TIDMBRIT
RNS Number : 9600O
Brit PLC
13 August 2014
Brit PLC
PRESS RELEASE
13 august 2014
interim results for the six months ended 30 june 2014
Brit delivers a Strong underwriting and investment
performance
Key points
-- Return on adjusted net tangible assets (annualised) before FX
movements of 25.0% (HY 2013: 16.7%).
-- Profit on ordinary activities before tax, FX and IPO costs of
GBP96.0m (HY 2013: GBP56.0m).
-- Profit after tax of GBP56.6m (HY 2013: GBP69.0m).
-- Gross written premiums of GBP701.2m (HY 2013: GBP671.2m), an
increase of 4.5%. The increase at constant exchange rates was
11.6%.
-- Combined ratio of 88.3% (HY 2013: 86.2%).
-- Attritional claims ratio of 51.4% (HY 2013: 51.4%).
-- Investment return for the period of GBP56.3m representing a
non-annualised return for the half year of 2.1% (HY 2013:
GBP9.0m/0.3%).
-- Capital surplus over requirements of GBP336.8m with a
solvency ratio of 153.5% before payment of interim dividend (FY
2013: GBP264.4m/141.0%).
-- Earnings per share of 14.2 pence (HY 2013: 15.9 pence).
-- Closing adjusted net tangible assets per share of 179.4 pence (FY 2013: 168.6 pence).
-- Interim dividend declared of 6.25 pence per share (HY 2013: nil).
-- Successful IPO of Brit PLC and re-domicile to the UK.
Mark Cloutier, Group CEO of Brit PLC, said:
'Brit has had a successful first half of 2014 and the business
is delivering on the targets set out at the time of the IPO. The
return on adjusted net tangible assets before FX of 25.0% is driven
by strong underwriting and investment performances, coupled with a
continued focus on strict cost control. Our attritional claims
ratio for the period remained constant at 51.4%. This, coupled with
a relatively benign period in terms of major losses, resulted in an
excellent combined ratio of 88.3%. Investment performance has been
strong, with the portfolio producing a non-annualised return of
2.1% as our income focused portfolio benefitted from falling bond
yields and tightening credit spreads. The increase of 71% in profit
before tax, FX movements and IPO costs to GBP96.0m is particularly
pleasing and reflects the underlying strength of our business. I am
also very pleased to announce our first interim dividend since our
re-listing of 6.25p per share.
Our focus on underwriting profitability means we continue to
grow premium levels where we see attractively priced opportunities
and our 2013 new business initiatives are delivering profitable
growth, with new teams in London, the United States, and Bermuda
contributing to the Group's increase in premium of 11.6% at
constant exchange rates. This focus on profitable growth and
strategic fit was the driver behind a number of further initiatives
in the first half of 2014, as seen by the recruitment of a UK
property team, the opening of our Miami-based Latin American Office
and the acquisition of QBE's Lloyd's Aviation portfolio renewal
rights and underwriting team. We also continue to make long-term
investment in people and infrastructure to develop our business in
areas which offer attractive returns.
Looking ahead, the underwriting environment is undeniably
becoming increasingly challenging. However, our disciplined
approach to underwriting together with our focus on optimising the
risk adjusted return of our investment portfolio means we are well
positioned to continue to deliver attractive returns for our
shareholders.'
For further information, please contact:
Sam Dobbyn, Head of Investor Relations, Brit PLC +44 (0) 20 7984 8800
Tom Burns, Brunswick +44 (0) 20 7404 5959
Performance summary and Key performance indicators
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2013
2014 2013
Performance summary
Gross written premium (GBPm) 701.2 671.2 1,185.7
Net written premium (GBPm) 548.6 509.9 956.3
Net earned premium (GBPm) 495.6 437.8 945.5
Underwriting profit (GBPm) 56.5 61.7 138.4
Investment return(1) (GBPm) 56.3 9.0 54.7
Corporate expenses (GBPm) (9.7) (7.3) (14.9)
Finance costs (GBPm) (7.1) (7.4) (15.0)
Other items (GBPm) - - 4.4
--------- --------- -------------
Profit on ordinary activities before tax,
FX and IPO costs (GBPm) 96.0 56.0 167.6
FX movements(2) (GBPm) (20.7) 19.4 (58.2)
IPO related expenses (GBPm) (13.8) - (2.0)
--------- --------- -------------
Profit on ordinary activities before tax
(GBPm) 61.5 75.4 107.4
Tax (GBPm) (4.9) (4.7) (6.5)
Discontinued operations (GBPm) - (1.7) (1.4)
--------- --------- -------------
Profit for the period (after tax) (GBPm) 56.6 69.0 99.5
--------- --------- -------------
Earnings per share (Basic) (pence) 14.2 15.9 24.1
Dividend per share (pence) 6.25 - -
Net tangible assets per share (pence) 176.2 157.9 165.3
Adjusted net tangible assets(3) per share
(pence) 179.4 161.6 168.6
Key performance indicators
RoNTA before FX movements(4) 25.0% 16.7% 24.0%
RoNTA(5) 17.9% 20.0% 16.6%
Attritional ratio(5) 51.4% 51.4% 51.3%
Major claims ratio(5) - % - % 3.2%
Reserve release ratio(5) (2.6)% (3.4)% (6.0)%
Claims ratio(5) 48.8% 48.0% 48.5%
Commission expense ratio(5) 27.9% 26.1% 24.9%
Operating expense ratio(5) 11.6% 12.1% 12.0%
Expense ratio(5) 39.5% 38.2% 36.9%
Combined ratio(5) 88.3% 86.2% 85.4%
Solvency ratio(6) 153.5% 120.4% 141.0%
Premium rate change (3.0)% 0.7% 0.3%
Investment return(1,7) 2.1% 0.3% 2.1%
1 Inclusive of return on investment related derivatives and
after deducting investment management expenses.
2 Includes the effect of foreign exchange on monetary items
(GBP(27.5)m),foreign exchange on non-monetary items (GBP2.3m) and
return on FX related derivatives (GBP4.5m).
3 Adjusted net tangible assets are defined as total equity, less
intangible assets net of the deferred tax liability on those
intangible assets. The deferred tax liability on intangible assets
at 30 June 2014 was GBP12.6m (30 June 2013: GBP14.4m; 31 December
2013: GBP12.9m).
4 Excludes all FX movements (footnote 2) and based on adjusted
net tangible assets (footnote 3). The 30 June figures are
annualised.
5 Excludes the effect of foreign exchange on non-monetary items
and based on adjusted net tangible assets (footnote 3).
6 The solvency ratio is calculated as available resources as a
percentage of management entity capital requirements.
7 The 30 June figures are non-annualised.
About Brit PLC
Brit PLC is a market-leading global specialty insurer and
reinsurer, focused on underwriting complex risks. It has a major
presence in Lloyd's of London, the world's specialist insurance
market provider, with significant US and international reach. The
Brit Group underwrites a broad class of commercial specialty
insurance with a strong focus on property, casualty and energy
business. Its capabilities are underpinned by robust financials.
Brit PLC is listed on the London Stock Exchange.
www.britinsurance.com
Disclaimer
This document does not constitute or form part of, and should
not be construed as, an offer for sale or subscription of, or
solicitation of any offer or invitation or advice or recommendation
to subscribe for, underwrite or otherwise acquire or dispose of any
securities (including share options and debt instruments) of the
Company nor any other body corporate nor should it or any part of
it form the basis of, or be relied on in connection with, any
contract or commitment whatsoever which may at any time be entered
into by the recipient or any other person, nor does it constitute
an invitation or inducement to engage in investment activity under
Section 21 of the Financial Services and Markets Act 2000 (FSMA).
This document does not constitute an invitation to effect any
transaction with the Company or to make use of any services
provided by the Company. Past performance cannot be relied on as a
guide to future performance.
Interim Management Report
Overview of Results
Brit PLC ('Brit' or 'the Group') has delivered a strong
performance in its first period as a listed Group. Underwriting
return was healthy, benefitting from targeted premium growth, a low
attritional ratio, an absence of large losses and favourable
reserve development. This was supported by a very competitive
non-annualised investment return of 2.1%. The result for the period
also included foreign exchange losses and costs incurred in
relation to the Group's initial public offering.
Profit before tax for the period was GBP61.5m (30 June 2013:
GBP75.4m) and profit after tax was GBP56.6m (30 June 2013:
GBP69.0m). Annualised return on net tangible assets (RoNTA),
excluding the effects of FX, increased to 25.0% (30 June 2013:
16.7%) and RoNTA including the effect of FX was 17.9% (30 June
2013: 20.0%). Basic EPS was 14.2 pence per share (pps) (30 June
2013: 15.9pps).
Adjusted net tangible assets increased to GBP717.0m or 179.4pps
(30 June 2013: GBP633.9m/161.6pps; 31 December 2013:
GBP661.2m/168.6pps). The Board has declared an interim dividend of
6.25pps.
Outlook
The outlook for the industry in the short term is challenging.
However, Brit continues to see profitable growth opportunities as
it benefits from its diversified portfolio operating solely through
the capital efficient Lloyd's platform.
The pressures in property reinsurance, which accounts for only
around 10% of income, are well documented and Brit expects its
disciplined underwriting approach to lead to further reductions in
premium written in this area as it focuses on business with
adequate margins. Market conditions in reinsurance have, however,
presented attractive opportunities for Brit to broaden and
strengthen its own reinsurance protections.
Around 75% of the Group's underwriting remains in direct
insurance business, where pricing is showing more resilience and
where pricing levels remain adequate. Brit continues to see
profitable opportunities for growth in both its existing books and
its new teams and initiatives. The BGSU US specialty platform is a
core focus of growth for the Group.
Brit expects the investment markets to be more challenging in
the second six months of 2014, with short-term returns potentially
impacted by a number of factors including rising interest rates as
the global economic growth outlook improves and some volatility
arising from uncertainty surrounding geopolitical events. However,
Brit believes its focus on a diversified portfolio of income
generating assets remains the best strategy for optimising risk
adjusted return for the Group over the medium term.
The Group's strong capital position and its expense efficiency
and scalability will hold it in good stead in a more challenging
environment. Overall, Brit is confident that the targets set out at
the time of the IPO remain achievable.
Underwriting
Premiums
Premium growth 6 months 6 months
ended ended Growth at
30 June 30 June constant
2014 2013 Growth FX rates
GBPm GBPm % %
--------- --------- -------
Brit Global Specialty Direct 520.7 470.1 10.8 18.7
Brit Global Specialty Reinsurance 180.5 200.0 (9.8) (3.8)
Other underwriting - 1.1 - -
Group 701.2 671.2 4.5 11.6
Premiums by class 6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
--------- --------- -------------
Brit Global Specialty Direct
Short Tail Direct
Property 151.1 128.7 228.1
Marine 66.4 60.6 109.0
Energy 49.2 69.0 106.2
US Specialty (BGSU) 48.8 25.4 67.0
Accident & Health 33.2 33.8 65.9
Terrorism, Political and Aerospace 20.3 9.7 23.0
--------- --------- -------------
Short Tail Direct Total 369.0 327.1 599.2
--------- --------- -------------
Long Tail Direct
Casualty 109.2 107.6 233.1
Specialist Liability 42.5 35.3 70.8
--------- --------- -------------
Long Tail Direct Total 151.7 143.0 303.9
--------- --------- -------------
Total Direct 520.7 470.1 903.1
Brit Global Specialty Reinsurance
Short Tail RI (Property Treaty) 86.4 103.2 136.9
Long Tail RI (Casualty Treaty) 94.1 94.7 141.4
Discontinued lines - 2.1 2.7
--------- --------- -------------
Total Reinsurance 180.5 200.0 281.0
Other underwriting - 1.1 1.6
Group Total 701.2 671.2 1,185.7
Gross written premium (GWP) for the six months ended 30 June
2013 increased by 4.5% to GBP701.2m (30 June 2013: GBP671.2m; 31
December 2013: GBP1,185.7m). Direct business increased by 10.8% to
GBP520.7m (30 June 2013: GBP470.1m; 31 December 2013: GBP903.1m),
while reinsurance decreased by 9.8% to GBP180.5m (30 June 2013:
GBP200.0m; 31 December 2013: GBP281.0m). At constant exchange rates
the overall increase was 11.6% (30 June 2013: 0.3%).
The 10.8% increase in Brit Global Specialty Direct was driven by
the continued development of Brit's strategic growth classes and
the impact of specific growth initiatives. A significant
contributor to this was the continued expansion of the Group's
Chicago based US service company platform, BGSU, which writes
business on behalf of Brit Syndicate 2987. BGSU wrote premiums of
GBP48.8m in the six months to 30 June 2014, an increase of 92.1%
over the same period in 2013. The new teams hired in 2013 by Brit
Global Specialty London (High Value Homeowners, Political Risks, UK
Property and Fine Art & Specie) also contributed to this
increased premium income. In addition to these current year
developments, favourable prior year development was experienced in
a number of classes.
The 9.8% reduction in premiums for Brit Global Specialty
Reinsurance is in line with expectations and reflects challenging
market conditions experienced primarily by the Property Treaty
book, where the Group has maintained underwriting discipline in a
difficult rating environment. This reduction was partly offset by
new business written by the Group's recently established Bermudan
Office, which wrote US$23.9m of premium in the period, of which the
majority was Casualty Treaty.
The rating environment is becoming more challenging, with
overall premium rates decreasing by 3.0% during the period (30 June
2013: increased by 0.7%). This reduction was strongly influenced by
reinsurance business which experienced rate reductions of 7.5%,
driven by a 10.8% rate reduction in Property Treaty which saw 85%
of its portfolio renewed in the period. Rates for Brit Global
Specialty Direct business on the whole remain robust, falling by
only 1.5% in the period, with the principal movements being
increases in Marine and Specialist Liability, offset by decreases
in Energy, open market Property and Terrorism. Overall, premium
adequacy remains satisfactory and Brit continues to develop its
book in classes and territories where more attractive margins are
achievable, with particular focus currently on property binders and
our US Specialty business through BGSU.
The Group retention rate for the period was 83.0% (30 June 2013:
82.0%; 31 December 2013: 83.0%).
Outwards reinsurance
Reinsurance expenditure in the six months ended 30 June 2014 was
GBP152.6m or 21.8% of GWP (30 June 2013: GBP161.3m/24.0%; 31
December 2013: GBP229.4m/19.3%). Brit has taken advantage of
current market conditions in reinsurance to significantly
strengthen Group-wide catastrophe cover. These additional
protections include a Group-wide property aggregate catastrophe
cover and some additional variable quota share protection. As a
result, the expected recoveries against a number of the Group's
realistic disaster scenarios (RDS) have increased, thereby reducing
the Group's net exposure to such events. The Group's largest net
exposure to an RDS has fallen to GBP106m (31 December 2013:
GBP140m).
Underwriting performance
The combined ratio excluding the effect of foreign exchange on
non-monetary items was 88.3% (30 June 2013: 86.2%; 31 December
2013: 85.4%).
Claims ratio analysis 6 months Year
ended
30 June 6 months ended
ended
2014 30 June 31 December
% 2013 2013
% %
Attritional claims ratio 51.4 51.4 51.3
Major loss ratio - - 3.2
Reserve release ratio (2.6) (3.4) (6.0)
--------- --------- -------------
Claims ratio 48.8 48.0 48.5
--------- --------- -------------
Claims experience in the six months to 30 June 2014 was in line
with expectations.
The attritional claims ratio for the period remained constant at
51.4% (30 June 2013: 51.4%; 31 December 2013: 51.3%). This is in
line with our expectations and demonstrates how the restructuring
of the portfolio over recent years has underpinned profitability
despite pricing headwinds. As set out in the 'Underwriting
performance by business unit' section below, the attritional claims
for direct business improved by 0.7 percentage points over the same
period in 2013.
The first half of 2014 saw limited catastrophe activity and the
Group incurred no claims in respect of major losses. The Group had
immaterial exposure to the Malaysian Airlines MH 370 and Korean
Ferry losses.
Brit has limited exposure to the Tripoli airport attack and,
although loss information is still emerging on this particular
event as it develops, we anticipate that this will also largely be
contained within attritional loss ratios.
As part of its quarterly reserving process, Brit released
GBP12.6m of claims reserves established for prior year claims, the
equivalent of a combined ratio reduction of 2.6% (30 June 2013:
GBP15.6m/3.4%; 31 December 2013: GBP57.3m/6.0%). The main drivers
of this release were Casualty Treaty and Energy. Brit's balance
sheet remains strong and Brit continues to operate a robust
reserving process.
The expense ratio excluding the effect of foreign exchange on
non-monetary items was 39.5% (30 June 2013: 38.2%; 31 December
2013: 36.9%).
Expense ratio analysis 6 months Year
ended
30 June 6 months ended
ended
2014 30 June 31 December
% 2013 2013
% %
Commission expense ratio 27.9 26.1 24.9
Operating expense ratio 11.6 12.1 12.0
--------- --------- -------------
Expense ratio 39.5 38.2 36.9
--------- --------- -------------
Commission costs for the period were GBP137.8m and the
commission expense ratio was 27.9% (30 June 2013: GBP114.4m/26.1%;
31 December 2013: GBP235.8m/24.9%). The increase was largely due to
changes in business mix, including increased binder business. The
ratio was also influenced by favourable development on a number of
prior year contracts, the effect of which is expected to be diluted
during the remainder of 2014.
Operating expenses are analysed later in this report.
Underwriting performance by business unit
The Group's underwriting performance, analysed by the Group's
key business units, is set out below:
Business unit performance Brit Global Specialty Brit Global Specialty
Direct Reinsurance
6 months 6 months Year 6 months 6 months Year
ended ended ended ended ended ended
30 June 30 June 31 December 30 June 30 June 31 December
2014 2013 2013 2014 2013 2013
--------- ---------
Financial performance
Gross written premium
(GBPm) 520.7 470.1 903.1 180.5 200.0 281.0
Net Earned Premium (GBPm) 379.5 332.5 705.7 101.0 111.4 238.1
Underwriting profit (GBPm) 29.4 23.0 56.6 28.4 38.6 83.2
Key Performance Indicators
Claims ratio (%) 50.4 51.7 52.5 42.6 36.4 36.6
Expense ratio (%) 41.8 41.4 39.5 29.3 29.0 28.5
Combined ratio (%) 92.2 93.1 92.0 71.9 65.4 65.1
Attritional ratio (%) 51.4 52.1 53.1 51.9 49.6 46.7
Rate change (%) (1.5) 1.2 0.8 (7.5) (0.5) (0.9)
Investments
Return on investments and investment related derivatives for the
period was GBP56.3m or 2.1% (30 June 2013: GBP9.0m/0.3%; 31
December 2013: GBP54.7m/2.1%). Invested assets at 30 June 2014
totalled GBP2,564.2m (30 June 2013: GBP2,677.2m; 31 December 2013:
GBP2,590.9m). Overall duration is 2.1 years and the average credit
quality is A.
The Group's asset allocation, on a look-through basis, is set
out in the table below:
Asset allocation 6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
Government debt securities 505.3 432.2 444.4
Corporate debt securities 779.8 650.5 793.2
Structured products 304.5 336.6 337.0
Loan instruments 178.9 278.1 332.3
Equity securities 140.4 80.9 155.1
Alternative investments 145.1 65.0 125.2
Cash and cash equivalents 504.5 832.1 400.2
Other(1) 5.7 1.8 3.5
--------- --------- -------------
Total invested assets 2,564.2 2,677.2 2,590.9
--------- --------- -------------
1 Includes derivative contracts.
The reduction in invested assets was due to the revaluation of
the portfolio at the closing rates of exchange at 30 June 2014, at
which point Sterling had appreciated materially against currencies
in which the bulk of the investment portfolio is denominated.
The reduction in loans instruments and the increases in
government debt securities and in cash and cash equivalents have
arisen from a number of transactions entered into in June 2014.
During Q3 2014, the Group's asset allocation is expected to be more
aligned to the 31 December 2013 position.
The classification of the Group's invested assets within the
'Condensed Consolidated Statement of Financial Position' is as
follows:
Invested assets - classification 6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
---------
Assets held for sale 44.2 - -
Financial investments 2,140.0 1,954.1 2,275.9
Derivative contracts - investment related
(assets) 4.8 4.1 2.0
Cash and cash equivalents 376.5 719.0 315.7
Derivative contracts - investment related
(liabilities) (1.3) - (2.7)
--------- --------- -------------
Total invested assets 2,564.2 2,677.2 2,590.9
--------- --------- -------------
The Group's return on investments is analysed in the table
below:
Investment return 6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
Income 29.4 30.7 57.5
Released gains/(losses) 6.6 (9.4) 1.2
Unrealised gains/(losses) 17.9 (8.8) 4.1
--------- --------- -------------
Investment return before fees 53.9 12.5 62.8
Investment management expenses (3.6) (2.9) (5.9)
Investment return net of fees 50.3 9.6 56.9
Investment related derivative return 6.0 (0.6) (2.2)
--------- --------- -------------
Total return 56.3 9.0 54.7
--------- --------- -------------
Total return 2.1%(1) 0.3%(1) 2.1%
--------- --------- -------------
1 Non-annualised.
Brit's strategic focus on income producing assets performed well
with the Group generating income of GBP29.4m during the period,
representing an annualised running yield of 2.2%. The total return
of GBP56.3m during the period was influenced by falling bond yields
and a contraction in credit spreads across the US and European
markets which led to gains on our fixed income and credit
portfolios. Our growth assets showed gains as equity markets and
alternatives rose.
Expenses
The Group's expense ratio fell by 0.5 percentage points to 11.6%
(30 June 2013: 12.1%). The Group's operating expenses for the
period were as follows:
Expense analysis 6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
Underlying operating expenses(1) 65.9 61.0 129.5
Project costs, timing differences and other
expense adjustments (0.4) 0.8 (0.7)
--------- --------- -------------
Expenses before IPO related costs 65.5 61.8 128.8
IPO related costs(2) 13.8 - 2.0
--------- --------- -------------
Total operating expenses 79.3 61.8 130.8
--------- --------- -------------
1 Includes bonus provisions.
2 IPO related costs include one-off fees paid to third parties
in respect of their services and the termination of the monitoring
arrangement with Apollo Management VII, L.P. and CVC Capital
Partners Advisory Company (Luxembourg) S.à r.l.
Underlying operating expenses during the six months ended 30
June 2014 increased by 8.0% to GBP65.9m (30 June 2013: GBP61.0m; 31
December 2013: GBP129.5m). The increase relates to an increase in
bonus costs, the targeted expansion and investment in growth areas
such as Brit's US Specialty business (BGSU), together with
increased costs reflecting the Group's listed status.
The allocation of operating expenses within the 'Condensed
Consolidated Income Statement' and the 'Segmental Information' is
as follows:
Disclosure of operating expenses 6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
Acquisition costs(1) 31.6 24.4 51.7
Other insurance related expenses 24.2 30.1 62.2
--------- --------- -------------
Total insurance related expenses(2) 55.8 54.5 113.9
Other operating expenses(3) 23.5 7.3 16.9
--------- --------- -------------
Total operating expenses 79.3 61.8 130.8
--------- --------- -------------
1 Operating expenses incurred in connection with the conclusion
of insurance contracts. They exclude commission costs.
2 The 'Total insurance related expenses' are included within the expense ratio.
3 Other operating expenses at 30 June 2014 included IPO related costs of GBP13.8m.
Foreign exchange
Brit manages its currency exposures to mitigate its solvency
capital requirements efficiently rather than to achieve a
short-term impact on earnings. During 2013 Brit re-balanced its
surplus assets to match the exposures for which it carries its
capital, so that these assets more closely mirror the currency of
those exposures. An expected implication of this action is to
introduce more volatility into the Sterling reported result. This
is the 'mark to market' unrealised cost of ensuring that investors
are not exposed to foreign exchange driven fluctuations in the
solvency ratio. As a consequence, Brit's surplus capital over its
capital requirement is not materially impacted by these foreign
exchange rate fluctuations.
Brit experienced a total foreign exchange loss of GBP20.7m in
the six months ended 30 June 2014 (30 June 2013: gain of GBP19.4m;
31 December 2013: loss of GBP58.2m). This total foreign exchange
related loss comprised:
-- An unrealised revaluation loss of GBP27.5m (30 June 2013:
gain of GBP0.9m; 31 December 2013: loss of GBP65.4m), primarily
relating to the mark to market of Brit's capital that it holds in
non-Sterling currencies matching its risk exposures;
-- A gain of GBP4.5m (30 June 2013: gain of GBP9.6m; 31 December
2013: gain of GBP13.2m) on derivative contracts which were entered
into to help manage the Group's FX exposures; and
-- An accounting gain of GBP2.3m (30 June 2013: gain of GBP8.9m;
31 December 2013: loss of GBP6.0m), as a result of the IFRS
requirement to recognise non-monetary assets and liabilities at
historic exchange rates.
The allocation of the FX result within the income statement is
as follows:
Foreign exchange gains and (losses) 6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
Net change in unearned premium provision
- non-monetary FX effect 13.5 (9.5) (2.2)
Acquisition costs - non-monetary FX effect (3.4) 2.2 0.4
Net foreign exchange gains/(losses) - non-monetary(1) (7.8) 16.2 (4.2)
--------- --------- -------------
2.3 8.9 (6.0)
--------- --------- -------------
Net foreign exchange (losses)/gains - monetary(1) (27.5) 0.9 (65.4)
Return on derivative contracts - FX related
instruments 4.5 9.6 13.2
--------- --------- -------------
(23.0) 10.5 (52.2)
--------- --------- -------------
Total (loss)/gain (20.7) 19.4 (58.2)
--------- --------- -------------
1 The sum of these two amounts, GBP(35.3)m, is the 'Net foreign
exchange losses' figure per the Condensed Consolidated Income
Statement.
Tax
The Group's effective tax rate for the period was 8.0% (30 June
2013: 6.2%; 31 December 2013: 6.1%). In accordance with accounting
standards, the half year tax charge is based on the estimated
average annual effective tax rate derived from the expected tax on
the projected 2014 total annual earnings.
Balance sheet and capital resources
At 30 June 2014 Brit's adjusted net tangible assets(1) totalled
GBP717.0m (30 June 2013: GBP633.9m; 31 December 2013: GBP661.2m),
an increase of 8.4% in the period.
As shown in the table below, Brit's balance sheet remains
strong, with capital resources equivalent to 153.5% of requirements
(30 June 2013: 120.4%; 31 December 2013: 141.0%). Following payment
of the interim dividend, the 30 June 2014 solvency ratio will
reduce to 149.6%.
Capital resources and requirements 6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
Adjusted net tangible assets(1) 717.0 633.9 661.2
Subordinated debt(2) 123.8 122.5 123.2
Letters of credit / contingent funding 125.0 125.0 125.0
--------- --------- -------------
Total available resources 965.8 881.4 909.4
Management entity capital requirements(3) (629.0) (732.0) (645.0)
--------- --------- -------------
Excess of resources over management entity
capital requirements 336.8 149.4 264.4
Solvency ratio(4) 153.5% 120.4% 141.0%
1 Adjusted net tangible assets is defined as total equity, less
intangible assets net of the deferred tax liability on those
intangible assets. The deferred tax liability on intangible assets
at 30 June 2014 was GBP12.6m (30 June 2013: GBP14.4m; 31 December
2013: GBP12.9m).
2 This represents the carrying value of the instrument in the
consolidated Brit PLC financial statements.
3 The management entity capital requirement is the sum of the
capital required by each entity for current
trading purposes based on business strategy and regulatory requirements.
4 Calculated as available resources as a percentage of management entity capital requirements.
The reduction in capital requirement reflects the impact of
foreign exchange. No material changes to underlying capital
requirement have been experienced. The 2015 capital requirements
will be reviewed in the fourth quarter of 2014 to reflect expected
business growth and any changes to the business risk profile.
During the period, Brit successfully renegotiated its revolving
credit facility. The facility limit remains at GBP225m, with
GBP125m available as a letter of credit. The facility has been
extended by one year to 31 December 2018. At 30 June 2014 a fully
collateralised US$80.0m letter of credit was in place (31 December
2013: US$80.0m/uncollateralised) to support Brit's underwriting
activities. At 30 June 2014 and 31 December 2013 no other drawings
were outstanding on the facility (30 June 2013: GBP15m).
In addition, Brit has in issue GBP135.0m of 6.625% Lower Tier
Two subordinated debt with a carrying value of GBP123.8m (30 June
2013: GBP122.5m; 31 December 2013: GBP123.2m). This was issued in
December 2005 and matures in 2030. It is callable in whole by Brit
on 9 December 2020.
At 30 June 2014 Brit's gearing ratio was 14.7% (30 June 2013:
25.1%; 31 December 2013: 21.9%). The reduction in the ratio
reflects the collateralisation of the US$80m letter of credit in
April 2014.
Share capital
On 30 April Brit received confirmation from the High Court of a
reduction in its share capital, whereby the nominal value of Brit's
400,000,000 ordinary shares then in issue was reduced from GBP2 per
share to 0.01p per share. This created distributable reserves of
GBP796m. On 24 June, 452,960 new 0.01p ordinary shares were issued
in respect of share based incentive schemes.
Dividends
The Board has declared an interim dividend of 6.25 pence per
share. This dividend will be paid on 26 September 2014 to
shareholders on the register on 22 August 2014. The shares will go
ex-dividend on 20 August 2014.
Business development
Underwriting
-- Brit Global Specialty London (BGS)
On 1 June Brit acquired the renewal rights to QBE Underwriting
Limited's London-based Lloyd's Aviation business. As part of the
agreement, QBE's London-based aviation underwriting and claims
staff transferred to Brit. Brit assumed no exposure to business
previously written by this team at QBE. With Aviation being the
largest single segment of the Lloyd's Market in which Brit did not
participate, this was a unique opportunity to acquire a market
leading Aviation team that was a strategic fit for the Group.
In January 2014, Brit announced the appointment of three senior
underwriters to develop a new UK property portfolio. This new team,
headed by David Hancock, joined Brit in the second quarter of 2014
and forms part of the Brit Global Specialty Property Facilities
Division.
-- Brit Global Specialty USA (BGSU)
In May, Juan Calvache joined the Group to lead its new
Miami-based Latin American business. Juan is supported by Carlos
Becerra (Vice President, Underwriting) and Jimena Salgado
(Underwriter). The office is focussing on expanding BGSU's
successful US Facultative Property platform into the Latin American
and Caribbean markets, in line with Brit's strategy of growing
efficiently and profitably into international markets. Prior to
joining Brit, Juan spent over a decade with Partner Re where he
built a Property Facultative team. Carlos joined Brit from AIG and
previously worked for Juan at Partner Re, while Jimena joined Brit
from Liberty International and previously held a production role at
Colemont.
Board changes
Dr Richard Ward assumed the position of Group Chairman on 14
February 2014. Prior to joining Brit, Richard was Chief Executive
of Lloyd's, a role he held since April 2006. Previously he had
worked as both CEO and Vice-Chairman at the International Petroleum
Exchange (IPE), re-branded ICE Futures. Prior to this, he held a
range of senior positions at BP, after pursuing a scientific career
with the Science & Engineering Research Council (SERC). Richard
has extensive experience and understanding of the global
marketplace and he brings great depth of experience and knowledge
to the role.
Principal risks and risk management
The principal risks faced by the Group are listed in the
prospectus ('Part II - Risk Factors'), published by the Company on
28 March 2014. This is available at www.britinsurance.com.
There are a number of risks and uncertainties which could impact
the Group's performance over the remaining six months of 2014.
These risks include:
-- A deterioration in macroeconomic conditions;
-- Claims arising from catastrophic events or a series of claims for large losses;
-- Increasingly challenging underwriting market conditions;
-- Investment market volatility; and
-- Fluctuations in exchange rates.
The risks arising from all business activities are managed in
line with the Group risk management framework in order to protect
policyholders and maximise shareholder value. This established
framework addresses all the risks surrounding the organisation's
activities past, present and, in particular, future. It sets out
risk management standards, risk appetite, and provides a consistent
methodology and structure to the way in which the risks are
identified, measured and managed. The framework is supported by
appropriate governance, management information, policies,
processes, culture and systems.
Brit delivers shareholder value by actively seeking and
accepting risk within agreed limits. Brit's risk management
framework highlights the importance of managing the impact of risk
on the economic value of the company. It sets out a transparent
process to identify, assess and manage risk and deploy risk
appetite using an economic capital approach.
Brit's risk framework ensures that a strong culture of risk
control and management continues to be embedded across the Group.
Risk appetite is set by the Board and cascaded throughout the
organisation. Brit monitors the aggregation of risk across the
business and has overarching limits in place to manage this. In
addition to the overarching limits, the risk framework clearly
identifies the key risk categories and risk tolerances set for each
risk category by the boards (e.g. risk tolerance is set for
exposure to losses from US windstorms). Brit uses specialised risk
management tools including sophisticated models to monitor current
risk exposures relative to risk tolerance.
The responsibility for risk management is clearly defined and
spread throughout the organisation and Brit maintains a strong risk
governance structure based on the three lines of defence principle.
Within the first line of defence, individual risk committees,
chaired by members of the executive management team, monitor
day-to-day risk control activities. Risk management, as a second
line of defence provides oversight over business processes and sets
out policies and procedures and reports directly to the Risk
Oversight Committee of the Board. Internal Audit, reporting to the
Audit Committee, is the third line of defence providing independent
assurance and monitoring of the effectiveness of the risk
management processes.
This risk governance structure ensures that information is
passed to the relevant management committee or Board. This process
enables Brit to protect policyholders and maximise shareholder
value by ensuring the risk and capital implications of business
strategy are well understood. Brit's risk framework will also
enable the Group, and the legal entities within it, to comply fully
with the risk management requirements under Solvency II.
Related party transactions
Related party transactions are disclosed in note 20 of the
condensed consolidated interim financial statements.
Responsibility statement of the Directors in respect of the
Interim Report
We confirm that to the best of our knowledge:
-- the condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the EU;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed consolidated interim 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 and Transparency Rules, being
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 six months, and any changes in the related party transactions
described in the last annual report that could do so.
Mark Cloutier
Group Chief Executive Officer
12 August 2014
Independent Auditor's Report
To the Shareholders of
Brit PLC
55 Bishopsgate
London
United Kingdom
EC2N 3AS
Report on review of interim condensed consolidated financial
statements
Introduction
We have been engaged by the Company to review the condensed
consolidated interim financial statements in the half-yearly
financial report for the six months ended 30 June 2014 which
comprises condensed consolidated Income Statement, condensed
consolidated Statement of Comprehensive Income, condensed
consolidated Statement of Financial Position, condensed
consolidated Statement of Cash Flows, condensed consolidated
Statement of Changes in Equity and the notes to the Financial
Statements. 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 consolidated interim 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 Conduct Authority.
As disclosed in note 2, the annual financial statements of Brit
PLC are prepared in accordance with IFRSs as adopted by the
European Union. The condensed consolidated interim 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 consolidated interim 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.
Independent Auditor's Report (continued)
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated interim
financial statements in the half-yearly financial report for the
six months ended 30 June 2014 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 Conduct
Authority.
Ernst & Young LLP
1 More London Place
London
SE1 2AF
12 August 2014
Condensed Consolidated Income Statement
for six months ended 30 June 2014
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
Note GBPm GBPm GBPm
---------------------------------------- ------ ---------- ---------- -------------
Revenue
Gross premiums written 5 701.2 671.2 1,185.7
Less premiums ceded to reinsurers 5 (152.6) (161.3) (229.4)
---------------------------------------- ------ ---------- ---------- -------------
Premiums written, net of reinsurance 548.6 509.9 956.3
Gross amount of change in provision for
unearned premiums (92.0) (132.9) (34.0)
Reinsurers' share of change in provision
for unearned premiums 39.0 60.8 23.2
Net change in provision for unearned
premiums (53.0) (72.1) (10.8)
Earned premiums, net of reinsurance 495.6 437.8 945.5
---------------------------------------- ------ ---------- ---------- -------------
Investment return 6 50.3 9.6 56.9
Return on derivative contracts 7 10.5 9.0 11.0
Profit on disposal of asset held for
sale - - 4.4
Net foreign exchange gains 8 - 17.1 -
Total revenue 556.4 473.5 1,017.8
---------------------------------------- ------ ---------- ---------- -------------
Expenses
Claims incurred:
Claims paid:
Gross amount (256.1) (275.7) (542.1)
Reinsurers' share 48.5 39.2 99.2
---------------------------------------- ------ ---------- ---------- -------------
Claims paid, net of reinsurance (207.6) (236.5) (442.9)
Change in the provision for claims:
Gross amount (48.8) 11.8 (34.1)
Reinsurers' share 21.0 10.2 17.8
---------------------------------------- ------ ---------- ---------- -------------
Net change in the provision for claims (27.8) 22.0 (16.3)
Claims incurred, net of reinsurance 5 (235.4) (214.5) (459.2)
Acquisition costs 9 (169.4) (138.8) (287.5)
Other operating expenses 9 (47.7) (37.4) (79.1)
Net foreign exchange losses 8 (35.3) - (69.6)
Total expenses excluding finance costs (487.8) (390.7) (895.4)
---------------------------------------- ------ ---------- ---------- -------------
Operating profit 68.6 82.8 122.4
Finance costs (7.1) (7.4) (15.0)
Profit on ordinary activities before
tax 61.5 75.4 107.4
Tax expense 12(i) (4.9) (4.7) (6.5)
Profit for the period from continuing
operations 56.6 70.7 100.9
---------------------------------------- ------ ---------- ---------- -------------
Loss from discontinued operations - (1.7) (1.4)
---------- -------------
Profit for the period 56.6 69.0 99.5
---------------------------------------- ------ ---------- ---------- -------------
The accompanying notes are an integral part of the condensed
consolidated interim financial statements.
Condensed Consolidated Income Statement (continued)
for six months ended 30 June 2014
Earnings per share from continuing operations Unaudited Unaudited Audited
attributable to equity holders of the 6 months 6 months Year
parent ended ended ended
(pence per share) 30 June 30 June 31 December
Note 2014 2013 2013
----------------------------------------------- ----- ---------- ---------- -------------
Basic 10 14.2 15.9 24.1
Diluted 10 14.2 15.9 24.1
----------------------------------------------- ----- ---------- ---------- -------------
Total earnings per share attributable Unaudited Unaudited Audited
to equity holders of the parent (pence 6 months 6 months Year
per share) ended ended ended
30 June 30 June 31 December
Note 2014 2013 2013
----------------------------------------- ----- ---------- ---------- -------------
Basic 10 14.2 15.6 23.8
Diluted 10 14.2 15.5 23.8
----------------------------------------- ----- ---------- ---------- -------------
The numbers of shares used for calculating the earnings per
share are those of Brit PLC. The number of Achilles Holdings 1 S.à
r.l. shares in the comparative periods has been converted into the
equivalent number of Brit PLC shares to reflect the corporate
reorganisation on 28 March 2014.
Condensed Consolidated Statement of Comprehensive Income
for 6 months ended 30 June 2014
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
Note 2014 2013 2013
------------------------------------------- -------- ---------- ---------- -------------
Profit attributable to:
Equity holders of the parent 56.6 68.6 99.1
Non-controlling interests - 0.4 0.4
----------------------------------------------------- ---------- ---------- -------------
Profit for the period 56.6 69.0 99.5
----------------------------------------------------- ---------- ---------- -------------
Other comprehensive income
Items not to be reclassified to profit
or loss in subsequent periods:
Actuarial (losses)/ gains on defined
benefit pension scheme (2.2) 3.6 2.0
Current tax credit/ (charge) relating
to actuarial gains/(losses) on defined
benefit pension scheme 12(ii) 0.5 (0.8) (0.5)
------------------------------------------- -------- ---------- ---------- -------------
Net other comprehensive income not to
be reclassified to profit or loss in
subsequent periods (1.7) 2.8 1.5
Other comprehensive income for the period
net of tax 54.9 71.8 101.0
----------------------------------------------------- ---------- ---------- -------------
Total comprehensive income for the period
attributable to:
Equity holders of the parent 54.9 71.4 100.6
Non-controlling interests - 0.4 0.4
----------------------------------------------------- ---------- ---------- -------------
Total comprehensive income for the period 54.9 71.8 101.0
----------------------------------------------------- ---------- ---------- -------------
The accompanying notes are an integral part of the condensed
consolidated interim financial statements.
Condensed Consolidated Statement of Financial Position
for 6 months ended 30 June 2014
Unaudited Unaudited Audited
30 June 30 June 31 December
2014 2013 2013
Note GBPm GBPm GBPm
------------------------------------- ----- ---------- -------------------------- -------------
Assets
Property, plant and equipment 4.2 5.3 5.1
Intangible assets 63.5 62.3 62.7
Deferred acquisition costs 140.1 140.2 125.7
Current taxation 9.6 - 6.0
Reinsurance contracts 13 501.3 503.7 450.0
Employee benefits 20.2 18.6 21.9
Assets held for sale 11 44.2 14.8 -
Financial investments 14 2,140.0 1,954.1 2,275.9
Derivative contracts 15 8.6 6.2 12.7
Insurance and other receivables 565.4 513.4 380.9
Cash and cash equivalents 376.5 719.0 315.7
Total assets 3,873.6 3,937.6 3,656.6
------------------------------------- ----- ---------- -------------------------- -------------
Liabilities and Equity
Liabilities
Insurance contracts 13 2,691.1 2,775.0 2,593.9
Borrowings 123.8 132.2 123.2
Current taxation 5.6 5.3 10.6
Deferred taxation 17.1 15.1 17.1
Provisions 2.1 4.0 2.4
Derivative contracts 15 5.7 2.1 11.1
Insurance and other payables 260.3 322.1 187.3
Total liabilities 3,105.7 3,255.8 2,945.6
------------------------------------- ----- ---------- -------------------------- -------------
Equity
Called up share capital 16 4.0 0.7 0.7
Share premium account - 455.7 455.7
Own shares (0.9) (1.4) (1.6)
Reserves - (94.4) (94.4)
Retained earnings 764.8 320.3 349.5
Total equity attributable to owners
of the parent 767.9 680.9 709.9
------------------------------------- ----- ---------- -------------------------- -------------
Non-controlling interests - 0.9 1.1
------------------------------------- ----- ---------- -------------------------- -------------
Total equity 767.9 681.8 711.0
------------------------------------- ----- ---------- -------------------------- -------------
Total liabilities and equity 3,873.6 3,937.6 3,656.6
------------------------------------- ----- ---------- -------------------------- -------------
The accompanying notes are an integral part of the condensed
consolidated interim financial statements.
These financial statements were approved by the Board of
Directors on 12 August 2014 and were signed on its behalf by:
Richard Ward Mark Cloutier
Group Chairman Group Chief Executive Officer
Condensed Consolidated Statement of Cash Flows
for 6 months ended 30 June 2014
Unaudited Unaudited Audited
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
Note 2014 2013 2013
--------------------------------------------- ----- ---------- ----------------------- -------------
Cash generated from operations
Cash flows provided by operating activities 18 45.5 463.1 55.9
Tax paid (13.0) (8.2) (8.5)
Interest paid (2.0) (2.2) (13.7)
Interest received 31.5 41.0 67.6
Dividends received 3.1 0.3 1.4
Net cash inflows from operating activities 65.1 494.0 102.7
--------------------------------------------- ----- ---------- ----------------------- -------------
Cash flows from investing activities
Purchase of property, plant and equipment (0.1) (0.5) (1.4)
Purchase of intangible assets (1.4) (2.7) (4.3)
Acquisitions 19 (1.2) - (1.2)
Disposal of asset held for sale - - 17.4
Movements in associated undertaking
loan balances - (0.1) (0.1)
Net cash inflows from investing activities (2.7) (3.3) 10.4
--------------------------------------------- ----- ---------- ----------------------- -------------
Cash flows from financing activities
Draw down on revolving credit facility - 15.0 -
Share redemption - (94.2) (94.2)
Disposal of treasury shares 0.3 - -
Repurchase of shares from non-controlling
interests - (0.8) (0.6)
Purchase of shares by non-controlling
interests 1.5 - -
Buy-out of non-controlling interests - (5.0) (5.1)
Purchase of own shares - (0.2) (0.4)
Net cash outflows from financing activities 1.8 (85.2) (100.3)
--------------------------------------------- ----- ---------- ----------------------- -------------
Net increase in cash and cash equivalents 64.2 405.5 12.8
Cash and cash equivalents at beginning
of the period 315.7 304.9 304.9
Effect of exchange rate fluctuations on
cash and cash equivalents (3.4) 8.6 (2.0)
---------- ----------------------- -------------
Cash and cash equivalents at the end
of the period 376.5 719.0 315.7
--------------------------------------------- ----- ---------- ----------------------- -------------
The accompanying notes are an integral part of the condensed
consolidated interim financial statements.
Condensed Consolidated Statement of Changes in Equity
for 6 months ended 30 June 2014
Total
Equity
Called Attributable
up Share to owners Non
Share Premium Own Retained of the -controlling Total
capital account shares Reserves earnings parent interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----- --------- --------- -------- --------- --------- ------------- ------------- --------
At 1 January
2014 0.7 455.7 (1.6) (94.4) 349.5 709.9 1.1 711.0
----------------- ----- --------- --------- -------- --------- --------- ------------- ------------- --------
Total
comprehensive
income
recognised - - - - 54.9 54.9 - 54.9
Purchase of shares by
non-controlling
interests - - - - - - 1.5 1.5
Buy-out of
non-controlling
interests - 16.7 - - (14.1) 2.6 (2.6) -
Vesting of own
shares - - 0.7 - (0.7) - - -
Corporate
reorganisation (0.7) (472.4) 0.9 94.4 377.8 - - -
Establishment of
Brit PLC 16 800.0 - (1.2) - (798.8) - - -
Capital
reduction (796.0) - - - 796.0 - - -
Disposal of own
shares - - 0.3 - - 0.3 - 0.3
Share based
payments - - - - 0.2 0.2 - 0.2
----------------- ----- --------- --------- -------- --------- --------- ------------- ------------- --------
At 30 June 2014 4.0 - (0.9) - 764.8 767.9 - 767.9
----------------- ----- --------- --------- -------- --------- --------- ------------- ------------- --------
for 6 months ended 30 June 2013
Total
Equity
Called Attributable Non
up Share to owners -
Share Premium Own Retained of the controlling Total
capital account shares Reserves earnings parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- --------- --------- -------- --------- ---------- -------------- ------------- --------
At 1 January 2013 0.8 456.1 (1.2) 0.1 248.7 704.5 5.7 710.2
Total comprehensive
income
recognised - - - - 71.4 71.4 0.4 71.8
Redemption of shares (0.1) (0.4) - (94.5) 0.8 (94.2) - (94.2)
Purchase of own
shares - - (0.2) - - (0.2) - (0.2)
Buy-out of
non-controlling
interests - - - - (0.7) (0.7) (4.4) (5.1)
Repurchase of shares
from non-controlling
interests - - - - - - (0.8) (0.8)
Share based payments - - - - 0.1 0.1 - 0.1
---------------------- --------- --------- -------- --------- ---------- -------------- ------------- --------
At 30 June 2013 0.7 455.7 (1.4) (94.4) 320.3 680.5 0.9 681.8
---------------------- --------- --------- -------- --------- ---------- -------------- ------------- --------
Condensed Consolidated Statement of Changes in Equity
(continued)
for year ended 31 December 2013
Total
Equity
Called Attributable
up Share to owners Non
Share Premium Own Retained of the -controlling Total
capital account shares Reserves earnings parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- --------- --------- -------- --------- ---------- -------------- -------------- --------
At 1 January 2013 0.8 456.1 (1.2) 0.1 248.7 704.5 5.7 710.2
--------------------- --------- --------- -------- --------- ---------- -------------- -------------- --------
Total comprehensive
income
recognised - - - - 100.6 100.6 0.4 101.0
Redemption of shares (0.1) (0.4) - (94.5) 0.8 (94.2) - (94.2)
Purchase of own
shares - - (0.4) - - (0.4) - (0.4)
Buy-out of
non-controlling
interests - - - - (0.7) (0.7) (4.4) (5.1)
Repurchase of shares
from
non-controlling
interests - - - - - - (0.6) (0.6)
Share based payments - - - - 0.1 0.1 - 0.1
--------------------- --------- --------- -------- --------- ---------- -------------- -------------- --------
At 31 December 2013 0.7 455.7 (1.6) (94.4) 349.5 709.9 1.1 711.0
--------------------- --------- --------- -------- --------- ---------- -------------- -------------- --------
The accompanying notes are an integral part of the condensed
consolidated interim financial statements.
Notes to the Condensed Consolidated Interim Financial
Statements
1 General information
The interim condensed consolidated financial statements of Brit
PLC and its subsidiaries (collectively, the Group) for the six
months ended 30 June 2014 were authorised for issue in accordance
with a resolution of the directors on 12 August 2014.
Brit PLC (the Company) is a limited company, incorporated and
domiciled in England and Wales, whose shares are publicly traded.
The Group's principal activity is the underwriting of general
insurance and reinsurance business.
2 Accounting policies and basis of preparation
(a) Corporate reorganisation
Brit PLC was incorporated as a limited company on 19 December
2013 and was subsequently re-registered as a public limited company
on 24 March 2014.
On 28 March 2014, Brit PLC acquired the entire share capital of
the former ultimate holding company of the Group, Achilles Holdings
1 S.à.r.l.. Brit PLC was introduced as a new parent to the Achilles
Insurance Group by the principal investors who were the same before
and after the reorganisation.
Brit PLC's ordinary shares were admitted to trading on the
London Stock Exchange on 2 April 2014.
On the basis that the transaction was effected by creating a new
parent that is itself not a business, the transaction is considered
to be outside the scope of IFRS 3 Business Combinations. It has
therefore been accounted for using the pooling of interest method
as a continuation of the existing Group. The result is that the
consolidated financial statements of Brit PLC are the same as those
previously presented by Achilles Holdings 1 S.à r.l., except for
the share capital being that of Brit PLC. The Group continues to
present its consolidated financial statements in pounds Sterling
which is the functional currency of the Company.
(b) Basis of preparation
The interim condensed consolidated financial statements for the
six months ended 30 June 2014 have been prepared in accordance with
IAS 34 Interim Financial Reporting. The accounting policies applied
in these condensed consolidated interim financial statements are
consistent with those applied by the Achilles Holdings 1 S.à r.l.
Group in its consolidated financial statements as at the year ended
31 December 2013. The consolidated financial statements as at, and
for the year ended 31 December 2013 were compliant with
International Financial Reporting Standards as adopted by the
European Union.
This condensed consolidated interim financial information does
not comprise statutory accounts within the meaning of Section 434
of the Companies Act 2006. Statutory accounts for Achilles Holdings
1 S.à r.l., for the year ended 31 December 2013 were prepared in
accordance with IFRS and Luxembourg company law. IFRS comprises
standards issued by the International Accounting Standards Board
(IASB) and interpretations issued by the International Financial
Reporting Interpretations Committee (IFRIC) and as endorsed by the
EU. The consolidated financial statements of the Achilles Holdings
1 S.à r.l. Group for the year ended 31 December 2013 were
authorised for issue in accordance with a resolution of the
directors on 28 February 2014 and delivered to the Registrar of
Companies in Luxembourg. The report of the auditors on those
accounts was unqualified.
These condensed consolidated interim financial statements have
been prepared in accordance with the Listing Rules issued by the
Financial Conduct Authority. The information presented herein does
not include all the disclosures typically required for full
consolidated financial statements. Consequently these financial
statements should be read in conjunction with the full consolidated
financial statements of the Achilles Holdings 1 S.à r.l. Group as
at, and for the year ended 31 December 2013 available from the
Company's registered office.
During the period ended 30 June 2014 the Group adopted
amendments to IAS 32 'Offsetting Financial Assets and Financial
Liabilities', amendments to IAS 36 'Recoverable Amount Disclosures
for Non-Financial Assets', amendments to IAS 39 'Novation of
Derivatives and Continuation of Hedge Accounting' and IFRIC 21
'Levies', none of which has had a significant impact on the
financial statements.
2 Accounting policies and basis of preparation (continued)
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. Therefore the
Group continues to adopt the going concern basis in preparing its
condensed consolidated interim financial statements.
(c) Basis of consolidation
The consolidated financial statements include the financial
statements of the Company, its subsidiaries and the Group's
participation in Lloyd's syndicates' assets, liabilities, revenues
and expenses. Subsidiaries are those entities that an investor
controls, when it is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to
affect those returns through its power over the investee. The
financial statements of subsidiaries are prepared up to 31 December
each year. Consolidation adjustments are made to convert subsidiary
financial statements from local GAAP into IFRS so as to remove any
dissimilar accounting policies that may exist. Subsidiaries are
consolidated from the date control is transferred to the Group and
cease to be consolidated from the date control is transferred from
the Group. All inter-company balances, profits and transactions are
eliminated.
3 Risk management policies
The Group's financial, insurance and other risk management
objectives and policies are consistent with those disclosed in Note
4 to the Group's consolidated financial statements as at and for
the year ended 31 December 2013. The principal risks and
certainties are unchanged and may be summarised as insurance risk,
market risk, other price risk, credit risk, liquidity risk and
operational risk.
4 Seasonality of operations
The 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 North Atlantic hurricanes which are
largely concentrated into the second half of a calendar year. The
Group actively participates in many regions and if any catastrophe
events do occur, it is likely that the Group will share some of the
market's losses. Consequently the potential for significantly
greater volatility in expected returns remains during the second
half of the year.
5 Segmental information
As at 30 June 2014, the reportable segments identified were as
follows:
'Brit Global Specialty Direct', which underwrites the Group's
international and US business other than reinsurance. In the main,
Global Specialty Direct deals with wholesale buyers of insurance,
rather than individuals. Risks are large and usually syndicated by
several underwriters by means of the subscription market.
'Brit Global Specialty Reinsurance', which underwrites
reinsurance business which is essentially the insurance of
insurance and reinsurance companies and includes providing
non-proportional cover for major events such as earthquakes or
hurricanes. These insurance and reinsurance companies calculate how
much risk they want to bear and pass on the remaining exposure to
reinsurers in return for a premium.
'Other underwriting', which is made up of excess of loss
reinsurance ceded from the strategic business units to a cell of
Brit Insurance (Gibraltar) PCC Limited and Life Syndicate 389.
'Other corporate', which is made up of residual income and
expenditure not allocated to other segments.
Foreign exchange differences on non-monetary items are
separately disclosed. This provides a fairer representation of the
claims ratios and financial performance of the Strategic Business
Units (SBUs) which would otherwise be distorted by the mismatch
arising from IFRSs whereby unearned premium, reinsurer's share of
unearned premium and deferred acquisition costs are treated as
non-monetary items and the majority of other assets and liabilities
are treated as monetary items. Non-monetary items are carried at
historic exchange rates, while monetary items are translated at
closing rates.
The Group investment return is managed centrally and an
allocation is made to each of the strategic business units based on
the average risk free interest rate for the period being applied to
the insurance funds of each strategic business unit.
The annualised average risk free rate applied to insurance funds
was 1.5% for the 6 months period ended 30 June 2014 (30 June 2013:
0.9%), (31 December 2013: 1.5%).
Information regarding the Group's reportable segments is
presented below.
The allocation of total assets and liabilities between the Brit
Global Speciality Direct, Brit Global Speciality Reinsurance and
Other Underwriting segments for the year ended 31 December 2013
have been represented from those presented in the consolidated
financial statements of Achilles Holdings 1 S.à.r.l., to conform
with the current method of allocating assets and liabilities within
the Group. The total assets and liabilities are not impacted as a
result of this reclassification.
The claims ratio is calculated as claims incurred, net of
reinsurance divided by earned premiums, net of reinsurance.
The expense ratio is calculated as acquisition costs and other
insurance related expenses divided by earned premiums, net of
reinsurance.
The combined ratio is the sum of the claims and expense
ratios.
(a) Statement of profit or loss by segment
6 months ended 30 June 2014
Total
underwriting Total
excluding underwriting
the Effect after the
effect of effect
of foreign foreign of foreign
Brit Brit exchange exchange exchange
Global Global on on on
Specialty Specialty Other Intra non-monetary non-monetary non-monetary Other Continuing Discontinued
Direct Reinsurance Underwriting Group items items items corporate Operations Operations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------
Gross premiums
written 520.7 180.5 18.0 (18.0) 701.2 - 701.2 - 701.2 - 701.2
Less premiums
ceded
to reinsurers (127.2) (40.3) (3.1) 18.0 (152.6) - (152.6) - (152.6) - (152.6)
--------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- ----------- ------------- --------
Premiums
written,
net of
reinsurance 393.5 140.2 14.9 - 548.6 - 548.6 - 548.6 - 548.6
Gross earned
premiums 470.0 124.0 3.1 (3.3) 593.8 15.4 609.2 - 609.2 - 609.2
Reinsurers'
share (90.5) (23.0) (1.5) 3.3 (111.7) (1.9) (113.6) - (113.6) - (113.6)
--------------- ------------- ------- ------------- ------------- ------------- ----------
Earned
premiums, net
of
reinsurance 379.5 101.0 1.6 - 482.1 13.5 495.6 - 495.6 - 495.6
Investment
return 8.6 4.0 0.1 - 12.7 - 12.7 37.6 50.3 - 50.3
Return on
derivative
contracts - - - - - - - 10.5 10.5 - 10.5
Profit on
disposal
of asset held
for
sale - - - - - - - - - - -
Other income - - - - - - - - - - -
Total revenue 388.1 105.0 1.7 - 494.8 13.5 508.3 48.1 556.4 - 556.4
--------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- ----------- ------------- --------
Gross claims
incurred (253.6) (51.7) (1.6) 2.0 (304.9) - (304.9) - (304.9) - (304.9)
Reinsurers'
share 62.3 8.7 0.5 (2.0) 69.5 - 69.5 - 69.5 - 69.5
--------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- ----------- ------------- --------
Claims
incurred, net
of
reinsurance (191.3) (43.0) (1.1) - (235.4) - (235.4) - (235.4) - (235.4)
Acquisition
costs
- commission (116.7) (17.7) - - (134.4) (3.4) (137.8) - (137.8) - (137.8)
Acquisition
costs
- other (24.1) (5.7) (1.8) - (31.6) - (31.6) - (31.6) - (31.6)
Other
insurance
related
expenses (18.0) (6.2) - - (24.2) - (24.2) - (24.2) - (24.2)
Other expenses - - - - - - - (23.5) (23.5) - (23.5)
Net foreign
exchange
losses - - - - - (7.8) (7.8) (27.5) (35.3) - (35.3)
Total expenses
excluding
finance costs (350.1) (72.6) (2.9) - (425.6) (11.2) (436.8) (51.0) (487.8) - (487.8)
--------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- ----------- ------------- --------
Operating
profit/(loss) 38.0 32.4 (1.2) - 69.2 2.3 71.5 (2.9) 68.6 - 68.6
------- ------------- ------------- ------------- ---------- --------
Loss on sale
of subsidiary - - -
Finance costs (7.1) - (7.1)
Profit on
ordinary
activities
before
tax 61.5 - 61.5
Tax expense (4.9) - (4.9)
----------- ------------- --------
Profit attributable to
owners
of the parent 56.6 - 56.6
----------- ------------- --------
Claims ratio 50.4% 42.6% 68.8% 48.8% 47.5%
Expense ratio 41.8% 29.3% 112.5% 39.5% 39.0%
Combined ratio 92.2% 71.9% 181.3% 88.3% 86.5%
6 months ended 30 June 2013
Total
underwriting Total
excluding underwriting
the Effect after the
effect of effect of
of foreign foreign foreign
Brit exchange exchange exchange
Global Brit Global on on on
Specialty Specialty Other Intra non-monetary non-monetary non-monetary Other Continuing Discontinued
Direct Reinsurance Underwriting Group items items items corporate Operations Operations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------
Gross premiums
written 470.1 200.0 5.8 (4.7) 671.2 - 671.2 - 671.2 - 671.2
Less premiums
ceded
to reinsurers (126.8) (39.0) (0.2) 4.7 (161.3) - (161.3) - (161.3) - (161.3)
------------------- ---------- -------------- ------------- ------ ---------------- ------------- ------------- ---------- ----------- ------------- --------
Premiums written,
net of
reinsurance 343.3 161.0 5.6 - 509.9 - 509.9 - 509.9 - 509.9
Gross earned
premiums 412.9 134.1 3.4 (1.9) 548.5 (10.2) 538.3 - 538.3 - 538.3
Reinsurers' share (80.4) (22.7) - 1.9 (101.2) 0.7 (100.5) - (100.5) - (100.5)
------------------- ---------- -------------- ------------- ------ ---------------- ------------- ------------- ---------- ----------- ------------- --------
Earned premiums,
net
of reinsurance 332.5 111.4 3.4 - 447.3 (9.5) 437.8 - 437.8 - 437.8
Investment return 10.0 3.4 0.1 - 13.5 - 13.5 (3.9) 9.6 - 9.6
Return on
derivative
contracts - - - - - - - 9.0 9.0 - 9.0
Net foreign
exchange
gain - - - - - 16.2 16.2 0.9 17.1 - 17.1
Other income - - - - - - - - - 0.7 0.7
Total revenue 342.5 114.8 3.5 - 460.8 6.7 467.5 6.0 473.5 0.7 474.2
------------------- ---------- -------------- ------------- ------ ---------------- ------------- ------------- ---------- ----------- ------------- --------
Gross claims
incurred (219.0) (44.1) (1.9) 1.1 (263.9) - (263.9) - (263.9) - (263.9)
Reinsurers' share 47.1 3.6 (0.2) (1.1) 49.4 - 49.4 - 49.4 - 49.4
------------------- ---------- -------------- ------------- ------ ---------------- ------------- ------------- ---------- ----------- ------------- --------
Claims incurred,
net
of reinsurance (171.9) (40.5) (2.1) - (214.5) - (214.5) - (214.5) - (214.5)
Acquisition costs
- commission (97.0) (19.3) (0.3) - (116.6) 2.2 (114.4) - (114.4) - (114.4)
Acquisition costs
- other (18.5) (5.0) (0.9) - (24.4) - (24.4) - (24.4) - (24.4)
Other insurance
related
expenses (22.1) (8.0) - - (30.1) - (30.1) - (30.1) (1.2) (31.3)
Other expenses - - - - - - - (7.3) (7.3) - (7.3)
Total expenses
excluding
finance costs (309.5) (72.8) (3.3) - (385.6) 2.2 (383.4) (7.3) (390.7) (1.2) (391.9)
------------------- ---------- -------------- ------------- ------ ---------------- ------------- ------------- ---------- ----------- ------------- --------
Operating
profit/(loss) 33.0 42.0 0.2 - 75.2 8.9 84.1 (1.3) 82.8 (0.5) 82.3
------------------- ---------- -------------- ------------- ------ ---------------- ------------- ------------- ---------- ----------- ------------- --------
Loss on sale of
subsidiary - (1.3) (1.3)
Finance costs (7.4) - (7.4)
Profit on ordinary activities
before tax 75.4 (1.8) 73.6
Tax expense (4.7) 0.1 (4.6)
----------- ------------- --------
Profit attributable to owners
of the parent 70.7 (1.7) 69.0
----------- ------------- --------
Claims ratio 51.7% 36.4% 61.8% 48.0% 49.0%
Expense ratio 41.4% 29.0% 35.3% 38.2% 38.6%
Combined ratio 93.1% 65.4% 97.1% 86.2% 87.6%
12 months ended 31 December 2013
Total Total
underwriting underwriting
excluding after the
the Effect effect
effect of of of
foreign foreign foreign
Brit exchange exchange exchange
Global Brit Global on on on
Specialty Specialty Other Intra non-monetary non-onetary non-monetary Other Continuing Discontinued
Direct Reinsurance Underwriting Group items items items corporate Operations Operations Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------
Gross premiums
written 903.1 281.0 6.0 (4.4) 1,185.7 - 1,185.7 - 1,185.7 - 1,185.7
Less premiums
ceded
to reinsurers (181.5) (50.1) (2.2) 4.4 (229.4) - (229.4) - (229.4) - (229.4)
------------------ ---------- ------------ ------------- ------ ------------- ------------ ------------- ---------- ----------- ------------- --------
Premiums written,
net of
reinsurance 721.6 230.9 3.8 - 956.3 - 956.3 - 956.3 - 956.3
Gross earned
premiums 868.1 283.8 6.1 (4.2) 1,153.8 (2.1) 1,151.7 - 1,151.7 - 1,151.7
Reinsurers' share (162.4) (45.7) (2.2) 4.2 (206.1) (0.1) (206.2) - (206.2) - (206.2)
------------------ ------------- ------ ------------- ------------ ------------- ----------
Earned premiums,
net
of reinsurance 705.7 238.1 3.9 - 947.7 (2.2) 945.5 - 945.5 - 945.5
Investment return 16.8 7.8 0.2 - 24.8 - 24.8 32.1 56.9 - 56.9
Return on
derivative
contracts - - - - - - - 11.0 11.0 - 11.0
Profit on
disposal
of asset held
for
sale - - - - - - - 4.4 4.4 - 4.4
Other income - - - - - - - - - 1.4 1.4
Total revenue 722.5 245.9 4.1 - 972.5 (2.2) 970.3 47.5 1,017.8 1.4 1,019.2
------------------ ---------- ------------ ------------- ------ ------------- ------------ ------------- ---------- ----------- ------------- --------
Gross claims
incurred (482.3) (93.1) (3.5) 2.7 (576.2) - (576.2) - (576.2) - (576.2)
Reinsurers' share 111.9 6.0 1.8 (2.7) 117.0 - 117.0 - 117.0 - 117.0
------------------ ---------- ------------ ------------- ------ ------------- ------------ ------------- ---------- ----------- ------------- --------
Claims incurred,
net
of reinsurance (370.4) (87.1) (1.7) - (459.2) - (459.2) - (459.2) - (459.2)
Acquisition costs
- commission (196.5) (39.3) (0.4) - (236.2) 0.4 (235.8) - (235.8) - (235.8)
Acquisition costs
- other (38.8) (9.7) (3.2) - (51.7) - (51.7) - (51.7) - (51.7)
Other insurance
related
expenses (43.4) (18.8) - - (62.2) - (62.2) - (62.2) (1.2) (63.4)
Other expenses - - - - - - - (16.9) (16.9) (16.9)
Net foreign
exchange
losses - - - - - (4.2) (4.2) (65.4) (69.6) - (69.6)
Total expenses
excluding
finance costs (649.1) (154.9) (5.3) - (809.3) (3.8) (813.1) (82.3) (895.4) (1.2) (896.6)
------------------ ---------- ------------ ------------- ------ ------------- ------------ ------------- ---------- ----------- ------------- --------
Operating
profit/(loss) 73.4 91.0 (1.2) - 163.2 (6.0) 157.2 (34.8) 122.4 0.2 122.6
------ ------------- ------------ ------------- ---------- --------
Loss on sale of
subsidiary - (1.5) (1.5)
Finance costs (15.0) - (15.0)
Profit/(loss) on ordinary
activities before tax 107.4 (1.3) 106.1
Tax expense (6.5) (0.1) (6.6)
Profit/(loss) attributable
to owners of the parent 100.9 (1.4) 99.5
----------- ------------- --------
Claims ratio 52.5% 36.6% 43.6% 48.5% 48.6%
Expense ratio 39.5% 28.5% 92.3% 36.9% 37.0%
Combined ratio 92.0% 65.1% 135.9% 85.4% 85.6%
5 Segmental information (continued)
(b) Statement of financial position by segment
As at 30 June 2014
Total Total
underwriting underwriting
excluding Effect after the
the of effect
effect of foreign of foreign
Brit Brit foreign exchange exchange
Global Global exchange on on on
Specialty Specialty Other Intra non-monetary non-monetary non-monetary Other
Direct Reinsurance Underwriting Group items items items corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- --------
Total assets 2,837.6 948.1 63.7 (49.4) 3,800.00 5.4 3,805.4 68.2 3,873.6
------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- --------
Total
liabilities 2,158.6 779.8 55.0 (49.4) 2,944.00 13.0 2,957.0 148.7 3,105.7
------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- --------
As at 30 June 2013
Total
underwriting Total
excluding underwriting
the Effect after the
effect of of effect
foreign foreign of foreign
Brit Brit exchange exchange exchange
Global Global on on on
Specialty Specialty Other Intra non-monetary non-monetary non-monetary Other
Direct Reinsurance Underwriting Group items items items corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- --------
Total assets 2,801.0 1,087.9 46.3 (36.3) 3,898.9 1.8 3,900.7 36.9 3,937.6
------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- --------
Total
liabilities 2,201.2 900.8 41.7 (36.3) 3,107.4 (8.2) 3,099.2 156.6 3,255.8
------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- --------
As at 31 December 2013
Total
underwriting Total
excluding underwriting
the Effect after the
effect of of effect
foreign foreign of foreign
Brit Brit exchange exchange exchange
Global Global on on on
Specialty Specialty Other Intra non-monetary non-monetary non-monetary Other
Direct Reinsurance Underwriting Group items items items corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- --------
Total assets 2,713.2 902.0 41.8 (34.0) 3,623.0 5.3 3,628.3 28.3 3,656.6
------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- --------
Total
liabilities 2,045.0 728.4 37.7 (34.0) 2,777.1 15.2 2,792.3 153.3 2,945.6
------------- ---------- ------------- ------------- ------- ------------- ------------- ------------- ---------- --------
6 Investment return
6 Months ended 30 June 2014
Investment Net realised Net unrealised Total investment
income gains gains/(losses) return
GBPm GBPm GBPm GBPm
-------------------------------- ----------- ------------- ---------------- -----------------
Equity securities 0.3 1.2 0.4 1.9
Debt securities 13.7 1.8 1.8 17.3
Loan instruments 5.5 1.4 (0.6) 6.3
Specialised investment funds 9.6 2.2 16.4 28.2
Cash and cash equivalents 0.3 - (0.1) 0.2
Total investment return before
expenses 29.4 6.6 17.9 53.9
Investment management expenses (3.6) - - (3.6)
-------------------------------- ----------- ------------- ---------------- -----------------
Total investment return 25.8 6.6 17.9 50.3
-------------------------------- ----------- ------------- ---------------- -----------------
6 Months ended 30 June 2013
Investment Net realised Net unrealised Total investment
income (losses)/gains (losses)/gains return
GBPm GBPm GBPm GBPm
-------------------------------- ----------- ---------------- ---------------- -----------------
Equity securities - (0.1) - (0.1)
Debt securities 27.9 (13.6) (9.1) 5.2
Loan instruments 1.9 0.4 (0.9) 1.4
Specialised investment funds 0.7 3.8 1.2 5.7
Cash and cash equivalents 0.2 0.1 0.0 0.3
Total investment return before
expenses 30.7 (9.4) (8.8) 12.5
Investment management expenses (2.9) - - (2.9)
-------------------------------- ----------- ---------------- ---------------- -----------------
Total investment return 27.8 (9.4) (8.8) 9.6
-------------------------------- ----------- ---------------- ---------------- -----------------
Year ended 31 December 2013
Investment Net realised Net unrealised Total investment
income (losses)/gains gains/(losses) return
GBPm GBPm GBPm GBPm
-------------------------------- -------------------- ---------------- ---------------- -----------------
Equity securities 0.3 (0.1) 1.0 1.2
Debt securities 43.5 (15.3) (8.2) 20.0
Loan instruments 8.3 0.8 3.0 12.1
Specialised investment funds 4.9 15.7 8.3 28.9
Cash and cash equivalents 0.5 0.1 - 0.6
Total investment return before
expenses 57.5 1.2 4.1 62.8
Investment management expenses (5.9) - - (5.9)
-------------------------------- -------------------- ---------------- ---------------- -----------------
Total investment return 51.6 1.2 4.1 56.9
-------------------------------- -------------------- ---------------- ---------------- -----------------
7 Return on derivative contracts
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
--------------------------------- --------- --------- -------------
Currency forwards 4.5 9.6 13.2
Interest rate swaps 5.7 - (2.6)
Futures 0.1 (0.6) 0.4
Options and warrants 0.2 - -
Return on derivative contracts 10.5 9.0 11.0
--------------------------------- --------- --------- -------------
8 Net foreign exchange gains/(losses)
The Group recognised foreign exchange losses of GBP35.3m (30
June 2013: gains of GBP17.1m), (31 December 2013: losses of
GBP69.6m) in the income statement in the period.
Foreign exchange gains and losses result from the translation of
the balance sheet to closing exchange rates and the income
statement to average exchange rates. However, as an exception to
this, International Accounting Standard 21 'The Effects of Changes
in Foreign Exchange Rates' requires that net unearned premiums and
deferred acquisition costs (UPR/DAC), being non-monetary items,
remain at historic exchange rates. This creates a foreign exchange
mismatch, the financial effects of which are shown in the table
below.
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
--------------------------------------------------- --------- --------- -------------
Losses on foreign exchange arising from:
Translation of the balance sheet and income
statement (27.5) 0.9 (65.4)
Maintaining UPR/DAC items in the balance
sheet at historic rates 2.3 8.9 (6.0)
Maintaining UPR/DAC items in the income statement
at historic rates (10.1) 7.3 1.8
--------------------------------------------------- --------- --------- -------------
Net foreign exchange (losses)/gains (35.3) 17.1 (69.6)
--------------------------------------------------- --------- --------- -------------
Principal exchange rates applied are set out in the table
below.
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
Average Closing Average Closing Average Closing
------------------- -------- -------- -------- -------- -------- --------
US dollar 1.67 1.71 1.54 1.52 1.56 1.66
Canadian dollar 1.83 1.82 1.57 1.60 1.61 1.76
Euro 1.22 1.25 1.18 1.17 1.18 1.20
Australian dollar 1.82 1.81 1.52 1.66 1.62 1.85
------------------- -------- -------- -------- -------- -------- --------
9 Acquisition costs and other operating expenses
6 months ended 30 June 6 months ended 30 June Year ended 31 December
2014 2013 2013
------------------- --------------------------- --------------------------------- ---------------------------------
Other Other Other
Acquisition operating Acquisition operating Acquisition operating
costs expenses Total costs expenses Total costs expenses Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----------- ------ ------------ ----------- ------ ------------ ----------- ------
Salary, pension
and social
security costs 15.6 17.5 33.1 10.2 16.3 26.5 20.8 37.8 58.6
Other staff
related costs 0.5 1.5 2.0 0.4 1.6 2.0 0.7 3.1 3.8
Accommodation
costs 1.7 1.4 3.1 1.4 1.7 3.1 3.1 3.3 6.4
Legal and
professional
charges 0.9 1.5 2.4 0.6 2.4 3.0 1.3 5.7 7.0
IT costs 0.3 5.8 6.1 0.1 6.0 6.1 0.6 11.8 12.4
Travel and
entertaining 1.3 0.8 2.1 0.7 1.1 1.8 2.0 1.8 3.8
Marketing and
communications 0.1 0.5 0.6 0.1 2.2 2.3 0.1 4.4 4.5
Amortisation and
impairment of
intangible
assets 0.4 2.3 2.7 - 2.4 2.4 0.5 4.5 5.0
Depreciation and
impairment of
property,
plant and
equipment 0.1 0.9 1.0 0.1 0.9 1.0 0.2 2.0 2.2
Regulatory levies
and charges 11.9 - 11.9 11.4 - 11.4 22.1 0.2 22.3
Costs relating to
initial public
offering - 13.8 13.8 - - - - 2.0 2.0
Other (1.2) 1.7 0.5 (0.6) 2.8 2.2 0.3 2.5 2.8
------------------- ------ ----------- ------ ------------ ----------- ------ ------------ ----------- ------
Expenses before
commissions 31.6 47.7 79.3 24.4 37.4 61.8 51.7 79.1 130.8
Commission costs 137.8 - 137.8 114.4 - 114.4 235.8 - 235.8
Acquisition costs
and other
operating
expenses -
continuing
operations 169.4 47.7 217.1 138.8 37.4 176.2 287.5 79.1 366.6
Acquisition costs
and other
operating
expenses -
discontinued
operations - - - 1.2 1.2 - 1.2 1.2
Total acquisition
costs and other
operating
expenses 169.4 47.7 217.1 138.8 38.6 177.4 287.5 80.3 367.8
------------------- ------ ----------- ------ ------------ ----------- ------ ------------ ----------- ------
10 Earnings and net assets per share
The numbers of shares used for calculating the earnings per
share and net assets per share are those of Brit PLC. The number of
Achilles Holdings 1 S.à r.l. shares in the comparative periods have
been converted into the equivalent number of Brit PLC shares to
reflect the corporate reorganisation on 28 March 2014. For further
information refer to Note 2.
The calculations of the basic and diluted earnings per share
from continuing operations are based on the following figures:
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
---------------------------------------------- --------- --------- -------------
Profit on ordinary activities after tax,
attributable to the parent (GBPm) 56.6 70.3 100.5
Basic weighted average number of shares
(number in millions) 397.5 440.7 416.8
Diluted weighted average number of shares
(number in millions) 397.5 441.1 417.2
Basic earnings per share (pence per share) 14.2 15.9 24.1
Diluted earnings per share (pence per share) 14.2 15.9 24.1
---------------------------------------------- --------- --------- -------------
The calculations of the total basic and diluted earnings per
share are based on the following figures:
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
---------------------------------------------- --------- --------- -------------
Profit on ordinary activities after tax,
attributable to the parent (GBPm) 56.6 68.6 99.1
Basic weighted average number of shares
(number in millions) 397.5 440.7 416.8
Diluted weighted average number of shares
(number in millions) 397.5 441.1 417.2
Basic earnings per share (pence per share) 14.2 15.6 23.8
Diluted earnings per share (pence per share) 14.2 15.5 23.8
---------------------------------------------- --------- --------- -------------
The calculations of the net assets and net tangible assets per
share are based on the following figures:
30 June 30 June 31 December
2014 2013 2013
---------------------------- -------- -------- ------------
Net assets (GBPm) 767.9 681.8 711.0
Intangible assets (GBPm) (63.5) (62.3) (62.7)
---------------------------- -------- -------- ------------
Net tangible assets (GBPm) 704.4 619.5 648.3
---------------------------- -------- -------- ------------
10 Earnings and net assets per share (continued)
30 June 30 June 31 December
2014 2013 2013
--------------------------------------------- -------- -------- ------------
Number of shares in issue at the end of the
period (number in millions) 400.5 393.0 393.0
Number of own shares (number in millions) (0.8) (0.8) (0.9)
--------------------------------------------- -------- -------- ------------
Number of shares in issue less own shares
(number in millions) 399.7 392.2 392.1
--------------------------------------------- -------- -------- ------------
30 June 30 June 31 December
2014 2013 2013
------------------------------------------ -------- -------- ------------
Net assets per share (pence per share) 192.1 173.8 181.3
------------------------------------------ -------- -------- ------------
Net tangible assets per share (pence per
share) 176.2 157.9 165.3
------------------------------------------ -------- -------- ------------
11 Asset held for sale
On 20 May 2014, Avoca Loan Fund 1, a qualifying investment fund
treated as a consolidated structured entity as at 31 December 2013
was categorised as an asset held for sale following a decision by
management to dispose of this fund. The fair value of Avoca Loan
Fund 1 as at 30 June 2014 was GBP44.2m, which comprises GBP38.6m of
cash and GBP5.6m of loan instruments, which are categorised as
Level 2 in the fair value hierarchy.
12 Tax expense
(a) Tax (charged)/credited to income statement
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
---------
Current tax:
Current taxes on income for the year (4.5) (0.2) (2.0)
United States tax on income for the year (2.9) (2.0) (2.8)
(7.4) (2.2) (4.8)
Double tax relief 2.6 2.1 2.2
Adjustments in respect of prior years (0.1) (0.9) 2.2
Total current tax (4.9) (1.0) (0.4)
-------------------------------------------- --------- ---------- -------------
Deferred tax:
Relating to the origination and reversal
of temporary differences (1.6) (4.5) (8.5)
Relating to changes in tax rates - 1.1 1.4
Adjustments in respect of prior years 1.6 (0.3) 1.0
Total deferred tax - (3.7) (6.1)
-------------------------------------------- --------- ---------- -------------
Total tax charged to income statement from
continuing operations (4.9) (4.7) (6.5)
Total tax charged to income statement from
discontinued operations - 0.1 (0.1)
Total tax charged to income statement (4.9) (4.6) (6.6)
-------------------------------------------- --------- ---------- -------------
United States tax and the double tax relief principally arise
from taxes suffered as a result of the Group's operations at
Lloyd's. Double tax relief is effectively limited to an amount
equal to the tax due at the UK tax rate on the same source of
income.
12 Tax expense (continued)
(b) Tax credited/(charged) to other comprehensive income
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
------------------------------------------- --------- --------- -------------
Current tax credit/ (charge) on actuarial
gains/losses on defined benefit pension
scheme 0.5 - -
Deferred tax credit/(charge) on actuarial
gains/losses on defined benefit pension
scheme - (0.8) (0.5)
------------------------------------------- --------- --------- -------------
0.5 (0.8) (0.5)
------------------------------------------- --------- --------- -------------
13 Insurance and reinsurance contracts
Balances on insurance and reinsurance contracts
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
---------------------------------------------- -------- -------- ------------
Gross
Insurance contracts
Claims reported and loss adjustment expenses 976.8 1,008.6 994.7
Claims incurred but not reported 1,126.1 1,171.2 1,103.0
---------------------------------------------- -------- -------- ------------
2,102.9 2,179.8 2,097.7
Unearned premiums 588.2 595.2 496.2
Total insurance contracts 2,691.1 2,775.0 2,593.9
---------------------------------------------- -------- -------- ------------
Recoverable from reinsurers
Reinsurance contracts
Claims reported and loss adjustment expenses 184.7 202.9 202.3
Claims incurred but not reported 201.7 188.5 172.5
Impairment provision (0.1) (1.4) (0.8)
---------------------------------------------- -------- -------- ------------
386.3 390.0 374.0
Unearned premiums 115.0 113.7 76.0
Total reinsurance contracts 501.3 503.7 450.0
---------------------------------------------- -------- -------- ------------
Net
Claims reported and loss adjustment expenses 792.1 805.7 792.4
Claims incurred but not reported 924.4 982.7 930.5
Impairment provision 0.1 1.4 0.8
---------------------------------------------- -------- -------- ------------
1,716.6 1,789.8 1,723.7
Unearned premiums 473.2 481.5 420.2
Net insurance and reinsurance contracts 2,189.8 2271.3 2,143.9
---------------------------------------------- -------- -------- ------------
The net aggregate reserve releases from prior years amounted to
GBP12.6m (June 2013: GBP15.6m), (December 2013: GBP57.3m). In part
this arises from the Group's reserving philosophy which reflects a
conservative best estimate, reserving prudently for the most recent
years where the outcome is most uncertain, leaving a potential for
subsequent release.
14 Financial Investments
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
------------------------------ -------- -------- ------------
Equity securities 30.4 - 47.6
Debt securities 1,010.7 1,132.8 998.8
Loan instruments 142.7 220.1 292.7
Specialised investment funds 956.2 601.2 936.8
------------------------------ -------- -------- ------------
2,140.0 1,954.1 2,275.9
------------------------------ -------- -------- ------------
All financial investments have been designated as held at fair
value through profit or loss.
Basis for determining the fair value hierarchy of financial
instruments
The Group has classified fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used
in making the measurements. The fair value hierarchy comprises the
following levels:
(a) Level 1 - quoted prices (unadjusted) in active markets for
identical assets;
(b) Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the asset, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
(c) Level 3 - inputs for the assets that are not based on
observable market data (unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety shall be
determined on the basis of the lowest level input that is
significant to the fair value measurement. The significance of an
input is assessed against the fair value measurement in its
entirety.
Assets are categorised as Level 1 where fair values determined
in whole directly by reference to an active market relate to prices
which are readily and regularly available from an exchange, dealer,
broker, industry group, pricing service or regulatory agency and
those prices represent actual and regularly occurring market
transactions on an arm's length basis, i.e. the market is still
active.
For assets and liabilities that are recognised at fair value on
a recurring basis, the Group determines whether transfers have
occurred between levels in the hierarchy by reassessing
categorisation (based on the lowest level of input that is
significant to the fair value measurement as a whole) at the end of
each reporting period.
Fair values for Level 2 and Level 3 assets include:
-- values provided at the request of the Group by pricing
services and which are not publicly available or values provided by
external parties which are readily available but relate to assets
for which the market is not always active; and
-- assets measured on the basis of valuation techniques
including a varying degree of assumptions supported by market
transactions and observable data.
For all assets not quoted in an active market or there is no
active market, the availability of financial data can vary and is
affected by a wide variety of factors, including the type of
financial instrument, whether it is new and not yet established in
the marketplace, and other characteristics specific to each
transaction. To the extent that valuation is based on the models or
inputs that are unobservable in the market, the determination of
fair value requires more judgement. Accordingly, the degree of
judgement exercised is higher for instruments classified in Level 3
and the classification between Level 2 and Level 3 depends highly
on the proportion of assumptions used, supported by market
transactions and observable data.
14 Financial Investments (continued)
Valuation techniques
Level 1
Assets included in Level 1 are Government bonds, Treasury bills,
exchange traded equities and exchange-traded funds which are
measured based on quoted prices.
Level 2
Level 2 securities contain investments in US and Non-US
government agency securities, US and Non-US Corporate debt
securities, Loan instruments and certain Specialised Investment
Funds.
US and Non-US government agency securities are priced using
valuations from independent pricing vendors who use discounted cash
flow models supplemented with market and credit research to gather
specific information. US and Non-US Corporate debt securities are
investment grade and the information collected during pricing of
these instruments includes credit data as well as other
observations from the market and the particular sector. Prices for
all these securities are based on a limited number of transactions
that are adjusted during valuations.
Loan instruments consist primarily of below investment-grade
debt of a wide variety of corporate issuers and industries. These
instruments are mostly over the counter (OTC) traded. It is not
possible to establish the volume being traded and the information
is private, limited and not widely available.
Level 2 Specialised Investment Funds contain Credit
Opportunities Funds that are valued based on the underlying assets
in the Fund on a security by security basis. A number of observable
and non observable market characteristics such as benchmark yield
curves, credit spreads, estimated default rates, anticipated market
interest rate volatility, coupon rates and anticipated timing of
principal repayments are considered during their valuation.
Level 3
Level 3 securities contain investments in Asset Backed
Securities (ABS), Collateralised Debt Obligations (CDO),
Collateralised Mortgage Obligations (CMO), Mortgage Backed
Securities (MBS, CMBS and RMBS) as well as investments in
Insurance-Linked securities (ILS) and certain Specialised
Investment Funds.
ABSs, MBSs and CMBSs include mostly investment-grade debt
securities backed by pools of loans with a variety of underlying
collateral. During pricing, the prepayment models might be adjusted
for the underlying collateral and current price data, treasury
curve, swap curve as well as the cash settlement.
CDOs do not have an active market and any broker quotes may be
significantly adjusted during the valuation process. CMOs are
non-agency mortgage backed securities that are valued using market
observable data when available.
RMBSs include non-agency RMBS backed by non-conforming
residential mortgages. Pricing models factor in interest rates,
bond or credit swap spreads and volatility.
ILSs are financial instruments whose performance is primarily
driven by insurance and/or reinsurance loss events. Instead of an
active market, there is a secondary market existing for ILS
contracts. Valuations of these securities require mark-to-market
considerations when evaluating risk/return and might require
significant adjustments.
Level 3 Specialised investment Funds include securities that are
valued using techniques appropriate to each specific investment.
The valuation techniques include fair value by reference to NAVs
adjusted and issued by fund managers based on their knowledge of
underlying investments and credit spreads of counterparties.
14 Financial Investments (continued)
Disclosures of fair values in accordance with the fair value
hierarchy
30 June 2014
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Equity securities 30.4 - - 30.4
Debt securities 273.6 458.8 278.3 1,010.7
Loan instruments - 142.7 - 142.7
Specialised investment funds 785.9 69.6 100.7 956.2
------------------------------ -------- -------- -------- --------
1,089.9 671.1 379.0 2,140.0
------------------------------ -------- -------- -------- --------
30 June 2013
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Equity securities - - - -
Debt securities 281.2 837.7 13.8 1,132.8
Loan instruments - 220.1 - 220.1
Specialised investment funds 2.8 528.8 69.7 601.2
------------------------------ -------- -------- -------- --------
284.0 1,586.6 83.5 1,954.1
------------------------------ -------- -------- -------- --------
31 December 2013
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Equity securities 47.6 - - 47.6
Debt securities 251.6 489.8 257.4 998.8
Loan instruments - 292.7 - 292.7
Specialised investment funds 792.9 69.6 74.3 936.8
------------------------------ -------- -------- -------- --------
1,092.1 852.1 331.7 2,275.9
------------------------------ -------- -------- -------- --------
All fair value measurements above are recurring. Fair values are
classified as Level 1 when the financial instrument or derivative
is actively traded and a quoted price is available. If an
instrument classified as Level 1 subsequently ceases to be actively
traded, it is transferred out of Level 1. In such cases,
instruments are classified into Level 2, unless the measurement of
its fair value requires the use of significant unobservable inputs,
in which case it is classified as Level 3.
For the 6 months to 30 June 2014, there were no transfers of
financial assets or liabilities between fair value hierarchy Level
1 and Level 2. There were GBP19.8m transfers between fair value
hierarchy Levels 2 and 3 (30 June 2013: GBPnil), (31 December 2013:
GBP43.2m Asset Backed Securities, GBP35.9m Residential
Mortgage-Backed Securities and GBP8.9 of Collateralized Mortgage
Obligations). The fair value hierarchy movement was due to a change
in the composition of Mortgage Backed Securities from 31December
2013 to 30 June 2014. The new securities have less observable
inputs available for their valuation.
All unrealised gains of GBP17.9m (30 June 2013: loss GBP8.8m),
(31 December 2013: GBP4.1m) and realised gains of GBP6.6m (30 June
2013: loss GBP9.4m), (31 December 2013: GBP1.2m) on financial
investments held during the period, are presented in investment
return in the consolidated income statement.
14 Financial Investments (continued)
Reconciliation of movements in Level 3 financial investments
measured at fair value
Specialised
Equity investment
securities Debt Securities funds Total
GBPm GBPm GBPm GBPm
----------------------------------------- ------------- ---------------- ------------ -----------------
At 1 January 2013 - 19.2 49.8 69.0
Transfers into Level 3 - 88.0 - 88.0
Total (losses)/gains recognised
in the statement of profit or loss - (0.4) 6.7 6.3
Purchases - 159.5 73.7 233.2
Sales proceeds - (9.1) (52.5) (61.6)
Foreign exchange gains/(losses) - 0.2 (3.4) (3.2)
----------------------------------------- ------------- ---------------- ------------ -----------------
At 31 December 2013 - 257.4 74.3 331.7
Transfers into Level 3 - 19.8 - 19.8
Total gains recognised in the statement
of profit or loss - 3.5 2.4 5.9
Purchases - 62.8 28.5 91.3
Sales proceeds - (56.5) (2.0) (58.5)
Foreign exchange losses - (8.7) (2.5) (11.2)
----------------------------------------- ------------- ---------------- ------------ -----------------
At 30 June 2014 - 278.3 100.7 379.0
----------------------------------------- ------------- ---------------- ------------ -----------------
Total net gains recognised in the income statement under
"investment return" in respect of Level 3 financial investments for
the period amounted to GBP5.9m (30 June 2013: GBP11.3m), (31
December 2013: GBP6.3m). Included in this balance are GBP3.4m
unrealised gains (30 June 2013: GBP10.0m), (31 December 2013:
GBP0.9m) attributable to assets still held at the end of the
year.
Sensitivity of Level 3 financial investments measured at fair
value to changes in key assumptions
The following table shows the sensitivity of the fair value of
Level 3 financial investments to changes in key assumptions.
30 June 2014 30 June 2013 31 December 2013
------------------------ ------------------------ ------------------------ ------------------------
Effect Effect Effect
of possible of possible of possible
alternative alternative alternative
Carrying assumptions Carrying assumptions Carrying assumptions
amount (+/-) amount (+/-) amount (+/-)
GBPm GBPm GBPm GBPm GBPm GBPm
Debt securities 278.3 12.6 13.8 0.7 257.4 12.9
Specialised investment
funds 100.7 5.0 69.7 8.6 74.3 5.1
------------------------ --------- --------- ---------
379.0 83.5 331.7
------------------------ --------- ------------- --------- ------------- --------- -------------
In order to determine reasonably possible alternative
assumptions, the Group adjusted key unobservable model inputs as
follows:
-- For debt securities, the Group adjusted, dependent on the
type and valuation methodology of the investment, key variables
including the probability of spread movements, leverage ratio
changes and changes in mortgage default rates used in the
models.
-- For specialised investment funds, the assumptions have been
adjusted by between 5-8% as determined by historic movements in
volatility of valuations or price changes in the underlying
investments.
15 Derivative contracts
Derivative contract assets 30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
---------------------------- -------- -------- ------------
Currency forwards 3.8 2.1 10.7
Put options 2.4 1.9 2.0
Interest rate swaps 2.4 - -
Futures - 2.2 -
---------------------------- -------- -------- ------------
8.6 6.2 12.7
---------------------------- -------- -------- ------------
Derivative contract liabilities 30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
--------------------------------- -------- -------- ------------
Currency forwards 4.4 2.1 8.4
Put options 0.1 - -
Interest rate swaps 1.2 - 2.7
5.7 2.1 11.1
--------------------------------- -------- -------- ------------
Disclosures of fair values in accordance with the fair value
hierarchy
30 June 2014
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Derivative contract assets - 6.2 2.4 8.6
Derivative contract liabilities - 5.6 0.1 5.7
--------------------------------- --------- -------- -------- ------
30 June 2013
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Derivative contract assets 2.2 2.1 1.9 6.2
Derivative contract liabilities - 2.1 - 2.1
--------------------------------- -------- -------- -------- ------
31 December 2013
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Derivative contract assets 10.7 - 2.0 12.7
Derivative contract liabilities 8.4 2.7 - 11.1
--------------------------------- -------- -------- -------- ------
Valuation techniques
Level 1
Futures contracts are "forward-based" derivative contracts that
are standardised, transferable and exchange-traded, and therefore
quoted prices are available in an active market.
Level 2
The fair value of the Interest rate swaps are determined using
pricing models based on observable market data such as prices of
instruments with similar maturities and characteristics, interest
rate yield curves and measures of interest rate volatility. The
value is adjusted to reflect the credit risk of the
counterparty.
The valuation technique used to determine the fair value of
forward contracts is derived from observable inputs such as active
foreign-exchange and interest-rate markets that may require
adjustments for certain unobservable inputs.
15 Derivative contracts (continued)
Level 3
The valuation technique to measure the fair value of Put Options
is to use pricing models which requires market-based inputs such as
expected volatility, expected dividend yield and the risk-free rate
of interest.
Reconciliation of movements in Level 3 derivative contracts
measured at fair value
Currency
Put options forwards Total
GBPm GBPm GBPm
------------------------------------------------ ------------ ---------- ------
At 1 January 2013 - (0.7) (0.7)
Transferred to Level 1 - 0.7 0.7
On disposal of asset held for sale 2.0 - 2.0
------------------------------------------------ ------------ ---------- ------
At 31 December 2013 2.0 - 2.0
Total gains recognised in the income statement 0.3 - 0.3
------------------------------------------------ ------------ ---------- ------
At 30 June 2014 2.3 - 2.3
------------------------------------------------ ------------ ---------- ------
16 Share Capital
31
December
30 31 30 June 2013 On
June December On 2014 1p 200p incorporat-ion
2014 2013 incorporat-ion each each 200p each
GBPm GBPm GBPm Number Number Number
----------- ----- ------------------------------------- ------------------------------------------- ------------ --------- ---------------
Ordinary
shares:
Allotted,
Issued
and
fully
paid 4.0 - - 400,452,960 1 1
----------- ----- ------------------------------------- ------------------------------------------- ------------ --------- ---------------
GBPm Number
----------------------------------------------------- --------- ------------
As at 31 December 2013 - 1
Issue of ordinary share on corporate reorganisation 800.0 399,999,999
Capital reduction (796.0) -
Shares issued in respect of share based incentive
schemes - 452,960
----------------------------------------------------- --------- ------------
As at 30 June 2014 4.0 400,452,960
----------------------------------------------------- --------- ------------
Following court approval, on 30 April 2014, the share capital of
the Company was reduced by the cancellation of 199p from the
nominal value of each ordinary share.
The number of shares reported is for Brit PLC, the ultimate
parent of the Group.
Brit PLC was incorporated on 19 December 2013.
17 Dividends
An interim dividend of 6.25p per share (30 June 2013: nil per
share) is payable on 26 September 2014 to shareholders on the
register on 22 August 2014. The shares will go ex-dividend on 20
August 2014. These financial statements do not include as a
liability the provision for this interim dividend, which was
approved by the Board on 12 August 2014.
18 Cash flows provided by operating activities
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
---------
Profit on ordinary activities before tax 61.5 75.4 107.4
Adjustments for non-cash movements:
Realised and unrealised (gains)/losses on investments (24.5) 18.2 (5.3)
Realised and unrealised (gains)/losses on derivatives (10.5) (9.0) (11.0)
Amortisation of intangible assets 2.7 2.4 4.8
Impairment of intangible assets - - 0.2
Depreciation of property, plant and equipment 1.0 1.0 2.0
Impairment of property, plant and equipment - - 0.2
Foreign exchange losses/(gains) on cash and
cash equivalents 3.4 (8.6) 2.0
Impairment of associated undertaking - - (4.4)
Charges to equity in respect of employee share
schemes 0.2 0.1 0.1
Cash contributions in excess of defined benefit
pension scheme charges (0.5) (0.3) (5.2)
Interest income (26.3) (30.4) (56.1)
Dividend income (3.1) (0.3) (1.4)
Finance costs on borrowing 7.1 7.4 15.0
Changes in working capital:
Deferred acquisition costs (14.4) (26.9) (12.4)
Insurance and other receivables excluding accrued
income (189.7) (177.9) (38.6)
Insurance and reinsurance contracts 45.9 124.3 (3.1)
Financial investments 116.2 339.9 41.5
Derivative contracts 9.2 6.1 10.6
Insurance and other payables 67.6 142.2 11.6
Provisions (0.3) (0.5) (2.0)
Cash flows provided by operating activities 45.5 463.1 55.9
------------------------------------------------------- --------- ----------------- -------------
19 Acquisitions
On 1 June 2014 the Group acquired an aviation underwriting and
claims team from QBE Underwriting Limited. The Group purchased this
team and the renewal rights to their London based dedicated Lloyd's
aviation business through a cash payment of GBP1.2m and a further
GBP0.9m of estimated deferred consideration. This has been
recognised as a renewal right intangible asset of GBP2.1m.
20 Related party transactions
(a) Principal investors
The principal investors in Brit PLC, the ultimate parent company
of the Group, are a number of Apollo and CVC investment funds.
The Group has paid monitoring fees to Apollo and CVC affiliated
investment funds amounting to GBP7.4m (30 June 2013: GBP1.0m), (31
December 2013: GBP2.0m) of which GBP5.4m was paid in connection
with the termination of those monitoring fee arrangements.
Apollo Capital Management LP and Athene Asset Management LLC are
members of the Apollo Group and CVC Credit Partners LLC is a member
of the CVC Group. The Group has paid investment management fees to
these companies as follows:
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
------------------------------- --------- --------- -------------
Apollo Capital Management, LP 0.3 0.2 0.4
Athene Asset Management, LLC 0.4 0.4 0.9
CVC Credit Partners, LLC 0.2 0.1 0.1
------------------------------- --------- --------- -------------
0.9 0.7 1.4
------------------------------- --------- --------- -------------
The Group has made investments in Apollo and CVC investment
funds as follows:
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2014 2013 2013
GBPm GBPm GBPm
-------------------------------------------- --------- --------- -------------
Apollo Offshore Credit Strategies Fund 22.2 13.2 22.1
CVC Credit Partners European Opportunities
Fund 16.2 - 17.0
-------------------------------------------- --------- --------- -------------
38.4 13.2 39.1
-------------------------------------------- --------- --------- -------------
(b) Key management
On 27 March 2014, certain key managers and certain other
employees of the Group entered into loan agreements with Achilles
Holdings 1 S.à r.l., pursuant to which they borrowed GBP1.4m from
Achilles Holdings 1 S.à r.l. for the purpose of funding their
acquisition of additional shares in Achilles Holdings 2 S.à r.l., a
Group company. The loans are interest free and are repayable in
full on 28 February 2015 or, if earlier, the date on which the
borrower ceases to be employed by a Group company. As part of the
corporate reorganisation, the relevant shares in Achilles Holdings
2 S.à.r.l. were exchanged for shares in Achilles Holdings 1
S.à.r.l., which in turn were exchanged for shares in Brit PLC. Each
key manager and employee has been required to sell 25% of all of
their shares in Brit PLC resulting from the corporate
reorganisation and use 50% of the post-tax consideration for full
or partial repayment of their respective loan. As at 30 June 2014,
the total amount of such loans outstanding was GBP0.3m.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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