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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Novae Grp | LSE:NVA | London | Ordinary Share | GB00B40SF849 | ORD 112.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 714.00 | 714.00 | 715.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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TIDMNVA
9 March 2017 For immediate release
Novae Group plc
Preliminary results for the year ended 31 December 2016
Novae Group plc ("Novae" or "the Group"), the specialist insurance group,
today announces its preliminary results for the year ended 31 December
2016.
-- Gross written premium of GBP901.0 million (2015: GBP787.0 million)
-- Weighted average rates on renewal premium reduced by 3.5%
-- Combined ratio of 98.3% before Ogden rate change1 ("before Ogden");
103.6% including Ogden; (2015 restated: 91.3%)
-- Net investment income of GBP32.7 million (2015: GBP6.8 million)
-- Profit before tax of GBP59.1 million before Ogden; GBP23.7 million
including Ogden; (2015 restated: GBP52.4 million)
-- Return on equity of 15.5% before Ogden; 6.6% including Ogden; (2015
restated: 14.7%)
-- Net asset value per share of 512.2p (2015 restated: 534.8p)
-- Final dividend of 7.5p per share (2015: 20.0p per share)
Matthew Fosh, Chief Executive Officer, today said:
"Notwithstanding the challenges presented by market conditions,
including the recent change in the Ogden discount rate, we continue to
pursue our stated strategy of investing in those underwriting classes
where we have demonstrable competitive advantage. Irrespective of
short-term knocks, this strategy has steadily been transforming this
business since 2013 - the journey is not yet complete, but the direction
of travel is set."
There will be a presentation for analysts only at 10.30 am today at
Novae's head office at 21 Lombard Street, London EC3V 9AH. Invitees are
requested to go to the main entrance of 21 Lombard Street where they
will be provided with a pre-prepared pass.
For further information:
Matthew Fosh/Reeken Patel : Novae Group plc
020 7050 9000
David Haggie/Rebecca Young : Haggie Partners
020 7562 4444
(1) The announcement on 27 February 2017 by the Lord Chancellor in
conclusion to her review of the discount rate for personal injury claims
(the "Ogden" rate) resulted in the Ogden rate being revised from 2.5% to
minus 0.75%.
Chairman's statement
Novae Group plc ("the Group") has reported profit before tax of GBP23.7
million for the year. This is after reflecting the significant impact of
the announcement from the Lord Chancellor on 27 February 2017 of the
change in the discount rate for bodily injury claims (the "Ogden" rate)
from 2.5% to minus 0.75%. Before making the adjustment for the Ogden
rate we would have reported profit before tax of GBP59.1 million, a
combined ratio of 98.3% and a return on equity of 15.5%. Our result was
aided by a strong investment return under our new investment strategy
implemented in 2015 and favourable foreign exchange movements following
the UK's decision to exit the European Union and the US Presidential
election. It also includes the impact of the prior year restatement to
deferred acquisition costs.
The Ogden change was considerably more severe than the industry expected
leading the Association of British Insurers to describe the outcome as
"crazy". This has a one off impact on our reserves and we must focus on
returning the comfortable level of surplus that we have carried to date.
Gross written premium rose to GBP901.0 million in the year, which
represents growth of 4.7% at constant rates of exchange. Growth was
driven by targeted expansion in core specialty classes and strong
relationships with distribution partners, which includes our partnership
with Securis Investment Partners LLP ("Securis") to underwrite US Excess
& Surplus lines business through an innovative award winning Special
Purpose Arrangement ("SPA").
The well understood market headwinds caused by surplus capital and
premium rate reductions persisted through 2016. Combined with an
increase in global risk and catastrophe losses, this was a challenging
year for the Group. Although market conditions remain tough, the Group
continued to invest in core classes of business where we see positive
returns and future growth opportunities. While taking advantage of
profitable growth opportunities, we have also taken steps to withdraw
from, or reduce exposure to, classes such as international liability and
property per risk reinsurance where returns have become unacceptable.
Market conditions will see us accelerate our concentration on the core
classes where we are market leaders, our 'Invest' classes, and away from
the classes where we are just market followers. We are confident of the
integrity of our strategy. Premium from these invest classes has grown
from 25% of total gross written premium in 2013 to 46% in 2016. Over the
same period these classes have delivered an average combined ratio below
80%.
Global natural disasters in 2016 combined to cause insurance industry
losses of US $54.0 billion and put an end to three years of relatively
benign catastrophe activity. In contrast to the increased prevalence of
large and catastrophic events during the year, we have benefitted from
the continued improvement in our attritional loss ratio.
The timing of the Lord Chancellor's announcement was unfortunate,
falling in the middle of the main insurance reporting season, nor was it
well sign posted in terms of the size of reduction in rate. It has had a
significant impact on our underwriting result, particularly through our
motor reinsurance book.
The Board has confidence in the business strategy and outlook for Novae,
notwithstanding the impact of the recent Ogden rate change. It is
therefore recommending the payment of a final dividend of 7.5p per share
while at the same time conserving capital to support growth and protect
our shareholders' interest in that growth. The Board expects to
continue paying dividends in respect of the current year, maintaining an
appropriate balance between the needs of the business and underlying
profitability.
I noted in my Chairman's statement last year that the implications of a
vote by the UK to leave the European Union would be extremely complex
and events to date support this view. Although the referendum result has
no immediate impact on the UK's ability to continue trading with the
European Union, the uncertainty for the long term created for the City
of London is significant. We welcome the proactive and engaged response
by Lloyd's to ensure that the impact on our market is managed. Although
the Group only derives approximately 8% of its revenues from the
European Union, we will continue to work with Lloyd's of London to
position ourselves positively for a post-Brexit world.
Over the last few years the Group has made a number of operational
improvements. This includes our enhanced investment strategy, which
focuses on maximising long term economic value by managing balance sheet
assets and liabilities on a more holistic basis. I am pleased to report
an investment return of GBP32.7 million for the year, which represents a
2.4% return on average invested assets (2015: GBP6.8 million and 0.6%).
In the second half of 2016, we were also able to secure a new expanded
bank financing facility which will not only support our future strategy
but also reduce the Group's cost of financing from 2017 onwards. The new
facility also increases the Group's bank lending group from one to four
banks.
In addition to these internal operational improvements, we remain
supportive of the progress made by Lloyd's in recent years to reform and
modernise the market in which we do business. Several steps have been
made to introduce technological and process change but much remains to
be done to achieve the transformational change we need to remain
competitive on the world market. In this respect, we welcome the
appointment of Bruce Carnegie-Brown as the new Chairman of Lloyd's. His
wide ranging experience will be invaluable in supporting the delivery of
the modernisation agenda.
Your Board has seen two significant director changes during the year. In
March 2016 we welcomed Andrew Torrance to the Board. Andrew joins us
with over 20 years' experience in the insurance industry, holding a
number of senior positions within the Allianz Insurance group. In
October 2016, Charles Fry left the Group. Charlie played a key role as
part of the senior team in crafting the strategy we believe is crucial
to the prosperity of our business in the next five years. He has been
replaced by Reeken Patel whose time as interim Chief Financial Officer,
and his previous role as the Group's Chief Risk Officer, together with
his prior experience as a partner at PricewaterhouseCoopers, provides an
ideal skill set to support the delivery of our strategy.
As we move into 2017, there are no signs that the challenges affecting
the market will abate, but rather will likely be added to once the
implications of political events during 2016 work their way through.
Although profitable growth will remain challenging to achieve,
opportunities exist for those insurers who keep ahead of the curve in
meeting the changing needs of customers and are first to the market with
creative and innovative products. At some stage the decline in rates
below profitable levels will be halted as the providers of excess
capital find other fields to play in. It is a very brave person who
calls when precisely that will happen. In the meantime it is our job to
ready Novae to be able to take advantage of the turn in rates whenever
that should happen.
We remain focussed on our goal to be a leading specialty underwriting
franchise which delivers excellence in products and service. Although
2016 was a challenging year for the Group I remain confident that we
have the right strategy and people in place to achieve our goal and
deliver sustainable returns for our shareholders.
John Hastings-Bass
Chairman
8 March 2017
DIVID AND FINANCIAL TIMETABLE
Ex-dividend date: 20 April 2017
Record date: 21 April 2017
Annual General Meeting: 10 May 2017
Final dividend of 7.5p per ordinary share payable: 19 May 2017
Chief executive's statement
The Lord Chancellor's Ogden rate announcement, both in terms of timing
and severity, has overshadowed our 2016 results. The resultant increases
in reserves within our motor reinsurance and general liability classes
have significantly eroded profits this year such that the Group reports
a profit before tax of GBP23.7 million and a headline return on equity
of 6.6%. If we exclude the impact of the change in Ogden rate then the
Group delivered a much more respectable profit before tax of GBP59.1
million representing a return on equity of 15.5%. We are pleased, in
particular, with our investment result, which was delivered against a
volatile backdrop. Our underwriting result, however, was disappointing
and delivered a combined ratio of 98.3%.
On 27 February 2017, the Ministry of Justice announced the long awaited
outcome of its review of the discount rate used to settle personal
injury claims. In preparation for this we had undertaken a detailed
assessment of the impact of different Ogden rates on the Group's net
reserves. The revised Ogden rate of minus 0.75% has contributed an
additional 5.3 percentage points to our combined ratio taking it from
98.3% to 103.6%. The Ogden change, while significant, has a one-off
impact on the 2016 results and has no significant impact on the
profitability of our ongoing business.
Looking at our underlying result in 2016, the main driver of our
increased combined ratio in 2016 compared to recent years was the
increased prevalence of global natural disasters. I am not referring
here to major hurricanes and earthquakes such as Hurricane Katrina in
2005, or the earthquake in Japan in 2011 - mercifully there were no
disasters on that scale during the year. Rather, I am referring to
natural catastrophes which, although tragic and often fatal events in
their own right, are not so large as to trigger reinsurance recoveries
for the Group, and hence we absorb a larger proportion of the loss
ourselves. During 2016, there was a high incidence of these 'smaller
scale' natural catastrophes, and even Hurricane Matthew, terrible and
hugely damaging though it was, did not cause the level of damage and
destruction in the US that was at one time forecast.
The cumulative effect of the increased prevalence of relatively small
natural disasters was to dent severely our ability to deliver you a
strong underwriting return for the year. When one adds to that a very
competitive pricing environment, which served to force down premiums
across the board, the Group produced a combined ratio of 98.3% for the
year, compared to 91.3% the previous year.
Despite these challenges, there are strong reasons for us to be
optimistic for the Group's prospects in the coming years. The reasons
for this optimism lie in the way the Group has fundamentally changed
over the past few years, adapting proactively to a market environment
that is itself changing. As margins in the industry as a whole, and
particularly in wholesale Property and Casualty insurance, have come
under increasing pressure, it has been ever more critical to move
deliberately away from areas where one is not a 'lead' market, and to
focus on those areas where one can exhibit a demonstrable competitive
advantage. We call these classes within our underwriting portfolio
"Invest" classes. This is precisely what we have been doing at Novae
Group since 2013, investing heavily in those areas where we have
specialist expertise, and reducing exposure in more generalist areas
where we do not offer any great differentiation.
Tellingly, the painful losses we experienced in 2016 did not come from
those areas where we are investing and growing, but from those classes
where we are a 'follow market' as opposed to a lead, and from classes
where we have been seeking actively to cut back or exit. If anything,
the lesson learned was that we needed to be more rigorous in managing
down our follow classes, even though the path we have been taking
remains the right one.
Notwithstanding the lower underwriting returns during 2016, I remain
confident that our strategic focus within the business on building an
underwriting franchise with market leading capabilities and expertise,
growing in areas with high barriers to entry for competitors, will
enable us to adapt to the challenges ahead. I remain grateful to our
shareholders and trading partners for their continued support in helping
us to execute this strategy.
Results overview
The Group reported profit before tax of GBP23.7 million (2015 restated:
GBP52.4 million), aided by a strong investment return of GBP32.7 million
(2015: GBP6.8 million) and foreign exchange gains of GBP43.0 million
(2015: gain of GBP0.5 million). This produced a return on average
shareholders' funds of 6.6%.
Gross written premium of GBP901.0 million (2015: GBP787.0 million)
represented growth of 14.5%, or 4.7% at constant rates of exchange. As
mentioned above, our growth was focussed on those areas where we have
market leading expertise and where we are delivering consistent
profitability. It is these classes that are at the forefront of the
Group's growth plans for 2017 and beyond.
Those units where we feel we do not hold a commanding market position,
or where rates remain under persistent pressure, and where consequently
the Group does not expect to make adequate returns over the cycle, have
been cut back or exited. As part of this approach we discontinued
writing property per risk reinsurance business during the year, and in
the final quarter of 2016 we closed our International Liability unit.
Active management of the portfolio remained our focus throughout the
year and we reduced premium levels in 14 of 32 underwriting units to
reflect challenging market conditions.
Although the Group's combined ratio pre-Ogden at 98.3% was disappointing,
particularly by our more recent standards, our underlying attritional
loss ratio improved to 47.4% (2015: 49.8%). This improvement reflects in
part the changes we have made to the quality of the underwriting
portfolio, as well as changes to our portfolio mix, and increasing use
of quota share reinsurance. The use of quota shares allows us to retain
a presence in classes which may be under pricing pressure but which we
nevertheless believe will deliver returns for shareholders in the long
term. The pre-Ogden net loss ratio of 51.7% (2015: 48.3%) includes 5.7%
from catastrophe events (2015: 2.0%) in a year that is estimated to have
cost the insurance industry US $54.0 billion, the highest insured loss
total since 2012.
The expense ratio increased to 46.6% (2015 restated: 43.0%). This is a
reflection of our trend in recent years, of moving away from writing
reinsurance classes, where many of our larger competitors have an
advantage, towards writing more delegated underwriting business coupled
with increasing use of quota share reinsurance.
Our investment return of GBP32.7 million (2015: GBP6.8 million) was a
strong result in what was a turbulent year for bond and equity markets.
Pleasingly, our change in investment strategy, explained to shareholders
in 2015 and implemented in July of that year, served us well. It
delivered a return on average invested assets of 2.4% (2015: 0.6%) at a
lower average level of risk than our target risk appetite.
Overall, the business delivered basic earnings per share of 34.3p and
tangible net assets per share of 507.9p. This is after adjusting for the
restatement of deferred acquisition cost communicated in the final
quarter of 2016, and allowing for the impact of the change in Ogden
rate.
Strategy & focus
Our strategic aim is to be a leading underwriter of specialist classes
of insurance, where the knowledge and experience of our underwriters,
combined with flexibility and innovation, deliver us a competitive
advantage. Current market conditions require insurers to adapt and
innovate, and this is precisely what we have been doing in recent years
in the way we have changed and repositioned our business. The journey is
not yet complete, but the direction of travel is set. We remain focussed
on our strategy of 'Expert Underwriting', 'Consistent Performance' and
'Dynamic Capital Management'.
In order successfully to execute the first element of this strategy,
'Expert Underwriting', investment in underwriting talent is critical,
and over the last 18 months the Group has made several senior
underwriting appointments in our 'Invest' classes. In December 2015,
Caroline Koczerzat joined the Group as deputy divisional head of Marine,
Aviation and Political Risk ("MAP"). Caroline's breadth of experience
across specialty classes, particularly cargo and specie, will complement
the existing marine team, already leaders in their specialist marine
fields. Other hires in the MAP division include Kieron Russell in crisis
management, and Valeria del Villano in renewable energy, further
strengthening these areas of specialist expertise.
The Casualty division welcomed Jo Chadha, Michael Shen and Sharif
Gardner to the Cyber unit as the division looks to continue its
profitable growth in this rapidly developing class. The Property
division welcomed a new Accident & Health team in January 2016 and also
hired Steve Cross to lead the Group's newly-formed Construction unit. As
the wider insurance industry is itself being forced to adjust to new
circumstances we believe our continuing investments in ever more
specialist fields of underwriting, through attracting leading
underwriters in their fields, are central to the Group's strategy and
will serve us well as we head into 2017 and beyond.
The other component within this active portfolio management is cutting
back on business in classes which we do not feel can deliver sustainable
returns for shareholders, typically where we do not have a competitive
advantage. Following the action taken in 2015 to transfer the Group's
Agriculture Reinsurance and Credit and Surety Reinsurance units to
Ironshore International and Liberty Specialty Markets respectively, we
also exited property per risk reinsurance and international liability
business during 2016.
Our second strategic goal of 'Consistent Performance' is a high bar to
set in a volatile industry such as Property & Casualty (re)insurance,
where both the rewards and the risks can be high. A focus on
'consistency' forces us to balance resilience and reliability in our
business decisions alongside our search for the best possible returns
within our stated risk appetite. Pursuing this goal requires companies
to adapt and to embrace change. In 2016 we established 'Special Purpose
Arrangement' 6129 ("SPA 6129") with Securis, which leverages our agility
and underwriting expertise within the 'Excess & Surplus Lines' market in
the US. The innovative structure of SPA 6129 enables us to broaden the
scope of business we write, allowing us to bring more business to the
London market, while at the same time offering exciting new
opportunities to forward thinking industry investors such as Securis. I
am delighted that this has been recognised by the wider industry, with
the naming of SPA 6129 as Innovation of the Year at the London Market
Reactions Magazine awards.
The Group's prudent approach to reserving is also important in our drive
for consistency. At 31 December 2016, the Group held GBP54.3 million
(2015: GBP73.8 million) in excess of the actuarial best estimate of
reserves, representing a sufficiency of net reserves of 81%.
Our third strategic goal, "Dynamic Capital Management" seeks to optimise
the efficiency of how capital is funded and deployed across the business,
while at the same time defending the resilience of the balance sheet. In
addition to partnering with third party capital, the Group also seeks to
maximise the potential of existing available capital in delivering
returns for shareholders. Our enhanced investment strategy is part of
this approach because at its heart lies the primary aim of managing
risk. This means that we do not target a particular level of investment
return but manage the portfolio within defined risk limits. We achieve
this aim by utilising an experienced external manager and observing
rigorous investment risk management procedures.
Proactive management of capital surplus is also a key focus for the
Group, seeking to strike an appropriate balance between delivering
returns to shareholders while ensuring our balance sheet is robust. At
the end of 2016, our surplus over our regulatory capital requirement was
41.2% (2015: 34.0%). The increase, in part, reflects the fact that we
completed our two-year refinancing package in 2016. This can be expected
to trend down in 2017 as we move towards our stated target of 20%
headroom on a prospective basis.
In March 2017, we announced that Reeken Patel would be appointed to the
Board as Chief Financial Officer. Reeken brings a wealth of experience
from his time as a partner at PricewaterhouseCoopers LLP and in his
previous role as Chief Risk Officer at Novae Group. Reeken replaces
Charlie Fry who left the Group in October 2016. I would like to record
my gratitude for Charlie's contribution to the Group during his time
with us. In addition to carrying out his CFO responsibilities he was a
key architect in helping fashion the Group's strategy, working
tirelessly towards its development and execution.
Outlook
In my Chief Executive's statement last year I commented that these were
difficult times for the industry, with an abundance of capital, a soft
rating environment and low interest rates being recurring themes in
2016. Nothing in the past 12 months has prompted me to change that view,
and indeed the political events in the UK and US have served only to
increase global uncertainty. Novae is not immune to these difficulties,
as seen in particular with the Ogden rate change, but we believe the
direction in which we are steering the business is the right one. The
significant improvements we have made to your business in recent years,
and that we will continue to make in 2017, mean we are better placed
than ever before to deal with the undoubted challenges ahead.
In insurance, as in other industries, opportunities will always exist
for those who are first to market with innovative products or for those
who have niche specialisms requiring high levels of expert knowledge in
areas with high barriers to entry. Our focus remains on disciplined
underwriting in precisely these areas, and we will continue to reshape
and adapt our portfolio to exploit the opportunities that emerge. Whilst
2017 is unlikely to see a change in the significant challenges facing
the industry, Novae is in a strong position to navigate its way through
them.
Matthew Fosh
Chief Executive Officer
8 March 2017
Operating & financial review
Financial results
Group profit after tax of GBP21.6 million generated a return on average
shareholders' funds of 6.6%. In December 2016, the Group announced it
would write down a portion of its deferred acquisition cost asset on the
Balance Sheet following a review of key accounting judgements. All
relevant financial information presented throughout this report has been
restated where indicated to reflect the changes made. The restatement
resulted in a reduction of GBP13.5 million in prior year net assets and
consequently a restated 2015 profit after tax of GBP48.8 million and
return on shareholders' funds of 14.7% compared to GBP51.5 million and
15.0% as previously reported. Further information on the restatement is
provided in the accounting policies section of this release.
Net investment income of GBP32.7 million (2015: GBP6.8 million)
benefitted from the Group's enhanced investment strategy implemented in
the second half of 2015. This was achieved despite the volatility
created by the UK's vote to leave the European Union and US Presidential
Election. Net tangible asset value per share was 507.9p (2015 restated:
529.8p).
Restated
Year ended Year ended
31 December 2016 31 December 2015*
Financial highlights GBPm GBPm
Gross written premium 901.0 787.0
Net earned premium 644.8 582.6
Net investment income 32.7 6.8
Profit before tax 23.7 52.4
Claims ratio (1) 57.0% 48.3%
Expense ratio (2) 46.6% 43.0%
Combined ratio (3) 103.6% 91.3%
Profit before tax and impact of change in Ogden discount
rate (4) 59.1 52.4
Combined ratio before the impact of change in Ogden
discount rate (3,4) 98.3% 91.3%
Net assets 321.5 336.8
Net tangible assets 318.8 333.7
Return on equity (5) 6.6% 14.7%
Return on equity before the impact of change in Ogden
discount rate (4,5) 15.5% 14.7%
Per share amounts (in pence)
Basic earnings per share 34.3p 76.7p
Net asset value per share 512.2p 534.8p
Net tangible asset value per share 507.9p 529.8p
(1) The claims ratio is calculated as net claims incurred
divided by net earned premium for the year. The claims ratio excludes
the foreign exchange effect of the non-retranslation of non-monetary
items
(2) The expense ratio is calculated as acquisition costs and
total operating expenses divided by net earned premium. The expense
ratio excludes the foreign exchange effect of the non-retranslation of
non-monetary items
(3) The combined ratio is the total of the claims and expense
ratios
(4) The announcement on 27 February 2017 by the Lord Chancellor in
conclusion to her review of the discount rate for personal injury claims
(the "Ogden" rate) resulted in the Ogden rate being revised from 2.5% to
minus 0.75%. This change had a material one-off impact on the results of
the Group and therefore, to assess performance profit before tax,
combined ratio and return on equity are also presented before the impact
of the Ogden rate change
(5) Return on equity is calculated as profit after tax over average
shareholders' funds during the period
* In December 2016 the Group announced it would write down a portion
of its deferred acquisition costs asset on the Balance Sheet following a
review of key accounting judgements. This has resulted in a prior year
restatement to net assets of GBP13.5 million. The comparative financial
information presented throughout this report has been restated to
reflect this change. Further information on the restatement is provided
in the accounting policies section of this release.
Premiums
Gross written premium for the year ended 31 December 2016 was GBP901.0
million (2015: GBP787.0 million), an increase of 14.5% or 4.7% at
constant rates of exchange. The Group continues to actively manage its
underwriting portfolio and allocate capital to classes of business
offering the most attractive returns for shareholders. The Property
division achieved strong growth of 21.1% to GBP439.0 million (2015:
GBP362.5 million), or 12.0% at constant rates of exchange. This was
concentrated in core classes within the property insurance portfolio and
particularly in the US Property Facilities unit which benefitted from
the SPA in partnership with Securis.
Premium in the Casualty division increased by 6.8% to GBP195.7 million
(2015: GBP183.3 million), a reduction of 0.9% on a constant currency
basis. Significant growth was achieved in the Cyber unit reflecting the
Group's continued investment in innovative and market leading thought
leadership in this area. Reductions in other classes in the division,
including the closure of the Group's International Liability unit in the
last quarter of 2016, offset the Cyber growth.
The MAP division experienced premium growth of 10.4% to GBP266.3 million
(2015: GBP241.2 million), equivalent to a reduction of 1.8% at constant
rates of exchange. The core classes within this division continue to
grow profitably while the Group has cut back business written in energy
and aviation reinsurance where rates remain under the most severe rating
pressure.
In aggregate across the Group, rates were down by 3.5%. The Property
division experienced rate reductions of just under 4% for the full year.
The more severe rating pressures were in catastrophe reinsurance units
during the first half of 2016 although a slowing in the pace of rate
reduction in the US was seen in the latter half of the year. Across the
Casualty division, increases in Cyber rates balanced out a modest level
of decrease across other Specialty classes. The MAP division experienced
the most severe rate reductions with rates on average down by 6%.
Outwards reinsurance spend during the year was GBP237.0 million (2015:
GBP148.9 million) producing a reinsurance spend ratio of 26.3% (2015:
18.9%). Premium ceded as part of the SPA arrangement was a significant
contributor to the year on year increase in addition to an increased use
of proportional reinsurance in lines such as cyber. The Group also took
advantage of favourable market conditions to manage its net exposures in
peak catastrophe zones. Net earned premium for the year was GBP644.8
million (2015: GBP582.6 million).
Claims
Gross claims incurred were GBP494.4 million (2015: GBP326.4 million).
These were offset by reinsurance recoveries of GBP112.1 million (2015:
GBP44.9 million). Net claims incurred were GBP382.3 million (2015:
GBP281.5 million) producing a net claims ratio of 57.0% (2015: 48.3%).
Impact
of
Year ended Ogden
31 December 2016 rate Year ended Year ended
(Pre-Ogden) change 31 December 2016 31 December 2015
% % % %
Attritional
claims 46.6 0.8 47.4 49.8
Catastrophe
claims and
large
losses 10.4 - 10.4 6.7
Reserve
movements (5.3) 4.5 (0.8) (8.2)
51.7 5.3 57.0 48.3
Attritional claims
Attritional claims were GBP318.6 million (2015: GBP290.2 million),
equating to an attritional loss ratio of 47.4% (2015: 49.8%), which
includes 0.8% relating to the change in the Ogden rate. The favourable
movement in the attritional loss ratio reflects disciplined underwriting
in a softening rating environment and a shift in the mix of business.
Novae's diverse range of portfolios provide exposure to different
pricing cycles, enabling the Group to reduce exposure where pricing is
inadequate and to take advantage of profitable growth opportunities
elsewhere.
Catastrophe and large loss claims
Global natural disasters in 2016 combined to cause insurance industry
losses of US $54.0 billion and are back in the mid-range experience
compared with a relatively benign period between 2013 and 2015. Notable
losses for the Group in 2016 included Hurricane Matthew, major wildfires
in Canada and earthquakes in Japan, New Zealand and Taiwan. The Group
was also impacted by a number of large losses in the current accident
year including the Jubilee oil field loss, the SpaceX Amos 6 satellite
loss, and two product recall events. Total incurred losses from
catastrophe events and large losses were GBP69.2 million (2015: GBP39.2
million), which contributed 10.4% (2015: 6.7%) to the claims ratio.
Reserve releases
In its assessment of the valuation of insurance liabilities, the Group
targets a probability of sufficiency of net reserves of 70 to 80 per
cent. Favourable reserve experience contributed 5.3% to the overall
claims ratio in the year (2015: 8.2%). Following the change in the Ogden
discount rate, this favourable experience reduced to 0.8%. The margin
held over actuarial best estimate decreased to GBP54.3 million (2015:
GBP73.8 million), representing a sufficiency of net reserves of 81%.
Acquisition costs & Operating expenses
Acquisition costs for the year were GBP242.3 million (2015 restated:
GBP194.9 million) producing an acquisition cost ratio of 36.9% (2015
restated: 33.5%). The increase is consistent with changes to the
portfolio over the past two years, with a higher proportion of business
now arising from delegated underwriting arrangements and a reduction in
the level of reinsurance business underwritten.
Total operating expenses were GBP64.8 million (2015 restated: GBP55.5
million) including costs unallocated by division of GBP22.9 million
(2015: GBP25.9 million). The operating expense ratio of 9.7% (2015
restated: 9.5%) is in line with the previous year and reflects the
Group's continued commitment to investing in the business whilst
maintaining expense discipline.
Acquisition costs and operating expenses have been updated to reflect
the re-presentation of operating expenses as acquisition costs following
the accounting changes reported by the Group. This change increased
total acquisition costs by GBP39.7 million in 2016 (2015: GBP37.4
million increase), and reduced operating expenses by a corresponding
amount. The combined expense and acquisition cost ratio following the
changes was 46.6% (2015: 43.0%). Further detail on the changes made are
included in the accounting policies section of this release.
Investment performance
Investment income for the year was GBP32.7 million (2015: GBP6.8
million), equivalent to a total return net of investment management fees,
of 2.4% (2015: 0.6%) on average invested assets of GBP1,361.1 million
(2015: GBP1,219.5 million).
The Group's investment portfolio is structured to allow risk to be
managed proactively. The portfolio remained close to target risk
appetite for much of the first half of the year but for most of the
second half it was positioned below target risk due to volatility caused
by political instability. This reduced the Group's exposure to some of
the volatility seen in markets over the second half of the year. Overall
the portfolio outperformed the liability benchmark, while running less
risk.
The profile of the Group's investment portfolio is as follows:
31 December 2016 31 December 2015
GBPm GBPm
Corporate 595.0 340.6
Government 429.6 516.7
Covered bonds 91.2 17.5
Pooled equity fund 58.4 81.4
Securitised RMBS / ABS 47.1 55.0
Emerging Market Mutual Fund 43.2 32.8
Fixed and floating rate deposits 18.5 -
Government agencies 12.1 64.2
Investment cash 6.5 3.7
Certificate of deposits/floating rate
notes - 6.1
Other 3.9 3.9
1,305.5 1,121.9
The investment portfolio can be analysed by rating as follows:
31 December 2016 31 December 2015
GBPm GBPm
Government / AAA rated 611.0 410.6
AA rated 155.0 247.9
A rated 248.9 142.1
BBB+ rated or below 202.1 145.7
Unrated 88.5 175.6
Financial assets 1,305.5 1,121.9
The Group held investment assets and cash of GBP1,448.2 million at 31
December 2016 (2015: GBP1,259.0 million) primarily in government and
high grade corporate bonds with a modest exposure to equity and emerging
market debt.
The Group's investment portfolio has been constructed with flexibility
to manage the duration of the portfolio and exposure to growth assets
during periods of market stress with the aim of improving investment
outcomes without increasing overall risk appetite. At 31 December 2016
the average duration across the Group's investment portfolio was 2.6
years (2015: 2.4 years).
The investment outlook for 2017 remains challenging with a number of
political events on the horizon and, as seen in 2016, the outcomes of
these cannot be predicted with any degree of confidence. As such, we
remain confident our risk based investment strategy will continue to
serve us well.
Foreign exchange
Novae reported a gain on foreign exchange of GBP43.0 million (2015: gain
of GBP0.5 million). The Group has benefitted from the weakening of
Sterling against all major currencies following the UK's vote to leave
the European Union. The Group does not speculate on foreign currency
movements and where practical seeks to maintain a broadly neutral
foreign currency position.
The Group wrote a significant amount of US dollar denominated business
during the year. US dollar business now accounts for 62.3% of gross
written premium (2015: 58.7%). Other trading exposures include the euro
(6.9%), Australian dollar (4.1%) and Canadian dollar (3.1%) (2015: 8.7%,
4.1% and 3.1% respectively).
Tax
Novae's tax charge for the year was GBP2.1 million (2015 restated:
GBP3.6 million), which produced an effective tax rate for 2016 of 8.9%
(2015 restated: 6.9%).
In 2015, changes to the UK corporation tax rates were announced in the
Budget, including a reduction in the main rate of corporation tax to 19%
from 1 April 2017 and 18% from 1 April 2020. At the March 2016 Budget,
the government announced a further reduction to the corporation tax main
rate for the year starting 1 April 2020, setting the rate at 17%. These
changes were substantively enacted on 15 September 2016 and have been
reflected in the Group's calculation of current and deferred tax. The
carrying value of the Group's deferred tax asset is now GBP6.2 million
(2015 restated: GBP9.5 million).
Capital structure
The majority of regulatory capital, held in the UK and in Bermuda, is
required to support the Group's underwriting platform at Lloyd's, with a
small requirement relating to the Group's Lloyd's managing agency,
service company and Bermudian class 3A reinsurer.
Novae determines its capital requirements in line with Lloyd's
requirements for Syndicate 2007. Since 2012, Novae has used its Solvency
II internal model for the purpose of assessing its solvency capital
requirement. Lloyd's reviews and agrees these capital assessments in
their market oversight role, before applying an economic capital uplift
in excess of the regulatory requirement to set the total capital
requirement for the Group's managed syndicate (Syndicate 2007), known as
the Economic Capital Assessment ("ECA"). This process is unchanged under
the Solvency II regime which came into force on 1 January 2016.
The Group is required, through its corporate member, to satisfy this
capital test at coming into line dates in June and November each year
and is required to maintain a continuous capital assessment, advising
the PRA and Lloyd's should its capital position deteriorate.
Regulatory capital
The table below sets out the Group's sources and uses of capital:
31 December 2016 31 December 2015
GBPm GBPm
Cash and investments at Lloyd's 228.3 217.4
Free cash and investments at Group 114.3 77.0
Pipeline profits(1) 116.8 144.8
Uncollateralised letter of credit 120.0 85.7
Quota share reinsurer letters of credit 74.8 21.3
Revolving credit facility (undrawn) 50.0 30.0
Lloyd's economic capital requirement (498.7) (429.7)
Headroom(2) 205.5 146.5
Headroom % 41.2% 34.1%
(1) Pipeline profits represent the Group's share of undistributed
profits available for Lloyd's capital provision at the most recent
coming into line. Consequently these are based on the 30 June balance
sheet. As such they do not reflect the impact of the change in Ogden
discount rate which we expect to reduce pipeline profits by c.GBP55m
(2) Headroom stated is exclusive of any distributions subsequent to
the balance sheet date
The Group's available capital for 2017 includes letters of credit held
as collateral under quota share reinsurance arrangements.
Debt structure
As at 31 December 2016, the Group had gross debt and banking facilities
of GBP251.4 million (2015: GBP192.4 million).
31 December 2016 31 December 2015
GBPm GBPm
2017 senior notes 49.9 49.7
2017 subordinated notes 2.5 2.5
US $ 2034 Dekania notes 29.0 24.5
US $ letter of credit 44.3 51.7
EUR EUR letter of credit 38.5 -
Letter of credit and Revolving credit
facility 87.2 64.0
251.4 192.4
During the year the Group renegotiated its bank financing facility,
increasing the number of banks supporting the facility to four.
The new facility provides a multi-option letter of credit ("LoC") and
revolving credit facility ("RCF") of GBP170.0 million (2015: LoC US
$126.0 million and RCF GBP30.0 million), available until December 2018.
This can be fully drawn as LoC or up to GBP50.0 million as RCF. In
addition, the facility includes a GBP50.0 million term-loan, to be drawn
in 2017 for the repayment of senior and subordinated notes due to
mature. The facility is multi-currency and uncollateralised.
At 31 December 2016 total drawings under the facility amounted to LoCs
of US $55.0 million and EUR45.0 million (2015: $76.0 million drawn).
Third party capital
Novae's participation on Syndicate 2007 is shown below. For the 2014
year of account additional capital was provided by two direct corporate
member participants on a limited tenure basis as detailed below:
Syndicate 2007 stamp Novae's Novae's
Underwriting capacity aligned capacity participation
year GBPm GBPm %
2014 575.0 556.9 96.85%
2015 650.0 650.0 100.0%
2016 700.0 700.0 100.0%
2017 800.0 800.0 100.0%
Property
Restated
Year ended Year ended
31 December 2016 31 December 2015
GBPm GBPm
Gross written premium 439.0 362.5
Net earned premium 319.0 258.3
Net claims incurred (166.9) (113.0)
Acquisition costs (123.1) (89.5)
Operating expenses (19.7) (12.9)
Underwriting contribution 9.3 42.9
Claims ratio 52.3% 43.8%
Expense ratio 44.8% 39.7%
Combined ratio 97.1% 83.5%
Novae's Property division represents 48.7% of the Group's gross written
premium (2015: 46.1%) and underwrites a diverse mix of risks worldwide
with a focus on the US, UK and Europe. Over the past 12 months the
division has invested in underwriting talent, which has enabled the
establishment of new classes of business and new product lines and
supported organic growth within the portfolio.
During 2016, gross written premium grew by 21.1% to GBP439.0 million
(2015: GBP362.5 million) representing growth of 12.0% at constant rates
of exchange. This was concentrated in the property insurance portfolio,
which now represents 38.8% of the Group's gross written premium (2015:
33.3%).
Growth was particularly strong in US Excess and Surplus lines business,
which benefitted from the launch of a Special Purpose Arrangement in
partnership with Securis Investment Partners LLP ("SPA 6129"). The
division is an established market leader of delegated authority business
across North America which achieved growth of 75.9% at constant rates of
exchange.
The UK & European Property Facilities unit progressed well by developing
a number of niche specialisms within the non-standard residential
property sector. The unit continues to respond to the changing needs of
a fast moving market and grew by 11.1% at constant rates of exchange.
Organic growth within the division was complemented by the establishment
of new underwriting units writing construction and accident & health
risks. The Construction unit was established in the first quarter of
2016 and underwrites a range of risks globally, with an emphasis on
infrastructure development and power construction. The Accident & Health
team was strengthened in late 2015 and identified as a separate
underwriting unit. The team offers bespoke occupational and trade
coverage in addition to expertise in the professional and amateur sports
markets in the US, UK & Europe. Combined these two new units contributed
4.9% of the division's 2016 gross written premium.
The division continues to actively manage its portfolio and cut back in
a number of areas. The most significant reductions were in agricultural
reinsurance, following the transfer of the unit to Ironshore
International in the second half of 2015 and in property per risk
reinsurance following the closure of the Group's Zurich office in the
final quarter of 2016. Combined these units represented 12.4% of the
division's gross written premium in 2015. The division also elected not
to renew its participation on a significant direct and facultative
arrangement, reallocating capital to support other opportunities.
Claims experience was less favourable compared with the previous year
and the division produced a net claims ratio of 52.3% (2015: 43.8%).
Although the attritional loss ratio continues to perform well, the
division was impacted by a number of catastrophic loss events in the
year most notably Hurricane Matthew, the Alberta Wildfires and the
Kaikoura and Kumatomo earthquakes. Catastrophe claims contributed 11.6%
to the division's reported net loss ratio for the year (2015: 4.4%). The
2015 reported loss ratio also includes the benefit of reserve releases
from property reinsurance classes. The increase in the expense ratio
includes both the impact of investment in new underwriting hires and the
change in business mix towards direct, rather than reinsurance classes.
The division experienced overall rate reductions of 3.9% across
insurance and catastrophe reinsurance lines of business. Direct property
business included decreases of up to 3.3%, with the direct & facultative
market under greater pressure than our property facility units writing
delegated authority business. Catastrophe reinsurance classes were down
by 5.8% overall with rates in the US performing better than
internationally, assisted by a slowing pace of reductions seen during
the latter half of 2016.
Casualty
Restated
Year ended Year ended
31 December 2016 31 December 2015
GBPm GBPm
Gross written premium 195.7 183.3
Net earned premium 147.7 141.9
Net claims incurred (113.6) (82.9)
Acquisition costs (49.6) (41.2)
Operating expenses (10.4) (7.6)
Underwriting contribution (25.9) 10.2
Claims ratio 76.9% 58.4%
Expense ratio 40.6% 34.6%
Combined ratio 117.5% 93.0%
Combined ratio excluding Ogden 93.5% 93.0%
Novae's Casualty division underwrites a broad range of specialty and
general liability insurance risks in addition to motor and casualty
reinsurance. The division contributed 21.7% of the Group's gross written
premium (2015: 23.3%) and grew by 6.8% in the year, a decrease of 0.9%
at constant rates of exchange.
The specialty liability portfolio continues to be the largest overall
component in the division and includes cyber, financial institutions and
medical malpractice classes. Recent investment in underwriting talent
has strengthened the division's cyber capabilities with the unit
achieving growth of 44.6% at constant rates of exchange. The cyber team
are a recognised thought leader in the class. They work closely with
leading technology firms and a globally recognised leading academic
institution to model and validate cyber risk. This has enabled the unit
to adapt to the changing needs of clients and develop long term and
mutually beneficial partnerships across the industry.
The division is also a recognised market leader in financial
institutions business at Lloyd's, underwriting a diversified account
which ranges from global household names to local risks. The unit
maintained its market position with growth of 0.2% at constant rates of
exchange. Combined, the Cyber and Financial Institutions units represent
8.7% of the Group's gross written premium (2015: 7.7%).
The division's specialty liability offering was increased further with
the establishment of the US Excess Casualty unit, which provides
technically backed underwriting solutions for US domiciled or US exposed
international clients. The new senior underwriting hires bring
significant industry experience to the wider team and in its first full
year of underwriting the unit contributed 7.1% of the division's gross
written premium (2015: 3.5%).
Growth in these classes offset reductions in the Professional Indemnity
unit, as the division reduced its exposure to poorer performing business
in this class. In addition, the division withdrew from writing
international liability business in the final quarter of the year, which
accounted for 5.6% of the division's gross written premium in 2016
(2015: 7.5%).
The division's reinsurance units write general liability and motor
business, which combined represents 3.3% of the Group's gross written
premium (2015: 3.8%). The units provide specialist underwriting
solutions for UK and international risks, developing long term
relationships and providing innovative solutions to meet insureds'
needs. Although some growth was achieved in the UK-centred Motor
Reinsurance unit, rating pressure in general liability business led to a
small year on year reduction in the unit's gross written premium. These
were the units that felt the impact from the change in Ogden rate.
The division reported a net claims ratio of 76.9% (2015: 58.4%), which
when adjusted for the impact of the change in the Ogden discount rate
was 52.9%. Over the last two years the division has repositioned its
portfolio towards more profitable lines of business and, combined with
the use of quota share reinsurance, has improved its underlying
attritional loss ratio. This benefit has been offset by an increase in
the expense ratio given the change in business mix and investment made
in new underwriting teams, which the division expects to benefit from in
the future.
Rates in the Casualty division were flat in aggregate. The Cyber unit
experienced positive rate movements of c.5% across the portfolio with
industries such as retail and healthcare seeing strong rating as pricing
continues to evolve and adjust to developments within the risk
environment. In the absence of any major loss activity, rates across
Financial Institutions and Professional Indemnity were down by 4%.
Medical Malpractice saw little overall rate movement.
Rates in UK general liability business continued a more positive year on
year rate trend, up by around 1-2%. In casualty reinsurance lines,
general liability rates were down by 3%, though motor increased to
respond to market-wide concerns around rising claims frequency and
severity trends and we anticipate that this trend will continue
following the Ogden rate change. The Group continues to maintain a
renewal-heavy position in these latter lines of business.
Marine, Aviation & Political Risk
Restated
Year ended Year ended
31 December 2016 31 December 2015
GBPm GBPm
Gross written premium 266.3 241.2
Net earned premium 204.3 182.4
Net claims incurred (101.8) (85.6)
Acquisition costs (69.9) (58.2)
Operating expenses (11.8) (9.1)
Underwriting contribution 20.8 29.5
Claims ratio 49.9% 46.9%
Expense ratio 40.0% 36.9%
Combined ratio 89.9% 83.8%
Novae's MAP division accounts for 29.6% of the Group's gross written
premium in the year (2015: 30.6%) and offers significant expertise
across marine, energy, aviation and political risks globally. The
division achieved growth of 10.4% on prior year which represented a
small reduction of 1.8% at constant rates of exchange. Over the last 12
months the division has invested heavily across all classes, hiring lead
underwriters in marine hull, war and cargo and establishing a new
Renewable Energy unit. The division also hired Caroline Koczerzat as
deputy divisional head, whose wealth of experience across all classes
within the division will add further depth and knowledge to the existing
team.
The marine portfolio remains the largest component of the division and
represents 16.2% of the Group's gross written premium for the year
(2015: 14.1%). Constant currency growth was achieved across all direct
marine classes as the division capitalised on its position as a
recognised Lloyd's leader in the field of marine liability and the
expertise and market relationships brought by new underwriting hires in
marine hull, cargo and renewable energy.
The division's energy account continued to experience some of the most
significant rating pressures, given depressed oil prices, increased
competition and the relative paucity of major loss activity over the
last few years. Despite this Novae's Energy unit remained agile and
responsive to the changing needs of the market and contributed 11.5% of
the division's gross written premium in the year (2015: 13.7%).
The division also achieved growth across all political and credit units,
which incorporates political and credit risk insurance, political
violence and crisis management. Novae has the expertise and a market
leading presence in political and credit risk insurance which enabled
constant currency growth in this class of 23.2%. The Political Violence
and Crisis Management units achieved growth of 45.7% and 9.7%
respectively with both units focussed on being adaptable and innovative
in delivering new products and solutions to a diverse client base.
The most significant premium reductions were experienced in aviation
reinsurance, where cedant retentions increased following consolidation
within the direct market and the failure of the rating environment to
respond to loss activity in recent years. In addition, the division
transferred its Credit & Surety reinsurance portfolio to Liberty
Specialty Market in the second half of 2015, which contributed 5.7% of
the division's gross written premium in 2015.
The division produced a net claims ratio of 49.9% (2015: 46.9%) which
included a small improvement in the attritional loss ratio compared with
2015. The division's performance was impacted by a number of large loss
notifications on current and prior accident years, the most significant
of which included the Jubilee oil field loss, the SpaceX Amos 6
satellite loss, a Latin American political risk loss and two product
recall events. Combined these events contributed 8.8% to the reported
net loss ratio. In line with other divisions, the increase in the
expense ratio includes the investment in the new underwriting hires and
a change in business mix towards insurance classes.
In common with the wider market environment, some of the most
significant rate reductions in 2016 were in Marine and Energy business,
consistent with the continued market trend of heightened softening in
classes that have benefitted from recent benign claims experience. The
MAP division as a whole saw rates reduce by around 6%. Marine lines
suffered average rate decreases of around 3%.
Energy rates have fallen by nearly 15%, driven by relatively low levels
of large loss experience in recent years, increased capacity and carrier
appetite, and reduced product demand resulting from suppressed oil
prices. Aviation reinsurance rates fell by just over 8% as the industry
continues to see a lower frequency of major losses. Rates in Political
Risk and Credit lines of business declined by an average 5%; Terrorism,
Kidnap & Ransom and Product Recall rates also down by around 7% in
aggregate.
Consolidated income statement
for the year ended 31 December 2016
Restated
Year ended Year ended
31 December 2016 31 December 2015
Note GBPm GBPm
Gross written premium 901.0 787.0
Outwards reinsurance premium (237.0) (148.9)
Net written premium 664.0 638.1
Change in gross provision for unearned premium (48.6) (71.3)
Reinsurers' share of change in the provision for
unearned premium 29.4 15.8
Net earned premium 644.8 582.6
Net investment income 4 32.7 6.8
Fees and commission income 0.3 1.0
Total revenue (net of premium ceded to
reinsurers) 677.8 590.4
Gross claims incurred (494.4) (326.4)
Reinsurers' share of claims incurred 112.1 44.9
Net claims incurred (382.3) (281.5)
Expenses for the acquisition of insurance
contracts (242.3) (194.9)
Operating expenses (64.8) (55.5)
Foreign exchange gain 43.0 0.5
Financing costs (7.7) (6.6)
Profit before income taxes 23.7 52.4
Income taxes 5 (2.1) (3.6)
Profit for the year attributable to shareholders 21.6 48.8
Earnings per share
Basic earnings per share 3 34.3p 76.7p
Diluted earnings per share 3 32.4p 72.5p
Consolidated statement of comprehensive income
for the year ended 31 December 2016
Restated
Year ended Year ended
31 December 2016 31 December 2015
Note GBPm GBPm
Profit for the year attributable to
shareholders 21.6 48.8
Items that will not be reclassified to the income
statement:
Defined benefit pension fund actuarial
gains/(losses) 0.2 (0.1)
Items that may be reclassified subsequently to the
income statement:
Changes in fair value of cash flow
hedges 10 0.1 0.1
Tax relating to equity incentive schemes 5 (0.9) 0.4
Other comprehensive income, net of tax (0.6) 0.4
Total comprehensive income recognised 21.0 49.2
The attached notes form an integral part of these consolidated financial
statements.
Consolidated balance sheet
as at 31 December 2016
Restated Restated
31 December 1 January
31 December 2016 2015 2015
Note GBPm GBPm GBPm
Assets
Cash and cash equivalents 142.7 137.1 202.2
Financial assets 7,8 1,305.5 1,121.9 1,048.2
Reinsurance contracts 9 398.4 313.0 344.1
Insurance and other
receivables 384.1 344.3 273.9
Deferred acquisition costs 136.5 118.8 95.7
Deferred tax assets 6.2 9.5 11.4
Property, plant and
equipment 10.7 9.3 0.9
Intangible assets 2.7 3.1 3.6
Retirement benefit assets - 0.2 -
Total assets 2,386.8 2,057.2 1,980.0
Liabilities
Insurance contracts 9 (1,813.4) (1,558.0) (1,507.1)
Insurance and other payables (168.6) (84.7) (70.9)
Current tax liabilities (1.9) (1.0) (1.1)
Financial liabilities 8,10 (81.4) (76.7) (75.1)
Retirement benefit
obligations - - (0.5)
Total liabilities (2,065.3) (1,720.4) (1,654.7)
Net assets 321.5 336.8 325.3
Shareholders' equity
Share capital 11 72.5 72.5 72.5
Other reserves 11 95.9 95.9 95.9
Retained earnings 11 153.1 168.4 156.9
Total shareholders' equity 321.5 336.8 325.3
The attached notes form an integral part of these consolidated financial
statements.
The financial statements were approved by the Board of Directors and
authorised for issue on 8 March 2017 and were signed on its behalf by:
M K Fosh R Patel
Chief Executive Officer Chief Financial
Officer
Consolidated statement of changes in equity
for the year ended 31 December 2016
Share Other Retained
capital reserves earnings Total
Year ended 31 December 2016 GBPm GBPm GBPm GBPm
Reported as at 31 December 2015 72.5 95.9 181.9 350.3
- Impact of prior year restatement - - (13.5) (13.5)
Restated as at 31 December 2015 72.5 95.9 168.4 336.8
Total recognised profit for the year - - 21.6 21.6
Total recognised in other comprehensive income for
the year - - (0.6) (0.6)
Total comprehensive income for the year - - 21.0 21.0
Transactions with owners recorded directly in
equity
- Movement in equity incentive reserves - - 3.8 3.8
- Movement in own share reserve - - (8.0) (8.0)
- Dividends paid - - (32.1) (32.1)
Net decrease in equity - - (15.3) (15.3)
as at 31 December 2016 72.5 95.9 153.1 321.5
Share Other Retained
capital reserves earnings Total
Restated Year ended 31 December 2015 GBPm GBPm GBPm GBPm
Reported as at 31 December 2014 72.5 95.9 167.7 336.1
- Impact of prior year restatement - - (10.8) (10.8)
Restated as at 31 December 2014 72.5 95.9 156.9 325.3
Total recognised profit for the year - - 48.8 48.8
Total recognised in other comprehensive income for
the year - - 0.4 0.4
Total comprehensive income for the year - - 49.2 49.2
Transactions with owners recorded directly in
equity
- Movement in equity incentive reserves - - 2.3 2.3
- Movement in own share reserve - - (10.9) (10.9)
- Dividends paid - - (29.1) (29.1)
Net increase in equity - - 11.5 11.5
as at 31 December 2015 72.5 95.9 168.4 336.8
The attached notes form an integral part of these consolidated financial
statements.
Consolidated cash flow statement
for the year ended 31 December 2016
Restated
Year ended Year ended
31 December 2016 31 December 2015
GBPm GBPm
Profit before tax 23.7 52.4
Adjustments for:
Foreign exchange on financial
assets (109.7) 7.9
Financing costs 7.7 6.6
Amortisation charge 0.4 0.5
Investment income (32.7) (6.8)
Depreciation charge 2.1 0.7
Employee equity incentives charge 10.7 11.0
Changes in operating assets and
liabilities
Change in insurance contract
liabilities 255.4 50.9
Change in insurance receivables (28.0) (68.7)
Change in other receivables (11.3) (0.5)
Change in deferred acquisition
costs (17.7) (23.1)
Change in reinsurance contract
assets (85.4) 31.1
Change in insurance payables 79.9 13.5
Change in other/trade payables 3.8 (0.5)
Change in market value of financial
liabilities 4.5 1.4
Change in market value of financial
assets (19.4) 2.9
Income taxes received/(paid) 1.6 (0.6)
Cash generated from operations 85.6 78.7
Cash flow (used in) / from
investing activities:
Purchase of tangible fixed assets (3.5) (9.4)
Interest received 23.2 5.0
Purchase of financial assets (1,785.0) (1,697.2)
Proceeds from sale of financial
assets 1,730.5 1,612.8
Net cash used in investing
activities (34.8) (88.8)
Cash flow used in financing
activities:
Interest paid (10.4) (8.0)
Acquisition of own shares (13.4) (17.1)
Dividends paid (31.4) (29.1)
Net cash used in financing
activities (55.2) (54.2)
Net decrease in cash and cash
equivalents (4.4) (64.3)
Opening cash and cash equivalents 137.1 202.2
Effect of exchange rates on cash
and cash equivalents 10.0 (0.8)
Closing cash and cash equivalents 142.7 137.1
The attached notes form an integral part of these consolidated financial
statements.
Notes to the financial statements
1. Significant accounting policies
Novae Group plc (the "Company") is a company registered in England and
Wales. The address of the registered office is 21 Lombard Street, London,
EC3V 9AH.
The consolidated financial statements include the results of the Company
and all its subsidiary undertakings (together referred to as the
"Group") made up to the same accounting date.
The consolidated financial statements have been prepared and approved by
the directors in accordance with International Financial Reporting
Standards as adopted by the EU ("Adopted IFRS") on a going concern
basis.
The accounting policies set out below have been applied to the Group
consistently for all periods presented in these consolidated financial
statements unless otherwise stated.
1.1 Revised and new reporting standards
The Group has adopted, where relevant, the following amendments to
standards, including any consequential amendments to other standards,
with a date of initial application of 1 January 2016.
-- IFRS 11: Amendment Accounting for Acquisitions of Interests in Joint
Operations
-- IAS 27: Amendment: Equity Method in Separate Financial Statements
-- IFRS 10, 12 and IAS 28: Amendments: Investment Entities: Applying the
Consolidation Exception
-- IAS 16 and 38: Amendment: Clarification of acceptable methods of
depreciation and amortisation
-- Annual improvements to IFRSs - 2012-2014 cycle
The Group financial statements were not impacted by any of the
amendments or improvements to the standards above.
-- IAS 1: Amendment: Disclosure initiative. This initiative clarified
certain disclosures relating to materiality, the primary statements, and
notes to the financial statements. The Group considered the items
clarified in this amendment in preparing its financial statements,
however no significant changes were made as a result.
There are a number of new standards, amendments to standards and
interpretations that are effective for annual periods beginning on or
after 1 January 2017, and have not been applied in preparing these
financial statements. The Group does not plan to adopt these standards
early; instead it will apply them from their effective dates as
determined by their dates of EU endorsement.
-- IAS 12: Amendment: Recognition of Deferred Tax Assets for Unrealised
Losses (1 January 2017)*
Clarifies how to account for deferred tax assets related to debt
instruments measured at fair value.
-- IAS 7: Amendment: Disclosure initiative (1 January 2017)*
Requires companies to disclose information about changes in their
financing liabilities.
-- IFRS 2: Amendment: Classification and measurement of Share based payment
transactions (1 January 2018)*
Sets out the principles for the recognition, derecognition,
classification and measurement of financial assets and liabilities.
-- IFRS 9: Financial instruments (1 January 2018)*
Sets out the principles for the recognition, derecognition,
classification and measurement of financial assets and liabilities,
deferral of application is possible in line with IFRS 17, see below for
more details.
-- IFRS 15: Revenue from contracts with customers (1 January 2018)*
IFRS 15 replaces existing guidance on revenue recognition, measurement
and disclosure. It establishes a comprehensive framework for determining
when revenue should be recognised and how it should be measured. The
Group does not currently anticipate any impact on its financial
statements from the revised standard.
-- IFRS 16: Leases (1 January 2019)*
IFRS 16 replaces the existing guidance in IAS 17 regarding leases, and
seeks to remove the long-standing distinction between 'finance' and
'operating' leases. The Group is still reviewing the potential impact of
the standard on its financial statements.
-- IFRS 17: Insurance contracts (1 January 2021)*
In November 2016 the IASB confirmed the effective date for IFRS 17 will
be 1 January 2021. IFRS 17 was previously referred to as IFRS 4 phase II
and is the new accounting standard in respect of insurance contracts. In
September 2016, the IASB announced that application of IFRS 9 can be
deferred under the 'deferral approach' until IFRS 17 comes into effect.
Application of the deferral approach is for entities/groups whose
predominant activity is issuing contracts within the scope of IFRS 4.
The Group expects to be eligible for the deferral approach, and is still
reviewing the potential impact of the standard on its financial
statements.
* Standards that have not yet been endorsed by the EU.
1.2 Basis of preparation
These consolidated financial statements are prepared in accordance with
International Financial Reporting Standards ("IFRSs") and
interpretations issued by the IFRS Interpretation Committee ("IFRICs"),
as adopted for use in the European Union ("EU"). The consolidated
financial statements comply with Article 4 of the EU IAS regulation and
Companies Act 2006.
All figures included in the consolidated financial statements are
presented in millions of pounds sterling, rounded to the nearest
GBP100,000 unless otherwise stated. The financial statements have been
prepared under the historical cost convention, as modified by the
revaluation of financial assets at fair value through the income
statement.
1.3 Prior year restatement
In 2016, the Group reviewed its accounting policy relating to the
treatment of deferred acquisition costs and the associated recognition
of acquisition costs in the income statement. As a result of this review,
it was identified that there were certain operating expenses that were
previously deferred that should have been charged directly to the income
statement as incurred. In addition it was identified that the method by
which deferred acquisition costs were released to the income statement
did not appropriately match the related premium earnings pattern.
This review resulted in a number of corrections by restating each of the
affected financial statement line items for prior periods. This includes
an adjustment to the income tax charge and deferred tax asset of GBP0.3
million and GBP2.5 million respectively and an adjustment to insurance
and other payables of GBP1.0 million to adjust the Group's obligations
to third party providers. The tables below summarise the impact on the
Group consolidated financial statements.
1. Consolidated Balance Sheet
As previously reported Adjustments As restated
As at 1 January 2015 GBPm GBPm GBPm
Deferred acquisition costs 109.5 (13.8) 95.7
Deferred tax asset 9.2 2.2 11.4
Others 1,872.9 - 1,872.9
Total assets 1,991.6 (11.6) 1,980.0
Insurance and other payables 71.7 (0.8) 70.9
Others 1,583.8 - 1,583.8
Total liabilities 1,655.5 (0.8) 1,654.7
Retained earnings 167.7 (10.8) 156.9
Others 168.4 - 168.4
Total shareholders' equity 336.1 (10.8) 325.3
As at 31 December 2015 GBPm GBPm GBPm
Deferred acquisition costs 135.8 (17.0) 118.8
Deferred tax asset 7.0 2.5 9.5
Others 1,928.9 - 1,928.9
Total assets 2,071.7 (14.5) 2,057.2
Insurance and other payables 85.7 (1.0) 84.7
Others 1,635.7 - 1,635.7
Total liabilities 1,721.4 (1.0) 1,720.4
Retained earnings 181.9 (13.5) 168.4
Others 168.4 - 168.4
Total shareholders' equity 350.3 (13.5) 336.8
b. Consolidated income statement
As previously reported Adjustments As restated
For the year ended 31
December 2015 GBPm GBPm GBPm
Expenses for the acquisition
of insurance contracts (157.5) (37.4) (194.9)
Operating expenses (89.9) 34.4 (55.5)
Income taxes (3.9) 0.3 (3.6)
Others 302.8 - 302.8
Profit / (loss) for the year
attributable to
shareholders 51.5 (2.7) 48.8
c. Consolidated cash flow statement
There was no impact on the total operating, investing or financing cash
flows for the years ended 31 December 2016 and 2015.
d. Key performance Indicators
As at 31 December 2015 As previously reported Adjustments As restated
Return on Equity (%) 15.0 (0.3) 14.7
Net assets per share (pence) 556.2 (21.4) 534.8
Basic earnings per share
(pence) 81.0 (4.3) 76.7
Diluted earnings per share
(pence) 79.2 (6.7) 72.5
Combined ratio (%) 90.8 0.5 91.3
2. Segmental information
Segmental information is presented in respect of reportable segments.
This is based on the Group's management and internal reporting structure
and represents the level at which financial information is reported to
the Executive Committee, being the chief operating decision maker as
defined by IFRS 8.
Segmental results, assets and liabilities include items that can be
allocated on a reasonable basis. Unallocated items include certain
employee incentive costs, foreign exchange movements, insurance working
capital and the deferred tax asset.
2a. Segmental income statement
Impact of
non-translation
Unallocated of non-monetary
Property Casualty MAP by segment Subtotal items* Total
Year ended 31 December 2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Gross written premium 439.0 195.7 266.3 - 901.0 - 901.0
Net earned premium 319.0 147.7 204.3 - 671.0 (26.2) 644.8
Net claims incurred excluding the impact of change
in Ogden rate (1) (166.9) (78.1) (101.8) - (346.8) - (346.8)
Impact of change in Ogden rate (1) - (35.5) - - (35.5) - (35.5)
Net claims incurred (166.9) (113.6) (101.8) - (382.3) - (382.3)
Expenses for the acquisition of insurance contracts (123.1) (49.6) (69.9) (5.2) (247.8) 5.5 (242.3)
Operating expenses (19.7) (10.4) (11.8) (22.9) (64.8) - (64.8)
Underwriting contribution 9.3 (25.9) 20.8 (28.1) (23.9) (20.7) (44.6)
Net investment income 1.6 12.6 5.2 13.3 32.7 - 32.7
Fees and commission income - - - 0.3 0.3 - 0.3
Net foreign exchange gain - - - 22.3 22.3 20.7 43.0
Financing costs - - - (7.7) (7.7) - (7.7)
Profit/(loss) before income taxes 10.9 (13.3) 26.0 0.1 23.7 - 23.7
Claims ratio 52.3% 76.9% 49.9% - 57.0% - 59.3%
Expense ratio 44.8% 40.6% 40.0% - 46.6% - 47.7%
Combined ratio 97.1% 117.5% 89.9% - 103.6% - 107.0%
Combined ratio excluding Ogden (1) 97.1% 93.5% 89.9% - 98.3% - 101.4%
(1) The announcement on 27 February 2017 by the Lord Chancellor in
conclusion to her review of the discount rate for personal injury claims
(the "Ogden" rate) resulted in the Ogden rate being revised from 2.5% to
minus 0.75%. This change had a material one-off impact on the claims
incurred for 2016 and therefore the combined ratio is also presented
before the impact of the Ogden rate change.
Impact of
non-translation
Unallocated of non-monetary
Property Casualty MAP by segment Subtotal items* Total
Restated Year
ended 31
December 2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Gross written
premium 362.5 183.3 241.2 - 787.0 - 787.0
Net earned
premium 258.3 141.9 182.4 - 582.6 - 582.6
Net claims
incurred (113.0) (82.9) (85.6) - (281.5) - (281.5)
Expenses for
the
acquisition
of insurance
contracts (89.5) (41.2) (58.2) (6.0) (194.9) - (194.9)
Operating
expenses (12.9) (7.6) (9.1) (25.9) (55.5) - (55.5)
Underwriting
contribution 42.9 10.2 29.5 (31.9) 50.7 - 50.7
Net investment
income 0.4 3.0 1.1 2.3 6.8 - 6.8
Fees and
commission
income - - - 1.0 1.0 - 1.0
Net foreign
exchange
gain - - - 0.5 0.5 - 0.5
Financing
costs - - - (6.6) (6.6) - (6.6)
Profit/(loss)
before income
taxes 43.3 13.2 30.6 (34.7) 52.4 - 52.4
Claims ratio 43.8% 58.4% 46.9% - 48.3% - 48.3%
Expense ratio 39.7% 34.6% 36.9% - 43.0% - 43.0%
Combined ratio 83.5% 93.0% 83.8% - 91.3% - 91.3%
The combined ratio is made up of the aggregation of the claims ratio and
the expense ratio. The claims ratio is calculated as claims and claim
adjustment expenses, net of reinsurance, as a proportion of net earned
premiums. The expense ratio is calculated as expenses for the
acquisition of insurance contracts, and operational expenses, as a
proportion of net earned premium.
*Net unearned premiums and deferred acquisition costs are treated as
non-monetary items in accordance with IFRS. As a result, a foreign
exchange mismatch arises caused by these items being earned at
historical rates of exchange prevailing at the original transaction date,
whereas resulting claims are earned at the average rate for the period.
The impact of this mismatch on the income statement is shown in the
column titled "Impact of non-translation of non-monetary items" above.
The 2015 comparatives have not been restated for the impact of
non-translation of non-monetary items as the impact was not significant
to the Group.
2b. Segmental balance sheet
Total
reportable Unallocated
Property Casualty MAP segments by segment Total
As at 31
December
2016 GBPm GBPm GBPm GBPm GBPm GBPm
Total assets 619.7 1,018.2 753.2 2,391.1 (4.3) 2,386.8
Total
liabilities (419.9) (914.2) (610.2) (1,944.3) (121.0) (2,065.3)
Net assets 199.8 104.0 143.0 446.8 (125.3) 321.5
Total
reportable Unallocated
Property Casualty MAP segments by segment Total
Restated As
at 31
December
2015 GBPm GBPm GBPm GBPm GBPm GBPm
Total assets 503.8 929.9 605.6 2,039.3 17.9 2,057.2
Total
liabilities (314.9) (812.6) (488.6) (1,616.1) (104.3) (1,720.4)
Net assets 188.9 117.3 117.0 423.2 (86.4) 336.8
2c. Geographical information
The following table shows the distribution of the Group's consolidated
gross written premium by area of risk:
Year ended Year ended
31 December 2016 31 December 2015
GBPm GBPm
United Kingdom 272.7 264.6
United States of America 307.1 145.6
Europe 82.4 92.9
Canada 23.0 24.5
Australia 27.7 35.0
Elsewhere 188.1 224.4
Total overseas 628.3 522.4
901.0 787.0
2d. Other information
No customer represents more than 10% of the Group's gross written
premium.
1. Earnings and net assets per share
a) Basic earnings per share
Restated
Year ended Year ended
31 December 2016 31 December 2015
Profit attributable to equity shareholders of the
parent company (GBPmillions) 21.6 48.8
Weighted average number of shares in issue(1)
(millions) 62.9 63.7
Basic earnings per share 34.3p 76.7p
1. Net of shares held in the employee benefit trust ("EBT") which are
earmarked for the Group's LTIP, SESP and deferred bonuses payable in
shares.
b) Diluted earnings per share
Diluted earnings per share are calculated adjusting the weighted average
number of shares outstanding to assume conversion of all potentially
dilutive shares. Novae's potentially dilutive shares relate to LTIP
awards, SESP awards and deferred bonuses payable in shares. The number
of potential shares is calculated with reference to the current date as
though it were the vesting date, excluding shares held by the employee
benefit trust earmarked for these awards.
Restated
Year ended Year ended
31 December 2016 31 December 2015
Profit attributable to equity shareholders of the
parent company (GBPmillions) 21.6 48.8
Weighted average number of shares in issue, excluding
EBT shares (millions) 62.9 63.7
Adjustments for LTIPs and deferred bonuses payable
in shares (millions) 3.7 3.7
Weighted average number of shares for diluted earnings
per share (millions) 66.6 67.4
Diluted earnings per share 32.4p 72.5p
c) Net assets and net tangible assets per share
Net assets and net tangible assets per share are calculated on the
number of shares in issue (excluding shares held by the employee benefit
trust and earmarked for the Group's LTIPs and deferred bonuses payable
in shares) at 31 December 2016.
Restated
31 December
31 December 2016 2015
Net assets (GBPmillions) 321.5 336.8
Intangible assets (GBPmillions) (2.7) (3.1)
Net tangible assets (GBPmillions) 318.8 333.7
Adjusted number of shares in issue
(millions) 62.8 63.0
Net asset value per share 512.2p 534.8p
Net tangible asset value per share 507.9p 529.8p
4. Net investment income
Year ended Year ended
31 December 31 December
2016 2015
GBPm GBPm
Interest income on financial investments at fair value
through the income statement 23.2 19.3
Realised gains/(losses) on financial investments at
fair value through the income statement 8.5 (4.7)
Unrealised gains/(losses) on financial investments
at fair value through the income statement 2.7 (7.0)
Investment income from financial investments 34.4 7.6
Fair value (losses)/gains on derivative financial
instruments (0.1) 0.4
Investment income 34.3 8.0
Investment management expenses (1.6) (1.2)
32.7 6.8
5. Income taxes
Restated
Year ended Year ended
31 December 2016 31 December 2015
GBPm GBPm
Current tax expense:
Current year 0.1 0.7
Adjustments for prior years - (1.2)
Total current tax 0.1 (0.5)
Overseas tax expense:
Current year 1.0 1.6
Adjustments for prior years (1.3) -
Total overseas tax (0.3) 1.6
Deferred tax:
Current year 3.0 1.0
Impact of rate change - 0.6
Prior year adjustments (0.7) 0.9
Total deferred tax 2.3 2.5
Total income tax expense 2.1 3.6
Reconciliation of effective tax rate:
Profit before income taxes 23.7 52.4
Income tax at the standard UK corporation tax rate
(20.00%)
(December 2015: 20.25%) 4.7 10.6
Non-deductible or non-taxable items (1.0) (0.3)
Tax rate differences on foreign subsidiaries 0.4 (7.0)
Prior period adjustments (2.0) (0.3)
Impact of rate of change - 0.6
2.1 3.6
The standard rate of corporation tax in the UK is 20%. The effective tax
rate for the year ended December 2016 is 8.9% (2015 restated: 6.9%).
In addition to the above, tax of GBP0.9 million (2015: GBP0.4 million
credit) has been charged directly to other comprehensive income as
follows:
Restated
Year ended Year ended
31 December 2016 31 December 2015
GBPm GBPm
Deferred tax on defined benefit pension fund actuarial
gains/(losses) - -
Income tax on items that will not be reclassified
to profit or loss - -
Current tax on changes in fair value of cash flow
hedges - -
Deferred tax movement on other items within the other
comprehensive income (0.9) 0.4
Income tax on items that may be reclassified to profit
or loss (0.9) 0.4
Taxes (charged)/credited to other comprehensive income (0.9) 0.4
1. Dividends per share
Year ended Year ended
Per share 31 December 2016 31 December 2015
Type of Record Payment
dividend amount date date GBPm GBPm
2014 23 Apr 15 May
final 18.2p 2015 2015 - 11.6
2014 23 Apr 15 May
special 20.0p 2015 2015 - 12.8
2015 04 Sep 01 Oct
interim 7.3p 2015 2015 - 4.7
2015 22 Apr 20 May
final 20.0p 2016 2016 12.9 -
2015 22 Apr 20 May
special 22.5p 2016 2016 14.5 -
2016 02 Sep 03 Oct
interim 7.5p 2016 2016 4.7 -
32.1 29.1
A final dividend of 7.5p per ordinary share is payable on 19 May 2017 to
shareholders on the register on 21 April 2017. The ex-dividend date is
20 April 2017.
7. Financial assets
31 December 2016 31 December 2015
GBPm GBPm
Corporate 595.0 340.6
Government 429.6 516.7
Covered bonds 91.2 17.5
Pooled equity fund 58.4 81.4
Securitised RMBS / ABS 47.1 55.0
Emerging Market Mutual Fund 43.2 32.8
Fixed and floating rate deposits 18.5 -
Government agencies 12.1 64.2
Investment cash 6.5 3.7
Certificate of deposits / floating
rate notes - 6.1
Other 3.9 3.9
1,305.5 1,121.9
With the exception of unlisted preference shares, all financial assets
are held at fair value through the income statement and are measured
using quoted prices in active markets or direct/indirect inputs based on
observable market data.
The unlisted preference shares held by the Group at 31 December 2016 are
held at fair value through the income statement. The fair value of this
asset is assessed using a discounted cash flow forecast and reviewed for
impairment at least annually.
8. Financial instruments
The table below analyses recurring fair value measurement for financial
assets and liabilities. The fair value measurements are categorised into
different levels in the fair value hierarchy based on the inputs to the
valuation techniques used. The different levels are defined as follows:
Level 1 - fair values measured using quoted prices (unadjusted) in
active markets for identical instruments
Level 2 - fair values measured using directly or indirectly observable
inputs or other similar valuation techniques for which all significant
inputs are based on observable market data
Level 3 - fair values measured using valuation techniques for which all
significant inputs are not based on observable market data
Level 1 Level 2 Level 3 Total
31 December 2016 GBPm GBPm GBPm GBPm
Financial assets measured at fair
value
Corporate 0.1 594.9 - 595.0
Government 9.1 420.5 - 429.6
Covered bonds - 91.2 - 91.2
Pooled equity fund - 58.4 - 58.4
Securitised RMBS / ABS - 47.1 - 47.1
Emerging Market Mutual Fund - 43.2 - 43.2
Fixed and floating rate deposits 18.5 - - 18.5
Government agencies - 12.1 - 12.1
Investment cash 6.5 - - 6.5
Certificate of deposits / floating
rate notes - - - -
Other - - 3.9 3.9
Total financial assets measured at
fair value 34.2 1,267.4 3.9 1,305.5
Financial liabilities measured at
fair value
Forward exchange contracts used for
hedging - 2.7 - 2.7
Total financial liabilities carried at
fair value - 2.7 - 2.7
Financial liabilities not measured
at fair value
Senior notes - 49.9 - 49.9
Subordinated notes - 2.5 - 2.5
US $15m Dekania notes - 12.1 - 12.1
US $11m Dekania notes - 8.9 - 8.9
US $10m Dekania notes - 8.0 - 8.0
Total financial liabilities not
measured at fair value - 81.4 - 81.4
Level 1 Level 2 Level 3 Total
31 December 2015 GBPm GBPm GBPm GBPm
Financial assets measured at fair
value
Corporate 12.1 328.5 - 340.6
Government 37.9 478.8 - 516.7
Covered bonds - 17.5 - 17.5
Pooled equity fund - 81.4 - 81.4
Securitised RMBS / ABS 1.1 53.9 - 55.0
Emerging Market Mutual Fund - 32.8 - 32.8
Fixed and floating rate deposits - - - -
Government agencies - 64.2 - 64.2
Investment cash 3.7 - - 3.7
Certificate of deposits / floating
rate notes - 6.1 - 6.1
Other - - 3.9 3.9
Total financial assets measured at
fair value 54.8 1,063.2 3.9 1,121.9
Financial liabilities measured at
fair value
Forward exchange contracts used for
hedging - 1.9 - 1.9
Total financial liabilities carried at
fair value - 1.9 - 1.9
Financial liabilities not measured
at fair value
Senior notes - 49.7 - 49.7
Subordinated notes - 2.5 - 2.5
US $15m Dekania notes - 10.2 - 10.2
US $11m Dekania notes - 7.5 - 7.5
US $10m Dekania notes - 6.8 - 6.8
Total financial liabilities not
measured at fair value - 76.7 - 76.7
The fair value of the Group's financial assets is based on prices
provided by investment managers who obtain market data from numerous
independent pricing services. The pricing services used by the
investment manager obtain actual transaction prices for securities that
have quoted prices in active markets.
During the year there were no significant transfers in either direction
between Level 1 and Level 2 of the fair value hierarchy, or Level 2 and
Level 3 of the fair value hierarchy.
Level 3 valuation techniques and significant unobservable inputs
In August 2013, the Group invested in an unlisted insurance agency.
Equity in the entity is not traded in an active market and as such there
is no observable market data. The fair value of this asset is assessed
using a discounted cash flow forecast and reviewed for impairment at
least annually.
There are several variables on which the forecast is reliant, which
include but are not limited to, discount factor and terminal value of
the investment.
In addition, periodic management accounts are reviewed to mitigate any
credit risk in the investment and ensure its ability to pay the coupon
rate on the preference shares included in the aforementioned discounted
cash flow forecast.
The table below shows a reconciliation between the opening and closing
balance of level 3 investments during the year:
2016 2015
GBPm GBPm
Opening balance at 1 January 3.9 2.1
Total net gains recognised in the Income Statement - 1.8
Closing balance at 31 December 3.9 3.9
There were no transfers in either direction between levels 1&2 and level
3 during the financial year ended 31 December 2016 (2015: none).
9. Insurance and reinsurance contracts
a) Components of insurance liabilities
31 December 2016 31 December 2015
Gross Reinsurance Net Gross Reinsurance Net
GBPm GBPm GBPm GBPm GBPm GBPm
IBNR 593.4 (120.7) 472.7 507.9 (87.8) 420.1
Notified claims 773.4 (207.8) 565.6 652.1 (188.1) 464.0
Claims reserve 1,366.8 (328.5) 1,038.3 1,160.0 (275.9) 884.1
Unearned
premiums 446.6 (69.9) 376.7 398.0 (37.1) 360.9
Total insurance
liabilities 1,813.4 (398.4) 1,415.0 1,558.0 (313.0) 1,245.0
b) Movement in insurance contract liabilities
2016 2015
Gross Reinsurance Net Gross Reinsurance Net
GBPm GBPm GBPm GBPm GBPm GBPm
i) Claims
reserve
Balance as at 1
January 1,160.0 (275.9) 884.1 1,185.9 (320.0) 865.9
Increase in
claims
outstanding 121.3 (19.7) 101.6 (9.0) 22.0 13.0
Movement in IBNR 82.1 (32.9) 49.2 (33.3) 22.1 (11.2)
Movement in
claims handling
provision 3.4 - 3.4 16.4 - 16.4
Balance as at 31
December 1,366.8 (328.5) 1,038.3 1,160.0 (275.9) 884.1
ii) Unearned
premiums
Balance as at 1
January 398.0 (37.1) 360.9 321.2 (24.1) 297.1
Premiums written
during the
year 901.0 (237.0) 664.0 787.0 (148.9) 638.1
Less: premiums
earned during
the year (852.4) 204.2 (648.2) (710.2) 135.9 (574.3)
Balance as at 31
December 446.6 (69.9) 376.7 398.0 (37.1) 360.9
This table includes the effects of the third party quota share and
foreign exchange movements for claims reserves, which are presented
separately in the consolidated income statement.
Claims development tables are shown on an underwriting year basis; these
set out the development of claims over time on a gross and net of
reinsurance basis (without any adjustment for any impact from changes to
projected premiums). These claims are shown on an ultimate basis for
each successive development year at the 100% ownership level. Balances
have been translated at exchange rates prevailing at 31 December 2016 in
all cases.
Whole account 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total
Underwriting year GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Gross claims
Estimate of ultimate gross
claims:
at end of
underwriting
year 281.5 361.5 273.5 387.6 454.8 423.6 388.1 455.3 501.1 543.6
one year later 275.1 419.6 274.6 401.7 422.0 386.4 363.3 430.5 509.8
two years later 261.4 440.6 251.4 380.8 422.4 388.6 356.5 439.4
three years later 270.1 477.2 258.6 372.1 419.5 380.8 357.2
four years later 290.8 479.6 248.8 370.6 422.4 390.7
five years later 286.4 543.5 246.5 366.7 422.3
six years later 285.0 534.1 250.3 382.6
seven years later 287.5 503.1 243.7
eight years later 283.7 490.1
nine years later 275.1
Gross paid claims
position
at end of
underwriting
year 9.8 23.6 8.1 12.7 35.4 26.9 19.9 30.9 25.7 41.2
one year later 60.8 105.4 72.4 129.4 152.2 148.8 119.7 130.5 170.6
two years later 106.6 160.4 111.0 215.3 232.2 215.5 192.0 226.7
three years later 147.3 206.8 130.6 248.1 286.3 258.6 234.8
four years later 182.1 259.3 155.6 271.2 320.2 281.5
five years later 212.2 307.5 171.8 289.7 339.3
six years later 231.6 322.0 193.1 311.8
seven years later 240.3 347.1 199.8
eight years later 253.5 383.6
nine years later 254.3
Gross ultimate
claims reserve 20.8 106.5 43.9 70.8 83.0 109.2 122.4 212.7 339.2 502.4 1,610.9
2006 and prior YoA
reserve 123.0
Gross unearned claims
reserve (339.2)
Third party participation on
syndicate (27.9)
Gross claims
reserve 1,366.8
Whole account 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total
Underwriting year GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net claims
Estimate of ultimate net
claims:
at end of
underwriting
year 220.5 249.6 215.7 340.8 408.8 388.5 358.8 416.5 452.1 427.2
one year later 216.3 281.0 198.0 365.8 384.7 366.2 333.8 393.8 459.9
two years later 201.2 273.3 182.0 352.1 385.8 363.3 326.3 398.2
three years later 196.1 282.3 174.7 342.7 383.6 357.7 329.5
four years later 209.1 287.6 169.0 341.0 382.7 367.3
five years later 204.5 289.2 165.7 333.0 383.2
six years later 207.2 288.3 164.1 340.2
seven years later 208.6 278.6 159.3
eight years later 207.0 271.2
nine years later 199.7
Net paid claims
position
at end of
underwriting
year 6.7 22.1 6.7 12.6 34.6 26.6 19.5 30.9 25.6 36.7
one year later 55.5 84.8 51.7 127.7 147.9 146.8 117.9 129.7 162.0
two years later 96.6 127.9 86.5 204.6 224.2 210.2 184.0 216.3
three years later 117.2 158.1 100.5 235.6 271.1 248.0 223.4
four years later 137.1 180.1 118.6 257.1 296.4 269.1
five years later 157.6 197.1 129.8 274.1 312.5
six years later 173.9 202.9 137.5 292.3
seven years later 179.1 222.5 138.4
eight years later 186.8 241.7
nine years later 187.8
Net ultimate claims
reserve 11.9 29.5 20.9 47.9 70.7 98.2 106.1 181.9 297.9 390.5 1,255.5
2006 and prior YoA
reserve 77.5
Net unearned claims
reserve (274.6)
Third party participation on
syndicate (20.1)
Net claims reserve 1,038.3
1. Financial liabilities
Financial liabilities are initially recognised at fair value and
thereafter stated at amortised cost. Transaction costs are amortised on
an effective interest rate basis over the expected life of the
instrument at initial recognition. At 31 December 2016 the Group had the
following loan notes in issue:
Interest rate
Year of payable
Currency Issue date maturity per annum
Senior notes GBP March 2012 2017 6.50%
Subordinated notes GBP April 2007 2017 LIBOR + 3.13%
US $15m Dekania USD June 2004 2034 LIBOR + 3.50%
notes
US $11m Dekania USD June 2004 2034 LIBOR + 4.05%
notes
US $10m Dekania USD September 2004 2034 LIBOR + 3.50%
notes
31 December 2016 31 December 2015
Carrying
amount Fair value Carrying amount Fair value
GBPm GBPm GBPm GBPm
Senior notes 49.9 53.7 49.7 53.2
Subordinated
notes 2.5 2.5 2.5 2.5
US $15m Dekania
notes 12.1 12.1 10.2 10.2
US $11m Dekania
notes 8.9 8.9 7.5 7.5
US $10m Dekania
notes 8.0 8.0 6.8 6.9
81.4 85.2 76.7 80.3
Senior and subordinated notes
The senior and subordinated notes are listed on the London Stock
Exchange with issue costs of GBP0.8 million and GBP0.1 million
respectively.
Dekania loan notes
The notes are listed on the Irish Stock Exchange and are denominated in
US dollars with the interest payable linked to the US dollar base rate.
Issue costs of GBP0.6 million are fully amortised.
Swaps are used to match exposure to fluctuations in interest rates. The
swaps, which mature on the same dates as the interest falls due for
payment on the loans, have the effect of fixing the interest rate at
6.18% until 15 August 2024. The gains on the hedging instruments, being
the interest rate swaps, were GBP0.1 million in the year (2015: gains of
GBP0.1 million), which are recognised within other comprehensive income.
1. Capital and reserves
Reconciliation of movement in capital and reserves
Other reserves Retained earnings
Capital Equity Own Cashflow
Share Merger redemption incentive share hedge Profit &
Capital reserve reserve reserves reserve reserve loss Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Restated as
at 31
December
2014 72.5 69.6 26.3 8.8 (5.1) (1.9) 155.1 325.3
Recognised
in income
for the
year - - - - - 0.1 49.1 49.2
Movement in
LTIP
reserve - - - 2.4 2.5 - - 4.9
Movement in
share based
payment
reserve - - - 6.1 3.7 - - 9.8
Acquisition
of own
shares in
trust - - - (6.2) (17.1) - - (23.3)
Dividends
paid - - - - - - (29.1) (29.1)
Restated as
at 31
December
2015 72.5 69.6 26.3 11.1 (16.0) (1.8) 175.1 336.8
Recognised
in income
for the
year - - - - - 0.1 20.9 21.0
Movement in
LTIP
reserve - - - 5.9 3.2 - - 9.1
Movement in
share based
payment
reserve - - - 3.3 2.2 - - 5.5
Acquisition
of own
shares in
trust - - - (5.4) (13.4) - - (18.8)
Dividends
paid - - - - - - (32.1) (32.1)
At 31
December
2016 72.5 69.6 26.3 14.9 (24.0) (1.7) 163.9 321.5
31 December 2016 31 December 2015
No. of shares No. of shares
Share capital (m) GBPm (m) GBPm
Ordinary shares of
GBP1.125 each
Issued and fully paid 64.4 72.5 64.4 72.5
Balance at start of year 64.4 72.5 64.4 72.5
Balance at end of year 64.4 72.5 64.4 72.5
During 2015 and 2016, the Group had 64,425,640 ordinary shares of
GBP1.125 each in issue.
Other reserves
A merger reserve of GBP69.6 million was created on 18 May 2006 following
the scheme of arrangement whereby Novae Group plc was interposed as the
new holding company of the Novae Group, and relates to the valuation of
the new shares issued in excess of their nominal value.
A capital redemption reserve of GBP32.1 million was created in January
2011 following return of capital elections. This was reduced to GBP26.3
million in 2012 following a reclassification from the capital redemption
reserve to retained earnings to reflect the transfer from distributable
to non-distributable reserves on redemption at the correct nominal value
of 1.0p.
1. Post balance sheet events
On 27 February 2017, the Ministry of Justice announced the long awaited
outcome of its review of the discount rate used to settle personal
injury claims ("the Ogden rate"). In preparation for this the Group had
undertaken a detailed assessment of the impact of different Ogden rates
on the Group's net reserves. The revised Ogden rate of minus 0.75% has
resulted in an additional 5.3 percentage points on the combined ratio
and is disclosed within this release.
1. Status of the financial information
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2016 or
2015.
Statutory accounts for 2015 have been delivered to the registrar of
companies, and those for 2016 will be delivered in due course.
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Novae Group plc via Globenewswire
http://www.novae.com/home.aspx
(END) Dow Jones Newswires
March 09, 2017 02:00 ET (07:00 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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