Trading Statement

22 Nov 2007 11:30

Kiln Ltd22 November 2007 Kiln Ltd Trading statement and updated syndicate forecasts Kiln Ltd ("Kiln"), the specialist insurance and reinsurance group, is todayproviding an update on current trading conditions and Kiln's wholly ownedmanaging agency, R J Kiln & Co Limited ("R J Kiln"), has released updatedforecasts for the 2005 and 2006 years of account for its four syndicates atLloyd's. Kiln Group chief executive officer Edward Creasy commented: "2007 is shaping up to be another good year for Kiln, and going into 2008 ratesremain at acceptable levels across our specialist portfolio. Nevertheless, weintend to remain resolutely disciplined, both in terms of our underwritingstance and our capital management activities, in order to continue to generateattractive returns for our shareholders." Underwriting conditions Rating levels across the portfolio of specialist business that Kiln renewscontinue to hold up well. Rates for Kiln Syndicate 510 as at 16 November 2007are, on average, 98% of those at the same time last year. The table below showsthe detail of rates in each of the classes underwritten by the syndicate, in thecontext of the market since 2002, itself a strong underwriting year. Premium rating index of Kiln Syndicate 5102002 as base year 2003 2004 2005 2006 2007 2007 over 2006 2002 % % % % (at 16/11/07) (at 16/11/07) % % %Accident & 100.00 107.47 111.60 111.51 111.87 111.35 99.5Health Property 100.00 104.89 102.87 101.48 114.08 111.63 97.9Reinsurance 100.00 102.49 99.77 99.62 133.63 138.05 103.3Marine 100.00 107.35 101.80 105.10 131.08 125.56 95.8Aviation 100.00 102.32 99.52 98.61 95.78 87.40 91.3 Total 510 100.00 104.88 102.44 101.99 118.24 115.89 98.0 In terms of loss activity, 2007 is following a similar pattern to that of 2006,and is in stark contrast to 2005, as the following table showing gross incurredloss ratios indicates: Gross incurred loss ratio to 30 September (net of acquisition costs) 2004 2005 2006 2007 % % % % Syndicate 510 Reinsurance 12 67 2 8Syndicate 510 Property 34 68 26 25Syndicate 510 Marine 14 57 11 8Syndicate 510 Aviation 11 21 16 6Syndicate 510 Accident and Health 18 20 15 38Syndicate 308 32 26 19 38Syndicate 557 10 69 4 6Syndicate 807 26 44 13 19 Total Kiln Underwriting Limited 21 58 14 16 The 2007 Atlantic windstorm season has been relatively benign and, althoughthere was weather-related insured damage in the year to 30 September in the UK,mainland Europe and the Far East, catastrophe losses in 2007 have, as in 2006,been less than expected. Gross written premium Gross written premium for the nine months to 30 September 2007 is £343.0 million(2006: £336.6 million) which is an increase of around 2% on the same period lastyear. As anticipated in our 2007 interim results announcement, premium volumeshave been depressed partly by the weakness in the US dollar, in which currencywe receive over 60% of our premiums, as well as by our continued commitment tomaintain underwriting discipline. The following table shows the comparativepremium volumes and the effect of foreign exchange rates. Gross written premium to 30 September 2007 2006 (at 2007 exchange 2006 (at 2006 exchange rates) rates) £m £m £m Kiln Ltd 343.0 316.4 336.6100% Kiln Syndicate level 648.2 700.1 744.7 Note: the average US dollar exchange rate over the nine month period to 30September 2007 was 1.99 (2006: 1.82). Investment and foreign exchange management Investment performance in the third quarter was strong, driven by recent marketturbulence that led to a flight to quality, thereby benefiting Kiln's portfolio.The investment return for the nine months to 30 September stands at 4.1%. Investment Performance Average third quarter Third quarter investment Investment return to 30 assets returns September £m % % Cash and equivalents 221 1.3 4.0Fixed interest securities 336 1.9 4.2 Total 557 1.7 4.1 Note: this table shows the blended investment returns on corporate owned assetsand on our share of the syndicates' assets. This performance has been helped by the strength of government bonds and,importantly, by avoiding significant exposure to lower rated corporate bonds.Kiln does not hold any investment in equities and has no direct holdings ofsub-prime investments. The credit profile of the portfolio is detailed below: Credit Profile AAA AA A % % % Group Cash 92 8 - Fixed interest 83 15 2Syndicate Cash 96 4 - Fixed interest 93 5 2 Note: credit ratings relate to the institution or fund with which the cash isinvested and to the issuer of fixed income securities. Kiln has partially hedged its US dollar exposures; the floating ratesubordinated debt of US$65 million is hedged in terms of interest rate andexchange rate by matching cash deposits. In addition, Kiln has bought optionsexercisable at US$1.988 to £1 to protect US$20 million against US dollarweakening; these expire in September 2008 R J Kiln capacity Lloyd's has approved the syndicate business plans for the 2008 year of accountsubmitted to it by R J Kiln, the Lloyd's managing agency owned by Kiln Ltd. Ashas previously been reported, Kiln's overall capacity at Lloyd's in 2008 will be£847 million, which is a reduction of 14%. This reduction is further evidence ofour continuing commitment to managing our business through the cycle by means ofrigorous underwriting discipline. Auctions and Funds at Lloyd's Kiln Underwriting Limited ("KUL"), the corporate name that owns capacity onbehalf of Kiln Ltd, has maintained its level of ownership of capacity on KilnSyndicate 510 at 53%. Prices were particularly high at the capacity auctions inSeptember and this, combined with low volumes of capacity available for trading,meant that the company decided not to increase its proportionate ownership ofthe syndicate. The Economic Capital Assessment ratio for KUL for 2008, which is the level ofcapital that Kiln is required to hold in order to operate at Lloyd's, hasincreased to 50% from 47% of capacity in 2007, reflecting our view of thesoftening pricing environment we foresee in 2008. Capital management Kiln is committed to a strategy of active capital management. Following theplanned sale of its successful investment in W. R. Berkley Insurance (Europe),Limited, combined with R J Kiln's lower capacity at Lloyd's in 2008, the companyexpects to have surplus capital of approximately £60 million by the year end,which it intends to return to shareholders. This will be achieved, subject toshareholder approval, by means of a share buyback through a tender offer of £45million and ongoing market purchases under the existing share buyback authority.The relevant circular and tender offer will be posted to shareholders inmid-December and the EGM will be held in mid-January 2008. R J Kiln updated syndicate forecasts The Kiln managing agency, R J Kiln, submitted the following revised syndicateforecasts to Lloyd's today: 2005 Year of Account Forecasts 2005 Account Capacity Forecast Range Previous forecast as at June 2007 £m % % Syndicate 510 545 (5.7) - (0.7) (5.7) - (0.7)Syndicate 557 48 (16.1) - (11.1) (17.4) - (12.4)Syndicate 807 99 (7.2) - (2.2) (7.8) - (2.8)Syndicate 308 9 14.1 - 19.1 8.5 - 13.5 2006 Year of Account Forecasts 2006 Account Capacity Forecast Range Previous forecast as at June 2007 £m % % Syndicate 510 625 12.9 - 17.9 12.9 - 17.9Syndicate 557 54 18.8 - 23.8 18.0 - 23.0Syndicate 807 110 10.2 - 15.2 11.6 - 16.6Syndicate 308 13 3.8 - 8.8 3.2 - 8.2 The forecasts set out above take into account all managing agency and Lloyd'scharges. The current forecasts are expressed at 30 September 2007 exchangerates. The previous forecasts, which were announced in August, have been rebasedto the same exchange rate (US$2.04 and C$2.02 respectively). 22 November 2007 Enquiries: Kiln Ltd Edward Creasy, chief executive officer +44 (0)20 7886 9000 Peter Haynes, group chief financial officer +1 (441) 278 4440 (Please note GMT - 4 hours) Kate Rogers, head of communications +44 (0)20 7886 9000 College Hill +44 (0)20 7457 2020 Tony Friend Roddy Watt This information is provided by RNS The company news service from the London Stock Exchange