RNS Number:8947P
Cox Insurance Holdings PLC
18 September 2003
Cox Insurance Holdings Plc
Unaudited Interim Report for the six months ended 30 June 2003
2003 2002
Operating profit on ordinary activities for continuing
operations before tax * #30.2m #21.9m
Operating profit on ordinary activities before tax #28.3m #9.1m
Earnings per share 6.3p 1.6p
* On the basis of a longer-term rate of return
Highlights
* Strong 1st half performance.
* Continuing Underwriting result up 30% at #21.7m (2002: #16.7m)
* Combined ratio of 86% market leading
* Record 'Broking and Insurance Services' profits up 62%
* Programme to deliver further cost savings and efficiencies underway
* Run-off of discontinued commercial business on track.
* Intend to recommend a final dividend for 2003.
Peter Owen, Chairman, Cox Insurance Holdings Plc, said:
Our position in the retail insurance market has provided us with a solid
platform for this improved result. We will continue to underwrite for profit and
to exploit opportunities in our Broking and Insurance Services businesses.
We have laid firm foundations for continued success in 2003 and beyond.
For further information, please contact:
Cox Insurance Holdings Plc 0870 787 3663
Peter Owen, Chairman
Neil Utley, Chief Executive
James Morley, Finance Director
Brunswick Group Ltd 020 7404 5959
Anita Scott / Rupert Young
www.cox.co.uk
Report to Shareholders
for the six months ended 30 June 2003
OVERVIEW
The significant improvement in financial performance that we reported in the
2002 results has continued during the first half of 2003. Our position remains
strong and continues to provide a favourable trading environment for us.
Group profit before tax improved to #28.3m an increase of 211% on the #9.1m of
the same period last year. Profit after tax increased to #19.1m from #2.6m, and
earnings per share increased to 6.3p from 1.6p.
The run off of the discontinued commercial business is making steady progress
and gives us increasing confidence that the ultimate position will be positive.
The discontinued business made an operating loss, at longer-term rates of
return, of #1.3m for the period - an improvement from a loss of #9.7m for the
same period last year.
Retail Underwriting has been the bedrock of our business and has made a
technical profit each year for 35 years. At longer-term rates of return its
results have improved for the first half from #16.7m to #21.7m, an increase of
30%. Our Broking and Insurance Services businesses continue to make excellent
progress raising profits from #8.6m for the first half of 2002 to #13.9m this
year, an increase of 62%. Divisional numbers shown above are before elimination
of inter-company profits of #0.7m.
UNDERWRITING
Whilst we have a track record of profit and growth in the retail insurance
market, we continue to drive our business forwards.
The private car-broker sector constitutes less than a quarter of our
underwriting business and whilst at this competitive point in the cycle,
continues to provide opportunities for profitable underwriting, we are focusing
on other areas for growth. In particular, we have seen increases in motorcycles,
special risks, household and parts of our fleet portfolio, all of which are
producing good returns.
Whilst the underlying levels of premiums actually signed has increased over the
previous first half year, a re-estimation of pipeline business between the
periods results in a small decrease in reported written premiums.
Our combined ratio at 86% (89% first half 2002) is market leading.
BROKING AND INSURANCE SERVICES
We have continued to focus on expanding our partnership and branch-based
businesses whilst competing effectively in the 'direct' business. We have
strengthened our panels and improved their pricing effectiveness. The profits at
#3m are up 30% on the same period last year and the expense ratio at 82% makes
us one of the most efficient in the market.
The Insurance Services businesses have been restructured to increase efficiency
and maximise cross-selling opportunities. Our premium finance business increased
advances to customers by 2.9% to #50m. The first half has also seen the release
of a substantially improved update of our Brokersure policy management system
for high-street brokers. Monthly transaction values have increased eightfold
since the beginning of the year. We expect Brokersure to allow us to
intermediate a significant and increasing share of the substantial high-street
broking market. The profits for the Insurance Services businesses have improved
73% to #10.9m from #6.3m.
DISCONTINUED BUSINESS
The run-off of the discontinued commercial book has proceeded well, resulting in
an improvement of #8.3m over the same period last year, to a loss of #1.3m. The
number of live risks has reduced by over 80% since January. We are in final
negotiations to outsource the administration of the run-off. The value of assets
in the balance sheet available to support any deterioration in the position of
the discontinued business has increased from #17m to #25m, as explained in Note
2.
COST REDUCTIONS
This year we started a major programme, which will deliver more efficient
processes, improve service delivery and generate significant ongoing cost
savings. Our target is an annualised reduction of over #15m from our current
controllable expense base of #107m by the end of 2005, the majority of which
will fall to the benefit of the Group.
DIVIDEND
In the Annual Report we stated that we would re-consider the question of
dividends at the time of the interim results and we are pleased to confirm that,
in the absence of any unforeseen events, the board intend to recommend the
payment of a final dividend in respect of the year ended 31 December 2003.
OUTLOOK
Cox has the specialist skills and expertise to exploit opportunities in the
current market. In the first half of 2003 Cox has delivered an excellent trading
profit.
Our position in the retail insurance market has provided us with a solid
platform for this improved result. We will continue to underwrite for profit and
to exploit opportunities in our Broking and Insurance Services businesses.
We have laid firm foundations for continued success in 2003 and beyond.
Peter Owen Neil Utley
Chairman Chief Executive
17 September 2003
Unaudited Consolidated Profit and Loss Account - Technical Account
for the six months ended 30 June 2003
Six months ended 30 June 2003 Six months ended 30 June 2002 Year ended 31
December 2002
(unaudited) (unaudited) (audited)
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total Total
Note #'000 #'000 #'000 #'000 #'000 #'000 #'000
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Gross written 3 149,598 (6,103) 143,495 160,695 76,376 237,071 370,368
premiums
Outwards (14,444) (4,154) (18,598) (23,595) (80,858) (104,453) (100,416)
reinsurance
premiums
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Net written 135,154 (10,257) 124,897 137,100 (4,482) 132,618 269,952
premiums
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Change in gross (8,266) 12,990 4,724 (24,001) 26,688 2,687 2,783
unearned
premiums
Change in (1,606) (10,098) (11,704) 10,409 30,618 41,027 11,382
unearned
outwards
reinsurance
premiums
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Change in net (9,872) 2,892 (6,980) (13,592) 57,306 43,714 14,165
unearned
premiums
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Net earned 3 125,282 (7,365) 117,917 123,508 52,824 176,332 284,117
premiums
Net investment 5 7,262 2,418 9,680 5,387 6,445 11,832 23,164
return on a
longer -term
rate of return
basis
transferred from
non-technical
account
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Total technical 132,544 (4,947) 127,597 128,895 59,269 188,164 307,281
income
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Gross claims (92,551) (110,103) (202,654) (82,612) (91,559) (174,171) (370,190)
paid
Reinsurance 12,999 12,629 25,628 9,572 54,607 64,179 157,061
recoveries on
paid claims
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Net paid (79,552) (97,474) (177,026) (73,040) (36,952) (109,992) (213,129)
claims
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Change in claims (1,077) 109,523 108,446 (11,503) 13,669 2,166 108,566
provisions
Change in 5,303 (5,875) (572) 7,230 (23,547) (16,317) (73,092)
reinsurers'
share of claims
provisions
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Change in net 4,226 103,648 107,874 (4,273) (9,878) (14,151) 35,474
claims
provisions
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Net claims (75,326) 6,174 (69,152) (77,313) (46,830) (124,143) (177,655)
incurred
Net operating 3 (34,772) (2,559) (37,331) (34,874) (22,098) (56,972) (98,308)
expenses
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Total technical (110,098) 3,615 (106,483) (112,187) (68,928) (181,115) (275,963)
charges
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Balance on 3 22,446 (1,332) 21,114 16,708 (9,659) 7,049 31,318
technical
account
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Unaudited Consolidated Profit and Loss Account - Non-technical Account
for the six months ended 30 June 2003
Six months ended 30 June 2003 Six months ended 30 June 2002 Year ended 31
December 2002
(unaudited) (unaudited) (audited)
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total Total
Note #'000 #'000 #'000 #'000 #'000s #'000 #'000
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Balance on 3, 4 22,446 (1,332) 21,114 16,708 (9,659) 7,049 31,318
technical account
Net investment 5 12,618 2,418 15,036 9,533 6,445 15,978 32,197
return on a
longer-term rate of
return basis
Share of 29 - 29 - - - (43)
associate
Net investment (7,262) (2,418) (9,680) (5,387) (6,445) (11,832) (23,164)
return on a
longer-term rate of
return basis
transferred to
technical account
Other income 34,559 - 34,559 36,263 - 36,263 61,396
-------------------------------------------------------------------------------------------
Other expenses (30,662) - (30,662) (33,861) - (33,861) (57,508)
Amortisation of (1,522) - (1,522) (1,374) - (1,374) (2,525)
goodwill and
syndicate
capacity
-------------------------------------------------------------------------------------------
Other charges (32,184) - (32,184) (35,235) - (35,235) (60,033)
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Operating profit/ 4 30,206 (1,332) 28,874 21,882 (9,659) 12,223 41,671
(loss) based on a
longer- term
investment return
Short term 5 (488) (92) (580) (2,359) (809) (3,168) 1,015
fluctuations in
investment return
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Operating profit/ 29,718 (1,424) 28,294 19,523 (10,468) 9,055 42,686
(loss) on ordinary
activities before
tax
Tax on profit/ (9,633) 427 (9,206) (6,445) - (6,445) (16,614)
(loss) on ordinary
activities
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Profit/(loss) on 20,085 (997) 19,088 13,078 (10,468) 2,610 26,072
ordinary activities
after tax
Minority - - - - - - 2
interests
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Retained profit/ 8 20,085 (997) 19,088 13,078 (10,468) 2,610 26,074
(loss) for the
period
--------------- ----- ------- -------- ------ ------- -------- -------- ---------
Earnings per 6 6.3p 1.6p 11.2p
share
Diluted earnings 6 6.2p 1.6p 11.0p
per share
Unaudited Consolidated Balance Sheet
as at 30 June 2003
30 June 30 June 31 December
2003 2002 2002
Note #'000 #'000 #'000
(unaudited) (unaudited) (audited)
Assets
Investment in syndicate 7 16,442 17,171 16,972
capacity
Goodwill 23,309 25,267 24,474
Investment in own shares 2,863 2,883 2,883
Investment in participating 568 784 754
interests
Other financial 410,535 410,911 458,092
investments
Reinsurers' share of
technical provisions
- provision for 10,050 70,181 21,756
unearned premiums
- claims 211,461 269,812 213,475
outstanding
Debtors 253,654 286,765 297,242
Tangible fixed assets 28,817 26,187 26,914
Cash at bank and in hand 42,236 129,481 27,355
Deferred acquisition 37,597 44,840 38,732
costs
Prepayments and accrued 16,681 5,962 8,946
income
------------------------ ------ -------- ------- --------
Total assets 1,054,213 1,290,244 1,137,595
------------------------ ------ -------- ------- --------
Capital and reserves
Share capital 30,839 82,932 30,827
Share premium account 8 24,488 173,295 24,442
Revaluation reserve 8 560 566 566
Profit and loss account 8 46,331 (196,612) 27,237
------------------------ ------ -------- ------- --------
Total equity shareholders' 102,218 60,181 83,072
funds
Equity minority interests 74 73 74
------------------------ ------ -------- ------- --------
102,292 60,254 83,146
------------------------ ------ -------- ------- --------
Liabilities
Technical provisions
- provision for 166,367 224,094 171,091
unearned premiums
- claims 544,364 758,802 661,829
outstanding
Provisions for other risks 2,427 1,817 2,042
and charges
Creditors 209,959 195,974 174,344
Accruals and deferred 28,804 49,303 45,143
income
------------------------ ------ -------- ------- --------
Total liabilities 951,921 1,229,990 1,054,449
------------------------ ------ -------- ------- --------
Total equity shareholders' 1,054,213 1,290,244 1,137,595
funds and liabilities
------------------------ ------ -------- ------- --------
Unaudited Consolidated Statement of Total Recognised Gains and Losses
for the six months ended 30 June 2003
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2003 2002 2002
#'000 #'000 #'000
(unaudited) (unaudited) (audited)
Profit for the financial period 19,088 2,610 26,074
Movement in revaluation reserve - (11) (11)
-------------------------- --------- --------- --------
Total recognised gains and losses 19,088 2,599 26,063
arising in the year
-------------------------- --------- --------- --------
Unaudited Consolidated Cash Flow Statement
for the six months ended 30 June 2003
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2003 2002 2002
Note #'000 #'000 #'000
(unaudited) (unaudited) (audited)
Net cash outflow from 10 (34,083) (14,611) (64,212)
operating activities
Returns on investments and (3,122) (3,337) (6,565)
servicing of finance
Taxation (118) (336) 448
Capital expenditure (3,956) (3,679) (6,904)
Acquisitions and (162) (402) (458)
disposals
Financing (5,126) 22,490 21,735
--------------------- ---- --------- --------- --------
(Decrease)/increase in cash
and portfolio investments
(46,567) 125 (55,956)
--------------------- ---- --------- --------- --------
Unaudited Reconciliation of movement in equity shareholders' funds
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2003 2002 2002
#'000 #'000 #'000
(unaudited) (unaudited) (audited)
Profit for the financial period 19,088 2,610 26,074
Shares issued, net of issue costs 58 68,165 67,593
Revaluation of freehold property - (11) (11)
------------------------- --------- --------- --------
Net increase in equity 19,146 70,764 93,656
shareholders' funds
Opening equity shareholders' funds/ 83,146 (10,510) (10,510)
(deficit)
------------------------- --------- --------- --------
Closing equity shareholders' 102,292 60,254 83,146
funds
------------------------- --------- --------- --------
Notes to the Unaudited Interim Report
for the six months ended 30 June 2003
1. Basis of preparation
The unaudited interim accounts have been prepared on the basis of accounting
policies consistent with those set out in the Group's 2002 Report and Accounts.
The interim announcement, which does not constitute statutory accounts, has been
prepared in accordance with Section 255A of, and Schedule 9A to, the Companies
Act 1985, as amended by the Companies Act 1985 (Insurance Companies Accounts)
Regulations 1993 and the ABI SORP on Accounting for Insurance Business issued in
December 1998.
The previously stated figures as at 30 June 2002 and 31 December 2002 have been
adjusted to reflect the reclassification of discontinued and continued
operations. This reclassification has not been audited.
The audited accounts for the year ended 31 December 2002, extracts of which are
included in this interim report, have been delivered to the Registrar of
Companies and received in an unqualified audit report. Copies of this report are
available from the Company Secretary at the registered office, Library House,
New Road, Brentwood, Essex, CM14 4GD.
2. The Lloyd's Agreement
On 11 April 2002 the Company and certain of its subsidiaries entered into an
agreement with Lloyd's relating to the proposed restructuring of the Group's
activities.
As a consequence any further economic exposure of the group in respect of the
liabilities of CDCM Limited ('CDCM') estimated at the balance sheet date from
its participation on Syndicate 1208 should be limited to the aggregate of:
* Underwriting earnings from the 2002 and prior underwriting accounts
* Any value realised by CDCM from existing tax losses over and above
#40m (the amount recognised in the balance sheet at 31 December 2001)
* #875,000 of financing charges
If the liabilities of CDCM were to deteriorate beyond this limit CDCM could
become insolvent as the Company will not provide any further support to its
subsidiary. Should CDCM become insolvent, subsequent to the appointment of a
liquidator the Company would no longer consolidate the assets and liabilities of
CDCM. However, until this time any future underwriting results and other changes
in the value of assets and liabilities of CDCM will be reflected in the Group's
profit and loss account.
At 30 June 2003 the value of assets recognised in the Group balance sheet which
are subject to this exposure are estimated to be #25m (31 December 2002 - #17m).
3. Analysis of underwriting result
Analysis of gross premiums written, gross premiums earned, gross claims
incurred, reinsurance balance, net operating expenses and the underwriting
result:
Six months ended 30 June 2003 (unaudited)
Accident Motor Marine, Fire & Third Miscellaneous Reinsurance Total
& health aviation & property party to close
transport damage liability
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Gross premiums 3,252 124,717 (2,619) 14,337 2,187 1,621 - 143,495
written
Net earned 530 106,931 (714) 8,530 2,443 197 - 117,917
premiums
---------------- ------ ------ ------ ------ ------ ------ ------- ------
Gross premiums 2,826 122,290 10,146 10,885 2,412 (340) - 148,219
earned
Gross claims (2,637) (88,431) (3,964) (416) (7,958) 9,198 - (94,208)
incurred
Reinsurance (2,583) 8,246 (8,820) 237 4,086 (6,412) - (5,246)
balance
Net operating (1,366) (26,410) (3,162) (4,283) (275) (1,835) - (37,331)
expenses
Net longer-term 109 5,617 1,302 1,874 963 (185) - 9,680
investment return
transferred from
the non-technical
account
---------------- ------ ------ ------ ------ ------ ------ ------- ------
Balance on (3,651) 21,312 (4,498) 8,297 (772) 426 - 21,114
technical account
---------------- ------ ------ ------ ------ ------ ------ ------- ------
Six months ended 30 June 2002 (unaudited)
Accident Motor Marine, Fire & Third Miscel- Reinsurance Total
& health aviation & property party laneous to close
transport damage liability
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Gross 2,885 139,429 27,958 56,192 6,956 3,651 - 237,071
premiums written
Net earned 5,167 103,379 10,754 44,489 8,614 3,929 - 176,332
premiums
---------------- ------ ------ ------ ------ ------ ------ ------- ------
Gross 4,917 114,547 28,104 72,568 15,343 4,279 - 239,758
premiums earned
Gross (1,945) (76,152) (31,633) (40,579) (8,462)(13,234) - (172,005)
claims incurred
Reinsurance (2,367) (3,936) 7,971 (32,443) 3,442 11,769 - (15,564)
balance
Net (1,994) (25,640) (8,158) (16,415) (2,908) (1,857) - (56,972)
operating expenses
Net
longer-term 22 3,661 2,231 4,567 1,185 166 - 11,832
investment return
Transferred from the
non-technical account
---------------- ------ ------ ------ ------ ------ ------ ------- ------
Balance on (1,367) 12,480 (1,485) (12,302) 8,600 1,123 - 7,049
technical account
---------------- ------ ------ ------ ------ ------ ------ ------- ------
Year ended 31 December 2002 (audited)
Accident Motor Marine, Fire & Third Miscellaneous Reinsurance Total
& health aviation & property party to close
transport damage liability
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Gross 8,208 259,704 17,455 69,122 7,921 7,038 920 370,368
premiums written
Net earned 16,199 211,686 10,693 33,808 2,287 8,524 920 284,117
premiums
---------------- ------ ------ ------ ------ ------ ------ ------- ------
Gross 13,296 237,043 31,444 73,049 7,922 9,477 920 373,151
premiums earned
Gross (7,443) (166,018) (48,984) (4,273) (9,512) (24,474) (920) (261,624)
claims incurred
Reinsurance 3,500 1,323 17,744 (45,860) (1,170) 19,398 - (5,065)
balance
Net (5,740) (53,022) (15,235) (20,623) (602) (3,086) - (98,308)
operating expenses
Net longer-term 107 9,952 3,451 7,404 1,889 361 - 23,164
investment return
Transferred from the
non-technical account
---------------- ------ ------ ------ ------ ------ ------ ------- ------
Balance on 3,720 29,278 (11,580) 9,697 (1,473) 1,676 - 31,318
technical account
---------------- ------ ------ ------ ------ ------ ------ ------- ------
Reinsurance inwards business has been analysed by class of business, rather than
being shown separately, as the reinsurance accepted by the Group has the
characteristics of primary business.
Gross premiums are all written in the United Kingdom and are transacted in the
following currencies:
Six months Six months Year
ended ended ended
30 June 2003 30 June 2002 31 December
2002
#'000 #'000 #'000
(unaudited) (unaudited) (audited)
Pounds Sterling 147,862 206,827 323,119
US Dollars (1,124) 28,283 44,186
Canadian Dollars (3,243) 1,961 3,063
------------------------------ --------- -------- --------
143,495 237,071 370,368
------------------------------ --------- -------- --------
4. Segmental analysis
Six months ended 30 June 2003 (unaudited)
Retail Underwriting Total Broking & Corporate Total
Commercial Insurance
Services
#'000 #'000 #'000 #'000 #'000 #'000
143,495
Gross written 149,598 (6,103) 143,495 - -
premiums
----------------- ------ ------- ------ ------- ------- ------
Net earned premiums 125,282 (7,365) 117,917 - - 117,917
Net claims incurred (75,326) 6,174 (69,152) - - (69,152)
Operating expenses (34,772) (2,559) (37,331) - - (37,331)
Other income - - - 33,421 1,138 34,559
Other expenses - - - (25,418) (5,244) (30,662)
(including share of
associate)
------------------------------------------------------------------------------------------------
Net longer-term 7,262 2,418 9,680 - - 9,680
investment income
Investment return on - - - 5,819 2,684 8,503
other activities
Interest payable - - (603) (2,544) (3,147)
------------------------------------------------------------------------------------------------
Net investment 7,262 2,418 9,680 5,216 140 15,036
return
Share of associate - - - - 29 29
Amortisation of - - - - (1,522) (1,522)
goodwill & syndicate
capacity
----------------- ------ ------- ------ ------- ------- ------
Operating profit/
(loss) based on a
longer-term
investment return
- continuing
- discontinued 22,446 - 22,446 13,219 (5,459) 30,206
- (1,332) (1,332) - - (1,332)
----------------- ------ ------- ------ ------- ------- ------
30 June 2003 net 91,446 16,982 (6,136) 102,292
assets /(liabilities)
----------------- ------ ------- ------- ------
Six months ended 30 June 2002 (unaudited)
Retail Underwriting Total Broking & Corporate Total
Commercial Insurance
Services
#'000 #'000 #'000 #'000 #'000 #'000
Gross written 160,695 76,376 237,071 - - 237,071
premiums
---------------- ------- ------- ------ ------ ------ ------
Net earned 123,508 52,824 176,332 - - 176,332
premiums
Net claims (77,313) (46,830) (124,143) - - (124,143)
incurred
Operating (34,874) (22,098) (56,972) - - (56,972)
expenses
Other income - - - 36,763 (500) 36,263
Other expenses - - - (32,778) (1,083) (33,861)
(including share
of associate)
----------------------------------------------------------------------------------------------------
Net longer-term 5,387 6,445 11,832 - - 11,832
investment
income
Investment return - - - 5,138 2,673 7,811
on other
activities
Interest - - - (518) (3,147) (3,665)
payable
----------------------------------------------------------------------------------------------------
Net investment 5,387 6,445 11,832 4,620 (474) 15,978
return
Amortisation of - - - - (1,374) (1,374)
goodwill &
syndicate
capacity
---------------- ------- ------- ------ ------ ------ ------
Operating profit/
(loss) based on a
longer-term
investment
return
- continuing 16,708 - 16,708 8,605 (3,431) 21,882
- discontinued - (9,659) (9,659) - - (9,659)
---------------- ------- ------- ------ ------ ------ ------
30 June 2002 net 32,232 23,877 4,145 60,254
assets
---------------- ------ ------ ------ ------
Year ended 31 December 2002 (audited)
Retail Underwriting Total Broking & Corporate Total
Commercial Insurance
Services
#'000 #'000 #'000 #'000 #'000 #'000
Gross written 301,528 68,840 370,368 - - 370,368
premium
------------------ ------ ------- ------- ------- ------- ------
Net earned premium 259,227 - 259,227 - - 259,227
- continuing
- discontinued - 24,890 24,890 - - 24,890
Net claims (160,343) (17,312) (177,655) - - (177,655)
incurred
Operating (71,941) (26,367) (98,308) - - (98,308)
expenses
Other income - - - 62,242 (846) 61,396
Other expenses - - - (52,951) (4,600) (57,551)
-------------------------------------------------------------------------------------------------
Net longer-term 12,806 10,358 23,164 - - 23,164
investment income
Investment return - - - 11,042 5,103 16,145
on other
activities
Interest payable - - - (1,052) (6,060) (7,112)
-------------------------------------------------------------------------------------------------
Net investment 12,806 10,358 23,164 9,990 (957) 32,197
return
Amortisation of
goodwill &
syndicate capacity
and provision
against investment
in syndicate
capacity - - - - (2,525) (2,525)
------------------ ------ ------- ------- ------- ------- ------
Operating profit/
(loss) based on a
longer-term
investment return
- continuing 39,749 - 39,749 19,281 (8,928) 50,102
- discontinued - (8,431) (8,431) - - (8,431)
------------------ ------ ------- ------- ------- ------- ------
31 December 2002 77,073 7,602 (1,529) 83,146
net assets/
(liabilities)
------------------ ------- ------- ------- ------
The breakdown by activity shows the performance of each area of operation after
consolidation entries required to eliminate intra-group transactions. Income and
expenses within 'Broking and Insurance Services' exclude transactions with the
Group's share of Syndicate 218.
Underwriting profit and net assets are retained in trust funds within the Cox
managed syndicates until the relevant Lloyd's year of account closes, normally
after three years, and are not generally available to meet other liabilities of
the Group.
5. Investment return
Six months Six months Year
ended ended ended
30 June 2003 30 June 2002 31 December
#'000 #'000 2002
(unaudited) (unaudited) #'000
(audited)
Investment income 17,603 19,196 39,942
Investment gains/(losses) - (2,721) 382
-------------------------------- -------- -------- -------
17,603 16,475 40,324
Interest paid
-------------------------------------
- bank interest 2,758 2,932 5,706
- loan note interest 364 405 800
- finance lease interest - - 59
-------------------------------------
(3,122) (3,337) (6,565)
Investment expenses (25) (328) (547)
-------------------------------- -------- -------- -------
Net investment return 14,456 12,810 33,212
-------------------------------- -------- -------- -------
Analysed as:
-------------------------------------
Underwriting investment return on
a longer-term rate of return
basis (transferred to the
technical account) 9,680 11,832 23,164
Non-underwriting investment 5,356 4,146 9,033
return
-------------------------------------
Net investment return on a 15,036 15,978 32,197
longer-term rate of return
Short-term fluctuations in (580) (3,168) 1,015
underwriting investment return
-------------------------------- -------- -------- -------
14,456 12,810 33,212
-------------------------------- -------- -------- -------
The transfer to the technical account represents the estimated long term rate of
return, as indicated below, applied to the Group's share of investment assets of
the syndicates and gross assets held as Funds at Lloyd's. The balance of the
investment return predominately relates to interest generated by the
distribution and premium financing operations.
Six months Six months Year ended 31
ended 30 June ended 30 December 2002
2003 June 2002
(unaudited) (unaudited) (audited)
Longer-term rate of return
UK and overseas bonds 6.0% 6.0% 6.0%
----------------------------- -------- -------- --------
The longer-term rates of return were established by having regard to the
historical asset performance, current and prospective bond yields and the
estimated risk premium for holding equity investments. These rates were applied
to the average bond component of the underwriting investment assets. The net
values of these investments at the closing dates are shown below.
Six months Six months Year ended 31
ended 30 June ended 30 December 2002
2003 June 2002
#'000 #'000 #'000
(unaudited) (unaudited) (audited)
Syndicate assets - Other 306,022 337,514 359,867
financial investments
----------------------------- -------- -------- --------
Gross Funds at Lloyd's 79,237 73,346 79,295
Less syndicated debt supporting (45,000) (50,000) (50,000)
Funds at Lloyd's
----------------------------- -------- -------- --------
Net funds supporting underwriting 34,237 23,346 29,295
at Lloyd's
----------------------------- -------- -------- --------
6. Earnings per share
Earnings per share has been calculated based on earnings of #19,088,000 (30 June
2002 - #2,610,000; 31 December 2002 - #26,074,000). A reconciliation of the
number of shares used in the calculations of the basic and diluted earnings per
share is as follows:
Six months Six months Year ended 31
ended 30 June ended 30 December
2003 June 2002 2002
Number '000 Number '000 Number '000
(unaudited) (unaudited) (audited)
Basic:
At beginning of period 308,272 130,309 130,309
Movement due to weighted average
number of shares in respect of:
ESOP & QUEST shares not vested (5,774) (6,087) (5,938)
unconditionally to employees
Shares issued under employee 16 - 9
share schemes
Shares issued under placing and - 37,323 108,126
open offer
----------------------------- -------- -------- --------
Weighted average number of shares 302,514 161,545 232,506
during the period
----------------------------- -------- -------- --------
Diluted:
Dilutions in respect of:
SAYE scheme 1,767 659 1,510
Share option scheme - shares 2,960 928 2,563
granted not yet issued
----------------------------- -------- -------- --------
Diluted weighted average of 307,241 163,132 236,579
shares during the period
----------------------------- -------- -------- --------
7. Investment in syndicate capacity
Investment in syndicate capacity represents the following participations in the
Cox managed syndicates:
Lloyd's Lloyd's Lloyd's Lloyd's
2003 year 2002 year 2001 year 2000 year
of account of account of account of account
capacity capacity capacity capacity
#'000 #'000 #'000 #'000
Motor Syndicate 218 251,687 205,202 170,428 135,789
------------------ ------- ------- ------- -------
Cox corporate Syndicate - 30,423 129,713 166,337
1208
Written in parallel
with:
Nuclear Syndicate 1176 - 23,577 23,287 21,663
------------------ ------- ------- ------- -------
Cox corporate Syndicate - 54,000 153,000 188,000
1208
------------------ ------- ------- ------- -------
251,687 259,202 323,428 323,789
------------------ ------- ------- ------- -------
Amounts shown in italics represent the Group's participation by way of parallel
arrangements with the relevant Cox managed syndicates. Other participations are
directly with the named syndicate.
As part of the restructuring of the Group the investment in syndicate capacity
relating to the Commercial underwriting operations of the Group has been
written-off as it is considered that this capacity has no on-going value.
Cox Syndicates
Cox Insurance Holdings Plc conducted its underwriting business at Lloyd's via
three dedicated corporate Names - CDCM (No 2) Limited, CDCM Limited and Equity
Red Star Limited all of which are wholly owned subsidiaries of the Group.
CDCM Limited was the single largest Name on motor and personal lines Syndicate
218 until 30 June 2002. With effect from 1 July 2002 Equity Red Star Limited
took on the motor and personal lines business arising from that date. CDCM
Limited is the only Name on composite Syndicate 1208 and ceased to write any new
business as at 31 December 2002. CDCM (No.2) Limited was a name on Syndicate 218
for the 2000 year of account.
Funds are deposited at Lloyd's by Cox Insurance Holdings Plc on behalf of both
CDCM Limited and CDCM (No. 2) Limited and directly by Equity Red Star Limited,
in accordance with risk based capital requirements assessed by Lloyd's. The
underlying security backing the syndicates, outside of premium trust funds, is
represented by certain funds of Cox Insurance Holdings Plc itself, together with
the Lloyd's Central Fund.
8. Reserves
Share premium Revaluation Profit & loss
account reserve account
#'000 #'000 #'000
Group
At 31 December 2002 (audited) 24,442 566 27,237
Retained profit for the - - 19,088
period
Transfer of realised profits - (6) 6
Premium on shares issued in the 46 - -
period
----------------------------- ------- -------- --------
At 30 June 2003 (unaudited) 24,488 560 46,331
----------------------------- ------- -------- --------
9. World Trade Center ('WTC')
The Group's exposure to losses from the terrorist attack of 11 September 2001 in
the United States arises entirely from its participation on Syndicate 1208. The
loss is unprecedented in the insurance industry and as such calculation of
ultimate gross and net loss to the Group is subject to a greater degree of
uncertainty than for other insurance losses. Resulting claims have had a
material effect on the Group's business.
As at 30 June 2003, notifications received from the Xchanging Claims Services
remained unchanged at approximately $270m. After anticipated reinsurance
recoveries, offset by net reinstatement premiums, the Group's net notified loss
is $167m. Owing however to the uncertainties inherent in the evaluation of this
loss, the Directors have provided for a further degree of caution in arriving at
an estimate of $294m for ultimate gross loss reducing to $198m net of all
reinsurance costs and recoveries. After conversion to sterling, the resulting
net loss to the Group is currently estimated to be #120m.
The assessment of direct property losses, including related business
interruption claims, other than where buildings have been totally destroyed,
remains uncertain. Calculation of inwards reinsurance claims remains subject to
further subjective assessment because the Company must rely on estimates of loss
provided by the intermediate insurer or reinsurer.
Outstanding claim notifications received from policyholders, intermediaries and
loss adjusters remain subject to review and amendment by management as and when
further information becomes available. Loss provisions include estimates for
further claims, which may potentially be notified in the future, based upon a
comprehensive review of syndicate exposures, and assignment of probability
factors to each such exposure.
All estimates remain sensitive to a number of assumptions about the legal basis
for liability to losses from the WTC towers, which may be briefly summarised as
follows:
* It remains a matter of dispute as to whether the attack on the WTC
represents one or two losses. Having taken legal advice, management considers
that a 'one loss' basis is the correct interpretation of the contract. However,
the matter has been referred to the US courts by one of the insurers involved in
the loss for a declaration on this point. All other insurers have been brought
into that dispute, but the question seems unlikely to be resolved for several
years. If the Courts were to conclude that the attack should be deemed to be two
insured events, then the estimate of the Group's gross loss would increase by
#53.4m and the net loss by #9.3m.
* At present, provision has been made for business interruption
exposures in respect of property losses, which are known of or expected to have
happened, in the immediate vicinity of the towers. Loss estimates under risk
excess and catastrophe reinsurance policies may vary substantially if, contrary
to existing law and practice, cedents accept and settle remote "business
interruption" claims.
* Typically, where a property loss is caused by a third party, insurers
may benefit from subrogation action and resultant recovery from liability
insurers of that third party. The Group continues to explore subrogation
opportunities that exist in this case.
* Reinsurance recoveries represent the amounts expected to be
recoverable from the syndicate's reinsurers in respect of reported gross losses.
As currently estimated, gross ultimate claims will exceed the vertical limit of
the Group's whole account reinsurance protections.
* Calculation of such recoveries is particularly sensitive as to whether
or not reinsurers will follow direct writers, should the courts deem that the
attack on the WTC constitute two losses rather than one. After taking legal
advice, management consider that the likely treatment from reinsurers should not
prove disadvantageous to the Group. It remains difficult to reach a final
decision prior to resolution of the dispute and establishment of a legal ruling
regarding the underlying claim. Should reinsurers argue successfully that the
reinsurance policy should respond on a one event basis only, even though the
inwards claim was deemed to be two losses, the resulting net loss to the Company
would increase materially from the estimates currently provided.
* The amount of reinsurance recoveries remains sensitive to potential
insolvencies of reinsurers, with a current assumption that there will be no
major default.
Whilst the directors consider that the loss estimate is the best that can be
made on the basis of information currently available, it remains subject to
significant uncertainties as described above. Further information could be
received which may cause the estimate to be adjusted, either upwards or
downwards. The cost or benefit of any such future adjustments will be reflected
in the Financial Statements for the period in which the adjustments are made. It
may take a number of years to resolve these uncertainties.
Any such adjustment would be subject to the effects of the Lloyd's Agreement -
see Note 2.
10. Reconciliation of operating profit to net cash flow from
operating activities
Six months Six months Year ended
ended ended 31 December
30 June 2003 30 June 2002 2002
#'000 #'000 #'000
(unaudited) (unaudited) (audited)
Operating profit on ordinary 28,294 9,055 42,686
activities before tax
Depreciation of tangible fixed 1,837 1,809 4,163
assets
Amortisation of goodwill 992 844 1,464
Loss/(profit) on disposal of fixed 214 (58) (17)
assets
Interest payable 3,122 3,337 6,565
Amortisation and provision for
diminution in value in
Investment in syndicate capacity 530 530 1,061
Movement in value of associate (29) - 30
Decrease in debtors, prepayments 28,471 41,804 20,798
and accrued income
Decrease in net technical (108,469) (38,350) (83,565)
provisions
Increase/(decrease) in creditors, 10,570 (33,694) (57,736)
accruals and deferred income
Minority interest - - 2
Increase in other provisions 385 112 337
----------------------------- -------- -------- --------
Net cash outflow from operating (34,083) (14,611) (64,212)
activities
----------------------------- -------- -------- --------
Independent Review Report to Cox Insurance Holdings Plc
for the six months ended 30 June 2003
Introduction
We have been instructed by the company to review the financial information which
comprises the consolidated profit and loss account, consolidated statement of
total recognised gains and losses, consolidated cash flow statement,
consolidated balance sheet as at 30 June 2003, comparative figures and
associated notes. We have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
the Listing Rules of the Financial Services Authority and for no other purpose.
We do not, in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
Fundamental uncertainty
In forming our review conclusion, we have considered the adequacy of the
disclosures made in the financial information concerning the material exposure
that the Group faces to the terrorist attack in the United States on 11
September 2001. Details of the circumstances relating to this uncertainty are
described in Note 9.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2003.
PricewaterhouseCoopers LLP
Chartered Accountants
London
17 September 2003
Notes:
(a) The maintenance and integrity of the Cox Insurance Holdings
PLC web-site is the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and, accordingly, the
auditors accept no responsibility for any changes that may have occurred to the
interim report since it was initially presented on the web-site.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial information may differ from legislation in other
jurisdictions.
Unaudited 100% Underwriting Performance
for the six months ended 30 June 2003
A summary of the performance of the 100% managed underwriting operations of the
retail business is shown below:
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2003 2002 2002
(unaudited) (unaudited) (unaudited)
#'000 #'000 #'000
Gross premiums written 257,354 282,772 526,857
Net premiums written 232,595 241,249 466,285
Earned premiums, net of 219,180 215,897 434,363
reinsurance
------------------- -------- -------- --------
Claims ratio 60% 63% 62%
Expense ratio 26% 26% 27%
Combined ratio 86% 89% 89%
www.cox.co.uk
A copy of this announcement, together with a copy of the presentation made to
analysts at 9.00am on 18 September, can be found on the Company's web site.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR IIFLLATITLIV