas where the Group believes adequate rating is available.

Gross premium income continues to grow as a result of the Group's increased share of Syndicate 958 capacity for the 2010 year of account, giving us the security of growth through an existing book of business that has achieved a record of unbroken profitability since inception in 1980. However with only 64% of expected ultimate premiums for the 2010 year of account written at the half year stage, and only 29% of business written having been earned (i.e. 19% of ultimate premiums), earnings provide little offset to the losses incurred in the first half. This effect should reduce by full year when approximately 65% of the expected ultimate 2010 year of account premiums will have been earned.

Our catastrophe loss estimates for 2009 of $29.4 million are unchanged since they were outlined to the market in May, and remain favourable compared with our peer group. After an in depth review of reserves in the past month, Omega has decided to strengthen other reserves by $12.0 million. A portion of this relates directly to the recent deterioration in the Apache energy loss, due to Hurricanes Ike and Gustav in 2008. The remainder is due to risks within the energy, professional indemnity, liability and motor classes where we have experienced some adverse development in the 2007 and 2008 underwriting years.

Whilst we recognise that the market remains challenging, we continue to see adequate margins in our core classes. Overall the Board remains confident about the business and the future of the Group and has resolved to maintain the interim dividend at 6.0 cents per share (H1 2009: 6.0 cents).

 

Operational developments

The Group has appointed a new Non-executive director, Geoffrey Johnson, to the Group Board with effect from 1 September 2010. Geoffrey recently retired as a partner at PricewaterhouseCoopers LLP ("PwC") after a forty year career during which he served some of the major clients of the firm and held senior management positions in the UK, Europe and globally; most recently as the Chief Executive Officer of the PwC global network's Bermuda-based professional indemnity captive insurance company.

The Group is in the process of appointing another new non-executive director to the Group Board and its committees. New Non-executive directors (Roger Field and Robin Oakes) have also been appointed to the managing agency Board (OUAL) and committees.

The Group remains focussed on building the quality of resources and infrastructure to most efficiently manage risk and return. This includes:

·; Acquisition of the AIR catastrophe model to facilitate more detailed aggregate analysis and more efficient reinsurance purchasing

·; Developing an in-house capital model providing a clearer linkage between capital, return and class of business performance

·; New senior hires in finance, actuarial, investor relations, internal audit, company secretarial and risk management functions

·; Solvency II preparation including enhanced controls and risk frameworks

 

Management Review of the Business

Following the Board changes in March, the new Chairman and Chief Executive, John Coldman and Richard Pexton respectively, undertook a review of the business, initially concentrating on underwriting, operational and governance structures. This included reviewing the underwriting portfolio, the reinsurance programme and aggregate exposure monitoring. At the same time they engaged with key stakeholders including shareholders, regulatory bodies, employees and rating agencies. The initial review concluded at the end of June, with the new management team reaffirming Omega's overall strategic direction. A further review is planned for the second half of the year covering capital management.

 

 

H1 2010 Financial Review

The Group made a loss of $34.2 million before tax for the first half of 2010 (H1 2009: profit of $22.9 million).

This result is driven by three factors. Firstly, the first half has seen an above average level of loss activity including both catastrophe events and large losses such as the Chile Earthquake, the Deepwater Horizon explosion, the loss of the Aban Pearl submersible and hailstorms in Western Australia. Secondly, though the majority of our premium is written in the first half of the year, most earns in the second half. As a result little of the benefit of the growth in premium is reflected in first half earnings, offering little offset to the losses. Finally, development in the period in some of the medium tail lines has been worse than expected including a late notified claim on the Apache energy loss. The board believes that at this stage of the cycle a cautious response to this development is appropriate and has therefore increased reserves in the affected lines.

GROUP UNDERWRITING RESULT	Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
	US$'m	US$'m	US$'m
Gross premium written	244.1	187.5	265.8
Net premiums earned	105.6	90.1	195.5
Claims incurred net of reinsurance	(105.7)	(46.9)	(96.3)
Net underwriting charges	(29.7)	(27.5)	(62.7)
Underwriting (loss)/profit	(29.8)	15.7	36.5

 

Gross written premium

Overall gross written premium has increased 30.2% to $244.1 million (H1 2009: $187.5 million). The growth is driven by our increased participation on Syndicate 958, which has risen from 16.4% for the 2009 year of account to 38.8% for the 2010 year of account. At the 100% level the Syndicate premium has reduced to $341.9 million from $364.6 million, as catastrophe exposed business has been reduced reflecting the pressure in the market rating environment.

At this point in the year some 64% of the planned Syndicate 958 premium for the year has been written.

 

GROSS WRITTEN PREMIUM SUMMARY	Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
	US$'m	US$'m	US$'m
Syndicate 958 derived	164.8	118.3	166.6
Omega Specialty (third party reinsurance)	56.5	52.1	63.0
Omega US	22.8	17.1	36.2
	244.1	187.5	265.8
Syndicate 958 (100%)	341.9	364.6	510.1

 

The third party reinsurance business placed directly with Omega Specialty in Bermuda has grown 8.4% to $56.5 million from $52.1 million. However, when reinstatement premiums on the Chile loss are removed the income is broadly flat, again this is a conscious slowing of growth in line with rating conditions.

The Omega US book grew substantially during 2009, reaching $36.2 million at full year 2009 (2008: $10.8 million). The first half premium at $22.8 million (H1 2009: $17.1 million) has seen growth of 33.3%. The business is taking a more cautious approach at this point in the cycle and as a result we expect the rate of growth to slow in the second half.

 

 

Gross written premium for the period by class of business was as follows:

 

	Six months ended 30 June 2010	% of total		Six months ended 30 June 2009	% of total		Year ended 31 December 2009	% of total
	US$'m			US$'m			US$'m
Non-marine property insurance	44.1	18%		25.7	14%		59.2	22%
Property catastrophe treaty reinsurance	100.4	41%		87.8	47%		96.8	36%
Property per risk treaty reinsurance	12.6	5%		13.6	7%		18.5	7%
Professional indemnity insurance	4.7	2%		5.9	3%		9.3	3%
Motor insurance & reinsurance	16.9	7%		9.5	5%		11.9	4%
Marine insurance & reinsurance	30.2	12%		17.7	9%		22.6	9%
Liability insurance & reinsurance	26.3	11%		18.1	10%		33.7	13%
Other	8.9	4%		9.2	5%		13.8	5%
	244.1	100%		187.5	100%		265.8	100%

 

Business descriptions for our key classes of business are as follows:

·; Non-marine property insurance: mainly short-tail, small ticket commercial property account, predominately in the US, written via binding authorities with nationwide managing general agents;

 

·; Property catastrophe treaty reinsurance: short-tail, excess of loss account, focused on regional and nationwide US writers, together with a smaller international account, reflecting current trading conditions;

 

·; Property per risk treaty reinsurance: short-tail, excess of loss account with a focus on reinsuring small to medium sized insurance companies, mainly in the US;

 

·; Professional indemnity insurance: longer-tail account focused on small, non-financial insureds in the US;

 

·; Motor insurance & reinsurance: medium to long-tail liability-biased account with a focus on the UK and Europe,

 

·; Marine insurance and reinsurance: short to medium-tail account focused on offshore energy and yachts;

 

·; Liability insurance and reinsurance: medium-tail insurance account written as part of a packaged product for the US market; focused on the "trip and fall" element of household policies, artisans liability, together with a casualty reinsurance account encompassing "worldwide ex US" risks;

 

·; Other business: short-tail account mainly focused on satellite business with some personal accident and kidnap and ransom.

 

 

Ceded written premium

The Group's reinsurance cover consists of a combination of ultimate net loss covers and industry loss warranties, facultative reinsurance on specific accounts and some whole account protections.

Premiums ceded to reinsurers have increased to $42.1 million from $24.1 million for the same period last year. The majority of the increase relates to the Group's higher proportion of Syndicate reinsurance a result of the increased share of Syndicate capacity. During the year the nature of the reinsurances was adjusted to incorporate a greater proportion of ultimate net loss style covers in the Syndicate. Also a proportion of the reinsurances were placed earlier in the year than has previously been the case and adjustment premiums have been accrued on whole account protections as a result of increased accrued loss recoveries.

 

Loss experience

GROUP LOSS EXPERIENCE	30 June 2010		30 June 2009		31 December 2009
	Gross	Net	Gross	Net	Gross	Net
Syndicate 958 derived	91.7%	103.2%	53.7%	58.5%	48.6%	52.7%
Omega Specialty (third party reinsurance)	80.1%	115.6%	20.7%	25.1%	12.4%	20.9%
Omega US	69.5%	71.2%	67.6%	69.3%	73.7%	71.9%
	86.0%	100.1%	47.7%	52.0%	43.0%	49.3%

 

Syndicate 958's and Omega Specialty's loss ratio suffered from a combination of catastrophe and large loss events such as the Chilean earthquake, Deepwater Horizon, the Aban Pearl submersible, Australian hailstorms together with an increased occurrence of smaller, attritional losses. Syndicate 958 was also impacted by reserve additions relating to the Apache oil rig loss in 2008, together with adverse development on the 2007 underwriting year on the energy account, and 2008 underwriting years on longer tail lines including liability, professional indemnity and motor. The reserve strengthening was determined by a detailed actuarial review following the period end, with input from independent actuarial advisers.

 

Syndicate 958 derived business

The Group derives business from the Syndicate through a combination of its 38.8% direct participation (for the 2010 year of account) and through a quota share reinsurance agreement. This arrangement implies an Omega Group economic interest of 51.0% for the 2010 year of account, after elimination effects. The table below illustrates how this relationship has developed:

SYNDICATE DERIVED BUSINESS	2011	2010	2009	2008
Effective capacity	$420m	$420m	$496m	$478m
Omega Group share	38.8%	38.8%	16.4%	16.4%
Quota share reinsurances with Omega	20.0%	20.0%	20.0%	20.0%
Forecast profit	n/a	n/a	5 - 15%	0 - 5%

 

The profit forecasts for the Syndicate's open years of account have been reviewed and, notwithstanding the strengthening of the reserves in some years of account, reaffirmed as part of the half year process and are also set out in the table above. The forecasts are stated after personal expenses and are expressed as a percentage of Syndicate capacity. The Syndicate is forecasting to continue track record of unbroken underwriting profits into its twenty ninth year.

 

Third party Bermuda reinsurance business

In the first half of 2010, Omega Specialty wrote $56.5 million of third party reinsurance business (H1 2009: $52.1 million). A net loss ratio of 115.6% (H1 2009: 25.1%) reflects the higher level of loss activity in the first half of the year, including specific events such as the Chile Earthquake and Deepwater Horizon oil rig loss.

Omega Specialty has seen deterioration in rates of between 5-10% on the US Catastrophe book, but margins remain satisfactory for the moment. However, we do not foresee a change in this trend for the remainder of 2010. The International Catastrophe book writings have remained similar to 2009. We have seen a softening in rates in this book over the past six months although we would expect this softening to be mitigated by the Chilean earthquake.

 

Omega US

Omega US has continued to demonstrate growth in 2010. Gross written premium in the first half 2010 was $22.8 million (H1 2009: $17.1 million), representing an increase of 33.3%. Recognizing the ongoing challenges presented by the soft US property and casualty market, our focus here is very much on developing books of business with general agents established since OUS's inception. New opportunities to develop profitable books of business currently remain challenging. While rates generally remain soft, there are certain geographic areas which are starting to be subject to contraction of supply and rates are starting to increase, which may present an opportunity as the year progresses.

Omega US is licensed to write business on a surplus lines basis in 41 states as well as the District of Columbia and continues to build out the infrastructure to support its future growth plans. We are in the process of obtaining a license in the key remaining state of California.

The combined ratio for the period is 107.9% and the loss ratio is 71.2% compared to 114.9% and 69.3% respectively for 2009. OUS avoided any significant losses from the US Winter storms and the Oklahoma City hailstorm; however, given its lack of critical mass, the business remains sensitive to medium sized claims. Further, OUS has not yet reached peak efficiency to cover operating expenses.

 

Underwriting Agency

UNDERWRITING AGENCY FIGURES	Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
	US$'m	US$'m	US$'m
Profit commission	(5.8)	5.1	11.5
Managing agency fee	1.1	1.8	2.6
Management charges to Syndicate	0.7	0.8	1.8
	(4.0)	7.7	15.9

 

The Group receives income for managing Syndicate 958 via Omega Underwriting Agents. The agency receives income from Syndicate 958 by way of a managing agent's fee and profit commission. Agency fees are calculated as 0.75% of capacity. Profit commission is 20.0% on the third party portion of Syndicate profit and is received by the agency upon the closure of the underwriting year. It is accrued by the agency in line with the underlying income recognised in the Syndicate on an annually accounted basis i.e. in line with premium earnings.

Due to the Syndicate losses in the first half detailed above, the Group has recognised a reduction of accrued profit commission income of $5.8 million in the first half (H1 2009: income of $5.1 million) representing a $10.9m loss of revenue compared to the first half of 2009.

 

 

Net acquisition costs

Net acquisition costs have risen by 0.8 % to $24.7 million (H1 2009: $24.5 million) as a result of the increased share in Syndicate expenses due to our higher participation on the 2010 year of account, together with increased premium earnings on Omega Specialty and Omega US and investment in the Syndicate infrastructure and headcount.

 

Underwriting and Corporate Expenses

OTHER UNDERWRITING AND OTHER CORPORATE EXPENSES				Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
				US$'m	US$'m	US$'m
Other underwriting and corporate expenses:
Recurring staff costs (including group share of Syndicate 958 at 2009 share of Syndicate 958 capacity)				5.9	5.4	13.1
Recurring staff (increase arising from increased group share of Syndicate 958)				0.5	-	-
Recurring costs - other (including group share of Syndicate 958 at 2009 share of Syndicate 958 capacity)				7.2	5.6	12.1
Recurring costs -other (increase arising from increased group share of Syndicate 958 capacity)				0.5	-	-
Total recurring costs				14.2	11.0	25.2
Non recurring expenses				2.2	2.2	3.6
Total				16.4	13.2	28.8
These amounts have been allocated as follows:
Other underwriting operating expenses				5.0	2.9	6.8
Other corporate expenses - non-recurring				2.2	2.2	3.6
Other corporate expenses - other				9.1	8.1	18.4
				16.4	13.2	28.8
Non-recurring items above include the following:
Legal costs arising from shareholder demands for change to the Board				3.2	-	0.8
Accrued payments in lieu of notice for Richard Tolliday				0.9	-	-
Credit arising on share options due to the forfeiture of Richard Tolliday's share options				(1.9)	-	-
Costs associated with the Main Market listing				-	2.2	2.4
Accrued payments in lieu of notice for John Robinson				-	-	0.6
Legal costs associated with the departure of John Robinson				-	-	0.9
Credit arising on share options due to the forfeiture of John Robinson's share options				-	-	(1.1)
				2.2	2.2	3.6

 

Recurring other underwriting and corporate expenses at $14.1 million are $3.1 million up on 2009. $1.0 million of this is due to our increased share of capacity in Syndicate 958, which means we incur a proportionate increase in our share of Syndicate expenses. The remainder is due largely to investment during the first half of 2010 in systems, resource and infrastructure to prepare the Group as part of the Group's operational development.

Non-recurring items

The half year results incorporate non-recurring costs of $2.2 million for professional fees relating to the Special General Meeting of shareholders held in March.

These financial accounts also reflect the full effect of expected payments to Richard Tolliday, the previous Group Chief Executive Officer (being payment of salary and benefits for his notice period of $0.9 million). The Group does not expect to incur further material costs in relation to Mr Tolliday's departure from the Group.

Mr Tolliday's contract incorporates a clause entitling him to certain payments in the case of a change of control. Based on legal advice the board do not expect any claim to be successful and accordingly have not provided for the cost in the financial statements. The total cost of $5.2 million should any claim relating to this clause be successful in full has been disclosed as a contingent liability.

The results also include a credit to the income statement of $1.9 million. This is due to the reversal through the income statement of all previously recognised costs relating to the outstanding share options at the time of his departure as a result of his forfeiture of these options.

The 2009 financial statements reflected the full effect of expected payments to John Robinson, the previous Group Chief Underwriting Officer. The Group does not expect to incur any material costs in relation to Mr Robinson's departure from the Group.

Investments

The Group's investment return for the six months to 30 June 2010 is 1.4% (H1 2009: 0.7%) based on average funds for the period. The return benefitted from the significant rally in US government bond values in the second quarter. The investment return also included a small gain of $0.1 million on the foreign currency derivatives purchased by the Syndicate.

INVESTMENTS AND INVESTMENT RETURN		Funds at 30 June 2010	Income for 6 months ended 30 June 2010	Average return for 6 months ended 30 June 2010
		US$'m	US$'m	US$'m
Share of Syndicate funds		87.1	0.7	0.73%
Corporate funds		25.0	-	0.08%
Corporate funds supporting underwriting
Bermuda		446.0	7.4	1.64%
US		63.7	0.9	1.49%
Investment return before foreign exchange hedging contracts		621.8	9.0	1.43%
Foreign exchange hedging contracts		0.1	0.1
Total including foreign exchange hedging contracts		621.9	9.1	1.44%

 

The Group maintains a conservative approach to asset allocation with all assets either in cash, treasuries or high grade corporate bonds. Over 76.0% (H1 2009: 56.0%) of Group assets are government, government guaranteed or government agency bonds, with an average duration of 1.37 years. Cash and money market investments were kept to a minimum at 12.1% of total funds (H1 2009: 31.0%) as the returns in that asset class remain unattractive. All assets remain short dated and highly liquid.

Investment exposures are limited by asset class, credit quality, maturity and issuer concentration. Levels of risk are also monitored in terms of the degree of 'Value at Risk' in the portfolio and movements in that metric over time. The Group will continue to explore opportunities to marginally increase risk and yield by raising its allocation to non government bonds as opportunities arise.

The Group has limited exposure to the PIIGS (Portugal, Italy, Ireland, Greece, Spain) with only 0.2% of its portfolio invested in Italy, Spain and Ireland and no direct exposure to Portugal or Greece.

 

 

 

 

	30 June 2010					30 June 2009			31 December 2009
ASSET ALLOCATION	Share of Syndicate Funds	Corporate funds	Total Funds			Total Funds			Total Funds
	US$'m	US$'m	US$'m	%		US$'m	%		US$'m	%
By asset type
Bonds	67.3	479.6	546.9	87.9%		432.4	68.9%		517.4	84.8%
Money market and overseas deposits	9.9	20.4	30.3	4.9%		112.0	17.8%		54.9	9.0%
Cash and cash equivalents	9.8	34.8	44.6	7.2%		82.6	13.2%		37.9	6.2%
Foreign exchange hedging contracts	0.1	-	0.1	0.0%		0.9	0.1%		-	-
	87.1	534.8	621.9	100.0%		627.9	100.0%		610.2	100.0%
Bond types
Government bonds	23.7	380.6	404.3	74.0%		284.3	65.7%		337.6	65.3%
Government agency	8.7	0.8	9.5	1.7%		11.7	2.7%		11.2	2.1%
Government guaranteed	20.1	38.5	58.6	10.7%		55.6	12.9%		59.9	11.6%
Corporate bonds	14.8	59.7	74.5	13.6%		80.8	18.7%		108.7	21.0%
	67.3	479.6	546.9	100.0%		432.4	100.0%		517.4	100.0%

 

 

CREDIT QUALITY	Total Funds
	US$'m	%
AAA	500.7	80.5%
AA	80.8	13.0%
A	40.4	6.5%
BBB & Below	-	-
	621.9	100.0%

 

Taxation

Omega's effective tax rate for the period is 5.8% (H1 2009: 10.1%). The rate reflects the distribution of underwriting returns according to the relevant jurisdiction. The balance sheet includes a net deferred tax asset of $4.1 million (H1 2009: $2.3 million). This relates primarily to operating losses incurred since the formation of Omega US. The asset reflects tax losses expected to be offset against future taxable profits in the US as that business gains the necessary scale to cover its expense base.

Capital

In February 2010 AM Best placed the ratings of Omega, Omega Specialty and Omega US under review with negative implications due to 'uncertainty regarding Board composition, operational management and future strategy'. The decision to put the ratings under review was prompted by the uncertainty at the time about any future board's actions. The management team is working closely and continually with AM Best to give them comfort and clarity over these points.

With market conditions increasingly challenging Omega has tempered its growth plan in a number of areas. The board will undertake a review of the Group's overall capital position in the second half in light of the business plans, the effect, of the Atlantic wind season, which lasts from July to November, on market opportunities, and increasing clarity around Solvency II and its implications.

Dividend

Omega's dividend policy is to return a significant part of its profit to shareholders in the form of dividends. In making the decision as to the affordability of such a dividend, the Board takes into account both its current and anticipated future requirements. The Board remains confident about the business and the future of the Group. Consequently the Board is pleased to announce an unchanged interim dividend of 6.0 cents per share payable on the 1st October for those shareholders on the company's registry as of the 10 September 2010.

Risks and Uncertainties

 

The nature of our risks and uncertainties remains materially the same as described in our 2009 annual report and accounts (pages 83 to 87).

 

By far our greatest risk remains that of insurance underwriting either due to margin erosion in a softening market, claims inflation, over exposure to catastrophes or large losses. Omega has maintained its approach of diversified business lines, focus on smaller, regional insurance companies and smaller insureds, and purchase of reinsurance cover to reduce potential volatility. The Group has further enhanced its management of insurance risk through the use of catastrophe models.

 

Market risk is normally much less significant to insurers than insurance risk, but has in the past two years had extraordinary relevance in turbulent times. The credit markets although more settled than twelve months ago have remained cautious through the first half of the year due to slow recovery in the US and the debt concerns sparked by the economic issues in Greece. The Group has retained its low tolerance for market risk, keeping its asset portfolio in short duration highly rated fixed income assets.

 

In terms of liquidity, the Company holds only high quality, fixed income assets. As there are no mortgage asset backed securities, equities or preference shares, our holdings remain highly liquid.

 

Operational risk is monitored and managed through a detailed set of risk registers, committees and board oversight. Our assessment of operational risk remains consistent with that set out in the 2009 annual report.

 

Strength and depth of management and technical talent across the Group is also a core focus, in a skills based business such as ours. Over the past twelve months there have been key hires in the US, London and Bermuda and recruitment is ongoing.

 

Market conditions and outlook

The market is challenging with margins tight in a number of lines. Whilst the Board remains confident that adequate returns remain, increasing selectivity is required and premium growth will become more limited in order to protect returns. We continue to monitor the rating environment closely and maintain our selective and focused approach to underwriting. Rather than push for significant growth at this point in the cycle we believe now is the time to position ourselves for a correction in the market. With this in mind, the Group continues to focus on building the quality of its resources and infrastructure so that it is well placed to take advantage of market opportunities as they arise.

 

 

 

Richard Pexton

Chief Executive Officer

27 August 2010

Responsibility Statement

 

The Directors have confirmed that to the best of our knowledge:

 

·; the condensed set of consolidated financial statements have been prepared in accordance with IAS 34 (Interim Financial Reporting);

 

·; the interim management report includes a fair review of information required by:

 

(a) DTR 4.2.7R of the Disclosure Transparency Rules (an indication of important events during the first six months of the financial year and their impact on the set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year); and

 

(b) DTR 4.2.8R of the Disclosure Transparency Rules (disclosure of related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so).

 

The Directors are confident that the Group has adequate resource to continue in operation for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing the accounts.

 

 

 

 

Penny James

Group Chief Financial Officer

27 August 2010

 

 

2010 Half Year Condensed Consolidated Financial Statements

Condensed Consolidated Income Statement

Six months ended 30 June 2010
		6 months ended 30 June 2010	6 months ended 30 June 2009	Year ended 31 December 2009
	Note	US$'000	US$'000	US$'000
Income
Gross premiums written	2	244,116	187,505	265,811
Premiums ceded to reinsurers		(60,301)	(47,719)	(66,519)
Net premiums written		183,815	139,786	199,292
Change in gross provision for unearned premiums		(96,448)	(73,394)	(8,837)
Reinsurers' share of change in the provision for unearned premiums		18,199	23,655	5,004
Net earned premiums		105,566	90,047	195,459
Investment return	3	9,088	10,951	16,323
Income from management of Lloyd's Syndicate	4	(3,974)	7,743	15,885
Other income		66	500	506
Net revenue		110,746	109,241	228,173
Expenses
Insurance claims		(126,930)	(54,447)	(110,429)
Insurance claims recoverable from reinsurers		21,263	7,597	14,118
Net insurance claims	10	(105,667)	(46,850)	(96,311)
Net acquisition costs	5	(24,673)	(24,535)	(55,837)
Other underwriting operating expenses	6	(5,031)	(2,929)	(6,849)
Other corporate expenses
Other corporate expenses - non-recurring items	6	(2,248)	(2,232)	(3,601)
Other corporate expenses - other	6	(9,110)	(8,048)	(18,350)
Other corporate expenses - total		(11,358)	(10,280)	(21,951)
Foreign exchange gains/(losses)		1,746	(1,746)	(171)
Total expenses		(144,983)	(86,340)	(181,119)
(Loss)/profit before tax		(34,237)	22,901	47,054
Income tax	7	1,972	(2,322)	(3,440)
Total recognised (loss)/profit for the period		(32,265)	20,579	43,614
Earnings per share - basic (cents per share)	8	(13.3)	9.1	18.6
Earnings per share - diluted (cents per share)	8	(13.3)	8.7	17.8

 

 

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2010
		6 months ended 30 June 2010	6 months ended 30 June 2009	Year ended 31 December 2009
		US$'000	US$'000	US$'000
Total recognised (loss)/profit for the period		(32,265)	20,579	43,614
Currency translation differences		(1,507)	2,352	1,192
Total comprehensive income for the period		(33,772)	22,931	44,806

 

 

Condensed Consolidated Statement of Financial Position
As at 30 June 2010
		30 June 2010	30 June 2009	31 December 2009
	Note	US$'000	US$'000	US$'000
ASSETS
Cash and cash equivalents	11	44,627	82,589	37,919
Financial investments	12	577,236	545,277	572,276
Deferred acquisition costs		37,476	30,663	22,063
Reinsurance assets comprising:
- Reinsurers' share of unearned premium	15	39,459	39,378	21,444
- Reinsurers' share of claims	15	47,842	28,859	32,039
- Debtors arising from reinsurance operations		82,840	76,676	35,419
Insurance receivables		90,674	67,823	43,065
Prepayments and accrued income		9,457	27,060	14,088
Other debtors		8,204	9,234	25,388
Current income tax assets		1,178	-	1
Deferred tax assets		4,094	3,122	3,256
Property and equipment		793	405	942
Intangible assets	13	43,414	3,118	42,978
Total assets		987,294	914,204	850,878
EQUITY
Called up share capital	14	24,348	24,167	24,348
Share premium account		321,085	317,467	321,085
Contributed surplus		100,000	100,000	100,000
Foreign exchange reserve		(11,497)	(8,830)	(9,990)
Profit and loss account		11,181	52,930	60,521
Total equity and reserves		445,117	485,734	495,964
LIABILITIES
Insurance contract liabilities comprising:
- Provision for claims reported	15	152,041	131,294	127,810
- Provision for claims incurred but not reported	15	124,787	82,837	83,545
- Provision for unearned premium	15	189,581	157,195	93,554
Trade and other payables		75,768	54,960	49,060
Current income tax liabilities		-	1,411	-
Deferred tax liabilities		-	773	945
Total liabilities		542,177	428,470	354,914
Total liabilities and equity		987,294	914,204	850,878
Net assets per share (US$)		1.83	2.01	2.04
Net tangible assets per share (US$)		1.65	2.00	1.86

 

 

Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2010
	Share capital	Share premium account	Contributed Surplus	Foreign exchange reserve	Profit and loss account	Total
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Balance at 1 January 2010	24,348	321,085	100,000	(9,990)	60,521	495,964
(Loss)/profit for the period	-	-	-	-	(32,265)	(32,265)
Other comprehensive income	-	-	-	(1,507)	-	(1,507)
Total comprehensive income for the period	-	-	-	(1,507)	(32,265)	(33,772)
Share based payments	-	-	-	-	(1,249)	(1,249)
Dividends	-	-	-	-	(15,826)	(15,826)
Balance as at 30 June 2010	24,348	321,085	100,000	(11,497)	11,181	445,117
Six months ended 30 June 2009
	Share capital	Share premium account	Contributed Surplus	Foreign exchange reserve	Profit and loss account	Total
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Balance at 1 January 2009	14,766	147,918	100,000	(11,182)	32,091	283,593
Profit for the period	-	-	-	-	20,579	20,579
Other comprehensive income	-	-	-	2,352	-	2,352
Total comprehensive income for the period	-	-	-	2,352	20,579	22,931
Issue of new share capital	9,401	178,746	-	-		188,147
Share based payments	-	-	-	-	1,460	1,460
Dividends	-	-	-	-	(1,478)	(1,478)
Tax relating to share options taken directly to equity	-	-	-	-	278	278
Cost of capital raise	-	(9,197)	-	-	-	(9,197)
Balance as at 30 June 2009	24,167	317,467	100,000	(8,830)	52,930	485,734
Year ended 31 December 2009
	Share capital	Share premium account	Contributed Surplus	Foreign exchange reserve	Profit and loss account	Total
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Balance at 1 January 2009	14,766	147,918	100,000	(11,182)	32,091	283,593
Profit for the period	-	-	-	-	43,614	43,614
Other comprehensive income	-	-	-	1,192	-	1,192
Total comprehensive income for the period	-	-	-	1,192	43,614	44,806
Issue of new share capital	9,582	182,364	-	-	-	191,946
Share based payments	-	-	-	-	902	902
Dividends	-	-	-	-	(16,086)	(16,086)
Cost of capital raise	-	(9,197)	-	-	-	(9,197)
Balance as at 31 December 2009	24,348	321,085	100,000	(9,990)	60,521	495,964

 

Condensed Consolidated Cash Flow Statement
Six months ended 30 June 2010
		6 months ended 30 June 2010	6 months ended 30 June 2009	Year ended 30 December 2009
	Note	US$'000	US$'000	US$'000
Cash flow from operating activities
Cash generated from operations	17	23,802	(183,690)	(174,576)
Interest paid		(27)	(23)	(58)
Income tax paid		(1,075)	(3,501)	(6,480)
Net cash inflow/(outflow) from operating activities		22,700	(187,214)	(181,114)
Cash flow from investing activities
Purchase of property and equipment		(44)	(12)	(701)
Purchase of intangible assets		(448)	(803)	(40,694)
Net cash (outflow) from investing activities		(492)	(815)	(41,395)
Cash flow from financing activities
Equity dividends paid		(15,826)	(1,478)	(16,086)
Issue of share capital		-	187,906	191,946
Cost of share capital issued		-	(8,956)	(9,197)
Net cash (outflow)/inflow from financing activities		(15,826)	177,472	166,663
Net increase/(decrease) in cash and cash equivalents		6,382	(10,557)	(55,846)
Cash and cash equivalents at the start of the period		37,919	92,554	92,554
Foreign exchange currency movements		326	592	1,211
Cash and cash equivalents at end of period	11	44,627	82,589	37,919

 

 

Notes to the condensed consolidated financial statements

 

1. GENERAL INFORMATION AND ACCOUNTING POLICIES

 

BASIS OF PREPARATION

 

The interim consolidated financial statements for the period ended 30 June 2010 and 30 June 2009 are unaudited but have been subject to a review by the Group's independent auditors and have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

The statutory accounts for the year ended 31 December 2009, prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board ('IFRS') and interpretations issued by the International Financial Reporting Interpretations Committees ("IFRIC"), both as adopted for use by the European Union ('EU') and applied in accordance with the Bermuda Companies Act 1981, have been reported on by the Group's auditors, Ernst & Young LLP. The independent auditors' report on the group accounts for the year ended 31 December 2009 was not qualified. The comparative figures provided for the 12 months ended 31 December 2009 are based on the Group's statutory accounts.

Condensed consolidated financial statement values are presented in US dollars rounded to the nearest $'000 unless otherwise stated.

 

 

ACCOUNTING POLICIES

 

The interim consolidated financial statements have been prepared in accordance with accounting policies that are consistent with the prior accounting periods, except as noted, and those that the Directors anticipate will be applied in the annual financial statements.

Changes to accounting requirements applicable to these financial statements

 

IFRS 3 (Revised) Business Combinations and IAS 27 (Amended) Consolidated and Separate Financial Statements

 

The revised standards were issued in January 2008 and are effective prospectively for financial years beginning on or after 1 July 2009. IFRS 3 introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. IAS 27 requires that a change in the ownership interest of a subsidiary (without loss of control) to be accounted for as an equity transaction. Therefore, such a transaction will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. Other consequential amendments were made to IAS 7 Statement of Cash Flows, IAS 12 Income Taxes, IAS 21 The Effects of Changes in Foreign Exchange Rates, IAS 28 Investment in Associates and IAS 31 Interests in Joint Ventures.

 

This will only impact future acquisitions and disposals by the Group of its interest in subsidiaries.

 

Changes to other accounting standards

 

In addition to the changes described above, there are various other new or amended International Financial Reporting Standards and IFRIC interpretations applicable for the year, but only those that are relevant to the Group have been disclosed.

 

Future changes to accounting requirements

 

While there are a number of new or amended International Financial Reporting Standards and IFRIC interpretations that have been issued but not yet effective, they are either not required to be adopted by the Group or have no material effect on these interim condensed consolidated financial statements.

 

 

 

 

 

2. SEGMENTAL INFORMATION

 

The Group's reportable segments have been identified as follows:

1. Group reinsurance of, and participation on, Syndicate 958.

2. Omega Specialty (other reinsurance) which is the non-Syndicate derived business written by Omega Specialty in Bermuda.

3. Omega US Insurance which is the contribution to the Group from Omega US ignoring the effects of intra-group reinsurance.

4. Omega Underwriting Agents - which show the results for managing the non-Omega share of Syndicate 958 and includes profit commission and agency fees received for managing the Syndicate.

5. Other group activities - which show the results of transactions that do not relate to any of the segments above, being primarily those of the Group's ultimate and intermediate holding companies.

 

i) Income statement by segment

 

For the six months ended 30 June 2010:

		Group participation on and reinsurance of Syndicate 958	Omega Specialty (other reinsurance)	Omega US Insurance	Omega Underwriting Agents	Other group activities	Total
		US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Gross premiums written		164,779	56,532	22,805	-	-	244,116
Gross premiums earned		92,976	35,067	19,625	-	-	147,668
Premiums ceded to reinsurers		(25,065)	(15,321)	(1,716)	-	-	(42,102)
Net earned premium		67,911	19,746	17,909	-	-	105,566
Investment return		6,009	2,062	832	1	184	9,088
Income from management of Lloyd's Syndicate		-	-	-	(3,974)	-	(3,974)
Other income		-	-	-	66	-	66
Net revenue		73,920	21,808	18,741	(3,907)	184	110,746
Expenses
Insurance claims		(85,219)	(28,072)	(13,639)	-	-	(126,930)
Insurance claims recoverable from reinsurers		15,130	5,250	883	-	-	21,263
Net insurance claims		(70,089)	(22,822)	(12,756)	-	-	(105,667)
Net acquisition costs		(15,865)	(3,449)	(5,359)	-	-	(24,673)
Other underwriting operating expenses		(3,144)	(665)	(1,222)	-	-	(5,031)
Other corporate expenses		(4,358)	(1,644)	(1,213)	(944)	(3,199)	(11,358)
Foreign exchange gains / (losses)		-	-	-	-	1,746	1,746
Total expenses		(93,456)	(28,580)	(20,550)	(944)	(1,453)	(144,983)
Loss before tax		(19,536)	(6,772)	(1,809)	(4,851)	(1,269)	(34,237)
Claims ratio		103.2%	115.6%	71.2%			100.1%
Net acquisition cost ratio		23.4%	17.5%	29.9%			23.4%
Other underwriting expense ratio		4.6%	3.4%	6.8%			4.8%
Corporate expense ratio		6.4%	8.3%	6.8%			10.8%
Combined ratio		131.2%	136.5%	107.9%			128.3%

 

 

 

For the six months ended 30 June 2009:

 

		Group participation on and reinsurance of Syndicate 958	Omega Specialty (other reinsurance)	Omega US Insurance	Omega Underwriting Agents	Other group activities	Total
		US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Gross premiums written		118,297	52,102	17,106	-	-	187,505
Gross premiums earned		81,108	24,268	8,735	-	-	114,111
Premiums ceded to reinsurers		(19,244)	(4,277)	(543)	-	-	(24,064)
Net earned premium		61,864	19,991	8,192	-	-	90,047
Investment return		4,155	411	412	9	5,964	10,951
Income from management of Lloyd's Syndicate		-	-	-	6,460	1,283	7,743
Other income		-	-	-	500	-	500
Net revenue		66,019	20,402	8,604	6,969	7,247	109,241
Expenses
Insurance claims		(43,522)	(5,020)	(5,905)	-	-	(54,447)
Insurance claims recoverable from reinsurers		7,365	-	232	-	-	7,597
Net insurance claims		(36,157)	(5,020)	(5,673)	-	-	(46,850)
Net acquisition costs		(18,403)	(3,774)	(2,358)	-	-	(24,535)
Other underwriting operating expenses		(861)	(691)	(1,377)	-	-	(2,929)
Other corporate expenses		(3,668)	(804)	(684)	(621)	(4,503)	(10,280)
Foreign exchange gains / (losses)		-	-	-	-	(1,746)	(1,746)
Total expenses		(59,089)	(10,289)	(10,092)	(621)	(6,249)	(86,340)
Profit/(loss) before tax		6,930	10,113	(1,488)	6,348	998	22,901
Claims ratio		58.5%	25.1%	69.3%			52.0%
Net acquisition cost ratio		29.7%	18.9%	28.8%			27.2%
Other underwriting expense ratio		1.4%	3.4%	16.8%			3.3%
Corporate expense ratio		5.9%	4.0%	8.3%			11.4%
Combined ratio		89.6%	47.4%	114.9%			82.5%

 

 

 

For the year ended 31 December 2009:

		Group participation on and reinsurance of Syndicate 958	Omega Specialty (other reinsurance)	Omega US Insurance	Omega Underwriting Agents	Other group activities	Total
		US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Gross premiums written		166,651	62,987	36,173	-	-	265,811
Gross premiums earned		175,035	57,274	24,665	-	-	256,974
Premiums ceded to reinsurers		(34,902)	(23,267)	(3,346)	-	-	(61,515)
Net earned premium		140,133	34,007	21,319	-	-	195,459
Investment return		6,526	2,466	1,416	-	5,915	16,323
Income from management of Lloyd's Syndicate		-	-	-	15,885	-	15,885
Other income		-	-	-	506	-	506
Net revenue		146,659	36,473	22,735	16,391	5,915	228,173
Expenses
Insurance claims		(85,133)	(7,119)	(18,177)	-	-	(110,429)
Insurance claims recoverable from reinsurers		11,269	-	2,849	-	-	14,118
Net insurance claims		(73,864)	(7,119)	(15,328)	-	-	(96,311)
Net acquisition costs		(41,074)	(8,134)	(6,629)	-	-	(55,837)
Other underwriting operating expenses		(3,240)	(1,527)	(2,082)	-	-	(6,849)
Other corporate expenses		(11,464)	(2,374)	(2,692)	(1,726)	(3,695)	(21,951)
Foreign exchange gains / (losses)		-	-	-	-	(171)	(171)
Total expenses		(129,642)	(19,154)	(26,731)	(1,726)	(3,866)	(181,119)
Profit/(loss) before tax		17,017	17,319	(3,996)	14,665	2,049	47,054
Claims ratio		52.7%	20.9%	71.9%			49.3%
Net acquisition cost ratio		29.3%	23.9%	31.1%			28.6%
Other underwriting expense ratio		2.3%	4.5%	9.8%			3.5%
Corporate expense ratio		8.2%	7.0%	12.6%			11.2%
Combined ratio		84.3%	49.3%	112.8%			81.4%

 

 

ii) Gross written premium class analysis

 

For the six months ended 30 June 2010:

		Group participation on and reinsurance of Syndicate 958	Omega Specialty (other reinsurance)	Omega US Insurance	Total
		US$'000	US$'000	US$'000	US$'000
Non-marine property insurance		31,233	203	12,631	44,067
Property catastrophe treaty reinsurance		49,798	50,614	-	100,412
Property per risk treaty reinsurance		8,885	3,713	-	12,598
Professional indemnity insurance		4,726	-	-	4,726
Motor insurance and reinsurance		16,847	-	58	16,905
Marine insurance and reinsurance		29,939	283	-	30,222
Liability insurance and reinsurance		16,136	-	10,115	26,251
Other		7,215	1,720	-	8,935
Gross premiums written		164,779	56,533	22,804	244,116

 

 

For the six months ended 30 June 2009:

		Group participation on and reinsurance of Syndicate 958	Omega Specialty (other reinsurance)	Omega US Insurance	Total
		US$'000	US$'000	US$'000	US$'000
Non-marine property insurance		13,028	3,647	9,066	25,741
Property catastrophe treaty reinsurance		46,121	41,682	-	87,803
Property per risk treaty reinsurance		9,464	4,168	-	13,632
Professional indemnity insurance		5,914	-	-	5,914
Motor insurance and reinsurance		9,463	-	-	9,463
Marine insurance and reinsurance		17,160	521	-	17,681
Liability insurance and reinsurance		10,049	-	8,040	18,089
Other		7,098	2,084	-	9,182
Gross premiums written		118,297	52,102	17,106	187,505

 

 

For the year ended 31 December 2009:

		Group participation on and reinsurance of Syndicate 958	Omega Specialty (other reinsurance)	Omega US Insurance	Total
		US$'000	US$'000	US$'000	US$'000
Non-marine property insurance		34,789	4,357	20,079	59,225
Property catastrophe treaty reinsurance		50,336	46,453	-	96,789
Property per risk treaty reinsurance		13,141	5,318	-	18,459
Professional indemnity insurance		9,312	-	-	9,312
Motor insurance and reinsurance		11,915	-	34	11,949
Marine insurance and reinsurance		21,962	645	-	22,607
Liability insurance and reinsurance		17,628	-	16,060	33,688
Other		7,568	6,214	-	13,782
Gross premiums written		166,651	62,987	36,173	265,811

 

iii) Total assets by segment

				Group participation on and reinsurance of Syndicate 958	Omega Specialty (other reinsurance)	Omega US Insurance	Omega Underwriting Agents		Other group activities	Total
				US$'000	US$'000	US$'000	US$'000		US$'000	US$'000
Total assets at 30 June 2010				715,313	129,174	103,570	10,678		28,559	987,294
Total assets at 30 June 2009			666,554		124,877	75,556	20,955	26,262		914,204
Total assets at 31 December 2009			544,496		128,513	129,201	27,894		20,774	850,878

 

3. INVESTMENT RETURN

									6 months ended 30 June 2010		6 months ended 30 June 2009		Year ended 31 December 2009
									US$'000		US$'000		US$'000
Financial investments at fair value through income - interest income									7,461		6,205		12,861
Cash and cash equivalents - interest income									32		208		87
Net realised gains on investments									589		(9)		(198)
Net unrealised gains on investments									909		(2,241)		(2,854)
Derivative fair value gains									97		6,788		6,427
									9,088		10,951		16,323

 

Derivative fair value gains in the period of $97K relate to gains on foreign exchange forward contracts entered into by Syndicate 958. These contracts expire on 31 December 2010.

 

 

4. INCOME FROM MANAGEMENT OF LLOYD'S SYNDICATE

									6 months ended 30 June 2010		6 months ended 30 June 2009		Year ended 31 December 2009
									US$'000		US$'000		US$'000
Profit commission									(5,806)		5,144		11,514
Management fees									1,093		1,816		2,599
Management charges to Syndicate									739		783		1,772
									(3,974)		7,743		15,885

 

Accrued profit commission income due to the Group has reduced in the first half of 2010 resulting in negative profit commission income as a result of claims experience in Syndicate 958.

 

 

5. NET ACQUISITION COSTS

 

									6 months ended 30 June 2010		6 months ended 30 June 2009		Year ended 31 December 2009
									US$'000		US$'000		US$'000
Net expenses in relation to the acquisition of business									40,086		34,819		57,521
Movement of deferred acquisition costs									(15,413)		(10,284)		(1,684)
									24,673		24,535		55,837

 

 

6. OTHER UNDERWRITING AND CORPORATE EXPENSES

 

													6 months ended 30 June 2010		6 months ended 30 June 2009		Year ended 31 December 2009
													US$'000		US$'000		US$'000
Staff costs
Staff costs including group share of Syndicate 958 at 2009 share of Syndicate 958													5,880		5,404		13,088
Increase in staff costs arising from increased group share of Syndicate 958													481		-		-
Total staff costs													6,361		5,404		13,088
General corporate expenses
General corporate expenses including group share of Syndicate 958 at 2009 share of Syndicate													7,235		5,573		12,111
Increase in general corporate expenses arising from increased group share of Syndicate 958													545		-		-
Total general corporate expenses													7,780		5,573		12,111
Non-recurring expenses													2,248		2,232		3,601
													16,389		13,209		28,800
These amounts have been allocated as follows:
Other underwriting corporate expenses													5,031		2,929		6,849
Other corporate expenses - non-recurring													2,248		2,232		3,601
Other corporate expenses - other													9,110		8,048		18,350
													16,389		13,209		28,800
Non-recurring items included above are the following:
													6 months ended 30 June 2010		6 months ended 30 June 2009		Year ended 31 December 2009
													US$'000		US$'000		US$'000
Legal costs arising from shareholder demands for change to the Board													3,242		-		840
Accrued payments in lieu of notice for Richard Tolliday													852		-		-
Credit arising on share options due to the forfeiture of Richard Tolliday's share options													(1,846)		-		-
Costs associated with the Main Market listing													-		2,232		2,410
Accrued payments in lieu of notice for John Robinson													-		-		603
Legal costs associated with the departure of John Robinson													-		-		848
Credit arising on share options due to the forfeiture of John Robinson's share options													-		-		(1,100)
													2,248		2,232		3,601

 

 

 

 

7. INCOME TAX

 

Tax expense
									6 months ended 30 June 2010		6 months ended 30 June 2009		Year ended 31 December 2009
									US$'000		US$'000		US$'000
Current tax:
Income tax on (losses)/profits taxable under UK jurisdiction									(1,224)		3,093		3,458
Profits taxed under other jurisdictions									3		12		28
Adjustments in respect of prior periods									-		-		(228)
Total current tax (credit)/charge									(1,221)		3,105		3,258
Deferred tax (credit)/charge:
Origination and reversal of temporary differences									(751)		(783)		182
Total deferred tax									(751)		(783)		182
Total tax(credit)/charge on (loss)/profit on ordinary activities									(1,972)		2,322		3,440

 

8. EARNINGS PER SHARE

 

Earnings per share are based on the result for the period and the weighted average number of shares in issue during the period. For the diluted earnings per share the weighted average number of shares in issue is adjusted to reflect the dilutive effect of the future exercise of share options.

 

								6 months ended 30 June 2010		6 months ended 30 June 2009		Year ended 31 December 2009
Loss/(profit) for the period in US$'000							(32,265)		20,579		43,614
Weighted average number of shares in issue							243,479,862		226,059,137		234,836,792
Dilutive average number of shares in issue							248,171,730		235,827,916		245,420,666
Earnings per share:
Basic (US cents)								(13.3)		9.1		18.6
Diluted (US cents)								(13.3)		8.7		17.8

 

 

9. DIVIDENDS

 

Amounts recognised as distributions to equity shareholders in the period:

									6 months ended 30 June 2010		6 months ended 30 June 2009		Year ended 31 December 2009
									US$'000		US$'000		US$'000
2009 special interim dividend of US 1.0 cent per common share									-		1,478		1,478
2009 second dividend of US 6.0 cents per common share									-		-		14,608
2009 final dividend of US 6.5 cents per common share									15,826		-		-
									15,826		1,478		16,086

 

 

10. NET INSURANCE CLAIMS

									6 months ended 30 June 2010		6 months ended 30 June 2009		Year ended 31 December 2009
									US$'000		US$'000		US$'000
Claims paid									55,400		57,442		116,398
Reinsurers' share of claims paid									(5,078)		(8,377)		(11,861)
Net claims paid									50,322		49,065		104,537
Movement in insurance liabilities									71,530		(2,994)		(5,969)
Reinsurers' share of movement in insurance liabilities									(16,185)		779		(2,257)
Net movement in insurance liabilities									55,345		(2,215)		(8,226)
Net insurance claims									105,667		46,850		96,311

 

During the period the Group incurred claims in relation to the Chilean earthquake, the explosion of the Deepwater Horizon oil rig and the Aban Pearl submersible totalling $49.8 million gross of reinsurance, $34.5 million net of reinsurance and $29.4 million after expected reinstatement premiums.

 

Estimates of the ultimate cost of claims incurred prior to 31 December 2009 have increased by $14.8 million gross of reinsurance and $12.4 million net of reinsurance.

 

 

11. CASH AND CASH EQUIVALENTS

									30 June 2010		30 June 2009		31 December 2009
									US$'000		US$'000		US$'000
Cash at bank and in hand									32,557		48,491		18,801
Short term bank deposits									12,070		34,098		19,118
									44,627		82,589		37,919

 

Included in cash and cash equivalents are amounts totalling $22,707K (30 June 2009: $42,633K; 31 December 2009: $18,791K) not available for use by the Group which are held within the Lloyd's Syndicate, as Funds at Lloyd's or to collateralise insurance balances with Syndicate 958. Of these, $11,431K (30 June 2009: $25,516K; 31 December 2009: $10,900K) is held to support Letters of Credit.

 

 

 

12. FINANCIAL INVESTMENTS

 

The Group's financial investments are summarised by categories as follows:

									30 June 2010		30 June 2009		31 December 2009
									US$'000		US$'000		US$'000
Financial investments at fair value through income
Debt securities and other fixed income securities									546,854		432,425		517,432
Money market deposits									22,923		104,584		47,496
Funds held in overseas deposits									7,346		7,391		7,348
Derivative financial investments									113		877		-
									577,236		545,277		572,276

 

The Syndicate entered into foreign exchange forward contracts in order to manage the currency risk on the 2009 year of account. The fair value of these contracts as at 30 June 2010 was $113K generating a gain of $97K as set out in note 3.

 

 

									30 June 2010		30 June 2009		31 December 2009
									US$'000		US$'000		US$'000
Group financial investments including investments held by Group companies and the Group's share of Syndicate investments:
Group investments									499,970		459,728		490,804
Syndicate investments									77,266		85,549		81,472
									577,236		545,277		572,276

 

Syndicate investments are held in trust funds and are not available to the Group until distribution of profits to members on a year of account basis.

 

Of the amounts included in Group investments $106,811K (30 June 2009: $70,735K; 31 December 2009: $96,594K) are not available for use by the Group as they are held to collateralise insurance balances with Syndicate 958, held as Funds at Lloyd's and Regulatory Deposits.

 

 

 

13. INTANGIBLE ASSETS

									Syndicate Participating Rights		Capitalised Software Development Costs		Total
									US$'000		US$'000		US$'000
Cost
At 1 January 2009									149		2,166		2,315
Additions									-		803		803
At 30 June 2009									149		2,969		3,118
Additions									39,337		554		39,891
At 31 December 2009									39,486		3,523		43,009
Additions									-		448		448
At 30 June 2010									39,486		3,971		43,457
Amortisation
At 1 January 2009									-		-		-
Charge for period									-		-		-
At 30 June 2009									-		-		-
Charge for period									-		31		31
At 31 December 2009									-		31		31
Charge for period									-		12		12
At 30 June 2010									-		43		43
Net Book Value
At 1 January 2009									149		2,166		2,315
At 30 June 2009									149		2,969		3,118
At 31 December 2009									39,486		3,492		42,978
At 30 June 2010									39,486		3,928		43,414

 

Syndicate Participating Rights (syndicate capacity) entitle the Group to participate in the underwriting activities of Syndicate 958.

 

Of the total capitalised software development costs, $3,568K relates to the cost of development of a new underwriting system. At 30 June 2010 no amortisation had been charged for the underwriting system, as it is not yet available for use.

 

 

 

14. SHARE CAPITAL

 

30 June 2010

30 June 2010

30 June 2009

30 June 2009

31 December 2009

31 December 2009

Number

US$

Number

US$

Number

US$

000's

US$'000

000's

US$'000

000's

US$'000

Authorised:

Common shares of US$0.10 each

10,000,000

1,000,000

10,000,000

1,000,000

10,000,000

1,000,000

Alloted and fully paid

Common shares of US$0.10 each

243,480

24,348

241,670

24,167

243,480

24,348

 

 

Movement in year relevant to equity shareholders in Omega Group
								Number		Par Value
								000's		US$'000
Common shares of US$0.10
Shares in issue at 1 January 2009								147,662		14,766
Issues of new shares								94,008		9,401
Share in issue at 30 June 2009								241,670		24,167
Issue of new shares								1,810		181
Shares in issue at 31 December 2009								243,480		24,348
Issue of new shares								-		-
Shares in issue at 30 June 2010								243,480		24,348

 

 

15. INSURANCE CONTRACT ASSETS AND LIABILITIES

At 30 June 2010					Insurance liabilities	Reinsurance assets	Net
					US$'000	US$'000	US$'000
Provision for claims reported					152,041	(14,833)	137,208
Provision for claims incurred but not reported					124,787	(33,009)	91,778
					276,828	(47,842)	228,986
Provision for unearned premium					189,581	(39,459)	150,122
					466,409	(87,301)	379,108

 

 

At 30 June 2009					Insurance liabilities	Reinsurance assets	Net
					US$'000	US$'000	US$'000
Provision for claims reported					131,294	(17,850)	113,444
Provision for claims incurred but not reported					82,837	(11,009)	71,828
					214,131	(28,859)	185,272
Provision for unearned premium					157,195	(39,378)	117,817
					371,326	(68,237)	303,089

 

 

At 31 December 2009					Insurance liabilities	Reinsurance assets	Net
					US$'000	US$'000	US$'000
Provision for claims reported					127,810	(15,762)	112,048
Provision for claims incurred but not reported					83,545	(16,277)	67,268
					211,355	(32,039)	179,316
Provision for unearned premium					93,554	(21,444)	72,110
					304,909	(53,483)	251,426

16. EFFECTS OF FOREIGN EXCHANGE

 

The exchange rates used in translating foreign currency amounts in the preparation of these accounts are:

 

			30 June 2010				30 June 2009				31 December 2009
			Average rate		Period end rate		Average rate		Period end rate		Average rate		Year end rate
			US$		US$		US$		US$		US$		US$
£1 sterling is equivalent to			1.53		1.50		1.50		1.65		1.57		1.61
Euro 1 is equivalent to			1.33		1.23		1.34		1.41		1.40		1.42
Can $1 is equivalent to			0.97		0.94		0.83		0.86		0.88		0.95

 

 

17. CASH GENERATED FROM OPERATIONS

								6 months ended 30 June 2010		6 months ended 30 June 2009		Year ended 31 December 2009
								US$'000		US$'000		US$'000
(Loss)/ profit before taxation								(34,237)		22,901		47,054
Adjustments for non-cash items or items recognized within the cashflow statement:
- Depreciation of tangible assets								193		69		226
- Amortisation of intangible assets								12		-		31
- Realised and unrealised (gains)/losses								(1,595)		1,372		(3,375)
- Interest expense								27		23		58
- Foreign exchange adjustments								(1,746)		1,746		171
- Charge in relation to share option awards								(1,249)		1,460		902
Changes in operating assets and liabilities
- (Increase) in financial investments								(3,365)		(210,015)		(232,267)
- (Increase) in deferred acquisition costs								(15,413)		(10,284)		(1,684)
- (Increase)/decrease in reinsurance assets								(81,239)		(46,774)		9,237
- (Increase) in insurance receivables								(47,609)		(37,828)		(13,070)
- Decrease in prepayments and accrued income								4,631		2,005		14,977
- Decrease/(increase) in other debtors								17,184		15,831		(323)
- Increase in insurance liabilities								161,500		75,525		9,108
- Increase in trade and other payables								26,708		279		(5,621)
Cash generated from operations								23,802		(183,690)		(174,576)

 

 

18. RELATED PARTY TRANSACTIONS

 

For the purposes of International Accounting Standard 24 "Related party disclosures", key managers are defined as the Board of Directors.

 

Nicholas Warren, one of the Non-executive Directors of the Company until his departure from the board on 12 March 2010, was employed as a Senior Vice President with International Advisory Services Ltd. This company provides general accounting, administration and information technology services to the Group. This company also provided rented office space to the Group until 18 September 2009. $226K was charged to the Group in respect of these services during the first six months of 2010 (30 June 2009: $213K, 31 December 2009: $604K).

 

Ernest Morrison, David Cooper and Jonathan Betts, three of the Non-executive Directors of the Company are employees of Cox Hallett Wilkinson, who have been engaged to provide legal advice in relation to Bermudian legal matters. No fees were incurred in respect of such services up to 30 June 2010.

As explained in note 19, share options were issued to Richard Pexton, Group Chief Executive Officer, in the period.

Other transactions with related parties during the period are consistent in nature and scope with those disclosed in note 33 of the Group's 2009 Consolidated Financial Statements.

 

19. SHARE OPTIONS ISSUED TO KEY MANAGEMENT

 

On 19 May 2010 the Company granted an option over 2,500,000 common shares to Richard Pexton under the Omega Insurance Holdings Limited 2006 Long-Term Incentive Plan (the "LTIP"). In accordance with the rules of the LTIP, an award was granted by way of option over 2,500,000 common shares on 19 May 2010 at a price of £1.02 per common share (the closing share price on the preceding dealing day). The option may be exercised in three years' time, subject to Mr. Pexton's continued employment with the Company.

 

In addition the Company has undertaken to grant further options under the LTIP over 2,500,000 common shares to Mr. Pexton on 19 May 2011 and 18 May 2012, subject to Mr. Pexton's being employed by the Company and not under notice on the relevant date of grant. The exercise price of the options will be the prevailing market value of a common share at such date. In the event of a takeover of the Company prior to 19 May 2011, the Company will grant an option to Mr. Pexton over the remaining 5,000,000 common shares, at the exercise price applied to the May 2010 grant. If a takeover occurs between 19 May 2011 and 18 May 2012, the Company will grant an option over the remaining 2,500,000 common shares at an exercise price equal to that applied to the May 2011 grant. These options will all be exercisable in the period from the third to the tenth anniversary of the date of grant.

 

20. CONTINGENT LIABILITIES

 

Richard Tolliday ceased to be the Chief Executive Officer of the Group in the Period. Mr Tolliday's contract incorporates a clause entitling him to certain payments with a total value of $5.2m in the case of a change in control of the Group and his subsequent departure from the Group. The Group believes that no such change in control has occurred and based on legal advice received does not believe that this amount will be payable. Accordingly no provision for this number has been made in these accounts.

 

21. POST BALANCE SHEET DATE EVENTS

 

There have been no material post balance sheet date events.

 

22. SEASONALITY OF OPERATIONS

 

The Omega Group underwrites a wide range of risks, some of which are subject to potential seasonal variation. The most material of these is the Group's exposure to the US and Gulf of Mexico windstorms which are largely concentrated in the second half of the year.

 

23. INTERIM REPORT

 

Copies of this interim statement are available from the Company's registered office at Clarendon House, Church Street, Hamilton HM11, Bermuda, and on the Company's website (www.omegauw.com).

 

Independent review report by Ernst & Young LLP to Omega Insurance Holdings Limited

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of IFRS based operating profit, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and the related notes 1 to 23. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

Ernst & Young LLP

London

27 August 2010