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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Alea | LSE:ALEA | London | Ordinary Share | BMG015751024 | COM SHS USD0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1.20 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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TIDMALEA
RNS Number : 9100I
Alea Group Holdings(Bermuda) Ltd
22 March 2010
Alea Group Holdings (Bermuda) Ltd
Audited results for the 12 months ended 31 December 2009
Alea announces full year 2009 results and provides an update on run-off
As detailed in the section headed "Significant Events and Directorate Changes",
on 29 October 2009 the Group1 completed the sale of Alea Holdings UK Limited
along with its two subsidiaries (Alea London Limited and Alea Services UK
Limited). Consequently, the three companies that make up the Alea Holdings UK
Limited sub-group are excluded from the consolidated balance sheet as at 31
December 2009. The results of this disposal group for the period ended 29
October 2009 and for the comparative period are presented as discontinued
operations in accordance with IFRS 5 'Non-current Assets Held for Sale and
Discontinued Operations' and are excluded from financial performance measures in
the financial review.
Financial Performance2
· Net asset value of $1.94 per share compared with $2.34 per share as at
31 December 20083
· Loss after tax from continuing operations was $67.5 million (2008: profit
after tax from continuing operations of $1.0 million).
· The loss after tax derived from discontinued operations was $10.7 million
(2008: profit after tax from discontinued operations of $2.9 million).
· Loss after tax was $78.2 million (2008: profit after tax of $3.9 million)
which on a per share4,5 basis was a loss of $0.45 (2008: profit per share of
$0.02).
· Insurance contract liabilities of the continuing operations decreased by
8.5% from $861.6 million at 31 December 2008 to $788.2 million at 31 December
2009.
· Investment income was $37.0 million on average invested assets of $941.8
million (31 December 2008: $62.8 million on average invested assets of $1,084.8
million).
· The Group recognised an impairment of $30.5 million in respect of certain
non-agency US mortgage-backed securities (31 December 2008: $2.6 million).
· A loss of $15.0 million was recognised following a reassessment of the
fair value of balances due under an insurance renewal rights transaction (31
December 2008: $nil).
· Adverse reserve development, net of reinsurance and excluding the impact
of commutations and discount in the year ended 31 December2009 was $27.2 million
(2008: adverse reserve development of $23.2 million, net of reinsurance and
excluding the impact of commutations and discount).
· Other operating expenses for 2009 were $27.1 million (2008: $30.0
million)
Significant Events and Directorate Changes
On 24 April 2009, the Group announced that Mark Cloutier, President and CEO of
Alea Group will step down from the Board of Directors and resign his position as
CEO with effect from 31 March 2010, to pursue other interests. On 17 February
2010, the Group announced that Jeffrey Rosenthal will assume the role of
President and CEO of the Company, replacing Mark Cloutier effective 1 April
2010.
On 16 September 2009, the Group announced that its former Swiss subsidiary, Alea
Europe Ltd., had re-domiciled into Bermuda and had merged into Alea (Bermuda)
Ltd. The re-domiciliation and merger were completed following approvals from the
Swiss Financial Market Authority ("FINMA"), the Bermuda Monetary Authority
("BMA") and the Bermuda Registrar of Companies ("ROC").
As previously disclosed on 29 October 2009, the Group completed the sale of its
UK-based subsidiary Alea Holdings UK Limited. Under the agreement, Alea
Holdings UK Limited and its subsidiaries were sold at a discount to the book
value at which it was carried in the Group's consolidated financial statements
as at the date of disposal. Consequently, in the year ended 31 December 2009,
the Group has recognised a loss on disposal of $16.7 million in respect of this
transaction resulting in a net loss after tax of $10.7 million from discontinued
operations. Further details relating to discontinued operations are disclosed
in note 17 of the Financial Statements.
Dividend
The Company has not proposed a dividend for the 2009 financial year (2008:
$nil).
Notes
1. "Company" refers to Alea Group Holdings (Bermuda) Ltd only. "Group" or
"Alea" refers to Alea Group Holdings (Bermuda) Ltd and all its subsidiaries.
2. Except where specifically indicated all income statement amounts and
their comparatives refer to continuing operations only.
3. Except where specifically indicated all statements refer to the year
ended 31 December 2009 or 31 December 2008.
4. Weighted average number of ordinary shares of 173.9 million on an
undiluted basis (31 December 2008: 173.8 million), 173.9 million on a diluted
basis (31 December 2008: 174.0 million). For the year ended 31 December 2009,
294,146 restricted stock units have been excluded from the calculation of the
weighted average number of ordinary shares for the purposes of diluted earnings
per share as their effects were anti-dilutive.
5. Basic and diluted (loss) / profit per share are the same value on a
rounded basis.
Financial information presented herein has been prepared in accordance with
International Financial Reporting Standards ("IFRS").
Your attention is drawn to the further information contained in the following
sections of this document. You should read the whole of this document and not
just rely on the information contained in this headline summary, which is
qualified in its entirety by the further information contained elsewhere in this
document.
For further information, please contact:
Mark Cloutier
+1 441 296 9150
Sheel Sawhney
+1 860 258 6524
Financial Dynamics
Robert Bailhache
Nick Henderson
+44 20 7269 7114
Past performance cannot be relied upon as a guide to future performance.
Certain statements made in this document that are not based on current or
historical facts are forward-looking in nature including, without limitation,
statements containing words "believes," "anticipates," "plans," "projects,"
"intends," "expects," "estimates," "predicts," and words of similar import. All
statements other than statements of historical facts including, without
limitation, those regarding the Group's financial position, business strategy,
plans and objectives of management for future operations (including development
plans and objectives) are forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
Group to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. In
particular, forecasting of reserves for future losses is based on historical
experience and future assumptions. As a result they are inherently subjective
and may fluctuate based on actual future experience and changes to current or
future trends in the legal, social or economic environment. Such forward-looking
statements are based on numerous assumptions regarding the Group's present and
future business strategies and the environment in which the Group will operate
in the future. These forward-looking statements speak only as at the date of
this document or other information concerned. Alea Group Holdings (Bermuda) Ltd
expressly disclaims any obligations or undertaking (other than reporting
obligations imposed on us in relation to our listing on the London Stock
Exchange) to disseminate any updates or revisions to any forward-looking
statements contained herein to reflect any changes in the Group's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based. References in this paragraph to the Group are
to Alea Group Holdings (Bermuda) Ltd and its subsidiaries from time to time.
MANAGEMENT REPORT
CHIEF EXECUTIVE OFFICER'S REPORT
Throughout 2009, we at Alea have remained focused on our objectives of
continuing to deleverage our balance sheet, further simplify our operations and
when possible, release capital through our run-off efforts. And while our net
result of a loss after tax from continuing operations of $67.5 million for 2009,
which includes a number of charges, was very disappointing, we did complete
several strategic objectives including the sale of Alea Holdings UK Limited and
its subsidiaries and the consolidation of Alea Europe Ltd. into Alea (Bermuda)
Ltd. Not only do these events represent key accomplishments for the Group, but
more importantly, they resulted in our ability to release $64 million of capital
from Alea Bermuda up to the Group Holding company in the form of a distribution.
That distribution further enhances the Groups' financial flexibility, thereby
augmenting our ability to continue our buy and hold strategy with respect to our
portfolio of residential mortgage-backed securities, a strategy which we believe
will create value for the Group in the long-term.
With respect to managing the Group's liabilities, in 2009 we made good progress
as insurance contract liabilities reduced a further $413.0 million from $1,201.2
million at 31 December 2008 to $788.2 million at 31 December 2009, in large part
as a result of the sale of Alea Holdings UK Limited and its subsidiaries, which
accounted for approximately 82% of the year-over-year decrease. In that
respect, both the sale of our London operations and the reduction in insurance
contract liabilities through our run-off activities further deleveraged our
capital during the year. During the course of the year, we completed a number
of commutation transactions that met our economic objectives and, we believe,
reduced volatility in our provisions for claims outstanding. In our direct
insurance portfolio, we closed in excess of 1,050 open claims in the U.S. and
shed an additional 950 open claims through the sale of Alea Holdings UK Limited,
further reducing uncertainty in our claims provisions. Notwithstanding these
efforts, we experienced deterioration in our loss reserves which resulted in an
additional strengthening totaling $27.2 million over the course of the year.
Our total gross claims provision at 31 December 2009 is $819.0 million compared
to $1,240.2 million at 31 December 2008, a reduction of $421.2 million.
While we continued our commitment to keeping our $36.4 million in operating and
finance costs below our investment income of $37.0 million for the year, our
income statement was adversely impacted by $30.5 million in other than temporary
impairment charges in our bond portfolio and a $15.0 million write down based on
the reassessment of the fair value of the sale of our renewal rights transaction
with AmTrust in 2005. And while the sale of Alea Holdings UK Limited further
impacted our income statement by a charge of $16.7 million, it gave us an
opportunity to significantly reduce the Group's liabilities and operating costs
and most importantly, to crystallise the value embedded in our London operation.
Despite these setbacks, the Group was successful in completing a two-year long
endeavor to redomicile Alea Europe Ltd. to Bermuda through the dedication and
commitment of many of our staff, corporate partners and the support of FINMA,
the BMA and the ROC. Our ability to redomicile and subsequently amalgamate Alea
Europe Ltd. into Alea (Bermuda) Ltd. represented an opportunity to further
streamline the Group's operations and enhance its financial flexibility as
previously noted. Our senior management and claims professionals continue to
service the Europe portfolio from our office in Switzerland to ensure
appropriate oversight continues post redomiciliation.
On 1 April 2010, Jeff Rosenthal will assume the position of President and Group
CEO of Alea and I wish Jeff and the staff at Alea much success in the future.
Jeff inherits a seasoned team at Alea that have managed through difficult
circumstances with dedication and commitment.
Finally, I would like to thank all of the Alea associates who I have had the
pleasure to work with over the years for their commitment, efforts and
professionalism during what were often challenging times. I would also like to
express my appreciation to the Board of Directors for their support and
guidance.
Mark Cloutier
President and Chief Executive Officer
19 March 2009
FINANCIAL REVIEW
Consolidated income statement
+----------+-------------------------------+-+-+--+------+-+-----------+----+--------------+
| | | |
+----------------------------------------------+----------------------------+--------------+
| | Year ended | Year ended |
+----------------------------------------------+----------------------------+--------------+
| | | 31 December 2009 | 31 December |
| | | | 2008 |
+----------------------------------------------+---------+------------------+--------------+
| | | $'million | $'million |
+----------------------------------------------+---------+------------------+--------------+
| Continuing operations | | | |
+----------------------------------------------+---------+------------------+--------------+
| Gross premiums written | | 17.5 | 13.8 |
+----------------------------------------------+---------+------------------+--------------+
| | | | |
+----------------------------------------------+---------+------------------+--------------+
| Revenue | | | |
+----------------------------------------------+---------+------------------+--------------+
| Premium revenue | | 17.5 | 13.6 |
+----------------------------------------------+---------+------------------+--------------+
| Premium (ceded to) / received from | | (0.3) | 2.2 |
| reinsurers | | | |
+----------------------------------------------+---------+------------------+--------------+
| Net insurance premium revenue | | 17.2 | 15.8 |
+----------------------------------------------+---------+------------------+--------------+
| | | | |
+----------------------------------------------+---------+------------------+--------------+
| Fee income | | 7.9 | 0.5 |
+----------------------------------------------+---------+------------------+--------------+
| Investment income | | 37.0 | 62.8 |
+----------------------------------------------+---------+------------------+--------------+
| Net realised gains / (losses) on financial | | 5.2 | (1.0) |
| assets | | | |
+----------------------------------------------+---------+------------------+--------------+
| Impairment of invested assets | | (30.5) | (2.6) |
+----------------------------------------------+---------+------------------+--------------+
| Net realised losses on sale of renewal | | (15.0) | - |
| rights | | | |
+----------------------------------------------+---------+------------------+--------------+
| Total revenue | | 21.8 | 75.5 |
+----------------------------------------------+---------+------------------+--------------+
| | | | |
+----------------------------------------------+---------+------------------+--------------+
| Expenses | | | |
+----------------------------------------------+---------+------------------+--------------+
| Insurance claims and loss adjustment | | 43.5 | 25.3 |
| expenses | | | |
+----------------------------------------------+---------+------------------+--------------+
| Insurance claims and loss adjustment | | 5.7 | 5.7 |
| expenses paid to reinsurers | | | |
+----------------------------------------------+---------+------------------+--------------+
| Net insurance claims | | 49.2 | 31.0 |
+----------------------------------------------+---------+------------------+--------------+
| | | | |
+----------------------------------------------+---------+------------------+--------------+
| Acquisition costs | | 4.1 | 5.8 |
+----------------------------------------------+---------+------------------+--------------+
| Other operating expenses | | 27.1 | 30.0 |
+----------------------------------------------+---------+------------------+--------------+
| Restructuring costs | | 0.2 | 1.1 |
+----------------------------------------------+---------+------------------+--------------+
| Total expenses | | 80.6 | 67.9 |
+----------------------------------------------+---------+------------------+--------------+
| | | | |
+----------------------------------------------+---------+------------------+--------------+
| Results of operating activities | | (58.8) | 7.6 |
+----------------------------------------------+---------+------------------+--------------+
| | | | |
+----------------------------------------------+---------+------------------+--------------+
| Finance costs | | (9.3) | (5.5) |
+----------------------------------------------+---------+------------------+--------------+
| | | | |
+----------------------------------------------+---------+------------------+--------------+
| (Loss) / profit before income tax | | (68.1) | 2.1 |
+----------------------------------------------+---------+------------------+--------------+
| | | | |
+----------------------------------------------+---------+------------------+--------------+
| Income tax credit / (expense) | | 0.6 | (1.1) |
+----------------------------------------------+---------+------------------+--------------+
| | | | |
+----------------------------------------------+---------+------------------+--------------+
| (Loss) / profit for the year from continuing | | (67.5) | 1.0 |
| operations | | | |
+----------------------------------------------+---------+------------------+--------------+
| | | | | | |
+----------+-------------------------------+------+--------+----------------+--------------+
| Discontinued operations | | | |
+----------------------------------------------+---------+------------------+--------------+
| | | | | | |
+----------+-------------------------------+------+--------+----------------+--------------+
| (Loss) / profit for the year from discontinued | | (10.7) | 2.9 |
| operations | | | |
+-------------------------------------------------+------+------------------+--------------+
| | | | | | |
+----------+-------------------------------+------+--------+----------------+--------------+
| (Loss) / profit for the year | | (78.2) | 3.9 |
+----------------------------------------------+---------+------------------+--------------+
| | | |
| | | |
+--------------------------------------------+-------------------------+-------------------+
| | | | | | | | | | |
+----------+-------------------------------+-+-+--+------+-+-----------+----+--------------+
FINANCIAL REVIEW
Consolidated balance sheet
+-------------------------------+----+--+----------------------------+---------------+
| | | | As at | As at |
+-------------------------------+----+--+----------------------------+---------------+
| | | | 31 December | 31 December |
| | | | 2009 | 2008 |
+-------------------------------+----+--+----------------------------+---------------+
| | | | $'million | $'million |
+-------------------------------+----+--+----------------------------+---------------+
| | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| ASSETS | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| Property, plant and equipment | | | 2.0 | 3.4 |
+-------------------------------+----+--+----------------------------+---------------+
| Intangible assets | | | 8.5 | 8.5 |
+-------------------------------+----+--+----------------------------+---------------+
| Deferred acquisition costs | | | 1.1 | 1.6 |
+-------------------------------+----+--+----------------------------+---------------+
| Financial assets | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| Equity securities | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| - available for sale | | | 0.1 | 0.1 |
+-------------------------------+----+--+----------------------------+---------------+
| Debt securities | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| - available for sale | | | 323.7 | 682.2 |
+-------------------------------+----+--+----------------------------+---------------+
| Loans and receivables including | | 501.3 | 608.1 |
| insurance receivables | | | |
+------------------------------------+--+----------------------------+---------------+
| Derivative financial | | | 0.1 | - |
| instruments | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| Deferred tax assets | | | - | 0.7 |
+-------------------------------+----+--+----------------------------+---------------+
| Reinsurance contracts | | | 332.7 | 423.3 |
+-------------------------------+----+--+----------------------------+---------------+
| Cash and cash equivalents | | | 166.1 | 117.7 |
+-------------------------------+----+--+----------------------------+---------------+
| | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| Total assets | | | 1,335.6 | 1,845.6 |
+-------------------------------+----+--+----------------------------+---------------+
| | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| LIABILITIES | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| Insurance contracts | | | 788.2 | 1,201.2 |
+-------------------------------+----+--+----------------------------+---------------+
| Borrowings | | | 121.4 | 117.9 |
+-------------------------------+----+--+----------------------------+---------------+
| Derivative financial | | | 0.1 | - |
| instruments | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| Provisions | | | 2.1 | 2.8 |
+-------------------------------+----+--+----------------------------+---------------+
| Other liabilities and charges | | | 17.8 | 21.8 |
+-------------------------------+----+--+----------------------------+---------------+
| Trade and other payables | | | 69.3 | 95.2 |
+-------------------------------+----+--+----------------------------+---------------+
| Current income tax | | | - | 0.6 |
| liabilities | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| Total liabilities | | | 998.9 | 1,439.5 |
+-------------------------------+----+--+----------------------------+---------------+
| | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| Net assets | | | 336.7 | 406.1 |
+-------------------------------+----+--+----------------------------+---------------+
| | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| EQUITY | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| Capital and reserves attributable to | | |
| the Company's equity holders | | |
+---------------------------------------+----------------------------+---------------+
| Share capital | | | 1.7 | 1.7 |
+-------------------------------+----+--+----------------------------+---------------+
| Other reserves | | | 692.4 | 683.6 |
+-------------------------------+----+--+----------------------------+---------------+
| Retained loss | | | (357.4) | (279.2) |
+-------------------------------+----+--+----------------------------+---------------+
| | | | | |
+-------------------------------+----+--+----------------------------+---------------+
| Total equity | | | 336.7 | 406.1 |
+-------------------------------+----+--+----------------------------+---------------+
| | | | | |
+-------------------------------+----+--+----------------------------+---------------+
Performance indicators and comparison to prior years
The Group ceased underwriting new and renewal business and was placed into
run-off and as a result the standard indicators used to assess the performance
of participants in the insurance industry relating to premium levels and loss
ratios are not considered appropriate for the Group. Performance indicators that
are relevant to the Group's run-off strategy are provided where these provide
meaningful and useful comparisons.
Reserves and claims
At 31 December 2009, the insurance contracts as computed below were $788.2
million. This is stated after removing insurance contract liabilities of $305.3
million relating to the Alea Holdings UK Limited disposal group which was sold
on 29 October 2009. At 31 December 2008, the total insurance contract
liabilities of the Group, excluding those of the Alea Holdings UK Limited
disposal group, were $861.6 million which represents a decrease of 8.5% in the
year ended 31 December 2009. The claims outstanding, net of reinsurance at 31
December 2009, were $455.5 million which is stated after removing $216.1 million
in reserves of the Alea Holdings UK Limited disposal group (31 December 2008:
$527.3 million excluding the Alea Holdings UK Limited disposal group).
Therefore, the change in claims outstanding, net of reinsurance was 13.6%. The
balances areset outbelow.
+----------------------------------------+-------------+-------------+----------+
| | As at | As at |
+----------------------------------------+-------------+------------------------+
| | 31 December | 31 December 2008 |
| | 2009 | |
+----------------------------------------+-------------+------------------------+
| | $'million | $'million |
+----------------------------------------+-------------+------------------------+
| Gross claims outstanding | | |
+----------------------------------------+-------------+------------------------+
| Provision for claims outstanding, | 819.0 | 1,240.2 | |
| reported and not reported | | | |
+----------------------------------------+-------------+-------------+----------+
| Discount | (36.5) | (48.7) | |
+----------------------------------------+-------------+-------------+----------+
| | 782.5 | 1,191.5 | |
+----------------------------------------+-------------+-------------+----------+
| Claims handling provisions | 5.7 | 9.7 | |
+----------------------------------------+-------------+-------------+----------+
| Total insurance contracts | 788.2 | 1,201.2 | |
+----------------------------------------+-------------+-------------+----------+
| | | | |
+----------------------------------------+-------------+-------------+----------+
| Total reinsurance | | | |
+----------------------------------------+-------------+-------------+----------+
| Provision for claims outstanding, | 335.1 | 425.5 | |
| reported and not reported | | | |
+----------------------------------------+-------------+-------------+----------+
| Discount | (2.4) | (2.2) | |
+----------------------------------------+-------------+-------------+----------+
| Total reinsurance contracts | 332.7 | 423.3 | |
+----------------------------------------+-------------+-------------+----------+
| | | | |
+----------------------------------------+-------------+-------------+----------+
| Undiscounted claims outstanding, net | 489.6 | 824.4 | |
| of reinsurance | | | |
+----------------------------------------+-------------+-------------+----------+
| Discount | (34.1) | (46.5) | |
+----------------------------------------+-------------+-------------+----------+
| Claims outstanding, net of reinsurance | 455.5 | 777.9 | |
+----------------------------------------+-------------+-------------+----------+
The insurance contract liabilities as at 31 December 2008 are further analysed
as follows:
+-------------------------+-------------+-------------+-------------+----------+
| | Reserves | Reserves | Total reserves |
| | carried by | carried by | |
| | continuing | Alea | |
| | operations | Holdings UK | |
| | | Limited | |
| | | disposal | |
| | | group | |
+-------------------------+-------------+-------------+------------------------+
| | As at | As at | As at |
+-------------------------+-------------+-------------+------------------------+
| | 31 December | 31 December | 31 December 2008 |
| | 2008 | 2008 | |
+-------------------------+-------------+-------------+------------------------+
| | $'million | $'million | $'million |
+-------------------------+-------------+-------------+------------------------+
| Gross claims | | | |
| outstanding | | | |
+-------------------------+-------------+-------------+------------------------+
| Provision for claims | 897.4 | 342.8 | 1,240.2 | |
| outstanding, reported | | | | |
| and not reported | | | | |
+-------------------------+-------------+-------------+-------------+----------+
| Discount | (42.5) | (6.2) | (48.7) | |
+-------------------------+-------------+-------------+-------------+----------+
| | 854.9 | 336.6 | 1,191.5 | |
+-------------------------+-------------+-------------+-------------+----------+
| Claims handling | 6.7 | 3.0 | 9.7 | |
| provisions | | | | |
+-------------------------+-------------+-------------+-------------+----------+
| Total insurance | 861.6 | 339.6 | 1,201.2 | |
| contracts | | | | |
+-------------------------+-------------+-------------+-------------+----------+
| | | | | |
+-------------------------+-------------+-------------+-------------+----------+
| Total reinsurance | | | | |
+-------------------------+-------------+-------------+-------------+----------+
| Provision for claims | 336.5 | 89.0 | 425.5 | |
| outstanding, reported | | | | |
| and not reported | | | | |
+-------------------------+-------------+-------------+-------------+----------+
| Discount | (2.2) | - | (2.2) | |
+-------------------------+-------------+-------------+-------------+----------+
| Total reinsurance | 334.3 | 89.0 | 423.3 | |
| contracts | | | | |
+-------------------------+-------------+-------------+-------------+----------+
| | | | | |
+-------------------------+-------------+-------------+-------------+----------+
| Undiscounted claims | 567.6 | 256.8 | 824.4 | |
| outstanding, net of | | | | |
| reinsurance | | | | |
+-------------------------+-------------+-------------+-------------+----------+
| Discount | (40.3) | (6.2) | (46.5) | |
+-------------------------+-------------+-------------+-------------+----------+
| Claims outstanding, net | 527.3 | 250.6 | 777.9 | |
| of reinsurance | | | | |
+-------------------------+-------------+-------------+-------------+----------+
The following table presents the Group's booked gross claims outstanding before
claims handling provisions and before discount as at 31 December 2009 by class
of business.
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| | General | Motor | Workers' | Professional | Property | MAT1 | Total |
| $'million | liability | | comp. | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 1999 and prior | 29.4 | 25.5 | 3.8 | 0.9 | 14.5 | 23.8 | 97.9 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2000 | 17.9 | 7.4 | 8.6 | 7.9 | 2.3 | 7.9 | 52.0 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2001 | 13.7 | 4.4 | 17.8 | 4.9 | - | 0.5 | 41.3 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2002 | 9.9 | 4.1 | 2.8 | 4.5 | 3.4 | 0.4 | 25.1 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2003 | 10.9 | 8.8 | 1.6 | 4.3 | 1.7 | 0.1 | 27.4 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2004 | 12.9 | 14.9 | 3.3 | 7.7 | 2.2 | - | 41.0 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2005 | 10.6 | 19.1 | 0.5 | 5.7 | 4.5 | - | 40.4 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Reinsurance | 105.3 | 84.2 | 38.4 | 35.9 | 28.6 | 32.7 | 325.1 |
| reserves | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Insurance | 54.8 | 15.2 | 52.4 | - | 2.5 | - | 124.9 |
| reserves | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Total non-life | 160.1 | 99.4 | 90.8 | 35.9 | 31.1 | 32.7 | 450.0 |
| reserves | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Life structured | | | | | | | 280.7 |
| settlements | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Life reinsurance | | | | | | | 88.3 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Provision for claims outstanding, reported | | | 819.0 |
| and not reported | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
1 Marine, Aviation and Transport
The following table sets out Alea's non-life gross claims outstanding
distinguishing between case reserves and incurred but not reported ("IBNR") as
at 31 December 2009.
+-----------------------------------------------------+--------------+
| Percentage | Total |
+-----------------------------------------------------+--------------+
| Case reserves | 38% |
+-----------------------------------------------------+--------------+
| IBNR | 62% |
+-----------------------------------------------------+--------------+
| Total | 100% |
+-----------------------------------------------------+--------------+
Adverse reserve development
During the twelve months ended 31 December 2009 the Group experienced adverse
development in the reserves, net of reinsurance and excluding the impact of
commutations and discount of $27.2 million (31 December 2008: adverse reserve
development, net of reinsurance and excluding the impact of commutations and
discount of $23.2 million).
Loss reserve discount
As permitted by IFRS 4, categories of claims provisions where the expected
average interval between the date of settlement and the balance sheet date is in
excess of four years may be discounted at a rate which does not exceed that
expected to be earned by assets covering the provisions. As at 31 December 2009
38% of the Group's gross reserves excluding those of the Alea Holdings UK
Limited disposal group (31 December 2008: 38%) were discounted at a rate of 4.0%
(31 December 2008: 4.0%).
As at 31 December 2009 the Group's total net discount was $34.1 million (31
December 2008: $40.3 million excluding $6.2 million relating to the Alea
Holdings UK Limited disposal group). This is expected to reduce to zero over the
duration of the normal course of payout of the reserves. The unwinding of the
discount will be charged to insurance claims and loss adjustment expenses in the
income statement as the remaining expected duration for each category of claims
provisions drops below the level of four years as permitted by IFRS 4.
Income statement
Gross premiums written and net insurance premium revenue
Gross premiums written in 2009 were $17.5 million (2008: $13.8 million). Net
insurance premium revenue increased by 8.9% to $17.2 million in 2009 (2008:
$15.8 million). This low volume results from and is to be expected due to the
Group's decision in 2005 to cease writing new and renewal business. The majority
of the remaining premium is derived from Alea (Bermuda) Ltd's life book and
represents renewal premium which totalled $16.4 million in 2009 compared to
$14.2 million in 2008.
Fee income
Fee income in 2009 was $7.9 million compared with $0.5 million in 2008. In 2009
fee income includes income earned by Alea (Bermuda) Ltd of $4.5 million from a
profit sharing arrangement, recognised profit on finite contracts of $1.9
million and a settlement of $1.5 million recognised by Alea North America
Insurance Company relating to a D&O contract. The fee income in 2008 represents
a settlement received by Alea North America Insurance Company in connection with
disputed premium income.
Investment income, realised gains and losses and impairment of invested assets
Investment income in 2009 was $37.0 million, 41.1% ($25.8 million) lower than
the $62.8 million recorded in 2008. This reflects a 3.9% yield on invested
assets for 2009 on average invested assets of $941.8 million compared with a
5.8% yield on invested assets for 2008 on average invested assets of $1,084.8
million.
Net realised gains on financial assets were $5.2 million in 2009 (2008: $1.0
million realised losses).
The Group recognised an impairment to the amortised cost of non-agency US
mortgage-backed securities of $30.5 million in 2009 (2008: $2.6 million).
At each balance sheet date the Group performs an impairment test with regards to
its non-agency US mortgage-backed securities. An impairment is recognised
wherever the amortised values of the assets are greater than their estimated
recoverable amounts. Recoverable amounts are determined by projecting estimated
future cash flows associated with holding the assets. Estimating future cash
flows requires explicit assumptions about the future behaviour of the loans
collateralising the securitisation to be made. The key variables in describing
the behaviour of these assets include; the rate of voluntary prepayments, the
rate of defaults and the loss severity on defaulted loans. The data used for the
testing is based on an aggregate of the three month historical performance of
the actual bond.
Net realised losses on sale of renewal rights
In 2009 the Group utilised its outsource accounting firm to assist in an audit
and reassessment of receivables owed by AmTrust under a sale of renewal rights
transaction that was completed in 2005. Based on that assessment, the Group
determined to reduce the receivable by $15.0 million (2008: $nil) to $9.6
million (2008: $28.2 million). Additional information on this transaction can
be found in note 10 of the Annual Financial Report.
Insurance claims and loss adjustment expenses
In 2009 the Group incurred net insurance claims and loss adjustment expenses of
$49.2 million, including net adverse reserve development of $27.2 million(2008:
$31.0 million, including net adverse development of $23.2 million). The
remaining movement consists of incurred claims in respect of life business,
unwind of discount on claims reserves, claims handling expenses and commutation
profits.
Acquisition costs
Acquisition costs occur as a result of the past acquisition of insurance and
reinsurance contracts including brokerage, commissions, underwriting expenses
and other acquisition costs. For life contracts the acquisition costs paid to
the retrocedent were deferred and are being amortised over the period of the
contracts, consistent with the earning of premium.
In 2009, total acquisition costs were $4.1 million (2008: $5.8 million including
a reversal of ceded commission of $0.7 million related to a settlement made in
North America in respect of disputed premium income. This is referred to in the
"Fee income" section above). This amount contains $2.5 million (2008: $2.4
million) in respect of life business which includes $0.5 million in respect of
amortisation of the deferred acquisition cost ("DAC") asset.
The Group has assessed its DAC asset at 31 December 2009 of $1.1 million (31
December 2008: $1.6 million) as fully recoverable and as a result has not
recorded any DAC write-off in 2009.
Other operating expenses
The Group is focused on minimising operating expenses while still retaining the
personnel and capabilities to manage an efficient run-off of the existing book
and pursue other corporate activities. To the extent that investment income net
of discount on net claims outstanding released does not offset other operating
expenses in relation to run-off activities, the Group will establish a run-off
provision.
In 2009, other operating expenses were $27.1 million which includes termination
costs of $0.6 million related to a previous outsourcing agreement, $0.5 million
of professional fees incurred in relation to the re-domiciliation of Alea Europe
Ltd to Bermuda, a write-off of capitalised expenses of $0.3 million relating to
Alea Syndicate Management Limited and an over-run of audit fees of $0.3 million
resulting from additional work required in connection with the downgrades
experienced in February 2009 in the non-agency US mortgage-backed securities
portfolio as described the in the section titled "Invested assets". This
compares with other operating expenses in 2008 of $30.0 million.
Restructuring costs
In 2009 restructuring costs were $0.2 million which consist of severance
payments that were not part of the original restructuring provision established
at 31 December 2005. In 2008 restructuring costs of $1.1 million consisted of
$0.3 million of severance payments that were not part of the original
restructuring provision established at 31 December 2005 and $0.8 million of
additional restructuring costs that were provided to meet the costs associated
with the transfer of certain accounting functions under the Paragon outsourcing
arrangement that was entered into in 2008.
Staff headcount at 31 December 2009 stood at 39 (31 December 2008: 84). As a
result of the sale of the Alea Holdings UK Limited disposal group 21 members of
staff were transferred to Catalina Holdings (Bermuda) Ltd.
Results of operating activities
In 2009, the result of operating activities was a loss of $58.8 million
(including impairment of invested assets of $30.5 million and the $15.0 million
net realised loss on sale of renewal rights) compared with a profit of $7.6
million in 2008.
Finance costs
Finance costs include investment expenses, foreign exchange movements and
interest expense. In 2009 total finance costs were $9.3 million, compared with
$5.5 million recorded in 2008. Included within finance costs is $4.8 million
(2008: $7.5 million) of interest payable on $120.0 million of 30-year hybrid
trust preferred securities referred to in the section below entitled "Financing
Facilities". Foreign exchange movements in respect of non-functional currencies
generated a loss of $1.2 million (2008: gain of $3.6 million). Investment
expenses of $3.3 million (2008: $1.6 million) include a charge of $2.0 million
which relates to the costs incurred in re-securitising certain non-agency US
mortgage-backed securities (2008: $nil). Further detail is provided in the
section titled "Invested assets".
(Loss) / profit before income tax from continuing operations
Loss before income tax from continuing operations was $68.1 million in 2009
compared with a profit of $2.1 million in 2008.
Income tax (credit) / expense
The income tax credit in respect of continuing operations in 2009 was $0.6
million, compared with an expense of $1.1 million in 2008.
The impact of the income tax expense on the income statement is summarised as
follows:
+---------------------------+--------------+------+--------+--------------+
| | | | Continuing operations |
+---------------------------+--------------+------+-----------------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| | | Year ended | Year ended |
+---------------------------+--------------+---------------+--------------+
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+---------------------------+--------------+---------------+--------------+
| | | $'million | $'million |
+---------------------------+--------------+---------------+--------------+
| Current tax (credit) / | | | |
| expense: | | | |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| UK corporation tax | | - | - |
+---------------------------+--------------+---------------+--------------+
| Foreign tax | | (0.6) | - |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| Total current (credit) / | | (0.6) | - |
| expense: | | | |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| Deferred tax expense: | | - | 1.1 |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| Total income tax (credit) | | (0.6) | 1.1 |
| / expense | | | |
+---------------------------+--------------+---------------+--------------+
| | | | | |
+---------------------------+--------------+------+--------+--------------+
Income tax expense
+---------------------------+--------------+------+--------+--------------+
| | | | |
| | | | Discontinued |
| | | | operations |
+---------------------------+--------------+------+-----------------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| | | Year ended | Year ended |
+---------------------------+--------------+---------------+--------------+
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+---------------------------+--------------+---------------+--------------+
| | | $'million | $'million |
+---------------------------+--------------+---------------+--------------+
| Current tax expense: | | | |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| UK corporation tax | | 0.1 | - |
+---------------------------+--------------+---------------+--------------+
| Foreign tax | | 0.1 | 1.1 |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| Total current expense: | | 0.2 | 1.1 |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| Deferred tax expense: | | 0.1 | 0.1 |
+---------------------------+--------------+---------------+--------------+
| | | | |
+---------------------------+--------------+---------------+--------------+
| Total income tax expense | | 0.3 | 1.2 |
+---------------------------+--------------+---------------+--------------+
| | | | | |
+---------------------------+--------------+------+--------+--------------+
The Group's US entities have significant trading losses carried forward in
respect of which no deferred tax assets have been recognised due to the
uncertainty over future profitability.
(Loss) / profit on ordinary activities after income tax from continuing
operations
Loss on ordinary activities after income tax in 2009 was $67.5 million (2008:
profit of $1.0 million).
Discontinued operations
Discontinued operations consist of the results of the following wholly-owned
subsidiaries for the year ended 31 December 2009: Alea Holdings UK Limited, Alea
London Limited and Alea Services UK Limited. The results derived from these
entities have been classified as discontinued as these entities were sold on 29
October 2009 and are not consolidated in the Group balance sheet as at 31
December 2009. The sale agreement called for the sale of these UK operations at
a fixed price (i.e. without adjustment for changes in investment valuations or
reserves during the regulatory approval process).
The results of discontinued operations for 2009 are a loss of $10.7 million
(2008: profit of $2.9 million). The loss for the year ended 31 December 2009
consists of a profit on ordinary activities after income tax of $2.7 million, a
loss on the disposal of these discontinued operations of $16.7 million and a
profit of $3.3 million on the realisation of the revaluation and the hedging and
translation reserves that were part of the net equity of the discontinued
operations.
(Loss) / profit per share
Basic and fully diluted loss per share for all operations of the Group for 2009
was $0.45 per share (2008: profit per share of $0.02). Basic and diluted loss
per share are the same value on a rounded basis.
Dividend
The Company will not be paying a dividend for the 2009 financial year (2008:
$nil).
Balance sheet
Total assets
Total assets as at 31 December 2009 decreased by 27.6% to $1,335.6 million from
$1,845.6 million as at 31 December 2008. The total assets as at 31 December 2008
included $447.1 million relating to the Alea Holdings UK Limited disposal group.
The total assets of the Alea Holdings UK Limited group that were disposed of on
29 October 2009 were $422.1 million and net cash received in respect of this
transaction was $78.6 million.
Net assets
Net assets (shareholders' funds attributable to equity interests) at 31 December
2009 were $336.7 million (31 December 2008: $406.1 million). Net assets per
share were $1.94 (31 December 2008: $2.34).
Net assets in the year ended 31 December 2009 decreased by $69.4 million, which
was due to a loss of $78.2 million partially offset by a foreign exchange gain
of $2.4 million and a $9.3 million decrease in cumulative unrealised losses in
the investment portfolio described below.
As discussed in the section titled Invested assets, the Group reclassified its
entire portfolio of non-agency US mortgage-backed securities out of investments
available-for-sale into loans and receivables. These assets are carried at
amortised cost of $362.7 million as at 31 December 2009. If these assets were
carried at their market value of $205.5 million the net assets of the Group per
share would be $1.03 (2008: $1.49).
Reinsurance recoverables
Total reinsurers' share of claims outstanding was $332.7 million at 31 December
2009 after removing $89.2 million of reinsurance recoverables in respect of the
Alea Holdings UK Limited disposal group (31 December 2008: $334.3 million
excluding $89.0 million relating to the Alea Holdings UK Limited disposal
group). This is a decrease of 0.4% from the position at 31 December 2008.
Alea (Bermuda) Ltd through its Canadian branch holds a $280.7 million (2008:
$260.2 million) reinsurance recoverable balance related to structured settlement
products which represents 100 per cent of the assumed liability. Further details
are provided in note 36 of the Financial Statements.
Invested assets
The nature of the Group's run-off operations coupled with its long-tail
liabilities allows the Group to pursue a buy and hold investment strategy that
can include an element of long-term securities that may experience some price
volatility. The investment portfolio does not currently consist of any material
equity holdings or direct real estate investments, but in the year ended 31
December 2008 the Group increased its asset weighting in non-agency US
mortgage-backed securities and is still holding all these investments.
As previously disclosed, in accordance with the EU endorsed amendments to IAS 39
and IFRS 7, "Reclassification of Financial Assets," the Group reclassified its
entire portfolio of non-agency US mortgage-backed securities out of investments
available-for-sale into loans and receivables. As of 1 July 2008, the date of
reclassification, the reclassified investments had an amortised cost of $377.0
million and an approximate market value of $347.0 million. The loss position is
to be amortised over the life of the instruments using the effective interest
method.
As at 31 December 2009, financial assets carried at amortised cost within loans
and receivables had a carrying value of $362.7 million (31 December 2008: $397.1
million excluding $3.2 million relating to the Alea Holdings UK Limited disposal
group). These assets have an approximate market value of $205.5 million as at 31
December 2009 (31 December 2008: $250.6 million excluding $3.1 million relating
to the Alea Holdings UK Limited disposal group).
At 31 December 2009 the market value of available-for-sale investments was
$323.8 million (31 December 2008: $399.7 million excluding $282.6 million
relating to the Alea Holdings UK Limited disposal group).
Of total invested assets, $687.8 million (31 December 2008: $1,054.1 million) is
managed by fund managers with the asset mix shown below. The remaining invested
assets of $164.8 million (31 December 2008: $146.1 million) include
predominantly mutual funds invested in fixed income securities and deposits at
banking institutions.
The following table analyses the asset class of invested assets. The 31 December
2008 comparatives exclude the invested assets of the Alea Holdings UK Limited
disposal group.
+--------------------------------------+-------------+--------------+
| | As at | As at |
+--------------------------------------+-------------+--------------+
| | 31 December | 31 December |
| Asset class | 2009 | 2008 |
+--------------------------------------+-------------+--------------+
| US government | 7% | 12% |
+--------------------------------------+-------------+--------------+
| US mortgage | 31% | 23% |
+--------------------------------------+-------------+--------------+
| EU and Switzerland government and | 12% | 12% |
| corporate | | |
+--------------------------------------+-------------+--------------+
| Asset backed securities | 23% | 29% |
+--------------------------------------+-------------+--------------+
| Canadian government and provinces | 1% | 1% |
+--------------------------------------+-------------+--------------+
| Cash, cash equivalents and short | 26% | 23% |
| term investments | | |
+--------------------------------------+-------------+--------------+
| Total | 100% | 100% |
+--------------------------------------+-------------+--------------+
At 31 December 2009, the Group's investment portfolio had an average duration of
1.4 years (31 December 2008: 0.9 years). The Group seeks to match duration of
the portfolio to expected payment patterns. The Group may choose to increase the
average duration of the portfolio in the future.
The following analysis of investment return is for continuing operations only.
In 2009, the Group achieved a total gross return on the investment portfolio of
2.2% (2008: 15.1% loss). The investment return comprised 3.9% investment income
(2008: 5.8%), 0.5%realised gain (2008: realised loss of 1.5%), 3.2% impairment
on investments (2008: 0.2%) and 1.0% unrealised gain (2008: unrealised loss of
19.2%) on average invested assets of $941.8 million (2008: $1,084.8 million).
At 31 December 2009, apart from $13.9 million rated BBB/Baa, $58.7 million rated
BB/Ba and $121.8 million rated B or below, all of the Group's fixed income
portfolio was rated A or better and 64.1% was rated AA/Aa or better (31 December
2008: 94.6%) by either Standard & Poor's, Moody's or Fitch. The portfolio had a
weighted average rating of AA- based on ratings assigned by Standard & Poor's.
Excluded from the weighted average are $60.7 million of securities which are not
rated or where no rating has been assigned. Other than with respect to US,
Canadian and European Union government and agency securities, the Group's
investment guidelines limit its aggregate exposure to any single issuer to 5% of
its portfolio. Under the Group's current investment guidelines applicable to all
securities, all securities must be rated A or better at the time of purchase and
the weighted average rating requirement of the Group's portfolio (other than
certain portfolios containing private residential US mortgage-backed securities
managed by Fortress Fund IV Advisor LLC) is AA/Aa. As described below, certain
non-agency US mortgage-backed securities were re-securitised in 2009. The
weighted average credit ratings provided in the above analysis reflect the
impact of this re-securitisation. A comparison of the credit ratings of these
assets before and after the re-securitisation is provided in note 4 of the
Annual Financial Report on page 55. The Group recognised an impairment to the
purchase of non-agency US mortgage-backed securities of $30.5 million in 2009
(2008: $2.6 million).
There are pledges of certain investments for the issuance of letters of credit
in the normal course of business. As of 31 December 2009 the pledges covered
assets of $95.4 million (31 December 2008: $208.6 million). In addition, $88.8
million (31 December 2008: $92.4 million) is held as statutory deposits for
local regulators and a further $380.9 million (31 December 2008: $400.7 million)
is held in trust for the benefit of policyholders including $157.0 million (31
December 2008: $108.1 million) that Alea (Bermuda) Ltd has placed in trust on
behalf of Alea North America Insurance Company.
As at 31 December 2009, the Group held Société d'Investissement à Capital
Variable ("SICAV") of $63.1 million (31 December 2008: $67.9 million) pledged
for the benefit of French and Belgian cedants. These SICAVs are mutual funds
invested in European fixed income securities with weighted average credit
quality of AA and duration of approximately six years.
In its 2008 Annual Financial Report the Group reported that $170.1 million in
book value of option ARM securities, part of the Group's non-agency US
mortgage-backed securities portfolio, were downgraded in February 2009 by
Moody's, in some cases directly from Aaa to Ca. At that time, Standard & Poor's
continued to maintain $164.4 million of these investments with investment grade
ratings, in most cases at AAA, subject to negative credit watch. On 22 May,
2009, $264.9 million of certificate principal balance of new non-agency US
mortgage-backed securities were issued in connection with a re-securitisation
transaction of existing non-agency US mortgage-backed securities of an
equivalent amount. As a result of this transaction, $81.7 million (market value)
of below investment grade non-agency US mortgage-backed securities were
re-securitised to generate $62.5 million (market value) of new non-agency US
mortgage-backed securities rated A or higher by either Standard & Poor's or
Fitch. These new investment grade non-agency US mortgage-backed securities are
available to be used as collateral for the pledge arrangements used by the
Group.
Capital management
Financing facilities
The Group raised $100.0 million of hybrid capital in December 2004 and a further
$20.0 million in early January 2005. This capital is in the form of 30-year
hybrid trust preferred securities priced at 3 month LIBOR plus 285 basis points.
Commencing on the 15 June 2009 interest payment date, Alea Holdings US Company
("AHUSCO") has elected to defer the payment of interest on debentures underlying
$120.0 million of trust preferred securities due 2034 and 2035. As at 31
December 2009 the deferred interest was $3.5 million (2008: $nil). The deferral
may be continued for a period not to exceed five years under the terms of the
debentures. During the deferral period, unpaid quarterly coupons will compound
at the rate of three month LIBOR (reset quarterly) plus 285 basis points. While
the deferral remains in effect, neither Alea nor AHUSCO may make any payments on
any securities that are pari passu or subordinate to the debentures, including
any common shares.
Liquidity and cash flow
Cash flows from operating activities primarily consist of premiums collected,
investment income and collected reinsurance recoverable balances, less paid
claims, retrocession payments, commutation payments, operating expenses and tax
payments. Net cash outflow from operating activities after income tax paid for
2009 was $136.8 million (2008: $362.3 million net cash outflow excluding $41.2
million cash received as a result of the commutation of a large excess of loss
reinsurance treaty).
The net increase in cash was $77.5 million (decrease for 2008 of $40.4 million).
This is after net cash received from investing activities of $215.5 million
(2008: net cash received of $317.8 million) and net cash used in financing
activities of $1.2 million (2008: net cash used of $37.0 million). As a result,
after taking account of exchange movements of $0.4 million (2008: $3.8 million),
and deducting cash of $29.5 million that was disposed as a result of the sale of
the Alea Holdings UK Limited group, the Group's cash and cash equivalents at 31
December 2009 were $166.1 million (31 December 2008: $117.7 million).
Intra-Group arrangements
The Group designed intra-Group quota share arrangements to ensure that each
local balance sheet retains risk commensurate with its capital base. With the
merger of Alea Europe Ltd into Alea (Bermuda) Ltd in September 2009, an existing
quota share arrangement was eliminated. The only remaining quota share
arrangement in place is a 70% quota share to Alea Bermuda of Alea North
America's insurance and reinsurance business for the 2002 to 2005 underwriting
years. The Group may further simplify its capital structure and balance sheet
by commuting the remaining quota share. Such a transaction would be subject to
regulatory approval.
Key risks to which the Group is exposed
As a result of its activities the Group is subject to different types of risk.
These include insurance risk (which incorporates underwriting and reserving
risk), investment risk, credit risk and financial risk (incorporating interest
rate risk, asset price risk, currency risk and liquidity risk). Further details
of each of these types of risk and the procedures that the Group has in place to
mitigate them can be found in note 4 of the Annual Financial Report.
Credit ratings
In the first half of 2006, Alea Group requested the withdrawal of all Group and
member company ratings following ratings downgrades by both Standard and Poor's
and A.M. Best.
Branches
In the year ended 31 December 2009 the Company's subsidiary, Alea Bermuda Ltd.
had a licensed branch in Canada. A full listing of the Company's subsidiaries is
set out in note 41 of the 2009 Annual Financial Report.
Financial calendar 2010
The Group expects to release its interim results for the six months ended 30
June 2010 on 26 August 2010*.
*provisional date
Carl Speck
Chief Financial Officer
19 March 2010
INFORMATION REGARDING DIRECTORS
BOARD OF DIRECTORS
Robert I Kauffman(46) is a principal and a member of the board of directors of
Fortress Investment Group LLC. Mr. Kauffman has been a principal and a member of
the Management Committee of Fortress since co-founding Fortress in 1998. Mr.
Kauffman is responsible for the management of Fortress's European private equity
investment operations. Mr. Kauffman is the Chairman of the board of directors of
GAGFAH S.A. Prior to joining Fortress, Mr. Kauffman was a managing director of
UBS from May 1997 to May 1998, and prior to that, was a principal of BlackRock
Financial Management Inc. Mr. Kauffman was with Lehman Brothers from 1986 to
1994 and served as an executive director of Lehman Brothers International in
London beginning in 1992.
Mark B Cloutier (54) is the Chief Executive Officer of the Group and was
appointed as an executive member of the Board of Directors on 1 September 2006.
Mark Cloutier has over 30 years' experience within the reinsurance and run-off
industry and was most recently President and CEO of OP Re.
Randal A Nardone (54) is a principal and a member of the board of directors of
Fortress Investment Group LLC. Mr. Nardone has been a principal and a member of
the Management Committee of Fortress since co-founding Fortress in 1998. Mr.
Nardone is a member of the board of directors of GAGFAH S.A. and Eurocastle
Investment Limited. Mr. Nardone was previously a managing director of UBS from
May 1997 to May 1998. Prior to joining UBS in 1997, Mr. Nardone was a principal
of BlackRock Financial Management, Inc. Prior to joining BlackRock, Mr. Nardone
was a partner and a member of the executive committee at the law firm of Thacher
Proffitt & Wood.
DIRECTORS' REPORT
Directors that served during the year are as follows:
Robert I Kauffman (Chairman)1
Mark B Cloutier (Group Chief Executive Officer)2
Constantine N Darras3
Randal A Nardone4
Notes
1. Appointed as Non-Executive Chairman of the Board effective 5 July 2007.
Last re-elected 19 June 2008.
2. Appointed as an Executive Director effective 1 September 2006. Last
re-elected 18 June 2009; resigned effective 31 March 2010.
3. Appointed as a Non-Executive Director effective 28 July 2008. Resigned
effective 18 March 2009.
4. Appointed as a Non-Executive Director effective 5 July 2007. Last
re-elected 19 June 2008.
Re-election of Directors
The Company is proposing the re-election of Randal A Nardone as Director, who is
retiring by rotation in accordance with the Company's Bye-laws. Mr Nardone is a
Non-Executive Director.
Each of Mr Kauffman's and Mr Nardone's Non-Executive Director's appointment
letters is renewable on 19 June 2011 for an additional three year term, subject
to the provisions of the Company's Bye-laws.
Purchase of own shares
Under contractual arrangements between the Company and certain former Group
employees, the Company has the right to repurchase shares in the Company held by
any such employee at the end of their employment. During 2009, the Company made
the following own share purchases pursuant to these arrangements with certain
former Group employees.
+---------------+--------------+-----------------+-----------------+
| No of Common | Aggregate | Aggregate | % of Issued |
| Shares | Purchase | Nominal value | Share Capital |
| | price | | |
+---------------+--------------+-----------------+-----------------+
| Nil | Nil | Nil | Nil |
+---------------+--------------+-----------------+-----------------+
The Company is not required to obtain shareholder approval to authorise
purchases of its own shares under Bermudan law.
Deloitte LLP was replaced with Ernst & Young LLP as auditors to the Company at a
Special General Meeting of the shareholders on 30 November 2009. Ernst & Young
LLP have expressed their willingness to continue in office as auditors and a
resolution to reappoint them will be proposed at the forthcoming Annual General
Meeting.
Management Report
The Management Report, consisting of the Chief Executive Officer's Report and
the Financial Review, which is hereby incorporated by reference, includes a fair
review of the development and performance of the business and the position and
loss of the Company and its undertakings taken as a whole, together with a
description of the principal risks and uncertainties they face.
Further analysis of information regarding the principal risks and uncertainties
is found in note 4 to the consolidated financial statements.
Approved by the Board of Directors and signed on behalf of the Board.
George P Judd
Group Secretary
19 March 2010
DIRECTORS' RESPONSIBILITIES
The Directors (whose names and functions are set out on page 19) are responsible
for preparing the Annual Financial Report including the financial statements.
The Bermudan Companies Act 1981 permits the Company and its subsidiaries
(together, the 'Group'), to prepare financial statements which comprise the
consolidated income statement, the consolidated balance sheet, the consolidated
cash flow statement, the consolidated statement of comprehensive income, the
consolidated statement of changes in equity and the related notes 1 to 41 in
accordance with International Financial Reporting Standards ('IFRS').
International Accounting Standard 1 requires that financial statements present
fairly for each financial year the Company's financial position, financial
performance and cash flows. This requires the faithful representation of the
effect of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the International Accounting Standards Board's 'Framework
for the Preparation and Presentation of Financial Statements.' In virtually all
circumstances, a fair presentation will be achieved by compliance with all
applicable International Financial Reporting Standards. Directors are required
to:
· properly select and apply accounting policies;
· present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information; and
· provide additional disclosures when compliance with the specific
requirements in IFRS is insufficient to enable users to understand the impact of
particular transactions, other events and conditions on the entity's financial
position and financial performance.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company, for safeguarding the assets and for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Group's
website. Legislation in the United Kingdom and Bermuda governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors confirm that, to the best of their knowledge:
1. the financial statements, prepared in accordance with International
Financial Reporting Standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole; and
2. the Management Report, which is incorporated into the Directors' Report,
includes a fair review of the development and performance of the business and
the position of the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and
uncertainties they face.
Approved by the Board of Directors and signed on behalf of the Board.
Mark Cloutier Carl Speck
Chief Executive Officer Chief Financial
Officer
19 March 2010 19 March 2010
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF ALEA GROUP HOLDINGS (BERMUDA) LTD
(the "Group")
We have audited the Group financial statements of Alea Group Holdings (Bermuda)
Ltd for the year ended 31 December 2009 which comprise the consolidated income
statement, consolidated balance sheet, consolidated statement of comprehensive
income, consolidated statement of changes in equity and the consolidated cash
flow statement and the related notes 1 to 41. These Group financial statements
have been prepared under the accounting policies set out therein.
This report is made solely to the Company's members, as a body, in accordance
with section 90 of the Bermuda Companies Act 1981. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an Auditors' Report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditors
The Directors' responsibilities for preparing the Annual Financial Report and
the Group financial statements in accordance with applicable law and
International Financial Reporting Standards (IFRSs) are set out in the Statement
of Directors' Responsibilities.
Our responsibility is to audit the Group financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing.
We report to you our opinion as to whether the Group financial statements give a
true and fair view in accordance with the relevant financial reporting framework
and whether the Group financial statements have been properly prepared in
accordance with the Bermuda Companies Act 1981. We also report to you whether in
our opinion the information given in the Directors' Report is consistent with
the Group financial statements.
In addition we also report to you if, in our opinion, the Group has not kept
proper accounting records and if we have not received all the information and
explanations we require for our audit.
We read the other information contained in the Annual Financial Report and
consider whether it is consistent with the audited Group financial statements.
The other information comprises only the Management Report, the Board of
Directors' biographies, the Directors' Report and the Statement of the
Directors' Responsibilities. We consider the implications for our report if we
become aware of any apparent misstatements or material inconsistencies with the
Group financial statements. Our responsibilities do not extend to any further
information outside the Annual Financial Report.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
issued by the International Auditing and Assurance Standards Board. An audit
includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the Group financial statements. It also includes an assessment of
the significant estimates and judgments made by the Directors in the preparation
of the Group financial statements, and of whether the accounting policies are
appropriate to the Group's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the Group financial
statements are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the Group financial statements.
Opinion
In our opinion:
· the Group financial statements give a true and fair view, in accordance
with IFRSs, of the state of the Group's affairs as at 31 December 2009 and of
its loss for the year then ended;
· the Group financial statements have been properly prepared in accordance
with the Bermuda Companies Act 1981; and
· the information given in the Directors' Report is consistent with the
Group financial statements.
Ernst & Young LLP
New York
19 March 2010
THE FINANCIAL STATEMENTS
Contents
26 Consolidated income statement
27 Consolidated balance sheet
28 Consolidated cash flow statement
29 Consolidated statement of comprehensive income
30 Consolidated statement of changes in equity
31 Notes to the financial statements
ALEA GROUP ANNUAL FINANCIAL REPORT 2009
Year ended 31 December 2009
Consolidated income statement
+-------------------------------+----------+--+--+----------+-+----------+--+------+--+---------+-+-----------------+-------------+----------+
| | | | Year ended | Year ended | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| | | | 31 December 2009 | 31 December | |
| | | | | 2008 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| | Notes | | $'000 | $'000 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Continuing operations | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Gross premiums written | | | 17,477 | 13,788 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Revenue | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Premium revenue | | | 17,528 | 13,594 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Premium (ceded to) / received from | | | (282) | 2,194 | |
| reinsurers | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Net insurance premium revenue | | | 17,246 | 15,788 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Fee income | | | 7,928 | 539 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Investment income | 7 | | 36,954 | 62,740 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Net realised gains / (losses) on | 8 | | 5,184 | (997) | |
| financial assets | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Impairment of invested assets | 9 | | (30,493) | (2,563) | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Net realised losses on sale of renewal | 10 | | (15,000) | - | |
| rights | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Total revenue | | | 21,819 | 75,507 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Expenses | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Insurance claims and loss adjustment | | | 43,532 | 25,306 | |
| expenses | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Insurance claims and loss adjustment | | | 5,662 | 5,699 | |
| expenses paid to reinsurers | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Net insurance claims | 11 | | 49,194 | 31,005 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Acquisition costs | | | 4,137 | 5,820 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Other operating expenses | 12,13 | | 27,092 | 29,989 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Restructuring costs | 5 | | 192 | 1,066 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Total expenses | | | 80,615 | 67,880 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Results of operating activities | | | (58,796) | 7,627 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Finance costs | 14 | | (9,328) | (5,539) | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| (Loss) / profit before income tax | | | (68,124) | 2,088 | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Income tax credit/(expense) | 16 | | 611 | (1,069) | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| (Loss) / profit for the year from continuing | | | (67,513) | 1,019 | |
| operations | | | | | |
+------------------------------------------------+------------+-------------+---------------------+-------------------------------+----------+
| | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| Discontinued operations | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| (Loss) / profit for the year from | 17 | | (10,651) | 2,920 | |
| discontinued operations | | | | | |
+---------------------------------------------+---------------+-------------+---------------------+-------------------------------+----------+
| | | | | | |
+------------------------------------------+------------------+-------------+---------------------+-------------------------------+----------+
| (Loss) / profit for the year | | | (78,164) | 3,939 | |
+------------------------------------------------+------------+-------------+---------------------+-------------------------------+----------+
| |
+--------------------------------------------------------------------------------------------------------------------------------------------+
| Earnings per share for (losses)/profits attributable to the equity shareholders of the Company during the | |
| year: | |
+---------------------------------------------------------------------------------------------------------------------------------+----------+
| | | | | | |
+-------------------------------+---------------------------+----------------------+--------------------------------+-------------+----------+
| Basic in respect of | 18 | | (0.39) | 0.00 | |
| continuing operations ($) | | | | | |
+-------------------------------+----------------------------------------+------------+---------+---------------------------------+----------+
| Basic in respect of | 18 | | (0.06) | 0.02 | |
| discontinued operations ($) | | | | | |
+-------------------------------+----------------------------------------+------------+---------+---------------------------------+----------+
| Diluted in respect of | 18 | | (0.39) | 0.00 | |
| continuing operations ($) | | | | | |
+-------------------------------+----------------------------------------+------------+---------+---------------------------------+----------+
| Diluted in respect of | 18 | | (0.06) | 0.02 | |
| discontinued operations ($) | | | | | |
+-------------------------------+----------------------------------------+------------+---------+---------------------------------+----------+
| | | | | | | | | | | | | | | |
+-------------------------------+----------+--+--+----------+-+----------+--+------+--+---------+-+-----------------+-------------+----------+
Consolidated balance sheet
+-------------------------------+-------+------+------------+------------+
| | | | As at | As at |
+-------------------------------+-------+------+------------+------------+
| | | | 31 | 31 |
| | | | December | December |
| | | | 2009 | 2008 |
+-------------------------------+-------+------+------------+------------+
| |Notes | | $'000 | $'000 |
+-------------------------------+-------+------+------------+------------+
| | | | | |
+-------------------------------+-------+------+------------+------------+
| ASSETS | | | | |
+-------------------------------+-------+------+------------+------------+
| Property, plant and equipment | 19 | | 2,076 | 3,535 |
+-------------------------------+-------+------+------------+------------+
| Intangible assets | 20 | | 8,479 | 8,479 |
+-------------------------------+-------+------+------------+------------+
| Deferred acquisition costs | 21 | | 1,053 | 1,555 |
+-------------------------------+-------+------+------------+------------+
| Financial assets | | | | |
+-------------------------------+-------+------+------------+------------+
| Equity securities | | | | |
+-------------------------------+-------+------+------------+------------+
| - available for sale | 22 | | 77 | 111 |
+-------------------------------+-------+------+------------+------------+
| Debt securities | | | | |
+-------------------------------+-------+------+------------+------------+
| - available for sale | 22 | | 323,706 | 682,206 |
+-------------------------------+-------+------+------------+------------+
| Loans and receivables including | | 501,372 | 608,070 |
| insurance receivables 23 | | | |
+---------------------------------------+------+------------+------------+
| Derivative financial | 24 | | 39 | - |
| instruments | | | | |
+-------------------------------+-------+------+------------+------------+
| Deferred tax assets | 25 | | - | 653 |
+-------------------------------+-------+------+------------+------------+
| Reinsurance contracts | 27 | | 332,667 | 423,325 |
+-------------------------------+-------+------+------------+------------+
| Cash and cash equivalents | 26 | | 166,103 | 117,660 |
+-------------------------------+-------+------+------------+------------+
| | | | | |
+-------------------------------+-------+------+------------+------------+
| Total assets | | | 1,335,572 | 1,845,594 |
+-------------------------------+-------+------+------------+------------+
| | | | | |
+-------------------------------+-------+------+------------+------------+
| LIABILITIES | | | | |
+-------------------------------+-------+------+------------+------------+
| Insurance contracts | 27 | | 788,276 | 1,201,186 |
+-------------------------------+-------+------+------------+------------+
| Borrowings | 28 | | 121,441 | 117,867 |
+-------------------------------+-------+------+------------+------------+
| Derivative financial | 24 | | 100 | - |
| instruments | | | | |
+-------------------------------+-------+------+------------+------------+
| Provisions | 29 | | 2,054 | 2,808 |
+-------------------------------+-------+------+------------+------------+
| Other liabilities and charges | 30 | | 17,761 | 21,808 |
+-------------------------------+-------+------+------------+------------+
| Trade and other payables | 31 | | 69,262 | 95,225 |
+-------------------------------+-------+------+------------+------------+
| Current income tax | | | 7 | 608 |
| liabilities | | | | |
+-------------------------------+-------+------+------------+------------+
| | | | | |
+-------------------------------+-------+------+------------+------------+
| Total liabilities | | | 998,901 | 1,439,502 |
+-------------------------------+-------+------+------------+------------+
| | | | | |
+-------------------------------+-------+------+------------+------------+
| Net assets | | | 336,671 | 406,092 |
+-------------------------------+-------+------+------------+------------+
| | | | | |
+-------------------------------+-------+------+------------+------------+
| EQUITY | | | | |
+-------------------------------+-------+------+------------+------------+
| Capital and reserves attributable to the | | |
| Company's equity holders | | |
+----------------------------------------------+------------+------------+
| Share capital | 32 | | 1,739 | 1,738 |
+-------------------------------+-------+------+------------+------------+
| Other reserves | | | 692,311 | 683,569 |
+-------------------------------+-------+------+------------+------------+
| Retained loss | | | (357,379) | (279,215) |
+-------------------------------+-------+------+------------+------------+
| | | | | |
+-------------------------------+-------+------+------------+------------+
| Total equity | | | 336,671 | 406,092 |
+-------------------------------+-------+------+------------+------------+
| | | | | |
+-------------------------------+-------+------+------------+------------+
Approved by the Board of Directors on 19 March 2010 and signed on its behalf by:
Carl Speck
Chief Financial Officer
Consolidated cash flow statement
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| | | | Year ended | Year ended |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| | | | 31 | 31 |
| | | | December | December |
| | | | 2009 | 2008 |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| |Notes | | $'000 | $'000 |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Cash used in operations | 35 | | (136,918) | (318,409) |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Income tax recovered / | | | 116 | (2,729) |
| (paid) | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Net cash used in operating | | (136,802) | (321,138) |
| activities | | | |
+--------------------------------------+--------+-----------------------------+-------------------------------+
| | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Cash flows generated from/(used | | | |
| in) investing activities | | | |
+--------------------------------------+--------+-----------------------------+-------------------------------+
| Purchase of property, plant | | | (553) | (885) |
| and equipment | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Proceeds on sale of property, | | 23 | - |
| plant and equipment | | | |
+--------------------------------------+--------+-----------------------------+-------------------------------+
| Cash payments to acquire equity | | (3,214,298) | (4,733,490) |
| and debt securities | | | |
+--------------------------------------+--------+-----------------------------+-------------------------------+
| Cash receipts from sales of | | 3,332,845 | 5,011,961 |
| equity and debt securities | | | |
+--------------------------------------+--------+-----------------------------+-------------------------------+
| Net amounts outstanding for | | | - | (5,085) |
| securities | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Cash receipt from sale of | 17 | | 78,551 | - |
| subsidiary | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Cash receipts from interest and | | 18,894 | 45,276 |
| dividends | | | |
+--------------------------------------+--------+-----------------------------+-------------------------------+
| | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Net cash generated from | | | 215,462 | 317,777 |
| investing activities | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Cash flows used in financing | | | |
| activities | | | |
+--------------------------------------+--------+-----------------------------+-------------------------------+
| Repayments of borrowings | | | - | (30,000) |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Interest paid on borrowings | | | (1,195) | (7,029) |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Net cash used in financing | | | (1,195) | (37,029) |
| activities | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Net increase / (decrease) in | | 77,465 | (40,390) |
| cash and cash equivalents | | | |
+--------------------------------------+--------+-----------------------------+-------------------------------+
| | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Cash and cash equivalents at | | | 117,660 | 154,253 |
| beginning of year | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Cash of a subsidiary sold | 17 | | (29,475) | - |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Exchange gains on cash and bank | | 453 | 3,797 |
| overdrafts | | | |
+--------------------------------------+--------+-----------------------------+-------------------------------+
| | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
| Cash and cash equivalents at | | | 166,103 | 117,660 |
| end of year | | | | |
+------------------------------+-------+--------+-----------------------------+-------------------------------+
Consolidated statement of comprehensive income
+-----------------------------------+--+------+----------+-------------+-------------+
| | | Year ended | Year ended |
+-----------------------------------+--------------------+-------------+-------------+
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+-----------------------------------+--------------------+-------------+-------------+
| | | $'000 | $'000 |
+-----------------------------------+--------------------+-------------+-------------+
| | | | |
+-----------------------------------+--------------------+-------------+-------------+
| (Loss) / profit for the year | (78,164) | 3,939 |
+--------------------------------------------------------+-------------+-------------+
| | | |
+--------------------------------------------------------+-------------+-------------+
| Other comprehensive income | | |
+--------------------------------------------------------+-------------+-------------+
| Gain / (loss) on revaluation of available-for-sale | 7,863 | (21,653) |
| investments | | |
+--------------------------------------------------------+-------------+-------------+
| Transfers to profit and loss on sale of | | (4,443) | (901) |
| available-for-sale investments | | | |
+---------------------------------------------+----------+-------------+-------------+
| Amortisation of the unrealised loss related | | 5,910 | 1,330 |
| to loans and receivables carried at | | | |
| amortised cost | | | |
+---------------------------------------------+----------+-------------+-------------+
| Exchange differences on | | 2,389 | (6,037) |
| translation of foreign operations | | | |
+-----------------------------------+--------------------+-------------+-------------+
| Tax relating to components of other | | - | 1,030 |
| comprehensive income | | | |
+--------------------------------------+-----------------+-------------+-------------+
| Other comprehensive income / (expense) for | | 11,719 | (26,231) |
| the year, net of tax | | | |
+---------------------------------------------+----------+-------------+-------------+
| | | | |
+-----------------------------------+--------------------+-------------+-------------+
| Total comprehensive income / (expense) for | | (66,445) | (22,292) |
| the year, net of tax | | | |
+---------------------------------------------+----------+-------------+-------------+
| | | | | | |
+-----------------------------------+--+------+----------+-------------+-------------+
The total recognised income and expense are attributable to the Company's equity
holders.
Consolidated statement of changes in equity
+------------+----+----+----------+----+-----+------------+----------+------+------+----------+------------+-------------+-+-----+----------+
| | Attributable to equity holders of the Company |
+------------+------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | |
+------------+----+--------------------+-----+-----------------------+------+------+-----------------------+---------------+-----+----------+
| | Share | Share | Capital | Revaluation | Hedging and | Retained | Share-based | Total |
| | capital | premium | reserve | reserve 1 | translation | earnings | payment | |
| | | | | | reserves 2 | | reserve | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| As at 1 January | 1,738 | 629,668 | 75,381 | (30,579) | 7,888 | (279,215) | 1,211 | 406,092 |
| 2009 | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Loss for the | - | - | - | - | - | (78,164) | - | (78,164) |
| year | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Other | - | - | - | 9,330 | 2,389 | - | - | 11,719 |
| comprehensive | | | | | | | | |
| income | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Total | - | - | - | 9,330 | 2,389 | (78,164) | - | (66,445) |
| comprehensive | | | | | | | | |
| income | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Issuance of | 1 | 297 | - | - | - | - | (298) | - |
| shares | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Movement in share based payment | - | - | - | - | - | 316 | 316 |
| reserve - | | | | | | | |
+--------------------------------------+-----+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+----------------------+----------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| Disposed on sale of | - | - | - | (2,555) | (737) | - | - | (3,292) |
| Alea Holdings UK | | | | | | | | |
| Limited | | | | | | | | |
+----------------------+----------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| As at 31 | 1,739 | 629,965 | 75,381 | (23,804) | 9,540 | (357,379) | 1,229 | 336,671 |
| December 2009 | | | | | | | | |
+-----------------+---------------+----------+------------+-----------------+-----------------+------------+-------------+------------------+
| | | | | | | | | | | | | | | | |
+------------+----+----+----------+----+-----+------------+----------+------+------+----------+------------+-------------+-+-----+----------+
+------------+----+----+----------+----------+-----+------------+----------+------+-------+----------+------------+-------------+-+-----+----------+
| | Attributable to equity holders of the Company |
+------------+-------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | |
+------------+----+--------------------------+-----+-----------------------+------+-------+-----------------------+---------------+-----+----------+
| | Share | Share premium | Capital | Revaluation | Hedging and | Retained | Share-based | Total |
| | capital | | reserve | reserve 1 | translation | earnings | payment | |
| | | | | | reserves 2 | | reserve | |
+-----------------+---------------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | |
+-----------------+---------------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| As at 1 January | 1,738 | 629,668 | 75,381 | (10,385) | 13,925 | (283,154) | 866 | 428,039 |
| 2008 | | | | | | | | |
+-----------------+---------------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| Profit for the | - | - | - | - | - | 3,939 | - | 3,939 |
| year | | | | | | | | |
+-----------------+---------------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| Other | - | - | - | (20,194) | (6,037) | - | - | (26,231) |
| comprehensive | | | | | | | | |
| income | | | | | | | | |
+-----------------+---------------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| Total comprehensive | - | - | - | (20,194) | (6,037) | 3,939 | - | (22,292) |
| income | | | | | | | | |
+----------------------+----------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| | | | | | | | | |
+----------------------+----------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| Movement in share | - | - | - | - | - | - | 345 | 345 |
| based payment | | | | | | | | |
| reserve | | | | | | | | |
+----------------------+----------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| | | | | | | | | |
+-----------------+---------------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| As at 31 | 1,738 | 629,668 | 75,381 | (30,579) | 7,888 | (279,215) | 1,211 | 406,092 |
| December 2008 | | | | | | | | |
+-----------------+---------------+----------------+------------+-----------------+------------------+------------+-------------+------------------+
| | | | | | | | | | | | | | | | |
+------------+----+----+----------+----------+-----+------------+----------+------+-------+----------+------------+-------------+-+-----+----------+
1 The revaluation reserve is a component of shareholders' equity that is
used to record the difference between the market value of available-for-sale
investments carried on the balance sheet and the amortised cost. In addition it
includes an unrealised loss which arose as a result of the decision to
reclassify the portfolio of non-agency US mortgage-backed securities into the
loans and receivables category and carry them at amortised cost. The unrealised
loss in respect of these assets is the difference between the market value and
amortised cost as at 1 July 2008 and this loss is being amortised through the
income statement using the effective interest method from the date of
reclassification. The recognition of an impairment in respect of a non-agency US
mortgage-backed securities will accelerate the amortisation of the unrealised
loss related to the impaired assets through the income statement.
2 Movements in the unrealised gains and losses arising from the
translation of the Group's assets and liabilities denominated in functional
currencies of the Group are shown in the hedging and translation reserve.
Notes to the financial statements
1 General information
Alea Group Holdings (Bermuda) Ltd (the "Company") and its subsidiaries (together
the "Group") were engaged in the business of underwriting insurance and
reinsurance risks. The Group operated through four principal operating segments
representing London market business, North American business including
alternative risk transfer and reinsurance, Continental European reinsurance and
financial services. In 2005 the Group ceased to write new business and placed
all operations into run-off. Although the Group has disposed of the renewal
rights for Alea Alternative Risk, Alea London and Alea Europe and placed all
operations into run-off, the Group will continue to service claims relating to
business written during 2005 and prior for the foreseeable future. The Group now
classifies all of its operations under the 'Run-off business' segment. This
reflects the basis on which the Group's operations are managed and the relative
maturity of the run-off book of business.
On 16 September 2009, the Group announced that its former Swiss subsidiary, Alea
Europe Ltd., had re-domiciled into Bermuda and had merged into Alea (Bermuda)
Ltd. The re-domiciliation and merger were completed following approvals from the
Swiss Financial Market Authority ("FINMA"), the Bermuda Monetary Authority
("BMA") and the Bermuda Registrar of Companies ("ROC").
On 29 October 2009 the Alea Group completed the sale of Alea Holdings UK Limited
along with its subsidiaries Alea London Limited and Alea Services UK Limited.
Consequently, the three companies that make up the Alea Holdings UK Limited
sub-group are no longer consolidated in the Group balance sheet as at 31
December 2009 and the results of this disposal group are presented as
discontinued operations for the year ended 31 December 2009 and for the
comparative period.
The Company is registered in Bermuda and is listed on the London Stock Exchange.
As such it is required to prepare its financial information in accordance with
the Bermuda Companies Act 1981, which permits the Company and the Group to
prepare financial statements which comprise the consolidated income statement,
the consolidated balance sheet, the consolidated cash flow statement, the
consolidated statement of comprehensive income, the consolidated statement of
changes in equity and the related notes 1 to 41 in accordance with International
Financial Reporting Standards ("IFRS"). Accordingly, the financial information
has been prepared in accordance with Bermuda Law.
2 Basis of preparation
The financial statements, as required by the Listing Rules of the United
Kingdom's Financial Services Authority ("FSA"), have been prepared in accordance
with IFRS.
The consolidated financial statements are presented in thousands of US dollars,
rounded to the nearest thousand. They have been prepared under the historical
cost convention, as modified by the revaluation of financial instruments which
have been classified as available for sale.
The preparation of financial statements in conformity with IFRS requires
management to exercise its judgement in making estimates and assumptions that
affect the application of the Group's accounting policies and reported amounts
of assets and liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other factors that
are believed to be reasonable under the circumstances, the results of which form
the basis of making the judgement about the carrying values of assets and
liabilities that are not readily available from other sources. Actual results
may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the periods in which the
estimates are revised if the revisions affect only those periods or in the
periods of the revision and future periods if applicable.
Judgements made by management in the application of IFRS that have a significant
effect on the consolidated financial statements and estimates with a significant
risk of material adjustments in following years are discussed below.
As IFRS are limited in specifying full insurance-specific guidelines to the
requirements of IFRS 4 'Insurance Contracts' pending completion of the second
phase of the IASB's project on insurance contracts, accounting policies for
insurance contracts have been selected with primary consideration to existing UK
GAAP as permitted by IFRS 4. The annual basis of accounting has been applied to
all classes of business.
The consolidated financial statements for 2009 has been prepared in accordance
with the accounting policies in force. A summary of the principal accounting
policies is provided in note 3.
Accounting developments
The accounting policies adopted are consistent with those of the previous
financial year. The Group has adopted the following new and amended IFRS
interpretations as of 1 January 2009:
IAS 1 (Revised) Presentation of Financial Statements
Amendment to IFRS 7 Financial Instruments: Disclosures
The Group has also early adopted the following IFRS with effect from 1 January
2009:
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
Adoption of these revised standards and interpretations did not have any
material effect on the financial performance or position of the Group. They did
however give rise to additional disclosures.
The principal effects of these changes are as follows:
IAS 1 (Revised) Presentation of Financial Statements
This standard separates owner and non-owner changes in equity requiring all
owner changes in equity to be presented in a statement of changes in equity, and
all non-owner changes either in one statement of comprehensive income or in two
separate statements, which are an income statement and a statement of
comprehensive income. The previous standard required components of comprehensive
income to be presented in the statement of changes in equity. The revised
standard also requires that the income tax effect of each component of
comprehensive income to be disclosed. In addition, it requires entities to
present a comparative statement of financial position as at the beginning of the
earliest comparative period when the entity has applied an accounting policy
retrospectively, makes a retrospective restatement, or reclassifies items in the
financial statements.
The Group has elected to present comprehensive income in two separate statements
of income and comprehensive income. Information about the individual components
of comprehensive income as well as the tax effects have been disclosed in the
notes to the financial statements.
The Group has not presented three statements of financial position in these
financial statements because it has not applied an accounting policy
retrospectively, made a retrospective restatement of items in its financial
statements, or reclassified items in its financial statements that affected the
statement of financial position at the beginning of the earliest comparative
period.
Amendment to IFRS 7 Financial Instruments: Disclosures
The amendment to the standard requires an entity to provide a quantitative and
qualitative analysis of those instruments recognised at fair value based on a
three-level measurement hierarchy. Furthermore, for those instruments which have
significant unobservable inputs (classified as Level 3), the amendment requires
disclosures on the transfers into and out of Level 3, a reconciliation of the
opening and closing balances, total gains and losses for the period split
between those recognised in other comprehensive income, purchases, sales issues
and settlements, and sensitivity analysis of reasonably possible changes in
assumptions. In addition, disclosure is required of the movements between
different levels of the fair value hierarchy and the reason for those movements.
Finally, the standard amends the previous liquidity risk disclosures as required
under IFRS 7 for non-derivative and derivative financial liabilities.
Entities are required to apply this amendment for annual periods beginning on or
after 1 January 2009, with no requirement to provide comparatives on transition.
IFRS 8 Operating Segments
The International Accounting Standards Board (IASB) issued IFRS 8 'Operating
Segments' on 30 November 2006 effective for annual periods beginning on or after
1 January 2009. IFRS 8 replaces IAS 14 'Segment Reporting' and requires the
disclosure of financial information about the Group based upon the information
used internally to evaluate the performance of the operating segments and the
allocation of resources to those segments. The Group early-adopted IFRS 8 from
1 January 2008. The disclosures relating to Operating Segments are shown in note
6 to the Financial Statements.
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
The IFRIC issued IFRIC interpretation 16 in July 2008. The interpretation
provides guidance in respect of hedges of foreign currency gains and losses on a
net investment in a foreign operation. The amendment is applied prospectively.
The amendment states an entity can hedge foreign currency risk between the
functional currency of a subsidiary and the functional currency of any parent,
as well as the presentation currency of the Group if this is different from the
parent.
The Group has not applied the following new and revised IFRSs that have been
issued but are not yet effective in these financial statements.
IFRS 1 (Revised) Revised and restructured
version issued 24 November 20081
IFRS 1 Amendments Amendments to IFRS 1 issued 23
July 2009 incorporating changes for first time adopters 2
IFRS 2 Amendments Amendments to IFRS 2 Share-based
Payment - Group Cash- settled Share-based Payment Transactions 2
IFRS 3 (Revised)Business Combinations 1
IFRS 9 Financial Instruments 6
IAS 24 (Revised) Related Party Disclosures 5
IAS 27 (Revised) Consolidated and Separate
Financial Statements 1
IAS 32 Amendment Amendment to IAS 32 Financial
Instruments: Presentation -
Classification of Rights Issues 3
IAS 39 Amendment Amendment to IAS 39 Financial
Instruments: Recognition and
Measurement -
Eligible Hedged Items 1
IFRIC-Int 14 Amendments Amendments to IFRIC-Int 14
Prepayments of a Minimum Funding
Requirement5
IFRIC-Int 17 Distributions of Non-cash
Assets to Owners 1
IFRIC-Int 19 Extinguishing Financial
Liabilities with Equity Instruments 4
IFRS 5 included Amendments to IFRS 5
Non-current Assets Held for Sale and
in Improvements toDiscontinued Operations - Plan to Sell the Controlling
Interest in a
IFRSs issued in October 2008 Subsidiary 1
Apart from the above, the IASB has issued Improvements to IFRSs 2009 which sets
out amendments to a number of IFRSs primarily with a view to removing
inconsistencies and clarifying wording. The amendments to IFRS 2, IAS 38,
IFRIC-Int 9 and IFRIC-Int 16 are effective for annual periods beginning on or
after 1 July 2009 while the amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS
17, IAS 38 and IAS 39 are effective for annual periods beginning on or after 1
January 2010 although there are separate transitional provisions for each
standard or interpretation.
1 Effective for annual periods beginning on or after 1 July 2009
2 Effective for annual periods beginning on or after 1 January
2010
3 Effective for annual periods beginning on or after 1 February
2010
4 Effective for annual periods beginning on or after 1 July 2010
5 Effective for annual periods beginning on or after 1 January
2011
6 Effective for annual periods beginning on or after 1 January
2013
The Group is in the process of making an assessment of the impact of these new
and revised IFRSs upon initial application.
Going Concern
Further information regarding the Group's business activities, together with the
factors likely to affect its future development, performance and position are
set out in the Chief Executive Officer's Report on page 3. The financial
position of the Group, its cash flows, liquidity position and borrowing
facilities are described in the Financial Review on pages 4 to 18. In addition
note 4 to the financial statements includes the Group's objectives, policies and
processes for managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities and its exposures to
credit risk and liquidity risk.
Having considered the foregoing, after making enquiries, the directors have a
reasonable expectation that the Company and the Group have adequate resources to
continue in operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the Annual Financial
Report.
3 Accounting policies
The accounting policies set out below have been applied consistently to all
periods presented in these consolidated financial statements.
The accounting policies have been applied consistently by all Group entities.
Basis of consolidation
These financial statements consolidate all the enterprises in which Alea Group
Holdings (Bermuda) Ltd owns or controls, directly or indirectly, the majority of
the voting shares. There are no other enterprises over which the Group has the
ability to exercise control.
Intra-group transactions, balances, and gains and losses are eliminated except
to the extent that the transaction provides evidence of an impairment of the
asset transferred.
The results of subsidiaries liquidated or disposed of during the year are
included in the consolidated income statement up to the effective date of
liquidation or disposal, as appropriate.
Operating segments
The Group classifies all of its operations under the 'Run-off business' segment.
This reflects the basis on which the chief operating decision makers of the
Group manage the operations.
Foreign currency translation
a) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates (the 'functional currency'). The consolidated financial
statements are presented in thousands of US dollars, which is the Group's
presentation currency.
b) Group companies
The functional currencies for Group entities are usually the currencies of the
primary economic environment in which the entity operates.
The results and financial position of all the Group entities (none of which has
the currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:
(i) assets and liabilities for each balance sheet presented are translated at
the closing exchange rates at the date of that balance sheet;
(ii) income and expenses for each income statement are translated at
transactional or average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the dates
of the transactions); and
(iii) all resulting exchange differences are recognised as a separate component
of equity.
On consolidation, exchange differences arising from the translation of the net
investment in foreign entities, and of borrowings and other currency instruments
designated as hedges of such investments, are taken to shareholders' equity.
When a foreign operation is sold, such exchange differences are recognised in
the income statement as part of the gain or loss on sale.
c) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement.
Translation differences on non-monetary items are reported as part of the fair
value gain or loss. Translation differences on non-monetary items, such as
equities classified as available-for-sale financial assets, are included in the
revaluation reserve in equity.
To safeguard against fluctuations in exchange rates, Group entities seek to
match assets and liabilities in currency. However, currency gains/losses which
do arise from transactions in a currency other than a functional currency are
reported in the income statement within finance costs, as applicable.
The foreign currency rates used for significant foreign currencies are as
follows:
+-----------+----------------+------------+------------+------------+
| | Year ended | As at | Year ended | As at |
+-----------+----------------+------------+------------+------------+
| | 31 December | 31 | 31 | 31 |
| | 2009 | December | December | December |
| | Average | 2009 | 2008 | 2008 |
| | | Closing | Average | Closing |
+-----------+----------------+------------+------------+------------+
| British | 0.6433 | 0.6195 | 0.5457 | 0.6918 |
| pound | | | | |
+-----------+----------------+------------+------------+------------+
| Euro | 0.7175 | 0.6972 | 0.6811 | 0.7093 |
+-----------+----------------+------------+------------+------------+
| Swiss | 1.0807 | 1.0335 | 1.0770 | 1.0575 |
| franc | | | | |
+-----------+----------------+------------+------------+------------+
Insurance contracts
The Group enters into contracts that transfer insurance risk or financial risk
or both.
Insurance contracts are those contracts that transfer significant insurance
risk. Insurance risk is defined as risk, other than financial risk, transferred
from the holder of a contract to the issuer. Financial risk is defined as the
risk of a possible future change in one or more of a specified interest rate,
financial instrument price, commodity price, foreign exchange rate, index of
prices or rates, credit rating or credit index or other variable, provided in
the case of a non-financial variable that the variable is not specific to a
party to the contract.
Those contracts that do not transfer significant insurance risk are accounted
for by recognising an asset or liability based on the consideration paid or
received less any explicitly identified premiums or fees to be retained by the
ceding company. Future cash flows are estimated to calculate the effective
yield, and revenues and expenses are recorded as fee income or fee expense.
Premium revenue
For all insurance contracts, premiums are recognised as revenue proportionally
over the period of coverage, having regard, where appropriate, to the incidence
of risk and this is known as earned premium. The portion of premium receivable
on in-force contracts that relates to unexpired risks at the balance sheet date
is reported as the unearned premium liability. Premiums are shown before
deduction of commission and are exclusive of taxes and duties levied thereon.
Premiums comprise total premiums earned under contracts incepting during the
financial year, together with adjustments arising in the financial year to
premiums earned in respect of business written in previous financial years.
Premiums also include estimates of pipeline premiums earned on business written
but not yet notified to the Group.
In respect of both risks accepted and risks ceded by the Group, premiums and
claims relating to reinsurance arrangements which do not involve significant
transfer of insurance risk are not recognised in the income statement but are
accounted for as deposits due from, or liabilities due to, reinsurers or
cedants.
Reinsurance
The Group cedes premium and risks in the normal course of business in order to
limit the potential for losses arising from risks accepted. Insurance premiums
ceded to reinsurers on contracts that are deemed to transfer significant
insurance risk are recognised as an expense in a manner that is consistent with
the recognition of insurance premium revenue arising from the underlying risks
being protected. Reinsurance contracts that do not meet the definition of an
insurance contract are accounted for as financial assets. The portion of premium
ceded to reinsurers on in-force contracts that relates to unexpired risks at the
balance sheet date is reported as the unearned premium asset.
Insurance claims and loss adjustment expenses recovered from reinsurers are
accounted for in the same accounting period as the claims for the related inward
insurance and reinsurance business being covered and are estimated in a manner
consistent with the claim liability associated with the reinsurance policy.
Provision is made for potentially non-collectable reinsurance recoveries and the
exposure of the Group to credit risk is assessed through the aggregation of
reinsurance assets due from counter parties belonging to the same insurance
groups.
Renewal rights transactions
Renewal rights transactions represent books of insurance and reinsurance
business sold to third parties. The Directors use fair value accounting for
renewal rights transactions. Valuations and revaluations of such transactions
are recognised in the income statement as net realisedgains or losses on sale of
renewal rights.
In determining the fair value for the business sold, the Directors value the
discounted estimated future cash flows arising from specified percentages of
applicable commissionable premiums written over the applicable period in
accordance with the terms of the sale contracts. In determining the fair market
value of renewal rights sold, the Directors consider the prior production and
growth of the businesses sold, external projections and the most recent
assessment of the businesses sold. The Directors also make certain assumptions
about levels of program transfer and renewal probabilities of future premiums.
As the ultimate consideration receivable is dependent upon the future levels of
business generated on renewal in relation to the rights sold over differing time
periods as specified in the sale contracts, it is necessary for the Directors to
review and re-evaluate the fair value of the consideration receivable based on
the likely volumes of renewal business that will be written. Consequently,
adjustments to the consideration receivable recognised in the income statement
will be made at each balance sheet date where required.
Deferred acquisition costs ("DAC")
Costs which vary and are directly associated with the acquisition of insurance
and reinsurance contracts including brokerage, commissions, underwriting
expenses and other acquisition costs are deferred and amortised over the period
of contract, consistent with the earning of premium. These are shown as a
capitalised asset in the balance sheet.
Subsequent to initial recognition, DAC for life insurance is amortised over the
expected life of the contracts as a constant percentage of expected premiums.
Changes in the expected useful life or the expected pattern of consumption of
future economic benefits embodied in the asset are accounted for by changing the
amortisation period and are treated as a change in an accounting estimate.
Insurance claims and loss adjustment expenses
Insurance claims and loss adjustment expenses comprise the estimated cost of all
claims occurring prior to the balance sheet date, whether reported or not, and
include loss adjustment expenses related to internal and external direct and
indirect claims handling costs, and adjustments to claims outstanding from
previous years. Claims handling costs include related internal and external
direct and indirect claims handling costs and consist of third party loss
adjustor fees, legal expenses and claims staff costs.
Liabilities for unpaid claims are determined on an individual case basis and are
based on the estimated ultimate cost of all claims notified but not settled by
the balance sheet date, together with the provision for related claims handling
costs and net of salvage and subrogation recoveries. The provision also includes
the estimated cost of claims incurred but not reported at the balance sheet date
based on statistical methods.
The Group discounts certain categories of claims provisions, such as certain
casualty and auto liability claims, where the expected average interval between
the date of claim settlement and the balance sheet date is in excess of four
years in accordance with the requirements of the Association of British Insurers
Statement Of Recommended Practice ('ABI SORP'). The discount rate used is 4.0%
(31 December 2008: 4.0%). The Group discounts reinsurance contract recoverable
balances using the same methodology and discount rate.
Liability adequacy test ("LAT")
At each balance sheet date, liability adequacy tests are performed to ensure the
adequacy of the insurance contract liabilities net of related DAC and premiums
receivable.
Provision is made where current best estimates of future contractual cash flows
and claims handling and administration expenses arising after the end of the
financial year from contracts concluded before that date is expected to exceed
the provision for unearned premiums net of DAC and premiums receivable.
Investment income from the assets backing the liabilities is taken into account
in calculating the provision. The assessment of whether a provision is necessary
is made on the basis of information available as at the balance sheet date,
after offsetting surpluses and deficits arising on products which are managed
together. Any deficiency is immediately charged to the income statement
initially by writing off DAC and by subsequently establishing a provision for
losses arising from liability adequacy tests (the unexpired risk provision). Any
DAC written off as a result of this test cannot subsequently be reinstated.
Investment income
Investment income includes dividends and interest and is accounted for on an
accrual basis. Dividends are accrued on an ex-dividend basis that is when the
right to receive payment is established. Interest income in respect of the
Group's available-for-sale investments and financial assets carried at amortised
cost classified as loans and receivable is recognised using the effective
interest method.
Fee income
Fee income represents income arising on insurance activities other than premium
received in respect of contracts transferring insurance risk. It includes income
received on finite risk reinsurance and insurance contracts without significant
transfer of insurance risk and expense related to deposits received from
reinsurers, such income being recognised over the term of the contract.
Additionally, fee income may include amounts receivable under profit sharing
arrangements and other related underwriting income.
Share-based payments
The cost of awards to employees and non-employees that take the form of shares
or rights to shares is charged to the income statement as personnel costs on a
straight-line basis over the period to which the recipient's performance relates
and a corresponding amount is reflected in share-based payment reserve in
shareholders' equity. The charge is calculated as being the fair value of the
shares at the date of grant, reduced by any consideration payable by the
recipient, and a reasonable expectation of the extent to which performance
criteria will be met.
Pension costs
The Group only operates defined contribution pension arrangements. Contributions
are charged to the income statement as employee benefit expense as they become
payable in accordance with the rules of each scheme. The Group has no further
payment obligations once the contributions have been paid. Prepaid contributions
are recognised as an asset to the extent that a cash refund or a reduction in
the future payments is available.
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged to
the income statement on a straight-line basis over the period of the lease.
Property, plant and equipment
Property, plant and equipment comprise items of equipment only. Equipment is
stated at cost less accumulated depreciation and impairment losses when
appropriate. Depreciation is charged to the income statement on a straight-line
basis over the estimated useful lives of the assets. The estimated useful lives
vary between three and five years for fixtures and equipment.
The gain or loss arising on the disposal or retirement of an asset is determined
as the difference between the sales proceeds and the carrying amount of the
asset and is recognised in the income statement.
The residual values and useful lives of the assets are reviewed at each balance
sheet date and adjusted if appropriate.
Intangible assets
Intangible assets represent the cost of licences acquired to conduct business in
the United States. The Directors consider these licences to have indefinite
useful lives. Licences are granted for an indefinite period and are essential to
carry on business. The licences are tested for impairment at each annual balance
sheet date.
Investments - Financial Instruments
The Group recognises a financial asset or a financial liability on its balance
sheet when it becomes a party to the contractual provisions of the instrument.
On initial recognition the Group determines the category of financial instrument
and values it accordingly. The classification depends on the purpose for which
the investments are acquired.
a) Available-for-sale securities
Available-for-sale securities are non-derivative financial assets, typically
equities or bonds. On initial recognition, the fair value is the cost including
transaction costs directly attributable to the acquisition. On subsequent
remeasurement the fair value excludes transaction costs on disposal and
represents the listed bid price. Fair value movements are recognised in equity.
b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market other than those
that the Group intends to sell in the short-term or that it has designated as at
fair value through income or available-for-sale. In addition loans and
receivables include non-agency US mortgage-backed securities held for the
foreseeable future and measured at amortised cost using the effective interest
method, less impairment. Receivables arising from insurance contracts are also
classified in this category and are reviewed for impairment as part of the
impairment review of loans and receivables.
Trade receivables do not carry any interest rate and are measured at the fair
value which is their nominal value less appropriate allowances for estimated
irrecoverable amounts. Upon initial recognition, loans and receivables are
measured at fair value plus transaction costs that are directly attributable to
the acquisition or issue of the financial asset.
The Group has not designated any investments to be held to maturity or to be
valued at fair value through profit and loss.
Financial assets and liabilities are offset and the net amount reported in the
balance sheet only when there is a legally enforceable right to offset the
recognised amounts and there is an intention to settle on a net basis, or to
realise the asset and settle the liability simultaneously.
Purchases and sales of securities and currencies are recognised on trade date -
the date on which the Group commits to purchase or sell the asset.
Before evaluating whether, and to what extent, de-recognition of a financial
asset or liability is appropriate, the Group determines whether de-recognition
should be applied to only part of the financial asset / liability or group of
financial assets / liabilities. The Group only derecognises a financial asset or
liability when the contractual rights and obligations to the cash flows expire
or the financial asset / liabilities are transferred and the Group has also
transferred substantially all risks and rewards of ownership.
Gains and losses on de-recognition are recognised through the income statement.
Changes in fair value of available-for-sale investments, except for foreign
exchange gains and losses and impairment losses which are recognised in the
income statement, are directly recorded in equity until such time that the
financial asset is derecognised.
Derivative financial instruments held-for-trading
Financial assets and liabilities are classified as held for trading if they are
acquired for the purpose of selling or repurchasing in the near term. This
category includes derivative financial instruments entered into by the Group
that are not designated as hedging instruments in hedge relationships as defined
by IAS 39 'Financial Instruments: Recognition and Measurement'. These
instruments are initially recorded at fair value. Subsequent to initial
recognition, these instruments are re-measured at fair value. Fair value
adjustments and realised gains and losses are recognised in the income
statement. Derivatives are carried as financial assets when the fair value is
positive and as financial liabilities when the fair value is negative.
Derivative financial instruments designated as hedging instruments
The Group uses derivative financial instruments such as forward currency
contracts to hedge its foreign currency risks. Such derivative financial
instruments are initially recognised at fair value on the date on which a
derivative contract is entered into and are subsequently re-measured at fair
value. Derivatives are carried as financial assets when the fair value is
positive and as financial liabilities when the fair value is negative.
At the inception of a hedge relationship, the Group formally designates and
documents the hedge relationship to which the Group wishes to apply hedge
accounting and the risk management objective and strategy for undertaking the
hedge. The documentation includes identification of the hedging instrument, the
hedged item or transaction, the nature of the risk being hedged and how the
entity will assess the effectiveness of changes in the hedging instrument's fair
value in offsetting the exposure to changes in the hedged item's fair value or
cash flows attributable to the hedged risk. Such hedges are expected to be
highly effective in achieving offsetting changes in fair value or cash flows and
are assessed on an ongoing basis to determine that they actually have been
highly effective throughout the financial reporting periods for which they were
designated.
Derivative financial instruments and hedge accounting
Hedges which meet the strict criteria for hedge accounting are accounted for as
follows:
Hedge of a net investment in a foreign operation
Gains or losses on the hedging instrument relating to the effective portion of
the hedge are recognised as other comprehensive income while any gains or losses
relating to the ineffective portion are recognised in the income statement. The
Group uses a forward currency contract as a hedge of its exposure to foreign
exchange risk on its investments in foreign subsidiaries. Refer to note 24 for
more details.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities of
three months or less, and bank overdrafts.
Impairment of assets
The Group reviews the carrying amounts of its tangible and intangible assets at
each balance sheet date to determine whether there is any indication of
impairment. If any indication exists, the asset's recoverable amount is
estimated. An impairment loss is recognised whenever the carrying amount of an
asset or its cash generating unit exceeds its recoverable amount. Impairment
losses are recognised in the income statement.
The recoverable amount is the greater of the net selling price and the value in
use. In assessing the value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to
the asset for which the estimates of future cash flows have not been adjusted.
Taxation
Income tax expense represents the sum of the tax payable in the year and
deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred income tax is provided in full, using the liability method, on all
temporary differences, which are based on the difference between the financial
statement carrying values and the tax bases of assets and liabilities using
enacted income tax rates and laws. Deferred income tax assets are recognised to
the extent that it is regarded as probable that they will be utilised against
sufficient future taxable income. Deferred income tax assets and liabilities are
not discounted.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
utilised.
The deferred tax that results from unrealised gains and losses on securities
classified as available-for-sale is recognised in shareholders' equity along
with those unrealised gains and losses.
Current tax payable by any Group company on distribution to the holding company
of the undistributed profits of any subsidiaries is recognised as deferred tax
unless the timing of the distribution of those profits is controlled by the
holding company and the temporary difference is not expected to reverse in the
foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost; any difference
between the proceeds (net of transaction costs) and the redemption value is
recognised in the income statement over the period of the borrowings using the
effective interest method.
Provisions
a) Restructuring costs and legal claims
Provisions for restructuring costs and legal claims are recognised when the
Group has a present legal or constructive obligation as a result of a past
event, it is more likely than not that an outflow of resources will be required
to settle the obligation, and the amount has been reliably estimated.
Restructuring provisions comprise lease termination penalties and employee
termination payments. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow
will be required in settlement is determined by considering the class of
obligations as a whole. A provision is recognised even if the likelihood of an
outflow with respect to any one item included in the same class of obligations
may be small.
b) Levies
The Group is subject to various insurance-related assessments or guarantee fund
levies. Related provisions are provided for where there is a present obligation
(legal or constructive) as a result of a past event.
Share capital
Shares are classified as equity when there is no obligation to transfer cash or
other assets. Incremental costs directly attributable to the issue of equity
instruments are shown in equity as a deduction from the proceeds, net of tax.
Incremental costs directly attributable to the issue of equity instruments as
consideration for the acquisition of a business are included in the cost of
acquisition.
4 Analysis of risk
Risk management framework
As a global run-off insurance and reinsurance operation, the Group is exposed to
various types of risk.
The Board of Directors retains overall responsibility for the risk management
framework that has been established to mitigate the Group's exposure to risk and
assesses the effectiveness of the controls established to identify, monitor and
mitigate the risks faced by the Group.
The risks that the Group faces include, but are not limited to:
Insurance risk - risk associated with the uncertainty over the likelihood of an
insured event occurring, the quantum of the claim, or the time when claims
payments will fall due.
Investment and credit risk - risk associated with the Group's reinsurance
arrangements, investment portfolio, and other counterparty credit risk.
Financial risk - risk associated with possible future change in one or more of a
specified interest rate, financial instrument price, foreign exchange rate or
other variable. Also included within financial risk is liquidity risk, the risk
that obligations cannot be met as they become due as a consequence of being
unable to readily realise assets to meet these obligations.
Insurance risk
Underwriting risk
When it was underwriting insurance business, the Group managed the transfer of
insurance risk from its cedants in a number of ways. Underwriting guidelines
governed the products it was willing to sell and the geographical location in
which the risk was located. Before risk was accepted, its impact upon the
overall risk profile of the insurance portfolio was assessed. Underwriting
controls included the establishment of limits on underwriting authority and the
monitoring of exposure by industry, geographical region and class of business.
The Group used a variety of reserving and modelling methods to determine the
levels of insurance risk accepted. The modelling techniques employed helped the
Group to monitor, estimate and control its exposure to natural and man-made
catastrophes. Diversification was sought through the range of products sold and
geographical locations in which business was written.
The Group Underwriting Committee monitored emerging issues that affected its
exposure to insurance risk such as new areas of liability and the impact of
major losses.
Sources of uncertainty in the estimation of future claim payments
The Group takes steps to ensure that it has appropriate information regarding
its claims exposures. However, given the uncertainty in establishing claims
provisions, it is likely that the final outcome will prove to be different from
the original liability established.
In estimating the liability for the cost of reported claims not yet paid, the
Group considers any information available from loss adjusters and information on
the cost of settling claims with similar characteristics in previous periods.
Large claims are assessed on a case-by-case basis or projected separately in
order to allow for the possible distorting effect of their development and
incidence on the rest of the portfolio.
The estimation of claims incurred but not reported ("IBNR") is generally subject
to a greater degree of uncertainty than the estimation of the cost of settling
claims already notified to the Group, where information about the claim event is
available. An assessment of the liability for future claims is affected not only
by the risks inherent in the perils insured but also by changes that may occur
in the legal and judicial environment before claims are settled, all of which
affect the quantum of the claim. Additionally, the practical limits to
information flows from insured parties hampers the estimation of the claim
amounts.
For casualty risks, for example, claims may not be apparent to the insured until
many years have passed after the event that gave rise to the claims. The Group's
casualty business was typically written on an occurrence basis, meaning that the
Group is liable for all insured events that occurred during the term of
contract, even if the loss is discovered after the end of the contract term.
Liability claims are therefore notified and settled over a long period of time.
As a result, for casualty business, a large element of the claims provision
relates to IBNR and will typically display greater variations between initial
estimates and final outcomes because of the greater degree of difficulty of
estimating these liabilities.
For property business, the greatest uncertainty arises from catastrophe events,
where a single event affects a large number of contracts. In such cases the
Group estimates the IBNR using an exposure methodology, assessing each programme
written by the Group to determine the expected claims in respect of that event.
For property business other than catastrophe, and for casualty business, the
IBNR is typically based on a combination of loss-ratio-based estimates and
claims-experience-based estimates, with greater weight given to actual claims
experience as time passes. The initial loss-ratio estimate is an important
assumption in the estimation technique and is based on a number of factors
including previous years' experience, premium rate changes, market experience
and historical claims inflation.
The projections given by the various methodologies also assist in estimating the
range of possible outcomes. The most appropriate estimation technique is
selected taking into account the characteristics of the business class and the
extent of the development of each underwriting year.
The amount of casualty claims is particularly sensitive to the level of court
awards and to the development of legal precedent on matters of contract and
tort. Casualty contracts are also subject to the emergence of new types of
latent claims, but no allowance is included for this at the balance sheet date.
The following table presents the Group's booked gross claims outstanding before
claims handling provisions and before discount by class of business. The
comparative table as at 31 December 2008 includes the gross claims outstanding
of Alea London Limited as it was part of the Group at that date.
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| As at 31 December | General | Motor | Workers' | Professional | Property | MAT1 | Total |
| 2009 | liability | | comp. | | | | |
| $'million | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 1999 and prior | 29.4 | 25.5 | 3.8 | 0.9 | 14.5 | 23.8 | 97.9 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2000 | 17.9 | 7.4 | 8.6 | 7.9 | 2.3 | 7.9 | 52.0 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2001 | 13.7 | 4.4 | 17.8 | 4.9 | - | 0.5 | 41.3 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2002 | 9.9 | 4.1 | 2.8 | 4.5 | 3.4 | 0.4 | 25.1 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2003 | 10.9 | 8.8 | 1.6 | 4.3 | 1.7 | 0.1 | 27.4 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2004 | 12.9 | 14.9 | 3.3 | 7.7 | 2.2 | - | 41.0 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| 2005 | 10.6 | 19.1 | 0.5 | 5.7 | 4.5 | - | 40.4 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Reinsurance | 105.3 | 84.2 | 38.4 | 35.9 | 28.6 | 32.7 | 325.1 |
| reserves | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Insurance | 54.8 | 15.2 | 52.4 | - | 2.5 | - | 124.9 |
| reserves | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Total non-life | 160.1 | 99.4 | 90.8 | 35.9 | 31.1 | 32.7 | 450.0 |
| reserves | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Life structured | | | | | | | 280.7 |
| settlements | | | | | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Life reinsurance | | | | | | | 88.3 |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
| Provision for claims outstanding, reported | | | 819.0 |
| and not reported | | | |
+-------------------+-----------+-------+----------+--------------+----------+------+-------+
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| As at 31 | General | Motor | Workers' | Professional | Property | MAT1 | Total |
| December 2008 | liability | | comp. | | | | |
| $'million | | | | | | | |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| 1999 and prior | 48.9 | 59.2 | 2.2 | 1.6 | 25.3 | 70.1 | 207.3 |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| 2000 | 18.7 | 8.7 | 11.1 | 9.1 | 4.7 | 18.2 | 70.5 |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| 2001 | 20.4 | 6.0 | 16.3 | 5.4 | 2.0 | 8.7 | 58.8 |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| 2002 | 19.5 | 4.3 | 4.9 | 9.0 | 5.0 | 3.1 | 45.8 |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| 2003 | 25.6 | 13.1 | 2.9 | 16.8 | 1.5 | 1.6 | 61.5 |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| 2004 | 25.8 | 19.4 | 5.2 | 18.8 | 3.3 | 0.1 | 72.6 |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| 2005 | 16.2 | 26.1 | 2.1 | 23.0 | 25.1 | 0.2 | 92.7 |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| Reinsurance | 175.1 | 136.8 | 44.7 | 83.7 | 66.9 | 102.0 | 609.2 |
| reserves | | | | | | | |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| Insurance | 152.6 | 38.2 | 64.5 | 22.1 | 7.4 | - | 284.8 |
| reserves | | | | | | | |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| Total non-life | 327.7 | 175.0 | 109.2 | 105.8 | 74.3 | 102.0 | 894.0 |
| reserves | | | | | | | |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| Life structured | | | | | | 260.2 |
| settlements | | | | | | |
+-----------------------------+-------+----------+--------------+----------+-------+---------+
| Life | | | | | | | 86.0 |
| reinsurance | | | | | | | |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
| Provision for claims outstanding, reported | | | 1,240.2 |
| and not reported | | | |
+-----------------+-----------+-------+----------+--------------+----------+-------+---------+
1 Marine, Aviation and Transport
The following table analyses Alea's non-life gross claims outstanding between
case reserves and incurred but not reported ('IBNR'). The 2008 comparatives for
the case and IBNR split include the gross claims outstanding of Alea London
Limited. The insurance and reinsurance splits are in line with the Group's
typical business tail and the relative maturity of the respective books.
+------------------+------------------------------------+------------+
| | As at | As at |
+------------------+------------------------------------+------------+
| | 31 December 2009 | 31 |
| | | December |
| | | 2008 |
+------------------+------------------------------------+------------+
| | % | % |
+------------------+------------------------------------+------------+
| Case reserves | 38 | 47 |
| | | |
+------------------+------------------------------------+------------+
| IBNR | 62 | 53 |
+------------------+------------------------------------+------------+
| Total | 100 | 100 |
+------------------+------------------------------------+------------+
Prior year reserve development
The Group's expected loss development is determined by the Group's internal
actuaries based on historical claims analysis and projected trends. Actual
reported losses may vary from expected loss development. Generally, as an
underwriting year matures, the level of newly reported claims decreases.
During the twelve months ended 31 December 2009 the Group experienced adverse
development in the reserves, net of reinsurance and excluding the impact of
commutations and discount of $27.2 million (31 December 2008: adverse reserve
development, net of reinsurance and excluding the impact of commutations and
discount of $23.2 million).
Net reserve development is determined by netting adverse and positive reserve
development. 31.2% of the negative 2009 reserve development in respect of
continuing operations relates to the Group's reinsurance portfolio (2008:
18.5%). Reinsurance operations by their nature add further complications to the
reserving process, particularly to casualty business, where there is an inherent
lag in the timing and reporting of a loss event from an insured or ceding
company to the reinsurer. This reporting lag creates an even longer period of
time between the policy inception and when a claim is finally settled. As a
result, more judgement is required to establish reserves for ultimate losses in
reinsurance operations.
All amounts included in net insurance claims arise from the movement in the
prior year provision for claims outstanding net of reinsurance except for net
insurance claims of $17.4 million (2008: $14.1 million) relating to the Group's
life business.
Historical ultimate loss ratios ('ULR')
The ULR is an actuarial estimate of total claims to the point of final
settlement as a percentage of gross ultimate premiums. It excludes expenses. The
table below shows the ULR as of 31 December 2009 for proportional and
non-proportional US casualty reinsurance, gross of reinsurance and prior to
discounting. The Group's US casualty reinsurance ULR shown in the table below is
the aggregate ULR for Alea North America and Alea Bermuda. The table also shows
the aggregate ULR for Alea Europe Ltd which has now been merged with Alea
(Bermuda) Limited.
+--------------------+--------------+------------------+--------------+
| | US casualty | US casualty | Europe |
| | proportional | non-proportional | |
+--------------------+--------------+------------------+--------------+
| Underwriting year | % | % | % |
+--------------------+--------------+------------------+--------------+
| 1995 | - | - | 65.5 |
+--------------------+--------------+------------------+--------------+
| 1996 | - | - | 74.5 |
+--------------------+--------------+------------------+--------------+
| 1997 | - | - | 91.4 |
+--------------------+--------------+------------------+--------------+
| 1998 | - | - | 107.8 |
+--------------------+--------------+------------------+--------------+
| 1999 | 174.7 | - | 137.2 |
+--------------------+--------------+------------------+--------------+
| 2000 | 118.6 | 181.7 | 97.1 |
+--------------------+--------------+------------------+--------------+
| 2001 | 97.3 | 127.8 | 79.6 |
+--------------------+--------------+------------------+--------------+
| 2002 | 78.6 | 95.1 | 71.4 |
+--------------------+--------------+------------------+--------------+
| 2003 | 65.1 | 41.6 | 47.0 |
+--------------------+--------------+------------------+--------------+
| 2004 | 59.7 | 48.8 | 48.0 |
+--------------------+--------------+------------------+--------------+
| 2005 | 88.8 | 70.7 | 67.5 |
+--------------------+--------------+------------------+--------------+
Note 27 to the financial statements presents the development of the estimate of
ultimate claim cost for policies underwritten in a given year. This gives an
indication of the accuracy of the Group's estimation technique for ultimate
claims payments.
If the gross claims reserve carried in the balance sheet moved by 1% the impact
on the income statement and equity would be a change of $8.2 million (31
December 2008: $12.4 million) on an undiscounted and pre-tax basis.
Investment and credit risk
Investment risk
The Group's investment strategy is based on a high quality diversified portfolio
of liquid investment grade fixed income securities as a method of preserving
equity capital and prompt claim payment capability.
The Group uses investment managers to invest most of its assets. The Group's
Investment Committee recommends investment policies and guidelines for
investment managers which are submitted for approval to the Boards of Directors
of the Group's regulated insurance companies. These guidelines specify criteria
on the overall credit quality and liquidity characteristics of the portfolio and
include limitations on the size of certain holdings as well as restrictions on
purchasing certain types of securities.
Invested assets at external managers were $687.8 million as at 31 December 2009
(2008: $1,054.1 million). The assets managed by fund managers are shown in the
asset mix below. The remaining invested assets of $164.7 million (2008: $146.1
million) include predominantly mutual funds invested in fixed income securities.
+-------------------------------------+---+--------------+-----------------+
| | As at | As at |
+-------------------------------------+------------------+-----------------+
| Asset class | 31 December 2009 | 31 December |
| | | 2008 |
+-------------------------------------+------------------+-----------------+
| | in % | in % |
+-------------------------------------+------------------+-----------------+
| US government | 7 | 16 |
+-------------------------------------+------------------+-----------------+
| US mortgage | 31 | 21 |
+-------------------------------------+------------------+-----------------+
| EU and Switzerland government and | 12 | 10 |
| corporate | | |
+-------------------------------------+------------------+-----------------+
| US corporate | - | 3 |
+-------------------------------------+------------------+-----------------+
| Asset backed securities | 23 | 22 |
+-------------------------------------+------------------+-----------------+
| Canadian government and provinces | 1 | - |
+-------------------------------------+------------------+-----------------+
| Cash, cash equivalents and short term | 26 | 28 |
| investments | | |
+-----------------------------------------+--------------+-----------------+
| | 100 | 100 |
+-------------------------------------+------------------+-----------------+
| | | | |
+-------------------------------------+---+--------------+-----------------+
Financial and insurance liabilities risk
The Group is also exposed to interest rate risk on its insurance reserves and
floating rate borrowings.
Where appropriate, reserves are discounted in accordance with existing UK GAAP
as permitted by IFRS 4. Discount rates are based on the expected future cash
flow derived from assets established for the payment of reserves. The Group
discounts loss reserves for certain business with a mean term to ultimate claims
settlement in excess of four years. The majority of such discount applies to
casualty business. The unwind of the discount is sensitive to the claims payment
pattern.
The Group discount rate used is based on the relevant average investment return
of the last five years. A reduction of 0.1% would reduce the net discount in the
balance sheet by approximately $0.8 million (2008: $1.2 million) and would
negatively impact income statement and equity by the same amount
The Group has $120.0 million of trust preferred securities in issue excluding
deferred interest on these securities. These securities provide for a preferred
dividend at a rate of three month LIBOR plus 285 basis points.
The Group had $30.0 million outstanding under its loan facility which was due
for repayment on 18 July 2009. This loan carried an interest margin of 200 basis
points over LIBOR and was repaid on 14 January 2008.
Credit risk
When the Group was underwriting, it purchased reinsurance to manage its
catastrophe exposure and mitigate insurance risk. However, the ceding of
insurance risk exposes the Group to credit risk from its reinsurers and
retrocessionaires.
The Group selected its reinsurers and retrocessionaires based on price and
credit quality and continues to monitor them closely over time. It also sought
to diversify its business among reinsurers and retrocessionaires and required
collateral where deemed prudent to do so. Thus, the use of maximum limits for
credit exposure to any one counter party was an effective method for mitigating
credit risk.
The Group required that at the time of purchase all reinsurers and
retrocessionaires had a minimum credit rating of A-, unless high quality
collateral was provided.
Additionally, the Group is subject to credit risk in respect of third party
companies in which the Group holds debt securities issued by those companies. As
a consequence of the established investment policies and in order to mitigate
investment risk, as at 31 December 2009, apart from $13.9 million rated BBB/Baa,
$58.7 million rated BB/Ba and $121.8 million rated B or below, all of the
Group's fixed income portfolio was rated A or better and 64.1% was rated AA/Aa
or better (31 December 2008: 94.6%) by either Standard & Poor's, Moody's or
Fitch. The portfolio had a weighted average rating of AA- based on ratings
assigned by Standard & Poor's. Excluded from the weighted average are $60.7
million of securities which are not rated or where no rating has been assigned.
Other than with respect to US, Canadian and European Union government and agency
securities, the Group's investment guidelines limit its aggregate exposure to
any single issuer to 5% of its portfolio. Under the Group's current investment
guidelines applicable to all securities, all securities must be rated A or
better at the time of purchase and the weighted average rating requirement of
the Group's portfolio (other than certain portfolios containing private
residential US mortgage-backed securities managed by Fortress Fund IV Advisor
LLC) is AA/Aa. As described on page 59, certain non-agency US mortgage-backed
securities were re-securitised in 2009. The weighted average credit ratings
provided in the above analysis reflect the impact of this re-securitisation. A
comparison of the credit ratings of these assets before and after the
re-securitisation is provided on page 55. The Group recognised an impairment to
the purchase of non-agency US mortgage-backed securities of $30.5 million in
2009 (2008: $2.6 million). The following table illustrates the split of total
debt securities by rating of investee.
+------------------------------+-----+----------------+---------------------+
| Credit Rating of investee | Debt security | Debt security |
| | investment | investment |
| | as at 31 December | as at 31 December |
| | 2009 | 2008 |
+------------------------------+----------------------+---------------------+
| | in % | in % |
+------------------------------+----------------------+---------------------+
| AAA / Aaa / US Government or | 60.4 | 88.2 |
| equivalent | | |
+------------------------------------+----------------+---------------------+
| AA / Aa | 6.8 | 6.3 |
+------------------------------+----------------------+---------------------+
| A | 1.4 | 3.8 |
+------------------------------+----------------------+---------------------+
| BBB / Baa or lower | 31.4 | 1.7 |
+------------------------------+----------------------+---------------------+
| Total | 100.0 | 100.0 |
+------------------------------+----------------------+---------------------+
| | | | |
+------------------------------+-----+----------------+---------------------+
At 31 December 2009, the Group's largest aggregate exposure to any single issuer
other than with respect to the United States, Canadian and European government
and agency securities was $38.4 million (31 December 2008: $48.4 million) in
respect of Countrywide Alternative Loan Trusts.
Depending upon the duration of the liabilities supported by a particular
portfolio, the Group's portfolio investment duration targets may range from one
to three years. The duration of an investment is based on the maturity of the
security and also reflects the payment of interest and the possibility of early
principal payment of such security. The Group seeks to utilise investment
benchmarks that reflect this duration target. The Group's Investment Committee
periodically reviews the Group's investment benchmarks based on business and
economic factors including the average duration of the Group's potential
liabilities.
At 31 December 2009, the Group's investment portfolio had an effective duration
of 1.4 years (31 December 2008: 0.9 years). The Group has shortened duration
targets on its investment portfolios to ensure that sufficient liquidity will be
available to execute the commutation strategy and to reflect the greater
uncertainty now inherent in the duration of its liabilities with this
commutation strategy.
Analysis by credit rating of all financial assets (impaired, past due, neither
past due nor impaired):
+----------+--------+---------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| As at 31 December 2009 | | | | | |
+----------------------------------------------------------------------+--------------------------------------+--------+-----------+-----------+-----+
| | | | AAA | AA/Aa | A | BBB/Baa | Collater-alised | Equities | Not | Non | Total | |
| | | | /Aaa | | | and | | | rated | financial | | |
| | | | | | | below | | | | asset | | |
+----------+------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| | | | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | |
| | | | | | | | | | | | | |
+----------+------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| | | | | | | | | | | | | |
+----------+------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| Property, plant and equipment | - | - | - | - | - | - | - | 2,076 | 2,076 | |
+----------------------------------------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| Intangible assets | | - | - | - | - | - | - | - | 8,479 | 8,479 | |
+-----------------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| Deferred acquisition costs | | - | - | - | - | - | - | - | 1,053 | 1,053 | |
+-----------------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| Financial assets - available for sale | 296,153 | 20,693 | 6,860 | - | - | 77 | - | - | 323,783 | |
| securities | | | | | | | | | | |
+----------------------------------------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| Loans and receivables including | 133,648 | 33,452 | 105,183 | 160,053 | 3,076 | - | 65,948 | 12 | 501,372 | |
| insurance receivables | | | | | | | | | | |
+----------------------------------------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| Derivative financial | | - | - | 39 | - | - | - | - | - | 39 | |
| instruments | | | | | | | | | | | |
+-----------------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| Reinsurance contracts | | 4,061 | 284,211 | 16,920 | 936 | 25,174 | - | 1,365 | - | 332,667 | |
+-----------------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| Cash and cash equivalents | | 100,657 | 689 | 64,755 | 2 | - | - | - | - | 166,103 | |
+-----------------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| | | | | | | | | | | | | |
+----------+------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| Total assets | | | 534,519 | 339,045 | 193,757 | 160,991 | 28,250 | 77 | 67,313 | 11,620 | 1,335,572 | |
+-------------------+---------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
| | | | | | | | | | | | | | |
+----------+--------+---------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+-----+
+----------+--------+---------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| As at 31 December 2008 | | | | |
+----------------------------------------------------------------------+--------------------------------------+--------+-----------+-----------+
| | | | AAA | AA/Aa | A | BBB/Baa | Collater-alised | Equities | Not | Non | Total |
| | | | /Aaa | | | and | | | rated | financial | |
| | | | | | | below | | | | asset | |
+----------+------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| | | | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | | | | |
+----------+------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| | | | | | | | | | | | |
+----------+------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Property, plant and equipment | - | - | - | - | - | - | - | 3,535 | 3,535 |
+----------------------------------------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Intangible assets | | - | - | - | - | - | - | - | 8,479 | 8,479 |
+-----------------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Deferred acquisition costs | | - | - | - | - | - | - | - | 1,555 | 1,555 |
+-----------------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Financial assets - available for sale | 425,671 | 129,251 | 92,516 | 32,018 | - | 111 | 2,750 | - | 682,317 |
| securities | | | | | | | | | |
+----------------------------------------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Loans and receivables including | 345,100 | 45,014 | 127,754 | 19,276 | 4,828 | - | 66,021 | 77 | 608,070 |
| insurance receivables | | | | | | | | | |
+----------------------------------------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Deferred tax assets | | - | - | - | - | - | - | - | 653 | 653 |
+-----------------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Reinsurance contracts | | 11,822 | 282,548 | 61,831 | 1,710 | 47,427 | - | 17,987 | - | 423,325 |
+-----------------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Cash and cash equivalents | | 57,575 | 5,052 | 46,097 | 1 | - | - | 8,935 | - | 117,660 |
+-----------------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| | | | | | | | | | | | |
+----------+------------------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Total assets | | | 840,168 | 461,865 | 328,198 | 53,005 | 52,255 | 111 | 95,693 | 14,299 | 1,845,594 |
+-------------------+---------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| | | | | | | | | | | | | |
+----------+--------+---------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
Investment and credit risk
Included within loans and receivables including insurance receivables above are
financial assets carried at amortised cost with a carrying value of $362.7
million. As detailed in note 4 under the heading Investment and credit risk,
collateral pledged to and by the Group, a portion of these financial assets were
re-securitised in 2009. The following table shows the credit ratings of the
financial assets carried at amortised cost after the re-securitisation (the
basis on which they are included in the table on the preceding page) and the
credit ratings of these assets before the re-securitisation.
+----------+---------------+----------+---------+--------+-------+---------+-----------------+----------+--------+-----------+---------+
| As at 31 December 2009 | | | | |
+----------------------------------------------------------------+--------------------------------------+--------+-----------+---------+
| | | | AAA | AA/Aa | A | BBB/Baa | Collater-alised | Equities | Not | Non | Total |
| | | | /Aaa | | | and | | | rated | financial | |
| | | | | | | below | | | | asset | |
+----------+---------------+----------+---------+--------+-------+---------+-----------------+----------+--------+-----------+---------+
| | | | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | | | | |
+----------+---------------+----------+---------+--------+-------+---------+-----------------+----------+--------+-----------+---------+
| | | | | | | | | | | | |
+----------+---------------+----------+---------+--------+-------+---------+-----------------+----------+--------+-----------+---------+
| Financial assets carried at | 131,204 | 29,093 | 7,980 | 158,024 | - | - | 36,362 | - | 362,663 |
| amortised cost (after | | | | | | | | | |
| re-securitisation) | | | | | | | | | |
+-------------------------------------+---------+--------+-------+---------+-----------------+----------+--------+-----------+---------+
| | | | | | | | | | | |
+--------------------------+----------+---------+--------+-------+---------+-----------------+----------+--------+-----------+---------+
| Financial assets carried at | 69,350 | 26,352 | 1,385 | 265,576 | - | - | - | - | 362,663 |
| amortised cost (before | | | | | | | | | |
| re-securitisation) | | | | | | | | | |
+-------------------------------------+---------+--------+-------+---------+-----------------+----------+--------+-----------+---------+
| | | | | | | | | | |
+----------+---------------+----------+---------+--------+-------+---------+-----------------+----------+--------+-----------+---------+
Analysis by credit rating of assets that were neither past due nor impaired at
the balance sheet date:
+----------+--------+--------+---+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| As at 31 December 2009 | | | | |
+---------------------------------------------------------------+--------------------------------------+--------+-----------+-----------+
| | | | AAA | AA/Aa | A | BBB/Baa | Collater-alised | Equities | Not | Non | Total |
| | | | /Aaa | | | and | | | rated | financial | |
| | | | | | | below | | | | asset | |
+----------+-----------------+---+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| | | | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | | | | |
+----------+-----------------+---+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| | | | | | | | | | | | |
+----------+-----------------+---+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Property, plant and equipment | - | - | - | - | - | - | - | 2,076 | 2,076 |
+--------------------------------+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Intangible assets | | - | - | - | - | - | - | - | 8,479 | 8,479 |
+----------------------------+---+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Deferred acquisition costs | | - | - | - | - | - | - | - | 1,053 | 1,053 |
+----------------------------+---+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Financial assets - available | 296,153 | 20,693 | 6,860 | - | - | 77 | - | - | 323,783 |
| for sale securities | | | | | | | | | |
+--------------------------------+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Loans and receivables | 130,873 | 32,859 | 95,898 | 144,414 | 3,075 | - | 52,275 | 12 | 459,406 |
| including insurance | | | | | | | | | |
| receivables | | | | | | | | | |
+--------------------------------+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Derivative financial | - | - | 39 | - | - | - | - | - | 39 |
| instruments | | | | | | | | | |
+--------------------------------+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Reinsurance contracts | | 4,061 | 284,211 | 16,920 | 936 | 25,174 | - | 1,365 | - | 332,667 |
+----------------------------+---+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Cash and cash equivalents | | 100,657 | 689 | 64,755 | 2 | - | - | - | - | 166,103 |
+----------------------------+---+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| | | | | | | | | | | | |
+----------+-----------------+---+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Total assets | | | 531,744 | 338,452 | 184,472 | 145,352 | 28,249 | 77 | 53,640 | 11,620 | 1,293,606 |
+-------------------+--------+---+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| | | | | | | | | | | | | |
+----------+--------+--------+---+----------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
+----------+--------+---------+----------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| As at 31 December 2008 | | | | |
+---------------------------------------------------------------------------------+--------------------------------------+--------+-----------+-----------+
| | | | AAA /Aaa | AA/Aa | A | BBB/Baa | Collater-alised | Equities | Not | Non | Total |
| | | | | | | and | | | rated | financial | |
| | | | | | | below | | | | asset | |
+----------+------------------+----------+--------------------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| | | | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | | | | |
+----------+------------------+----------+--------------------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| | | | | | | | | | | | |
+----------+------------------+----------+--------------------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Property, plant and equipment | - | - | - | - | - | - | - | 3,535 | 3,535 |
+----------------------------------------+--------------------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Intangible assets | | - | - | - | - | - | - | - | 8,479 | 8,479 |
+-----------------------------+----------+--------------------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Deferred acquisition costs | | - | - | - | - | - | - | - | 1,555 | 1,555 |
+-----------------------------+----------+--------------------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Financial assets - available for sale securities | 425,671 | 129,251 | 92,516 | 32,018 | - | 111 | 2,750 | - | 682,317 |
+---------------------------------------------------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Loans and receivables including | 341,657 | 44,876 | 113,134 | 19,249 | 4,828 | - | 34,277 | 77 | 558,098 |
| insurance receivables | | | | | | | | | |
+----------------------------------------+--------------------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Deferred tax assets | | - | - | - | - | - | - | - | 653 | 653 |
+-----------------------------+----------+--------------------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Reinsurance contracts | | 11,822 | 282,548 | 61,831 | 1,710 | 47,427 | - | 11,858 | - | 417,196 |
+-----------------------------+----------+--------------------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Cash and cash equivalents | | 57,575 | 1,717 | 49,432 | 1 | - | - | 8,935 | - | 117,660 |
+-----------------------------+----------+--------------------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| | | | | | | | | | | | |
+----------+------------------+----------+--------------------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| Total assets | | | 836,725 | 458,392 | 316,913 | 52,978 | 52,255 | 111 | 57,820 | 14,299 | 1,789,493 |
+-------------------+---------+----------+--------------------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
| | | | | | | | | | | | | | |
+----------+--------+---------+----------+----------+---------+---------+---------+---------+-----------------+----------+--------+-----------+-----------+
Analysis of impaired and past due assets
In performing its assessment of which assets should be impaired, the Group
considers reinsurer ratings, the existence of notified disputes and historical
collection experience.
The following table presents financial assets that were impaired, or past due
but not impaired at the end of the year.
As at 31 December 2009
+----------+--------+--------+------+----+----------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| | | | 0-3 months | 4-6 | 7-9 | 10-12 | More | Impaired | Total | Neither | Total |
| | | | past due | months | months | months | than | | | past | assets |
| | | | | past | past | past | 12 | | | due nor | |
| | | | | due | due | due | months | | | impaired | |
| | | | | | | | past | | | | |
| | | | | | | | due | | | | |
+----------+-----------------+------+---------------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| | | | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | | | | |
+----------+-----------------+------+---------------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| | | | | | | | | | | | |
+----------+-----------------+------+---------------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Property, plant and equipment | - | - | - | - | - | - | - | 2,076 | 2,076 |
+-----------------------------------+---------------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Intangible assets | | - | - | - | - | - | - | - | 8,479 | 8,479 |
+----------------------------+------+---------------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Deferred acquisition costs | | - | - | - | - | - | - | - | 1,053 | 1,053 |
+----------------------------+------+---------------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Financial assets - available for sale | - | - | - | - | - | - | - | 323,783 | 323,783 |
| securities | | | | | | | | | |
+----------------------------------------+----------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Loans and receivables including | 607 | 58 | 698 | - | 19,186 | 21,417 | 41,966 | 459,406 | 501,372 |
| insurance receivables | | | | | | | | | |
+-----------------------------------+---------------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Derivative financial instruments | - | - | - | - | - | - | - | 39 | 39 |
+-----------------------------------+---------------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Reinsurance contracts | | - | - | - | - | - | - | - | 332,667 | 332,667 |
+----------------------------+------+---------------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Cash and cash equivalents | | - | - | - | - | - | - | - | 166,103 | 166,103 |
+----------------------------+------+---------------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| | | | | | | | | | | | |
+----------+-----------------+------+---------------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Total assets | | | 607 | 58 | 698 | - | 19,186 | 21,417 | 41,966 | 1,293,606 | 1,335,572 |
+-------------------+--------+------+---------------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| | | | | | | | | | | | | | |
+----------+--------+--------+------+----+----------+--------+--------+--------+--------+----------+--------+-----------+-----------+
As at 31 December 2008
+----------+-------+----------+----+-+------+----------+----+---+--------+--------+--------+--------+----------+--------+-----------+-----------+
| | | | 0-3 | 4-6 | 7-9 | 10-12 | More | Impaired | Total | Neither | Total |
| | | | months | months | months | months | than | | | past | assets |
| | | | past | past | past | past | 12 | | | due nor | |
| | | | due | due | due | due | months | | | impaired | |
| | | | | | | | past | | | | |
| | | | | | | | due | | | | |
+----------+------------------+------------------------+--------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| | | | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | | | | |
+----------+------------------+------------------------+--------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| | | | | | | | | | | | |
+----------+------------------+------------------------+--------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Property, plant and equipment | - | - | - | - | - | - | - | 3,535 | 3,535 |
+------------------------------------------------------+--------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Intangible assets | | - | - | - | - | - | - | - | 8,479 | 8,479 |
+-----------------------------+------------------------+--------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Deferred acquisition costs | | - | - | - | - | - | - | - | 1,555 | 1,555 |
+------------------------------------+-----------------+--------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Financial assets - available for sale securities | - | - | - | - | - | - | - | 682,317 | 682,317 |
+-----------------------------------------------------------+---+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Loans and receivables including insurance | 6 | 3,292 | 46 | 25 | 32,809 | 13,794 | 49,972 | 558,098 | 608,070 |
| receivables | | | | | | | | | |
+------------------------------------------------------+--------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Deferred tax assets | | - | - | - | - | - | - | - | 653 | 653 |
+-----------------------------+------------------------+--------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Reinsurance contracts | | - | - | - | - | - | 6,129 | 6,129 | 417,196 | 423,325 |
+----------------------------------+-------------------+--------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Cash and cash equivalents | | - | - | - | - | - | - | - | 117,660 | 117,660 |
+-------------------------------------------+----------+--------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| | | | | | | | | | | | |
+----------+------------------+------------------------+--------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| Total assets | | | 6 | 3,292 | 46 | 25 | 32,809 | 19,923 | 56,101 | 1,789,493 | 1,845,594 |
+------------------+----------+------------------------+--------+--------+--------+--------+--------+----------+--------+-----------+-----------+
| | | | | | | | | | | | | | | | | |
+----------+-------+----------+----+-+------+----------+----+---+--------+--------+--------+--------+----------+--------+-----------+-----------+
As at 31 December 2009 $58.7 million of assets consisting of financial assets
carried at amortised cost, reinsurance contracts, debtors arising out of
insurance operations and debtors arising out of reinsurance operations were
subject to a valuation allowance in respect of impairment (2008: $32.7 million).
As at 31 December 2009, after deducting the impairment provision of $37.3
million (2008: $12.8 million) the impaired assets had a carrying value of $21.4
million (2008: $19.9 million).
Collateral pledged to and by the Group
The following table shows balance sheet carrying value of collateral pledged by
the Group as a result of its underwriting activities:
+------------------------------------+----------+---------------+--------------------+
| | | As at | As at |
+------------------------------------+----------+---------------+--------------------+
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+------------------------------------+----------+---------------+--------------------+
| | | $'000 | $'000 |
+------------------------------------+----------+---------------+--------------------+
| | | | |
+------------------------------------+----------+---------------+--------------------+
| Carrying value of financial assets | | 628,243 | 769,634 |
| pledged to insured parties as | | | |
| collateral for liabilities | | | |
+------------------------------------+----------+---------------+--------------------+
The financial assets have been pledged as collateral under the following terms
and conditions:
Alea (Bermuda) Ltd maintains LOC facilities in respect of its previous
underwriting and is obliged to collateralise any LOCs issued under these
facilities. The total amount of collateral provided at 31 December 2009 was
$95.4 million (2008: $109.3 million). The amount held in trust for the benefit
of holders of North American policies is $35.0 million (2008: $47.9 million).
Other collateral pledged totalling $90.9 million (2008: $111.7 million) is in
respect of quota share policies written by Alea (Bermuda) Ltd for Lumbermens and
Alea North America Specialty Insurance Company. The collateral is pledged in
the form of trust accounts. Additionally collateral of $157.0 million (2008:
$108.1 million) is pledged in the form of a trust account for the benefit of
Alea North America Insurance Company.
Additionally, Alea Bermuda Ltd has pledged collateral in the form of a trust
account of $2.7 million (2008: $3.5 million) in favour of its cedents. Alea
Bermuda Ltd has SICAV investments of $63.1 million (2008: $59.9 million) pledged
as security for reinsurance obligations.
In connection with its re-domiciliation to Bermuda and amalgamation with Alea
(Bermuda) Ltd, Alea Europe Ltd (now Alea (Bermuda) Ltd) placed assets into an
escrow agreement dated 30 January 2009 with BDO Visura whereby certain
liabilities of Alea Europe Ltd to certain cedents were collateralised by an
account at UBS. Amounts held in this account may be withdrawn to reimburse Alea
(Bermuda) Ltd as claims are paid or settled with these cedents based on a
formula. Amounts held in the escrow account as at 31 December 2009 were $26.2
million (2008: $nil)
Alea North America Insurance Company has pledged assets consisting of LOCs,
trust funds and cash totaling $95.2 million (2008: $78.2 million). LOCs are
automatically extended without amendment for a period of one year following the
expiration date. Alea North America Insurance Company also has securities on
deposit at various state regulators totaling $62.7 million (2008: $92.3
million).
As a result of the sale of its UK-based subsidiary Alea Holdings UK Limited on
29 October 2009, the Group is no longer required to pledge collateral in respect
of Alea London Limited as at 31 December 2009. Details of the collateral pledged
by Alea London Limited as at 31 December 2008 are as follows. Alea London
Limited wrote regulated US business and was required to provide a collateralised
Trust Fund in respect of outstanding claims relating to this business.
Collateral was provided in the form of cash and approved investments in
accordance with the terms of the trust deed. The total amount of collateral
provided at 31 December 2008 was $51.3 million. In addition Alea London Limited
maintained letter of credit ("LOC") facilities in respect of its previous
underwriting activities and was obliged to collateralise any LOCs issued under
these facilities. The total amount of collateral provided at 31 December 2008
under these treaties was $99.4 million. As at 31 December 2008 Alea London
Limited had SICAV investments of $8.0 million pledged as security for
reinsurance obligations.
A portion of trust assets pledged by Alea (Bermuda) Ltd and by Alea North
America Insurance Company consist of non-agency US mortgage-backed securities
($297.7 million in amortised cost at year-end 2009, $324.0 million in amortised
cost at year-end 2008). These trust mechanisms typically require minimum ratings
of the underlying securities and that the valuation of the securities at least
equal the reserves established by the counter-party. Ratings and valuations of
the Group's portfolio of non-agency US mortgage-backed securities have been
volatile. Further deterioration in ratings or valuations could require that a
significant amount of the assets currently pledged as collateral be replaced or
supplemented with other qualifying assets.
On 22 May, 2009, $264.9 million of certificate principal balance of new
non-agency US mortgage-backed securities were issued in connection with a
re-securitisation transaction of existing non-agency US mortgage-backed
securities of an equivalent amount. As a result of this transaction, $81.7
million (market value) of below investment grade non-agency US mortgage-backed
securities were re-securitised to generate $62.5 million (market value) of new
non-agency US mortgage-backed securities rated A or higher by either Standard &
Poor's or Fitch. These new investment grade non-agency US mortgage-backed
securities are available to be used as collateral for the pledge arrangements
used by the Group.
The fair value of collateral pledged to the Group as a result of its
underwriting activities:
+-------------------------------------+----------+----------------------+----------------------+
| | | As at | As at |
+-------------------------------------+----------+----------------------+----------------------+
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+-------------------------------------+----------+----------------------+----------------------+
| | | $'000 | $'000 |
+-------------------------------------+----------+----------------------+----------------------+
| | | | |
+-------------------------------------+----------+----------------------+----------------------+
| Fair value of collateral held by | | 70,804 | 100,527 |
| the Group that can be sold or | | | |
| re-pledged regardless of whether | | | |
| the owner of the collateral | | | |
| defaults | | | |
+-------------------------------------+----------+----------------------+----------------------+
| | | | |
+-------------------------------------+----------+----------------------+----------------------+
| | | | |
+-------------------------------------+----------+----------------------+----------------------+
Alea North America Insurance Company holds collateral as security for claims due
from third-parties of $46.5 million (2008: $66.3 million) which consists of
funds held in trust and LOCs.
Alea (Bermuda) Ltd, holds collateral in respect of certain reinsurance
recoverables in the form of $5.8 million of LOCs (2008: $10.6 million), $1.0
million of cash collateral (2008: $1.0 million) and $17.5 million of funds
withheld (2008: $22.6 million), and generally the right to hold this collateral
remains until commutation or a mutual agreement to decrease the collateral.
Impairment provision analysis
The following impairment provisions have been made against financial assets
carried at amortised cost with the credit ratings indicated:
+------------------+--------+-----------+-------------+------------------------------+
| | | | As at | As at |
+------------------+--------+-----------+-------------+------------------------------+
| | | | 31 December | 31 December |
| | | | 2009 | 2008 |
+------------------+--------+-----------+-------------+------------------------------+
| | | | $'000 | $'000 |
+------------------+--------+-----------+-------------+------------------------------+
| | | | | |
+------------------+--------+-----------+-------------+------------------------------+
| AAA or Aaa | | | (2,679) | (2,563) |
+------------------+--------+-----------+-------------+------------------------------+
| AA or Aa | | | (1,670) | - |
+------------------+--------+-----------+-------------+------------------------------+
| A | | | (2,094) | - |
+------------------+--------+-----------+-------------+------------------------------+
| BBB or Baa and | | | (25,217) | - |
| below | | | | |
+------------------+--------+-----------+-------------+------------------------------+
| Not rated | | | (1,396) | - |
+------------------+--------+-----------+-------------+------------------------------+
| | | | (33,056) | (2,563) |
+------------------+--------+-----------+-------------+------------------------------+
The following impairment provisions have been made against reinsurance contracts
with the credit ratings indicated:
+------------------+--------+-----------+-------------+----------------------------+
| | | | As at | As at |
+------------------+--------+-----------+-------------+----------------------------+
| | | | 31 December | 31 December |
| | | | 2009 | 2008 |
+------------------+--------+-----------+-------------+----------------------------+
| | | | $'000 | $'000 |
+------------------+--------+-----------+-------------+----------------------------+
| | | | | |
+------------------+--------+-----------+-------------+----------------------------+
| AAA or Aaa | | | - | - |
+------------------+--------+-----------+-------------+----------------------------+
| AA or Aa | | | - | - |
+------------------+--------+-----------+-------------+----------------------------+
| A | | | - | - |
+------------------+--------+-----------+-------------+----------------------------+
| BBB or Baa and | | | - | - |
| below | | | | |
+------------------+--------+-----------+-------------+----------------------------+
| Not rated | | | (548) | (550) |
+------------------+--------+-----------+-------------+----------------------------+
| | | | (548) | (550) |
+------------------+--------+-----------+-------------+----------------------------+
The following impairment provisions have been made against debtors arising out
of insurance operations with the credit ratings indicated:
+------------------+--------+-----------+-------------+-------------+
| | | | As at | As at |
+------------------+--------+-----------+-------------+-------------+
| | | | 31 December | 31 December |
| | | | 2009 | 2008 |
+------------------+--------+-----------+-------------+-------------+
| | | | $'000 | $'000 |
+------------------+--------+-----------+-------------+-------------+
| | | | | |
+------------------+--------+-----------+-------------+-------------+
| AAA or Aaa | | | - | - |
+------------------+--------+-----------+-------------+-------------+
| AA or Aa | | | - | - |
+------------------+--------+-----------+-------------+-------------+
| A | | | - | - |
+------------------+--------+-----------+-------------+-------------+
| BBB or Baa and | | | - | - |
| below | | | | |
+------------------+--------+-----------+-------------+-------------+
| Not rated | | | (309) | - |
+------------------+--------+-----------+-------------+-------------+
| | | | (309) | |
| | | | | - |
+------------------+--------+-----------+-------------+-------------+
The following impairment provisions have been made against debtors arising out
of reinsurance operations with the credit ratings indicated:
+------------------+--------+-----------+-------------+-------------------+
| | | | As at | As at |
+------------------+--------+-----------+-------------+-------------------+
| | | | 31 December | 31 December |
| | | | 2009 | 2008 |
+------------------+--------+-----------+-------------+-------------------+
| | | | $'000 | $'000 |
+------------------+--------+-----------+-------------+-------------------+
| | | | | |
+------------------+--------+-----------+-------------+-------------------+
| AAA or Aaa | | | - | (3) |
+------------------+--------+-----------+-------------+-------------------+
| AA or Aa | | | - | 23 |
+------------------+--------+-----------+-------------+-------------------+
| A | | | - | 114 |
+------------------+--------+-----------+-------------+-------------------+
| BBB or Baa and | | | - | (36) |
| below | | | | |
+------------------+--------+-----------+-------------+-------------------+
| Not rated | | | (3,393) | (9,753) |
+------------------+--------+-----------+-------------+-------------------+
| | | | (3,393) | (9,655) |
+------------------+--------+-----------+-------------+-------------------+
The following table analyses the movements in the impairment provisions:
+----------+----+------+----------+----------+------+-------------------+--------------+
| | | | | Impairment |
+----------+-----------+----------------------------+-------------------+--------------+
| | | | | Provisions |
+----------+-----------+----------------------------+-------------------+--------------+
| | | | | $'000 |
+----------+-----------+----------------------------+-------------------+--------------+
| | | | | |
+----------+-----------+----------------------------+-------------------+--------------+
| At 1 January | | | | (15,560) |
| 2008 | | | | |
+---------------+------+----------------------------+-------------------+--------------+
| | | | | |
+----------+-----------+----------------------------+-------------------+--------------+
| Amounts written off | | | (2,563) |
+----------------------+----------------------------+-------------------+--------------+
| Recoveries on assets previously | | | | 5,624 |
| written off | | | | |
+---------------------------------+----------+------+-------------------+--------------+
| | | | | |
+----------+-----------+----------------------------+-------------------+--------------+
| Net exchange | | | (269) |
| differences | | | |
+----------------------+----------------------------+-------------------+--------------+
| | | | | |
+----------+-----------+----------------------------+-------------------+--------------+
| At 31 December 2008 | | | (12,768) |
+----------------------+----------------------------+-------------------+--------------+
| | | | | |
+----------+-----------+----------------------------+-------------------+--------------+
| Additional impairment provision established | (30,800) |
+-----------------------------------------------------------------------+--------------+
| Recoveries on assets previously impaired | | 969 |
+---------------------------------------------------+-------------------+--------------+
| Eliminated on disposal of Alea Holdings UK | | 5,291 |
| Limited | | |
+---------------------------------------------------+-------------------+--------------+
| Net exchange | | | 2 |
| differences | | | |
+----------------------+----------------------------+-------------------+--------------+
| | | | | |
+----------+-----------+----------------------------+-------------------+--------------+
| At 31 December 2009 | | | (37,306) |
+----------------------+----------------------------+-------------------+--------------+
| | | | | | | | |
+----------+----+------+----------+----------+------+-------------------+--------------+
Fair value of financial instruments
Fair value to carrying value comparison
Other than for the financial instruments shown in the following table, the
carrying amount shown in the balance sheet is a reasonable approximation of fair
value for each class of financial asset and financial liability.
+-------------------------+-----------+----------+--------------+------------+
| As at 31 December 2009 | | Carrying | Fair value |
| | | value | |
+-------------------------------------+----------+--------------+------------+
| | | | $'000 | $'000 |
+-------------------------+-----------+----------+--------------+------------+
| | | | | |
+-------------------------+-----------+----------+--------------+------------+
| | | | | |
+-------------------------+-----------+----------+--------------+------------+
| Financial assets carried at | | 362,663 | 205,467 |
| amortised cost | | | |
+-------------------------------------+----------+--------------+------------+
| | | | | |
+-------------------------+-----------+----------+--------------+------------+
+-------------------------+-----------+----------+----------------------+------------+
| As at 31 December 2008 | | Carrying | Fair value |
| | | value | |
+-------------------------------------+----------+----------------------+------------+
| | | | $'000 | $'000 |
+-------------------------+-----------+----------+----------------------+------------+
| | | | | |
+-------------------------+-----------+----------+----------------------+------------+
| | | | | |
+-------------------------+-----------+----------+----------------------+------------+
| Financial assets carried at | | 400,232 | 253,707 |
| amortised cost | | | |
+-------------------------------------+----------+----------------------+------------+
| | | | | |
+-------------------------+-----------+----------+----------------------+------------+
Fair value represents quotes received from Interactive Data Corporation ('IDC').
IDC offers daily evaluations for structured product securities. Evaluations are
based on the interpretation of accepted Wall Street modelling and pricing
conventions. IDC obtains and applies dealer quotes, available trade
information, street consensus prepayment speeds, US Treasury curve, swap curve
and cash settlements. Depending on the characteristics of the tranche, a single
cash flow stream model is generally used for evaluation. As input into the
model, IDC use buy and sell side sources, including primary, and secondary
dealers, portfolio managers, and research analysts. Evaluation is determined by
the ability to generate predicted cash flows, a benchmark yield, collateral
performance and tranche level attributes.
Prices can also be established from active broker quotes if sufficient
information, such as cash flows, or other market information is not available to
produce an evaluation. These quotes are active updated quotes from market
makers, or broker-dealers widely recognised as market participants.
Performance of investment portfolio including fair value changes derived from
new quotes are monitored weekly. Any unusual changes are further analysed and
investigated and where required are adjusted by the quote providers in their
weekly reports.
The Group enters into derivative financial instrument contacts. Derivatives
valued using a valuation technique with market observable inputs are foreign
exchange forward contracts. The most frequently applied valuation techniques
include forward pricing models, using present value calculations. The models
incorporate various inputs including foreign exchange spot and forward rates.
Financial instruments measured at fair value
+----------+---------------------------+------+-+--+---+----------+----------+----------+----------+-------------------+
| | | | | | |
+--------------------------------------+------+------------------------------+----------+----------+-------------------+
| As at 31 December 2009 | Level 11 | Level 22 | Level 33 | Total |
+---------------------------------------------+------------------------------+----------+----------+-------------------+
| | | $'000 | $'000 | $'000 | $'000 |
| | | | | | |
+--------------------------------------+------+------------------------------+----------+----------+-------------------+
| | | | | | |
+--------------------------------------+------+------------------------------+----------+----------+-------------------+
| Assets measured at fair value | | | | |
+---------------------------------------------+------------------------------+----------+----------+-------------------+
| | | | | |
+---------------------------------------------+------------------------------+----------+----------+-------------------+
| Equity securities - available for sale | 77 | - | - | 77 |
+---------------------------------------------+------------------------------+----------+----------+-------------------+
| | | | | |
+---------------------------------------------+------------------------------+----------+----------+-------------------+
| Debt securities - available for sale: | | | | |
+---------------------------------------------+------------------------------+----------+----------+-------------------+
| | | | | | |
+----------+----------------------------------+------------------------------+----------+----------+-------------------+
| | US government | - | 45,532 | - | 45,532 |
+----------+----------------------------------+------------------------------+----------+----------+-------------------+
| | US mortgage debt securities | - | 9,088 | 111 | 9,199 |
+----------+----------------------------------+------------------------------+----------+----------+-------------------+
| | EU and Switzerland government and | - | 144,507 | - | 144,507 |
| | corporate | | | | |
+----------+---------------------------------------+-------------------------+----------+----------+-------------------+
| | US corporate | - | 2,676 | - | 2,676 |
+----------+----------------------------------+------------------------------+----------+----------+-------------------+
| | Asset backed securities | - | 829 | - | 829 |
+----------+----------------------------------+------------------------------+----------+----------+-------------------+
| | Canadian government and | - | 4,051 | - | 4,051 |
| | provinces | | | | |
+----------+----------------------------------+------------------------------+----------+----------+-------------------+
| | Cash, cash equivalents and short term investments | - | 116,912 | - | 116,912 |
+----------+------------------------------------------------------+----------+----------+----------+-------------------+
| | | | | | |
+----------+------------------------------------------------------+----------+----------+----------+-------------------+
| Total debt securities - available for sale | - | 323,595 | 111 | 323,706 |
+---------------------------------------------+------------------------------+----------+----------+-------------------+
| | | | | |
+------------------------------------------------------+---------------------+----------+----------+-------------------+
| Foreign exchange forward contracts - non-hedged | - | 39 | - | 39 |
+------------------------------------------------------+---------------------+----------+----------+-------------------+
| | | | | |
+---------------------------------------------+------------------------------+----------+----------+-------------------+
| Liabilities measured at fair value | | | | |
+---------------------------------------------+------------------------------+----------+----------+-------------------+
| | | | | |
+-----------------------------------------------+----------------------------+----------+----------+-------------------+
| Foreign exchange forward contracts - hedged | - | 100 | - | 100 |
+-----------------------------------------------+----------------------------+----------+----------+-------------------+
| | | | | | |
+--------------------------------------+------+------------------------------+----------+----------+-------------------+
| | | | | | | | | | | |
+----------+---------------------------+------+-+--+---+----------+----------+----------+----------+-------------------+
1 Quoted (unadjusted) prices in active markets for identical assets or
liabilities
2 Valuation techniques for which all inputs which have a significant effect on
the recorded fair value are observable, either directly or indirectly
3 Valuation techniques which use inputs which have a significant effect on the
recorded fair value that are not based on observable market data
Fair value of financial instruments
Financial instruments measured at fair value based on valuation techniques for
which any significant input is not based on observable market data (Level 3)
+-+---------------------------------------------------------+-------------------+
| | | Available |
| | | for sale |
| | | financial |
| | | assets |
+-+---------------------------------------------------------+-------------------+
| | | $'000 |
| | | |
+-+---------------------------------------------------------+-------------------+
| | | |
+-+---------------------------------------------------------+-------------------+
| At 1 January 2009 | |
| | - |
+-----------------------------------------------------------+-------------------+
| Transfers into level 3 1 | 166 |
+-----------------------------------------------------------+-------------------+
| Settlements | (55) |
+-----------------------------------------------------------+-------------------+
| | | |
+-+---------------------------------------------------------+-------------------+
| At 31 December 2009 | 111 |
+-+---------------------------------------------------------+-------------------+
1 These financial instruments were transferred from level 2 into level 3 in the
year ended 31 December 2009 as IDC ceased providing pricing information for
these instruments and consequently fair value is based upon alternative
valuation techniques using inputs that are not based on observable market data.
Financial risk
The Group is subject to several types of financial risk. The most significant of
these is the risk that at any given date, the proceeds from realising the
financial assets of the Group may be insufficient to meet the financial
obligations arising from its insurance contracts. The Group is also exposed to
risk as a result of changes in foreign currency and interest rates. Another
significant risk relates to the liquidity of the Group.
Asset and liability mismatch risk
In order to ensure that adequate liquid resources are available to fund
insurance liability cash outflows when they fall due, the Group's practice is to
invest in assets matching the currency and duration of the expected related
liabilities.
Interest rate risk
The Group's invested assets are subject to interest rate risk. The Group's
interest rate risk is concentrated in the US and Europe and is sensitive to many
factors, including governmental monetary policies and domestic and international
economic and political conditions. Based on invested assets of $852.6 million as
at 31 December 2009, a 100 basis point increase/decrease in interest rates
across the yield curve would result in an approximate $8.4 million unrealised
loss/profit respectively (2008: on invested assets of $1,200.2 million a 100
basis point increase/decrease in interest rates across the yield curve would
result in an approximate $12.5 million unrealised loss/profit respectively). The
entire impact of $8.4 million would be reflected in equity since all investments
are available for sale.
Currency risk
The Group reports its results in US Dollars and accordingly, to the extent that
shareholders' funds are invested in assets denominated in currencies other than
US Dollars, exchange gains or losses may arise on translation.
The Group controls its currency risk by investing in assets that match the
currency in which it expects related liabilities to be paid and by investing the
majority of assets backing shareholder funds in US Dollars. Where there is a
mismatch the Group enters into currency forward contracts to minimise currency
fluctuation exposures. The Directors consider the revaluation gains and losses
arising from the revaluation of non-functional currencies that impact the income
statement and equity to be insignificant.
Following the sale of Alea Holdings UK Limited and the merger of Alea Europe Ltd
into Alea (Bermuda) Ltd, the Group redefined its functional currencies to be US
dollar, Euro, Canadian dollar and Swiss franc. These are the remaining
operational currencies in the geographical locations where the group still has
significant assets and liabilities.
The Group estimates that its net exposure to currencies is as follows:
As at 31 December 2009
+---------+--------+--------+--+------+--+-----+--+-----+--+----+---+------+---+-----+--------+
| Functional Currencies in $ '000 | | | | | | |
+-------------------------------------+--------+--------+-------+----------+---------+--------+
| USD | Euro | CAD | CHF | | | | Subtotal | | |
+---------+--------+--------+---------+--------+--------+-------+----------+---------+--------+
| 320,071 | 13,491 | 1,799 | 3,830 | | | | 339,191 | | |
+---------+--------+--------+---------+--------+--------+-------+----------+---------+--------+
| Non-Functional Currencies | | | | | | |
| in $'000 | | | | | | |
+------------------------------+---------+--------+--------+--------+----------+--------------+
| CHF | GBP | SEK | DKK | Other | | | Subtotal | Total | |
+---------+--------+--------+---------+--------+--------+-------+----------+---------+--------+
| (3,098) | 609 | 34 | 314 | (379) | | | (2,520) | 336,671 | |
+---------+--------+--------+---------+--------+--------+-------+----------+---------+--------+
| | | | | | | | |
+---------------------------+---------+--------+--------+-------+----------+---------+--------+
| Functional Currencies in | | | | | | | |
| % | | | | | | | |
+---------------------------+---------+--------+--------+-------+----------+---------+--------+
| USD | Euro | CAD | CHF | | | | Subtotal | | |
+---------+--------+--------+---------+--------+--------+-------+----------+---------+--------+
| 95.1 | 4.0 | 0.5 | 1.1 | | | | 100.7 | | |
+---------+--------+--------+---------+--------+--------+-------+----------+---------+--------+
| Non-Functional Currencies in % | | | | | | |
+-------------------------------------+--------+--------+-------+----------+---------+--------+
| CHF | GBP | SEK | DKK | Other | | | Subtotal | Total | |
+---------+--------+--------+---------+--------+--------+-------+----------+---------+--------+
| (0.9) | 0.2 | 0.0 | 0.1 | (0.1) | | | (0.7) | 100.0 | |
+---------+--------+--------+---------+--------+--------+-------+----------+---------+--------+
| | | | | | | | | | | | | | | | |
+---------+--------+--------+--+------+--+-----+--+-----+--+----+---+------+---+-----+--------+
As at 31 December 2008
+---------+---------+----------+---+------+--+-----+--+-----+----+-----+---+------+---+-----+--------+
| Functional Currencies in $ '000 | | | | | | |
+-----------------------------------------+--------+--------+----------+----------+---------+--------+
| USD | AUD | GBP | CHF | Euro | | | Subtotal | | |
+---------+---------+----------+----------+--------+--------+----------+----------+---------+--------+
| 344,962 | (1,261) | 1,221 | (18,791) | 43,153 | | | 369,284 | | |
+---------+---------+----------+----------+--------+--------+----------+----------+---------+--------+
| Non-Functional Currencies | | | | | | |
| in $'000 | | | | | | |
+----------------------------------+---------+--------+----------+---------+----------+--------------+
| GBP | Euro | SEK | DKK | JPY | CAD | Other | Subtotal | Total | |
+---------+---------+----------+----------+--------+--------+----------+----------+---------+--------+
| 29,923 | 11,085 | (11,047) | 232 | - | 17,419 | (10,804) | 36,808 | 406,092 | |
+---------+---------+----------+----------+--------+--------+----------+----------+---------+--------+
| | | | | | | | |
+------------------------------+----------+--------+--------+----------+----------+---------+--------+
| Functional Currencies in | | | | | | | |
| % | | | | | | | |
+------------------------------+----------+--------+--------+----------+----------+---------+--------+
| USD | AUD | GBP | CHF | Euro | | | Subtotal | | |
+---------+---------+----------+----------+--------+--------+----------+----------+---------+--------+
| 84.9 | (0.3) | 0.3 | (4.6) | 10.6 | | | 90.9 | | |
+---------+---------+----------+----------+--------+--------+----------+----------+---------+--------+
| Non-Functional Currencies in % | | | | | | |
+-----------------------------------------+--------+--------+----------+----------+---------+--------+
| GBP | Euro | SEK | DKK | JPY | CAD | Other | Subtotal | Total | |
+---------+---------+----------+----------+--------+--------+----------+----------+---------+--------+
| 7.4 | 2.7 | (2.7) | 0.1 | - | 4.3 | (2.7) | 9.1 | 100.0 | |
+---------+---------+----------+----------+--------+--------+----------+----------+---------+--------+
| | | | | | | | | | | | | | | | |
+---------+---------+----------+---+------+--+-----+--+-----+----+-----+---+------+---+-----+--------+
A positive percentage arises when assets exceed liabilities denominated in that
currency while a negative percentage arises when liabilities exceed assets.
The translation gains and losses of functional currencies are recognised as a
separate component of equity where as the gains and losses arising from the
translation of monetary assets denominated in non-functional currencies are
recorded in the income statement.
Liquidity Risk
Liquidity risk is the potential that obligations cannot be met as they become
due as a consequence of not being able to readily realise assets to meet these
obligations.
In December 2004 and January 2005, the Group issued a total of $120.0 million of
hybrid trust preferred securities. These securities were issued through trusts
established by Alea Holdings US Company a subsidiary of the Group holding
company. The margin on these securities was unaffected by the credit rating
downgrades and remains at LIBOR plus 285 basis points. The securities have a
fixed maturity of 30 years, are callable after five years, and allow for a
deferral of quarterly coupons for up to five years.
The following table analyses the contractual maturity dates of the undiscounted
liabilities carried on the Group's balance sheet. The maturity analysis in
respect of insurance contracts represents an estimate of the maturity dates for
these liabilities due to the fact the insurance contract liabilities are payable
on demand.
+----------+-------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| As at 31 December 2009 | Undiscounted |
+------------------------+----------------------------------------------------------------------------------------------+
| | | On | One | Three | Over | Total | Discount | Capitalised | Total |
| | | demand | to | to | five | undiscounted | | debt | discounted |
| | | and | three | five | years | liabilities | | raising | liabilities |
| | | within | years | years | | | | expenses | |
| | | one | | | | | | | |
| | | year | | | | | | | |
+----------+-------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| | | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | | |
+----------+-------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| LIABILITIES | | | | | | | | |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Insurance contracts | 175,723 | 132,598 | 75,666 | 440,804 | 824,791 | (36,515) | - | 788,276 |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Borrowings | - | - | 23,856 | 212,224 | 236,080 | (112,587) | (2,052) | 121,441 |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Derivative financial | 100 | - | - | - | 100 | - | - | 100 |
| instruments | | | | | | | | |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Provisions | 1,692 | 362 | - | - | 2,054 | - | - | 2,054 |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Other liabilities and | 17,761 | - | - | - | 17,761 | - | - | 17,761 |
| charges | | | | | | | | |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Trade and other | 19,363 | 19,615 | 10,501 | 19,783 | 69,262 | - | - | 69,262 |
| payables | | | | | | | | |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Current income tax | 4 | 3 | - | - | 7 | - | - | 7 |
| liabilities | | | | | | | | |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| | | | | | | | | | |
+----------+-------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Total liabilities | 197,134 | 170,087 | 110,023 | 672,811 | 1,150,055 | (149,102) | (2,052) | 998,901 |
+----------+-------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
+----------+-------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| As at 31 December 2008 | Undiscounted |
+------------------------+----------------------------------------------------------------------------------------------+
| | | On | One | Three | Over | Total | Discount | Capitalised | Total |
| | | demand | to | to | five | undiscounted | | debt | discounted |
| | | and | three | five | years | liabilities | | raising | liabilities |
| | | within | years | years | | | | expenses | |
| | | one | | | | | | | |
| | | year | | | | | | | |
+----------+-------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| | | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| | | | | | | | | | |
+----------+-------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| LIABILITIES | | | | | | | | |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Insurance contracts | 236,020 | 296,072 | 174,352 | 543,467 | 1,249,911 | (48,725) | - | 1,201,186 |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Borrowings | 6,768 | 13,536 | 13,536 | 270,608 | 304,448 | (184,448) | (2,133) | 117,867 |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Provisions | 2,197 | 611 | - | - | 2,808 | - | - | 2,808 |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Other liabilities and | 15,350 | 6,458 | - | - | 21,808 | - | - | 21,808 |
| charges | | | | | | | | |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Trade and other | 25,830 | 29,321 | 15,819 | 24,255 | 95,225 | - | - | 95,225 |
| payables | | | | | | | | |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Current income tax | 608 | - | - | - | 608 | - | - | 608 |
| liabilities | | | | | | | | |
+------------------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| | | | | | | | | | |
+----------+-------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
| Total liabilities | 286,773 | 345,998 | 203,707 | 838,330 | 1,674,808 | (233,173) | (2,133) | 1,439,502 |
+----------+-------------+---------+---------+---------+---------+--------------+-----------+-------------+-------------+
Capital risk management
The total amount of capital managed by the Group is $449.6 million (2008: $515.5
million). The Group considers its managed capital to consist of net tangible
assets of $328.2 million (2008: $397.6 million) and the trust preferred
securities of $121.4 million (2008: $117.9 million).
The Board of Directors is responsible for assessing the Group's capital
structure on a regular basis with the aim of selecting a debt-to-equity ratio
that maximises return to shareholders. The Group calculates the debt-to-equity
ratio as long term debt in the form of the trust preferred securities divided by
total equity. As at 31 December 2009 the debt-to-equity ratio was 36% (2008:
29%).
The main aim of the Group's capital management strategy is to free-up excess
capital which can be reinvested in the business or returned to shareholders
consistent with holding sufficient capital in each insurance operating entity to
meet regulatory requirements. The Group has been in run-off since the fourth
quarter 2005 and has conducted its operations in accordance with this strategy.
There have been no changes in the Group's capital management policies since the
previous period.
The Group is subject to externally imposed capital requirements in respect of
all entities that previously wrote insurance and reinsurance business. These
requirements, which have been complied with during the year, are enforced within
the individual locations and are detailed below.
Alea North America Insurance Company is regulated by the New York Insurance
Department ("NYID"). It is required by the NYID to submit an annual risk based
capital statement and to hold total adjusted capital in excess of the Company
Action Level which is 200% of its Authorised Control Level Risk-Based Capital.
Alea (Bermuda) Limited is regulated by the Bermuda Monetary Authority ("BMA").
It is required by the BMA to submit an annual statutory financial return and to
hold statutory capital and surplus in excess of its minimum solvency margin.
The Group has embedded its capital management processes into its normal
planning, reporting and decision making activities.
5 Restructuring costs
In 2005, the Group announced its intention to run-off all remaining property and
casualty business. Those fixed assets not subject to renewal rights agreements
and not required for the run-off operations were written down to their residual
value. A restructuring provision was established to cover estimated expenses for
future redundancy payments for employees who cannot be redeployed in the new
structure. The provision also contained estimated expenses with regards to
onerous contracts. Onerous contracts are operating leases in respect of any
premises that are expected to be vacated as part of the restructuring. The
provision was established based on a run-off plan approved by the Board of
Directors. Other costs are included in the claims handling provisions.
Year ended 31 December 2009
+----------------------------------+-----+--------+----------+----------+-------+
| | Discontinued | Continuing | |
| | operations | operations | |
+----------------------------------+--------------+---------------------+-------+
| | Alea | Alea | Alea | Total |
| | London | North | Europe | |
| | | America | | |
+----------------------------------------+--------+----------+----------+-------+
| | $'000 | $'000 | $'000 | $'000 |
+----------------------------------------+--------+----------+----------+-------+
| | | | | |
+----------------------------------------+--------+----------+----------+-------+
| Redundancy costs incurred in excess | 111 | 192 | - | 303 |
| of the provision established based on | | | | |
| run-off plan | | | | |
+----------------------------------------+--------+----------+----------+-------+
| | | | | |
+----------------------------------------+--------+----------+----------+-------+
| Total restructuring costs | 111 | 192 | - | 303 |
+----------------------------------------+--------+----------+----------+-------+
| | | | | | |
+----------------------------------+-----+--------+----------+----------+-------+
Year ended 31 December 2008
+----------------------------------+-----+--------+----------+----------+-------+
| | Discontinued | Continuing | |
| | operations | operations | |
+----------------------------------+--------------+---------------------+-------+
| | Alea | Alea | Alea | Total |
| | London | North | Europe | |
| | | America | | |
+----------------------------------------+--------+----------+----------+-------+
| | $'000 | $'000 | $'000 | $'000 |
+----------------------------------------+--------+----------+----------+-------+
| | | | | |
+----------------------------------------+--------+----------+----------+-------+
| Redundancy costs incurred in excess | 313 | 283 | - | 596 |
| of the provision established based on | | | | |
| run-off plan | | | | |
+----------------------------------------+--------+----------+----------+-------+
| Additional restructuring provision | 337 | - | 783 | 1,120 |
| established 1 | | | | |
+----------------------------------------+--------+----------+----------+-------+
| | | | | |
+----------------------------------------+--------+----------+----------+-------+
| Total restructuring costs | 650 | 283 | 783 | 1,716 |
+----------------------------------------+--------+----------+----------+-------+
| | | | | | |
+----------------------------------+-----+--------+----------+----------+-------+
1 As a result of the outsourcing arrangement entered into in the year ended 31
December 2008, an additional provision was established to reflect contractual
obligations made in respect of staff retention bonuses and severance payments.
6 Segmental information
Operating results by reportable segment
The Group classifies all of its operations under the 'Run-off business' segment.
This reflects the basis on which the Group's operations are managed by the chief
operating decision maker. Insurance liabilities are determined using a
consistent reserving methodology across the Group and are monitored and reported
on a Group-wide basis, investments and cash treasury are managed by a
centralised function and senior staff resource is deployed on a Group-wide
basis. This structure reflects the relative maturity of the run-off book of
business.
Geographical distribution of non-current assets
The Group holds non-current assets in the following countries:
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| Year ended 31 | Property, | Intangible | Non-current | Total |
| December 2009 | plant and | assets | deferred | |
| | equipment | | acquisition | |
| | | | costs | |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| | $'000 | $'000 | $'000 | $'000 |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| | | | | |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| Bermuda | 9 | | - | 9 |
| | | - | | |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| United States | 2,025 | 8,479 | - | 10,504 |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| Switzerland | 42 | | 685 | 727 |
| | | - | | |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
| Total | 2,076 | 8,479 | 685 | 11,240 |
+---------------------+----------------------------+---------------------+-----------------------------+------------------+
+---------------------+-----------------------------+---------------------+-------------------------------+-------------------+
| Year ended 31 | Property, | Intangible | Non-current | Total |
| December 2008 | plant and | assets | deferred | |
| | equipment | | acquisition | |
| | | | costs | |
+---------------------+-----------------------------+---------------------+-------------------------------+-------------------+
| | $'000 | $'000 | $'000 | $'000 |
+---------------------+-----------------------------+---------------------+-------------------------------+-------------------+
| | | | | |
+---------------------+-----------------------------+---------------------+-------------------------------+-------------------+
| Bermuda | 25 | | - | 25 |
| | | - | | |
+---------------------+-----------------------------+---------------------+-------------------------------+-------------------+
| United States | 2,807 | 8,479 | - | 11,286 |
+---------------------+-----------------------------+---------------------+-------------------------------+-------------------+
| United Kingdom | 574 | | - | 574 |
| | | - | | |
+---------------------+-----------------------------+---------------------+-------------------------------+-------------------+
| Switzerland | 129 | | 1,055 | 1,184 |
| | | - | | |
+---------------------+-----------------------------+---------------------+-------------------------------+-------------------+
| Total | 3,535 | 8,479 | 1,055 | 13,069 |
+---------------------+-----------------------------+---------------------+-------------------------------+-------------------+
7 Investment income
+-------------------------------+-+---+---------+-------------+--------------+
| | | Continuing Operations |
+-------------------------------+---------------+----------------------------+
| | | Year ended | Year ended |
+-------------------------------+---------------+-------------+--------------+
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+-------------------------------+---------------+-------------+--------------+
| | | $'000 | $'000 |
+-------------------------------+---------------+-------------+--------------+
| | | | |
+-------------------------------+---------------+-------------+--------------+
| Financial assets - | | 10,917 | 24,829 |
| available-for-sale interest | | | |
| income | | | |
+---------------------------------+-------------+-------------+--------------+
| | | | |
+-------------------------------+---------------+-------------+--------------+
| Financial assets carried at | | 25,839 | 36,092 |
| amortised cost interest income | | | |
+-------------------------------------+---------+-------------+--------------+
| | | | |
+-------------------------------+---------------+-------------+--------------+
| Cash and cash equivalents | | 198 | 1,819 |
| interest income | | | |
+-------------------------------+---------------+-------------+--------------+
| | | | |
+-------------------------------+---------------+-------------+--------------+
| | | 36,954 | 62,740 |
+-------------------------------+---------------+-------------+--------------+
| | | | | | |
+-------------------------------+-+---+---------+-------------+--------------+
+-------------------------------+--+--+---------+-------------+--------------+
| | | Discontinued Operations |
+-------------------------------+---------------+----------------------------+
| | | Year ended | Year ended |
+-------------------------------+---------------+-------------+--------------+
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+-------------------------------+---------------+-------------+--------------+
| | | $'000 | $'000 |
+-------------------------------+---------------+-------------+--------------+
| | | | |
+-------------------------------+---------------+-------------+--------------+
| Financial assets - | | 4,814 | 12,027 |
| available-for-sale interest | | | |
| income | | | |
+----------------------------------+------------+-------------+--------------+
| | | | |
+-------------------------------+---------------+-------------+--------------+
| Financial assets carried at | | 433 | 401 |
| amortised cost interest income | | | |
+-------------------------------------+---------+-------------+--------------+
| | | | |
+-------------------------------+---------------+-------------+--------------+
| Cash and cash equivalents | | 176 | 1,716 |
| interest income | | | |
+-------------------------------+---------------+-------------+--------------+
| | | | |
+-------------------------------+---------------+-------------+--------------+
| | | 5,423 | 14,144 |
+-------------------------------+---------------+-------------+--------------+
| | | | | | |
+-------------------------------+--+--+---------+-------------+--------------+
8 Net realised gains / (losses) on financial assets
+-------------------------------+--+--+----------+-------------+--------------+
| | | Continuing Operations |
+-------------------------------+----------------+----------------------------+
| | | Year ended | Year ended |
+-------------------------------+----------------+-------------+--------------+
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+-------------------------------+----------------+-------------+--------------+
| | | $'000 | $'000 |
+-------------------------------+----------------+-------------+--------------+
| | | | |
+-------------------------------+----------------+-------------+--------------+
| Realised gains on financial | | 6,041 | 2,752 |
| assets - available-for-sale | | | |
+----------------------------------+-------------+-------------+--------------+
| Realised losses on financial assets | | (857) | (3,749) |
| - available-for-sale | | | |
+-------------------------------------+----------+-------------+--------------+
| | | | |
+-------------------------------+----------------+-------------+--------------+
| | | 5,184 | (997) |
+-------------------------------+----------------+-------------+--------------+
| | | | | | |
+-------------------------------+--+--+----------+-------------+--------------+
+-------------------------------+--+--+----------+-------------+--------------+
| | | Discontinued Operations |
+-------------------------------+----------------+----------------------------+
| | | Year ended | Year ended |
+-------------------------------+----------------+-------------+--------------+
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+-------------------------------+----------------+-------------+--------------+
| | | $'000 | $'000 |
+-------------------------------+----------------+-------------+--------------+
| | | | |
+-------------------------------+----------------+-------------+--------------+
| Realised gains on financial | | 274 | 6 |
| assets - available-for-sale | | | |
+----------------------------------+-------------+-------------+--------------+
| Realised losses on financial assets | | (2) | (385) |
| - available-for-sale | | | |
+-------------------------------------+----------+-------------+--------------+
| | | | |
+-------------------------------+----------------+-------------+--------------+
| | | 272 | (379) |
+-------------------------------+----------------+-------------+--------------+
| | | | | | |
+-------------------------------+--+--+----------+-------------+--------------+
9 Impairment of invested assets
The Group recognised an impairment to the amortised cost of non-agency US
mortgage-backed securities of $30.5 million in the year ended 31 December 2009
(year ended 31 December 2008: $2.6 million).
At each balance sheet date the Group performs an impairment test with regards to
its non-agency US mortgage-backed securities. An impairment is recognised
wherever the amortised values of the assets are greater than their estimated
recoverable amounts. Recoverable amounts are determined by projecting estimated
future cash flows associated with holding the assets. Estimating future cash
flows requires explicit assumptions about the future behaviour of the loans
collateralising the securitisation to be made. The key variables in describing
the behaviour of these assets include; the rate of voluntary prepayments, the
rate of defaults and the loss severity on defaulted loans. The data used for the
testing is based on an aggregate of the three month historical performance of
the actual bond.
10 Net realised losses on sale of renewal rights
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| | | Year ended | Year |
| | | | ended |
+-------------------------------+------------+------------+-----------+
| | | 31 | 31 |
| | | December | December |
| | | 2009 | 2008 |
+-------------------------------+------------+------------+-----------+
| | | $'000 | $'000 |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| Net realised losses on sale | | 15,000 | - |
| of renewal rights | | | |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
All net realised losses on sale of renewal rights relate to continuing
operations.
The Group completed three renewal rights transactions in the fourth quarter of
2005. These were accounted for as net realised gains on sale of renewal rights
which were recognised in the year ended 31 December 2005, and represented the
Directors' valuation at fair value of the business sold. In determining the fair
market value of renewal rights sales, the Board considered the prior production
and growth of the businesses sold, external projections and a recent assessment
of the businesses sold. The fair market value of the renewal rights is regularly
evaluated by the Board based on available data.
Where necessary, amounts are charged or credited to the income statement to
reflect any changes in the fair value which is based on the latest financial
data available. These amounts reflect the discounted estimated future cash flows
arising from specified percentages of applicable commissionable premiums written
over the applicable period in accordance with sale contracts.
Of the three transactions discussed above only one of these is still producing
commissionable premium. This contract is with AM Trust Financial Services Inc.
('AM Trust'). The next paragraphs provide analysis of the cash receipts and the
outstanding receivables in respect of this contract.
Following the reassessments performed at each balance sheet date subsequent to
31 December 2005, the gain has been calculated as the fair value of
consideration receivable $25.0 million (31 December 2008: $40.0 million). In the
year ended 31 December 2009, the Group recognised a loss of $15.0 million on the
sale of the renewal rights as a result of this reassessment (2008: $nil). The
Group has received payments to 31 December 2009 of $15.4 million (31 December
2008: $11.9 million). The remaining balance of $9.6 million (31 December 2008:
$28.1 million) is included within loans and receivables including insurance
receivables, see note 23.
This amount represents the Directors' best estimate of the risk adjusted future
receipts discounted at 4.0%. The Directors' best estimate is based on premium
reported by AM Trust as commissionable, premium reported by AM Trust as
non-commissionable and the consideration of prior production, experienced growth
and published data of the businesses sold.
Whether premium is commissionable is subject to contract interpretation and the
Directors believe that AM Trust has substantially under-reported commissionable
premium in past periods and is currently disputing this practice with AM Trust.
The receipt of the accrued income is dependent upon the future levels of
business generated on renewal in relation to the rights sold over a five year
time period as specified in the sale contract. A 10% deviation of the projected
renewals would result in a change in receivable of $2.5 million.
The directors consider that the receivable is collectable based upon an
assessment of the credit ratings of AM Trust.
11 Movement in prior year provision for insurance claims, net of reinsurance
All amounts included in net insurance claims arise from the movement in the
prior year provision for claims outstanding net of reinsurance and discount
except for net insurance claims of $17.4 million (2008: $14.1 million) relating
to the Group's life business.
12 Results of operating activities
Result from operations has been arrived after charging:
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| | | Year ended | Year |
| | | | ended |
+-------------------------------+------------+------------+-----------+
| | | 31 | 31 |
| | | December | December |
| | | 2009 | 2008 |
+-------------------------------+------------+------------+-----------+
| | | $'000 | $'000 |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| Depreciation of property, | | 1,605 | 1,774 |
| plant and equipment | | | |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| Staff costs (see note 13) | | 12,966 | 18,211 |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| Auditors' remuneration (see | | 1,929 | 2,306 |
| below) | | | |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
A more detailed analysis of auditors' remuneration on a worldwide basis is
provided below:
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| | | Year ended | Year |
| | | | ended |
+-------------------------------+------------+------------+-----------+
| | | 31 | 31 |
| | | December | December |
| | | 2009 | 2008 |
+-------------------------------+------------+------------+-----------+
| | | $'000 | $'000 |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| Audit services1 | | 1,829 | 2,196 |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| Actuarial and other | | 100 | 110 |
| consulting | | | |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| Total auditors' remuneration | | 1,929 | 2,306 |
+-------------------------------+------------+------------+-----------+
1 For the year ended 31 December 2008 audit services includes a charge of $0.2
million in respect of the preparation of a special audit report required by
Swiss legislation in connection with a reduction of capital.
13 Staff costs
The average monthly number of employees (including Executive Directors) was:
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| | | Year ended | Year |
| | | | ended |
+-------------------------------+------------+------------+-----------+
| | | 31 | 31 |
| | | December | December |
| | | 2009 | 2008 |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| Finance | | 16 | 18 |
+-------------------------------+------------+------------+-----------+
| Information Technology | | 8 | 8 |
+-------------------------------+------------+------------+-----------+
| Claims | | 22 | 44 |
+-------------------------------+------------+------------+-----------+
| Technical Accounts | | 1 | 9 |
+-------------------------------+------------+------------+-----------+
| Management and administration | | 12 | 13 |
+-------------------------------+------------+------------+-----------+
| | | | |
+-------------------------------+------------+------------+-----------+
| | | 59 | 92 |
+-------------------------------+------------+------------+-----------+
Their aggregate remuneration comprised:
+---------------------------------+------------+---------+----+------------+
| | | | Continuing |
| | | | operations |
+---------------------------------+------------+---------+-----------------+
| | | | |
+---------------------------------+------------+--------------+------------+
| | | Year ended | Year ended |
+---------------------------------+------------+--------------+------------+
| | | 31 December | 31 |
| | | 2009 | December |
| | | | 2008 |
+---------------------------------+------------+--------------+------------+
| | | $'000 | $'000 |
+---------------------------------+------------+--------------+------------+
| | | | |
+---------------------------------+------------+--------------+------------+
| Wages and salaries 1 | | 8,496 | 10,279 |
+---------------------------------+------------+--------------+------------+
| Social security costs | | 392 | 631 |
+---------------------------------+------------+--------------+------------+
| Other pension costs (see note | | 534 | 760 |
| 39) | | | |
+---------------------------------+------------+--------------+------------+
| | | | |
+---------------------------------+------------+--------------+------------+
| | | 9,422 | 11,670 |
+---------------------------------+------------+--------------+------------+
| | | | | |
+---------------------------------+------------+---------+----+------------+
+---------------------------------+------------+------+------+------------+
| | | | Discontinued |
| | | | operations |
+---------------------------------+------------+------+-------------------+
| | | | |
+---------------------------------+------------+-------------+------------+
| | | Year ended | Year ended |
+---------------------------------+------------+-------------+------------+
| | | 31 December | 31 |
| | | 2009 | December |
| | | | 2008 |
+---------------------------------+------------+-------------+------------+
| | | $'000 | $'000 |
+---------------------------------+------------+-------------+------------+
| | | | |
+---------------------------------+------------+-------------+------------+
| Wages and salaries 1 | | 3,004 | 5,491 |
+---------------------------------+------------+-------------+------------+
| Social security costs | | 259 | 489 |
+---------------------------------+------------+-------------+------------+
| Other pension costs (see note | | 281 | 561 |
| 39) | | | |
+---------------------------------+------------+-------------+------------+
| | | | |
+---------------------------------+------------+-------------+------------+
| | | 3,544 | 6,541 |
+---------------------------------+------------+-------------+------------+
| | | | | |
+---------------------------------+------------+------+------+------------+
1 Severance payments of $0.8 million made in the year ended 31 December 2009
(2008: $1.5 million) are excluded in the table above. Of this $ 0.8 million, $
0.5 million (2008: $0.9 million) was provided in the restructuring provision
established at 31 December 2005 (see note 29). The remaining $0.3 million has
been charged through the income statement in 2009 (see note 5).
14 Finance costs
+------------------------------------------+---+----------+--------+-----+------------+
| | | | Continuing |
| | | | operations |
+------------------------------------------+--------------+--------+------------------+
| | | | |
+------------------------------------------+--------------+--------------+------------+
| | | Year ended | Year ended |
+------------------------------------------+--------------+--------------+------------+
| | | 31 December | 31 |
| | | 2009 | December |
| | | | 2008 |
+------------------------------------------+--------------+--------------+------------+
| | | $'000 | $'000 |
+------------------------------------------+--------------+--------------+------------+
| | | | |
+------------------------------------------+--------------+--------------+------------+
| Interest on borrowings | | 4,774 | 7,511 |
+------------------------------------------+--------------+--------------+------------+
| | | | |
+------------------------------------------+--------------+--------------+------------+
| Other investment expenses | | 3,383 | 1,591 |
+------------------------------------------+--------------+--------------+------------+
| | | | |
+------------------------------------------+--------------+--------------+------------+
| Exchange losses / (gains) on non-functional | | 1,208 | (3,563) |
| currencies and transactions | | | |
+----------------------------------------------+----------+--------------+------------+
| | | | |
+----------------------------------------------+----------+--------------+------------+
| Unrealised gain on non-functional forward | | (37) | - |
| exchange contracts | | | |
+----------------------------------------------+----------+--------------+------------+
| | | | |
+------------------------------------------+--------------+--------------+------------+
| | | 9,328 | 5,539 |
+------------------------------------------+--------------+--------------+------------+
| | | | | | |
+------------------------------------------+---+----------+--------+-----+------------+
+------------------------------------------+---+----------+------+------+------------+
| | | | Discontinued |
| | | | operations |
+------------------------------------------+--------------+------+-------------------+
| | | | |
+------------------------------------------+--------------+-------------+------------+
| | | Year ended | Year ended |
+------------------------------------------+--------------+-------------+------------+
| | | 31 December | 31 |
| | | 2009 | December |
| | | | 2008 |
+------------------------------------------+--------------+-------------+------------+
| | | $'000 | $'000 |
+------------------------------------------+--------------+-------------+------------+
| | | | |
+------------------------------------------+--------------+-------------+------------+
| Other investment expenses | | 647 | 896 |
+------------------------------------------+--------------+-------------+------------+
| | | | |
+------------------------------------------+--------------+-------------+------------+
| Exchange (gains) / losses on non-functional | | (456) | 6,887 |
| currencies and transactions | | | |
+----------------------------------------------+----------+-------------+------------+
| | | | |
+------------------------------------------+--------------+-------------+------------+
| | | 191 | 7,783 |
+------------------------------------------+--------------+-------------+------------+
| | | | | | |
+------------------------------------------+---+----------+------+------+------------+
15 Net gains or losses on borrowings
+--+---------------------------------+---+------------+------------+
| | | | Year ended | Year ended |
+--+---------------------------------+---+------------+------------+
| | | | 31 | 31 |
| | | | December | December |
| | | | 2009 | 2008 |
+--+---------------------------------+---+------------+------------+
| | | | $'000 | $'000 |
+--+---------------------------------+---+------------+------------+
| | | | | |
+--+---------------------------------+---+------------+------------+
| Capitalised debt raising expenses | | 81 | 82 |
| charged to income statement | | | |
+------------------------------------+---+------------+------------+
| | | | | |
+--+---------------------------------+---+------------+------------+
The net losses on borrowings relate wholly to continuing operations.
16 Income tax (credit) / expense
+------------------------------+------------+------------+------------+
| | | Continuing Operations |
+------------------------------+------------+-------------------------+
| | | Year ended | Year ended |
+------------------------------+------------+------------+------------+
| | | 31 | 31 |
| | | December | December |
| | | 2009 | 2008 |
+------------------------------+------------+------------+------------+
| | | $'000 | $'000 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Current tax (credit) / | | | |
| expense | | | |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| UK corporation tax | | 1 | - |
+------------------------------+------------+------------+------------+
| Foreign tax | | (612) | 40 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Total current tax | | (611) | 40 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Deferred tax (note 25) | | - | 1,029 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Total income tax | | (611) | 1,069 |
| (credit)/expense | | | |
+------------------------------+------------+------------+------------+
+------------------------------+------------+------------+------------+
| | | Discontinued Operations |
+------------------------------+------------+-------------------------+
| | | Year ended | Year ended |
+------------------------------+------------+------------+------------+
| | | 31 | 31 |
| | | December | December |
| | | 2009 | 2008 |
+------------------------------+------------+------------+------------+
| | | $'000 | $'000 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Current tax expense / | | | |
| (credit) | | | |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| UK corporation tax | | 29 | (9) |
+------------------------------+------------+------------+------------+
| Foreign tax | | 132 | 1,052 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Total current tax | | 161 | 1,043 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Deferred tax (note 25) | | 125 | 127 |
+------------------------------+------------+------------+------------+
| | | | |
+------------------------------+------------+------------+------------+
| Total income tax expense | | 286 | 1,170 |
+------------------------------+------------+------------+------------+
16 Income tax (credit) / expense
UK corporation tax was calculated at 30% until 31 March 2008. From 1 April 2008,
the rate was reduced to 28% of the estimated assessable UK profit for the year.
Taxation for other jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
The tax expense for the periods presented varied from the stated rate of UK
corporation tax as explained below:
+-------------------------------------------+------------+---+-----------------------------+
| | | Continuing |
| | | operations |
+-------------------------------------------+------------+---------------------------------+
| | | |
+-------------------------------------------+----------------+-----------------------------+
| | Year ended | Year ended |
+-------------------------------------------+----------------+-----------------------------+
| | 31 December | 31 |
| | 2009 | December |
| | | 2008 |
+-------------------------------------------+----------------+-----------------------------+
| | $'000 | $'000 |
+-------------------------------------------+----------------+-----------------------------+
| (Loss)/profit on ordinary activities | (68,124) | 2,088 |
| before taxation | | |
+-------------------------------------------+----------------+-----------------------------+
| | | |
+-------------------------------------------+----------------+-----------------------------+
| (Loss)/profit on ordinary activities | (19,075) | 595 |
| multiplied by the 1 standard rate of UK | | |
| corporation tax at 28% (2008: 28.5%) | | |
+-------------------------------------------+----------------+-----------------------------+
| | | |
+-------------------------------------------+----------------+-----------------------------+
| Factors affecting tax (credit)/expense: | | |
+-------------------------------------------+----------------+-----------------------------+
| Adjustment in respect of foreign tax | 4,809 | (1,639) |
| rates | | |
+-------------------------------------------+----------------+-----------------------------+
| Adjustment in respect of prior periods | 2 | 9 |
+-------------------------------------------+----------------+-----------------------------+
| Overseas and other taxes | (15) | 20 |
+-------------------------------------------+----------------+-----------------------------+
| Deferred tax asset in respect of current | 13,702 | 5,208 |
| year losses not recognised | | |
+-------------------------------------------+----------------+-----------------------------+
| Utilisation of tax losses in respect of | (198) | (3,213) |
| which no deferred tax assets were | | |
| provided | | |
+-------------------------------------------+----------------+-----------------------------+
| Other permanent differences | 164 | 89 |
+-------------------------------------------+----------------+-----------------------------+
| | | |
+-------------------------------------------+----------------+-----------------------------+
| Tax (credit) / expense for the year | (611) | 1,069 |
+-------------------------------------------+----------------+-----------------------------+
| | | | |
+-------------------------------------------+------------+---+-----------------------------+
+-------------------------------------------+----------+------+-----------------------------+
| | | Discontinued |
| | | operations |
+-------------------------------------------+----------+------------------------------------+
| | | |
+-------------------------------------------+-----------------+-----------------------------+
| | Year ended | Year ended |
+-------------------------------------------+-----------------+-----------------------------+
| | 31 December | 31 |
| | 2009 | December |
| | | 2008 |
+-------------------------------------------+-----------------+-----------------------------+
| | $'000 | $'000 |
+-------------------------------------------+-----------------+-----------------------------+
| (Loss)/profit on ordinary activities | (10,365) | 4,090 |
| before taxation | | |
+-------------------------------------------+-----------------+-----------------------------+
| | | |
+-------------------------------------------+-----------------+-----------------------------+
| (Loss)/profit/ on ordinary activities | (2,902) | 1,166 |
| multiplied by the 1standard rate of UK | | |
| corporation tax at 28% (2008: 28.5%) | | |
+-------------------------------------------+-----------------+-----------------------------+
| | | |
+-------------------------------------------+-----------------+-----------------------------+
| Factors affecting tax expense: | | |
+-------------------------------------------+-----------------+-----------------------------+
| Adjustment in respect of foreign tax | 3,746 | - |
| rates | | |
+-------------------------------------------+-----------------+-----------------------------+
| Adjustment in respect of prior periods | 8 | 6 |
+-------------------------------------------+-----------------+-----------------------------+
| Overseas and other taxes | 96 | 760 |
+-------------------------------------------+-----------------+-----------------------------+
| Deferred tax asset in respect of current | (1,203) | - |
| year losses not recognised | | |
+-------------------------------------------+-----------------+-----------------------------+
| Utilisation of tax losses in respect of | - | (1,518) |
| which no deferred tax assets were | | |
| provided | | |
+-------------------------------------------+-----------------+-----------------------------+
| Other permanent differences | 541 | 756 |
+-------------------------------------------+-----------------+-----------------------------+
| | | |
+-------------------------------------------+-----------------+-----------------------------+
| Tax expense for the year | 286 | 1,170 |
+-------------------------------------------+-----------------+-----------------------------+
| | | | |
+-------------------------------------------+----------+------+-----------------------------+
In addition to the amount expensed to the income statement, deferred tax of $nil
has been credited to equity in the year (2008: expense of $1.0 million).
1 UK corporation tax was calculated at 30% until 31 March 2008. From 1 April
2008, the rate was reduced to 28% of the estimated assessable UK profit for the
year.
17 Discontinued operations
On 29 October 2009 the Group completed the disposal of its wholly owned
subsidiary Alea Holdings UK Limited, which owned Alea London Limited and Alea
Services UK Limited. The results of these entities are considered to be
discontinued operations.
The results of the discontinued operations, which have been included in the
consolidated income statement, were as follows:
+-----------------------------+-------+---+----+----------+----------------------------+--------------------------+
| | | Year ended | Year ended |
+-----------------------------+---------------------------+----------------------------+--------------------------+
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+-----------------------------+---------------------------+----------------------------+--------------------------+
| | | $'000 | $'000 |
+-----------------------------+---------------------------+----------------------------+--------------------------+
| | | | |
+-----------------------------+---------------------------+----------------------------+--------------------------+
| Revenue from discontinued | | 5,999 | 12,592 |
| operations | | | |
+-----------------------------+---------------------------+----------------------------+--------------------------+
| | | | |
+-----------------------------+---------------------------+----------------------------+--------------------------+
| Expenses from discontinued | | 2,985 | 8,502 |
| operations | | | |
+-----------------------------+---------------------------+----------------------------+--------------------------+
| Profit before tax | | 3,014 | 4,090 |
+-----------------------------+---------------------------+----------------------------+--------------------------+
| | | | |
+-----------------------------+---------------------------+----------------------------+--------------------------+
| Attributable tax expense | | (286) | (1,170) |
+-----------------------------+---------------------------+----------------------------+--------------------------+
| | | | |
+-----------------------------+---------------------------+----------------------------+--------------------------+
| Loss on disposal of discontinued | | (16,671) | |
| operations | | | - |
+-----------------------------------------+---------------+----------------------------+--------------------------+
| | | | |
+-----------------------------------------+---------------+----------------------------+--------------------------+
| Realisation of revaluation and hedging and | | 3,292 | - |
| translation reserves | | | |
+----------------------------------------------+----------+----------------------------+--------------------------+
| | | | |
+-----------------------------+---------------------------+----------------------------+--------------------------+
| Net loss attributable to | | (10,651) | 2,920 |
| discontinued operations | | | |
+-------------------------------------+-------------------+----------------------------+--------------------------+
| | | | | | | |
+-----------------------------+-------+---+----+----------+----------------------------+--------------------------+
During the year ended 31 December 2009 the disposed companies contributed a cash
outflow of $46.1 million (year ended 31 December 2008: $81.9 million) to the
Group's net cash outflow from operating activities, a cash inflow of $36.9
million (year ended 31 December 2008: $84.8 million) in respect of investing
activities and a cash outflow of $nil (year ended 31 December 2008: $nil) in
respect of financing activities.
The Alea Holdings UK Limited disposal group comprised of the following major
classes of assets and liabilities as at the date of disposal:
+-----------------------------------------------------+---------------+
| | As at |
+-----------------------------------------------------+---------------+
| | 29 October |
| | 2009 |
+-----------------------------------------------------+---------------+
| | $'000 |
+-----------------------------------------------------+---------------+
| | |
+-----------------------------------------------------+---------------+
| ASSETS | |
+-----------------------------------------------------+---------------+
| | |
+-----------------------------------------------------+---------------+
| Property, plant and equipment | 447 |
+-----------------------------------------------------+---------------+
| Financial assets | |
+-----------------------------------------------------+---------------+
| Debt securities | |
+-----------------------------------------------------+---------------+
| - available-for-sale | 254,113 |
+-----------------------------------------------------+---------------+
| Loans and receivables including insurance | 48,287 |
| receivables | |
+-----------------------------------------------------+---------------+
| Deferred tax assets | 600 |
+-----------------------------------------------------+---------------+
| Reinsurance contracts | 89,182 |
+-----------------------------------------------------+---------------+
| Cash and cash equivalents | 29,475 |
+-----------------------------------------------------+---------------+
| | |
+-----------------------------------------------------+---------------+
| Total assets of disposal group | 422,104 |
+-----------------------------------------------------+---------------+
| | |
+-----------------------------------------------------+---------------+
| | |
+-----------------------------------------------------+---------------+
| LIABILITIES | |
+-----------------------------------------------------+---------------+
| Insurance contracts | 305,301 |
+-----------------------------------------------------+---------------+
| Other liabilities and charges | 1,940 |
+-----------------------------------------------------+---------------+
| Trade and other payables | 19,514 |
+-----------------------------------------------------+---------------+
| Current income tax liabilities | 127 |
+-----------------------------------------------------+---------------+
| | |
+-----------------------------------------------------+---------------+
| Total liabilities of disposal group | 326,882 |
+-----------------------------------------------------+---------------+
| | |
+-----------------------------------------------------+---------------+
| Net assets of disposal group | 95,222 |
+-----------------------------------------------------+---------------+
| | |
+-----------------------------------------------------+---------------+
| Cash proceeds received from sale of disposal group | 79,500 |
+-----------------------------------------------------+---------------+
| | |
+-----------------------------------------------------+---------------+
| less transaction costs associated with disposal | (949) |
+-----------------------------------------------------+---------------+
| Cash proceeds received net of transaction costs | 78,551 |
+-----------------------------------------------------+---------------+
| | |
+-----------------------------------------------------+---------------+
| Net loss on sale of disposal group | (16,671) |
+-----------------------------------------------------+---------------+
| | |
+-----------------------------------------------------+---------------+
18 Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
+--+------------------+----------+------+--------+----------+----------+-------+------+------------+
| | | | | | Continuing operations |
+---------------------+----------+------+-------------------+----------+---------------------------+
| Earnings | | | | Year ended | Year ended |
+---------------------+----------+------+-------------------+-------------------------+------------+
| | | | | | 31 December 2009 | 31 |
| | | | | | | December |
| | | | | | | 2008 |
+--+------------------+----------+------+-------------------+-------------------------+------------+
| | | | | | $ | $ |
+--+------------------+----------+------+-------------------+-------------------------+------------+
| | | | | | |
+---------------------+----------+------+-------------------+-------------------------+------------+
| Earnings for the purposes of basic earnings | | (67,513,305) | 1,018,848 |
| per share being net | | | |
| (loss)/profit attributable to equity holders | | | |
| of the Company | | | |
+------------------------------------------------+----------+-------------------------+------------+
| | | | | | | |
+--+------------------+----------+------+-------------------+-------------------------+------------+
| Effect of dilutive potential | | | - | - |
| ordinary shares: | | | | |
+--------------------------------+------+-------------------+-------------------------+------------+
| | | | | | | |
+--+------------------+----------+------+-------------------+-------------------------+------------+
| Earnings for the purposes of diluted | | (67,513,305) | 1,018,848 |
| earnings per share | | | |
+---------------------------------------+-------------------+-------------------------+------------+
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
+--+------------------+----------+------+-------------------+-------------------------+------------+
| | | | | | Discontinued |
| | | | | | operations |
+---------------------+----------+------+-------------------+------------------+-------------------+
| Earnings | | | | Year ended | Year ended |
+---------------------+----------+------+-------------------+-------------------------+------------+
| | | | | | 31 December 2009 | 31 |
| | | | | | | December |
| | | | | | | 2008 |
+--+------------------+----------+------+-------------------+-------------------------+------------+
| | | | | | $ | $ |
+--+------------------+----------+------+-------------------+-------------------------+------------+
| | | | | | |
+---------------------+----------+------+-------------------+-------------------------+------------+
| Earnings for the purposes of basic earnings | | (10,650,766) | 2,919,695 |
| per share being net | | | |
| (loss)/profit attributable to equity holders | | | |
| of the Company | | | |
+------------------------------------------------+----------+-------------------------+------------+
| | | | | | | |
+--+------------------+----------+------+-------------------+-------------------------+------------+
| Effect of dilutive potential | | | - | - |
| ordinary shares: | | | | |
+--------------------------------+------+-------------------+-------------------------+------------+
| | | | | | | |
+--+------------------+----------+------+-------------------+-------------------------+------------+
| Earnings for the purposes of diluted | | (10,650,766) | 2,919,695 |
| earnings per share | | | |
+---------------------------------------+-------------------+-------------------------+------------+
| | | | | | | | | | |
+--+------------------+----------+------+--------+----------+----------+-------+------+------------+
+--+-------------------+-----------+-----+---------+--+-------------+--------------+
| Number of shares | | | | Year ended | Year ended |
+----------------------+-----------+-----+------------+-------------+--------------+
| | | | | | 31 December | 31 |
| | | | | | 2009 | December |
| | | | | | | 2008 |
+--+-------------------+-----------+-----+---------+----------------+--------------+
| | | | | | Number | Number |
+--+-------------------+-----------+-----+------------+-------------+--------------+
| | | | | | | |
+--+-------------------+-----------+-----+------------+-------------+--------------+
| Weighted average number of | | | 173,897,021 | 173,772,944 |
| ordinary shares for the purposes | | | | |
| of basic earnings per share | | | | |
+----------------------------------+-----+------------+-------------+--------------+
| | | | | | | |
+--+-------------------+-----------+-----+------------+-------------+--------------+
| Effect of dilutive potential | | | | |
| ordinary shares: | | | | |
+----------------------------------+-----+------------+-------------+--------------+
| - Restricted Stock | | | | | 225,957 |
| Units1 | | | | - | |
+----------------------+-----------+-----+------------+-------------+--------------+
| | | | | | | |
+--+-------------------+-----------+-----+------------+-------------+--------------+
| Weighted average number of | | | 173,897,021 | 173,998,901 |
| ordinary shares for the purposes | | | | |
| of diluted earnings per share | | | | |
+----------------------------------+-----+------------+-------------+--------------+
| | | | | | | | |
+--+-------------------+-----------+-----+---------+--+-------------+--------------+
1 For the year ended 31 December 2009, 294,146 restricted stock units have been
excluded from the calculation of the weighted average number of ordinary shares
for the purposes of diluted earnings per share as their effects are
anti-dilutive.
19 Property, plant and equipment
+--------------------+----------+------+---+--------------+----------+-------------------------+
| | Computer equipment | Fixtures and | Other | Total |
| | and software | office | | |
| | | equipment | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| | $'000 | $'000 | $'000 | $'000 |
+--------------------+---------------------+--------------+----------+-------------------------+
| | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| Cost or Valuation | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| At 1 January 2008 | 22,780 | 4,393 | 1,897 | 29,070 |
+--------------------+---------------------+--------------+----------+-------------------------+
| Additions | 403 | 482 | | 885 |
| | | | - | |
+--------------------+---------------------+--------------+----------+-------------------------+
| Exchange | (7,500) | (655) | (1,843) | |
| difference | | | | (9,998) |
+--------------------+---------------------+--------------+----------+-------------------------+
| Disposals | (586) | (454) | - | (1,040) |
+--------------------+---------------------+--------------+----------+-------------------------+
| | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| At 31 December | 15,097 | 3,766 | 54 | 18,917 |
| 2008 | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| Additions | 500 | 53 | - | 553 |
+--------------------+---------------------+--------------+----------+-------------------------+
| Exchange | 1,359 | 116 | 1 | 1,476 |
| difference | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| Disposals | (39) | - | - | (39) |
+--------------------+---------------------+--------------+----------+-------------------------+
| Disposed on sale of Alea | (13,003) | (1,098) | (37) | (14,138) |
| Holdings UK Limited | | | | |
+-------------------------------+----------+--------------+----------+-------------------------+
| | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| At 31 December | 3,914 | 2,837 | 18 | 6,769 |
| 2009 | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| Accumulated depreciation and | | | | |
| impairment | | | | |
+--------------------------------------+---+--------------+----------+-------------------------+
| | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| At 1 January 2008 | (20,141) | (2,579) | (1,863) | (24,583) |
+--------------------+---------------------+--------------+----------+-------------------------+
| Charge for the | (1,261) | (491) | (22) | (1,774) |
| year | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| Exchange | 7,478 | 637 | 1,831 | 9,946 |
| differences | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| Eliminated on | 569 | 460 | - | 1,029 |
| disposals | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| At 31 December | (13,355) | (1,973) | (54) | (15,382) |
| 2008 | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| Charge for the | (943) | (662) | - | (1,605) |
| year | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| Exchange | (1,353) | (65) | (1) | (1,419) |
| differences | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| Eliminated on | 22 | - | - | 22 |
| disposals | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| Disposed on sale of Alea | 12,921 | 733 | 37 | 13,691 |
| Holdings UK Limited | | | | |
+-------------------------------+----------+--------------+----------+-------------------------+
| | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| At 31 December | (2,708) | (1,967) | (18) | (4,693) |
| 2009 | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| Carrying amount | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| At 31 December | 1,206 | 870 | - | 2,076 |
| 2009 | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| At 31 December | 1,742 | 1,793 | - | 3,535 |
| 2008 | | | | |
+--------------------+---------------------+--------------+----------+-------------------------+
| | | | | | | |
+--------------------+----------+------+---+--------------+----------+-------------------------+
20 Intangible assets
+---------------------------------------------------+------------------+
| | Licences |
+---------------------------------------------------+------------------+
| | $'000 |
+---------------------------------------------------+------------------+
| | |
+---------------------------------------------------+------------------+
| Cost | |
+---------------------------------------------------+------------------+
| | |
+---------------------------------------------------+------------------+
| At 1 January 2008 | 9,968 |
+---------------------------------------------------+------------------+
| Additions | - |
+---------------------------------------------------+------------------+
| | |
+---------------------------------------------------+------------------+
| At 31 December 2008 | 9,968 |
+---------------------------------------------------+------------------+
| Additions | - |
+---------------------------------------------------+------------------+
| At 31 December 2009 | 9,968 |
+---------------------------------------------------+------------------+
| | |
+---------------------------------------------------+------------------+
| | |
+---------------------------------------------------+------------------+
| Amortisation | |
+---------------------------------------------------+------------------+
| | |
+---------------------------------------------------+------------------+
| At 1 January 2008 | (1,489) |
+---------------------------------------------------+------------------+
| Impairment of asset | - |
+---------------------------------------------------+------------------+
| | |
+---------------------------------------------------+------------------+
| At 31 December 2008 | (1,489) |
+---------------------------------------------------+------------------+
| Impairment of asset | - |
+---------------------------------------------------+------------------+
| At 31 December 2009 | (1,489) |
+---------------------------------------------------+------------------+
| | |
+---------------------------------------------------+------------------+
| | |
+---------------------------------------------------+------------------+
| Carrying amount | |
+---------------------------------------------------+------------------+
| | |
+---------------------------------------------------+------------------+
| At 31 December 2009 | 8,479 |
+---------------------------------------------------+------------------+
| At 31 December 2008 | 8,479 |
+---------------------------------------------------+------------------+
Capitalised licences represent the cost of licences acquired to conduct business
in the United States. The Directors consider these licences to have indefinite
useful lives. The licences are tested for impairment at each balance sheet date.
At 31 December 2009 the impairment review indicated that the carrying value of
the licenses reflects the recoverable amount and no impairment write down is
necessary (31 December 2008: no impairment write down was necessary).
21 Deferred acquisition costs
+---------------------------------------------+--------------------------------------------------+
| | Deferred acquisition |
| | costs |
+---------------------------------------------+--------------------------------------------------+
| | $'000 |
+---------------------------------------------+--------------------------------------------------+
| | |
+---------------------------------------------+--------------------------------------------------+
| At 1 January 2008 | 2,323 |
+---------------------------------------------+--------------------------------------------------+
| Change for the year | (679) |
+---------------------------------------------+--------------------------------------------------+
| Exchange difference | (89) |
+---------------------------------------------+--------------------------------------------------+
| | |
+---------------------------------------------+--------------------------------------------------+
| At 31 December 2008 | 1,555 |
+---------------------------------------------+--------------------------------------------------+
| Change for the year | (489) |
+---------------------------------------------+--------------------------------------------------+
| Exchange difference | (13) |
+---------------------------------------------+--------------------------------------------------+
| | |
+---------------------------------------------+--------------------------------------------------+
| At 31 December 2009 | 1,053 |
+---------------------------------------------+--------------------------------------------------+
| | |
+---------------------------------------------+--------------------------------------------------+
+-----------------------------------------------------+----------------+
| At 31 December 2009 | |
+-----------------------------------------------------+----------------+
| Current assets | 368 |
+-----------------------------------------------------+----------------+
| Non-current assets | 685 |
+-----------------------------------------------------+----------------+
| | 1,053 |
+-----------------------------------------------------+----------------+
+-----------------------------------------------------+----------------+
| At 31 December 2008 | |
+-----------------------------------------------------+----------------+
| Current assets | 500 |
+-----------------------------------------------------+----------------+
| Non-current assets | 1,055 |
+-----------------------------------------------------+----------------+
| | 1,555 |
+-----------------------------------------------------+----------------+
22 Financial assets
+------------------------------+----------------------+--------------------------------+
| | As at | As at |
+------------------------------+----------------------+--------------------------------+
| | 31 December 2009 | 31 December |
| | | 2008 |
+------------------------------+----------------------+--------------------------------+
| | $'000 | $'000 |
+------------------------------+----------------------+--------------------------------+
| | | |
+------------------------------+----------------------+--------------------------------+
| Available-for-sale | | |
| investments | | |
+------------------------------+----------------------+--------------------------------+
| | | |
+------------------------------+----------------------+--------------------------------+
| - Equity securities | 77 | 111 |
+------------------------------+----------------------+--------------------------------+
| | | |
+------------------------------+----------------------+--------------------------------+
| - Debt securities | 323,706 | 682,206 |
+------------------------------+----------------------+--------------------------------+
+------------------------------+----------------------------+-------+-------------------------------+-------+
| | | As | | As |
| | | at | | at |
+------------------------------+----------------------------+-------+-------------------------------+-------+
| | 31 December 2009 | 31 December |
| | | 2008 |
+------------------------------+------------------------------------+---------------------------------------+
| Summary by maturity - Debt | $'000 | % | $'000 | % |
| securities | | | | |
+------------------------------+----------------------------+-------+-------------------------------+-------+
| | | | | |
+------------------------------+----------------------------+-------+-------------------------------+-------+
| Less than 1 year | 147,342 | 45.4 | 359,998 | 52.8 |
+------------------------------+----------------------------+-------+-------------------------------+-------+
| 1 year up to 3 years | 43,376 | 13.4 | 60,336 | 8.8 |
+------------------------------+----------------------------+-------+-------------------------------+-------+
| 3 years up to 5 years | 22,735 | 7.0 | 260 | 0.0 |
+------------------------------+----------------------------+-------+-------------------------------+-------+
| 5 years up to 10 years | 38,080 | 11.8 | 2,086 | 0.3 |
+------------------------------+----------------------------+-------+-------------------------------+-------+
| More than 10 years | 72,173 | 22.4 | 259,526 | 38.1 |
+------------------------------+----------------------------+-------+-------------------------------+-------+
| | 323,706 | 100.0 | 682,206 | 100.0 |
+------------------------------+----------------------------+-------+-------------------------------+-------+
23 Loans and receivables including insurance receivables
+--------------------------------------+--------------+--------------------------------+
| | As at | As at |
+--------------------------------------+--------------+--------------------------------+
| | 31 December | 31 December |
| | 2009 | 2008 |
+--------------------------------------+--------------+--------------------------------+
| | $'000 | $'000 |
+--------------------------------------+--------------+--------------------------------+
| | | |
+--------------------------------------+--------------+--------------------------------+
| Deposits with ceding undertakings | 89,045 | 79,455 |
+--------------------------------------+--------------+--------------------------------+
| Financial assets carried at | 362,663 | 400,232 |
| amortised cost | | |
+--------------------------------------+--------------+--------------------------------+
| Debtors arising out of insurance | 446 | 14 |
| operations | | |
+--------------------------------------+--------------+--------------------------------+
| Debtors arising out of reinsurance | 27,447 | 73,892 |
| operations | | |
+--------------------------------------+--------------+--------------------------------+
| Accrued income 1 | 15,477 | 35,842 |
+--------------------------------------+--------------+--------------------------------+
| Other prepayments | 2,198 | 3,226 |
+--------------------------------------+--------------+--------------------------------+
| Other debtors | 4,096 | 15,409 |
+--------------------------------------+--------------+--------------------------------+
| | | |
+--------------------------------------+--------------+--------------------------------+
| Total loans and receivables | 501,372 | 608,070 |
| including insurance receivables | | |
+--------------------------------------+--------------+--------------------------------+
| Current asset | 44,430 | 40,375 |
+--------------------------------------+--------------+--------------------------------+
| Non-current asset | 456,942 | 567,695 |
+--------------------------------------+--------------+--------------------------------+
| | 501,372 | 608,070 |
+--------------------------------------+--------------+--------------------------------+
1 $9.6 million (31 December 2008: $28.1 million) of the renewal rights sales are
recorded as accrued income
at the balance sheet date as disclosed in note 10.
Loans and receivables including insurance receivables are recorded on the
balance sheet at amortised cost.
The following financial assets carried at amortised cost were reclassified:
+----------------------------------------+-------+---------+--------------+
| | Year ended | Year ended |
+----------------------------------------+-----------------+--------------+
| | 31 December | 31 December |
| | 2009 | 2008 |
+----------------------------------------+-----------------+--------------+
| | $'000 | $'000 |
+----------------------------------------+-----------------+--------------+
| | | |
+----------------------------------------+-----------------+--------------+
| | | |
+----------------------------------------+-----------------+--------------+
| Amount reclassified out of available for sale | - | 253,707 |
| debt securities category | | |
+------------------------------------------------+---------+--------------+
| | | |
+----------------------------------------+-----------------+--------------+
| Amount reclassified into loans and | - | 400,232 |
| receivables category | | |
+----------------------------------------+-----------------+--------------+
| | | |
+----------------------------------------+-----------------+--------------+
| | | | |
+----------------------------------------+-------+---------+--------------+
No other assets were reclassified in the year ended 31 December 2009 (2008:
$nil).
+----------------------------------------+--+--------------+----------------------------+
| | As at | As at |
+----------------------------------------+-----------------+----------------------------+
| | 31 December | 31 December |
| | 2009 | 2008 |
+----------------------------------------+-----------------+----------------------------+
| | $'000 | $'000 |
+----------------------------------------+-----------------+----------------------------+
| | | |
+----------------------------------------+-----------------+----------------------------+
| Financial assets carried at amortised | | |
| cost | | |
+----------------------------------------+-----------------+----------------------------+
| | | |
+----------------------------------------+-----------------+----------------------------+
| Carrying value of financial assets that | 362,663 | 400,232 |
| have been reclassified | | |
+-------------------------------------------+--------------+----------------------------+
| | | |
+----------------------------------------+-----------------+----------------------------+
| Fair value of financial assets that | 205,467 | 253,707 |
| have been reclassified | | |
+----------------------------------------+-----------------+----------------------------+
| | | |
+----------------------------------------+-----------------+----------------------------+
| Estimated amounts of cash flows | 617,153 | 656,230 |
| expected to be recovered in respect of | | |
| reclassified assets | | |
+----------------------------------------+-----------------+----------------------------+
| | | |
+----------------------------------------+-----------------+----------------------------+
| | | | |
+----------------------------------------+--+--------------+----------------------------+
+--------------------------------------+----------------+-----------------------------+
| | Year ended | Year ended |
+--------------------------------------+----------------+-----------------------------+
| | 31 December | 31 |
| | 2009 | December |
| | | 2008 |
+--------------------------------------+----------------+-----------------------------+
| | $'000 | $'000 |
+--------------------------------------+----------------+-----------------------------+
| | | |
+--------------------------------------+----------------+-----------------------------+
| Fair value loss on assets | - | 29,777 |
| reclassified in the period that has | | |
| been recognised in equity | | |
+--------------------------------------+----------------+-----------------------------+
| | | |
+--------------------------------------+----------------+-----------------------------+
| Fair value loss that would have been | 157,196 | 146,525 |
| recognised in equity if the | | |
| financial asset had not been | | |
| reclassified | | |
+--------------------------------------+----------------+-----------------------------+
| | | |
+--------------------------------------+----------------+-----------------------------+
| Total (loss) / gain in respect of | (4,221) | 33,930 |
| reclassified assets recognised in | | |
| profit or loss | | |
+--------------------------------------+----------------+-----------------------------+
| | | |
+--------------------------------------+----------------+-----------------------------+
The effective interest rate used in determining the amortised cost is 6.7%
(2008: 13.9%).
24 Derivative financial instruments
+--------------------------------------+--------------+--------------+
| | As at | As at |
+--------------------------------------+--------------+--------------+
| | 31 December | 31 December |
| | 2009 | 2008 |
+--------------------------------------+--------------+--------------+
| Assets | $'000 | $'000 |
+--------------------------------------+--------------+--------------+
| | | |
+--------------------------------------+--------------+--------------+
| Foreign exchange forward contracts - | 39 | - |
| non-hedged (derivatives held for | | |
| trading) | | |
+--------------------------------------+--------------+--------------+
| | | |
+--------------------------------------+--------------+--------------+
+--------------------------------------+--------------+--------------+
| | As at | As at |
+--------------------------------------+--------------+--------------+
| | 31 December | 31 December |
| | 2009 | 2008 |
+--------------------------------------+--------------+--------------+
| Liabilities | $'000 | $'000 |
+--------------------------------------+--------------+--------------+
| | | |
+--------------------------------------+--------------+--------------+
| Foreign exchange forward contracts | 100 | - |
| (derivatives designated as hedging | | |
| instruments) 1 | | |
+--------------------------------------+--------------+--------------+
| | | |
+--------------------------------------+--------------+--------------+
1 This balance represents two foreign exchange forward contracts for the sale of
Canadian dollars and Euros in exchange for US dollars. Both of these contracts
have been designated as an effective hedge of the net investment in Alea
(Bermuda) Ltd and are being used to hedge the Group's exposure to foreign
exchange risk on these investments. Gains or losses arising on these contracts
are transferred to equity to offset any gains or losses on translation of the
net investments in the subsidiaries. There is no ineffectiveness in the year
ended 31 December 2009.
All derivative financial assets are current assets and all derivative financial
liabilities are current liabilities.
25 Deferred income tax
The following are the major deferred tax assets and liabilities recognised by
the Group and movements thereon during the current and prior reporting period.
Deferred tax assets and deferred tax liabilities within each jurisdiction have
been offset to reflect the fact that any income tax liability would be settled
with the relevant tax authority on a net basis. Deferred tax balances between
jurisdictions have not been offset.
Deferred tax assets / (liabilities) of US subsidiaries
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| | Tax | Unrealised | Other | Other | Elimination | Total |
| | losses | gains on | timing | timing | of | |
| | carried | investments | differences | differences | unrecognised | |
| | forward | | resulting | resulting | deferred tax | |
| | | | in deferred | in deferred | balances | |
| | | | tax assets | tax | | |
| | | | | liabilities | | |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| | | | | | | |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| At 1 January 2008 | 21,910 | (1,029) | 11,128 | (21,266) | (10,743) | - |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| | | | | | | |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| Credited to equity | - | 1,029 | - | - | - | 1,029 |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| Credited/(charged) to | 1,928 | - | 25,575 | 2,082 | (30,614) | (1,029) |
| the income statement | | | | | | |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| | | | | | | |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| At 1 January 2009 | 23,838 | - | 36,703 | (19,184) | (41,357) | - |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| | | | | | | |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| Credited/(charged) to | 3,237 | - | 5,175 | 1,397 | (9,809) | - |
| the income statement | | | | | | |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| | | | | | | |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
| As at 31 December | 27,075 | - | 41,878 | (17,787) | (51,166) | - |
| 2009 | | | | | | |
+-----------------------+---------+-------------+-------------+-------------+--------------+---------+
Deferred tax assets / (liabilities) of UK subsidiaries
+-----------------------+----------+--------------+--------------+--------+
| | Tax | Depreciation | Elimination | Total |
| | losses | in advance | of | |
| | carried | of capital | unrecognised | |
| | forward | allowances | deferred tax | |
| | | | balances | |
+-----------------------+----------+--------------+--------------+--------+
| | $'000 | $'000 | $'000 | $'000 |
+-----------------------+----------+--------------+--------------+--------+
| | | | | |
+-----------------------+----------+--------------+--------------+--------+
| At 1 January 2008 | 42,284 | 1,034 | (42,284) | 1,034 |
+-----------------------+----------+--------------+--------------+--------+
| | | | | |
+-----------------------+----------+--------------+--------------+--------+
| (Charged)/credited to | (1,021) | (127) | 1,021 | (127) |
| the income statement | | | | |
+-----------------------+----------+--------------+--------------+--------+
| Exchange differences | - | (254) | - | (254) |
+-----------------------+----------+--------------+--------------+--------+
| | | | | |
+-----------------------+----------+--------------+--------------+--------+
| At 1 January 2009 | 41,263 | 653 | (41,263) | 653 |
+-----------------------+----------+--------------+--------------+--------+
| | | | | |
+-----------------------+----------+--------------+--------------+--------+
| (Charged)/credited to | (851) | (125) | 851 | (125) |
| the income statement | | | | |
+-----------------------+----------+--------------+--------------+--------+
| Disposed on sale of | (40,412) | (600) | 40,412 | (600) |
| Alea Holdings UK | | | | |
| Limited | | | | |
+-----------------------+----------+--------------+--------------+--------+
| Exchange differences | - | 72 | - | 72 |
+-----------------------+----------+--------------+--------------+--------+
| | | | | |
+-----------------------+----------+--------------+--------------+--------+
| As at 31 December | - | - | - | - |
| 2009 | | | | |
+-----------------------+----------+--------------+--------------+--------+
Deferred tax assets / (liabilities) of Swiss subsidiaries
+-----------------------+----------+-------------+--------------+--------+
| | Tax | Other | Elimination | Total |
| | losses | timing | of | |
| | carried | differences | unrecognised | |
| | forward | - IFRS to | deferred tax | |
| | | Swiss GAAP | balances | |
+-----------------------+----------+-------------+--------------+--------+
| | $'000 | $'000 | $'000 | $'000 |
+-----------------------+----------+-------------+--------------+--------+
| | | | | |
+-----------------------+----------+-------------+--------------+--------+
| At 1 January 2008 | 13,168 | (4,847) | (8,321) | - |
+-----------------------+----------+-------------+--------------+--------+
| | | | | |
+-----------------------+----------+-------------+--------------+--------+
| (Charged)/credited to | (321) | 1,888 | (1,567) | - |
| the income statement | | | | |
+-----------------------+----------+-------------+--------------+--------+
| Exchange differences | 1,469 | (541) | (928) | - |
+-----------------------+----------+-------------+--------------+--------+
| | | | | |
+-----------------------+----------+-------------+--------------+--------+
| At 1 January 2009 | 14,316 | (3,500) | (10,816) | - |
+-----------------------+----------+-------------+--------------+--------+
| | | | | |
+-----------------------+----------+-------------+--------------+--------+
| Credited/(charged) to | 9,255 | 11,979 | (21,234) | - |
| the income statement | | | | |
+-----------------------+----------+-------------+--------------+--------+
| Deferred tax balances | (23,523) | (8,491) | 32,014 | - |
| lost on merger with | | | | |
| Alea (Bermuda) Ltd | | | | |
+-----------------------+----------+-------------+--------------+--------+
| Exchange differences | (48) | 12 | 36 | - |
+-----------------------+----------+-------------+--------------+--------+
| | | | | |
+-----------------------+----------+-------------+--------------+--------+
| As at 31 December | - | - | - | - |
| 2009 | | | | |
+-----------------------+----------+-------------+--------------+--------+
At the balance sheet date the Group has unrecognised deferred tax assets of
$27.1 million (31 December 2008: $79.4 million) in respect of tax losses carried
forward. The assets have not been recognised due to the unpredictability of
future profit streams.
At the balance sheet date, the Group has unused tax losses of $77.4 million (31
December 2008: $273.2 million) available for offset against future profits. Of
the losses at 31 December 2009 $77.4 million (31 December 2008: $68.1 million)
relate to the US, $nil (31 December 2008: $147.4 million) relate to the UK and
$nil (31 December 2008: $57.7 million) relate to Switzerland.
US losses expire as follows: $8.3 million in 2026, $40.5 million in 2027, $18.7
million in 2028 and $9.9 million in 2029.
Unused tax losses from UK operations are no longer available to the Group due to
the sale of the Alea Holdings UK Limited disposal group. Unused tax losses from
Swiss operations are no longer available to the Group due to the
re-domiciliation to Bermuda and merger into Alea (Bermuda) Ltd of the subsidiary
Alea Europe Ltd.
Certain deferred tax assets and liabilities have been offset. The following is
the analysis of the deferred tax balances (after offset) for financial reporting
purposes:
+----------------------------+------------+--------------+----------------------------+
| | | As at | As at |
+----------------------------+------------+--------------+----------------------------+
| | | 31 December | 31 |
| | | 2009 | December |
| | | | 2008 |
+----------------------------+------------+--------------+----------------------------+
| | | $'000 | $'000 |
+----------------------------+------------+--------------+----------------------------+
| | | | |
+----------------------------+------------+--------------+----------------------------+
| Deferred tax assets | | - | 653 |
+----------------------------+------------+--------------+----------------------------+
| Deferred tax liabilities | | | |
| | | - | - |
+----------------------------+------------+--------------+----------------------------+
| | | | |
+----------------------------+------------+--------------+----------------------------+
| | | | 653 |
| | | - | |
+----------------------------+------------+--------------+----------------------------+
The deferred tax assets as at 31 December 2008 were non-current assets.
The deferred income tax credited to equity during the year is as follows:
+------------------------------------------+------------+-------------+
| | Year ended | Year ended |
+------------------------------------------+------------+-------------+
| | 31 | 31 December |
| | December | 2008 |
| | 2009 | |
+------------------------------------------+------------+-------------+
| | $'000 | $'000 |
+------------------------------------------+------------+-------------+
| | | |
+------------------------------------------+------------+-------------+
| Revaluation reserve1 | - | 1,030 |
+------------------------------------------+------------+-------------+
| | | |
+------------------------------------------+------------+-------------+
1The revaluation reserve is a component of shareholders' equity that is used to
record the difference between the market value of available for sale investments
carried on the balance sheet and the amortised cost of those assets. Unrealised
gains and losses arising when the market value is compared with the amortised
cost of the assets are taken to this reserve.
26 Cash and cash equivalents
Cash and cash equivalents are comprised of the following:
+------------------------------------------+------------+-------------+
| | As at | As at |
+------------------------------------------+------------+-------------+
| | 31 | 31 December |
| | December | 2008 |
| | 2009 | |
+------------------------------------------+------------+-------------+
| | $'000 | $'000 |
+------------------------------------------+------------+-------------+
| | | |
+------------------------------------------+------------+-------------+
| Cash at bank and in hand | 33,302 | 31,106 |
+------------------------------------------+------------+-------------+
| Short-term deposits with credit | 132,801 | 86,554 |
| institutions | | |
+------------------------------------------+------------+-------------+
| | | |
+------------------------------------------+------------+-------------+
| Total cash and cash equivalents | 166,103 | 117,660 |
+------------------------------------------+------------+-------------+
Cash and cash equivalents yielded an effective rate of interest of 0.3% in 2009
(2008: 2.6%).
27 Insurance and reinsurance contracts
Insurance and reinsurance contracts are comprised of the following:
+-----------------------------------+--------+------------+---------------------------+
| | | As at | As at |
+-----------------------------------+--------+------------+---------------------------+
| | | 31 | 31 |
| | | December | December |
| | | 2009 | 2008 |
+-----------------------------------+--------+------------+---------------------------+
| | | $'000 | $'000 |
+-----------------------------------+--------+------------+---------------------------+
| | | | |
+-----------------------------------+--------+------------+---------------------------+
| Gross claims outstanding | | | |
+-----------------------------------+--------+------------+---------------------------+
| Provision for claims outstanding, | | 819,011 | 1,240,270 |
| reported and not reported | | | |
+-----------------------------------+--------+------------+---------------------------+
| Discount | | (36,515) | (48,725) |
+-----------------------------------+--------+------------+---------------------------+
| | | 782,496 | 1,191,545 |
+-----------------------------------+--------+------------+---------------------------+
| Claims handling provisions | | 5,780 | 9,641 |
+-----------------------------------+--------+------------+---------------------------+
| Total insurance contracts | | 788,276 | 1,201,186 |
+-----------------------------------+--------+------------+---------------------------+
| | | | |
+-----------------------------------+--------+------------+---------------------------+
| Reinsurance | | | |
+-----------------------------------+--------+------------+---------------------------+
| Provision for claims outstanding, | | 335,100 | 425,502 |
| reported and not reported | | | |
+-----------------------------------+--------+------------+---------------------------+
| Discount | | (2,433) | (2,177) |
+-----------------------------------+--------+------------+---------------------------+
| Total reinsurance contracts | | 332,667 | 423,325 |
+-----------------------------------+--------+------------+---------------------------+
| | | | |
+-----------------------------------+--------+------------+---------------------------+
| Undiscounted claims outstanding, | | 489,691 | 824,409 |
| net of reinsurance | | | |
+-----------------------------------+--------+------------+---------------------------+
| Discount | | (34,082) | (46,548) |
+-----------------------------------+--------+------------+---------------------------+
| Claims outstanding net of | | 455,609 | 777,861 |
| reinsurance | | | |
+-----------------------------------+--------+------------+---------------------------+
| | | | |
+-----------------------------------+--------+------------+---------------------------+
+-----------------------------------+--------+------------+------------+
| | | As at | As at |
+-----------------------------------+--------+------------+------------+
| | | 31 | 31 |
| | | December | December |
| | | 2009 | 2008 |
+-----------------------------------+--------+------------+------------+
| | | $'000 | $'000 |
+-----------------------------------+--------+------------+------------+
| Current assets | | 20,418 | 37,334 |
+-----------------------------------+--------+------------+------------+
| Non-current assets | | 312,249 | 385,991 |
+-----------------------------------+--------+------------+------------+
| Total reinsurance contracts | | 332,667 | 423,325 |
+-----------------------------------+--------+------------+------------+
+-----------------------------------+--------+------------+------------+
| | | | |
+-----------------------------------+--------+------------+------------+
| Current liabilities | | 163,741 | 228,600 |
+-----------------------------------+--------+------------+------------+
| Non-current liabilities | | 624,535 | 972,586 |
+-----------------------------------+--------+------------+------------+
| Total insurance contracts | | 788,276 | 1,201,186 |
+-----------------------------------+--------+------------+------------+
Basis for establishing provision for claims outstanding
Loss reserves for reinsurance business are established based on claims data
reported to the Group by ceding companies supplemented with relevant industry
benchmark loss development patterns used to project the ultimate incurred loss.
Ultimate incurred loss indications are calculated by the Group's actuaries using
several standard actuarial methodologies including paid and incurred loss
development and the Bornhuetter-Ferguson incurred and paid loss methods.
The Group's actuaries utilise several assumptions in applying each methodology,
including loss development factors, expected loss ratios based on pricing
analysis, and actual reported claim frequency and severity. These reviews and
documentation are completed in accordance with professional actuarial standards
appropriate to the jurisdictions where the business is written. The selected
assumptions reflect the actuaries' judgement based on historical data and
experience combined with information concerning current underwriting, economic,
judicial, regulatory and other influences on ultimate claim settlements.
Based on the actuarial indications, the Group selects and records a single point
estimate separately for each line of business for each underwriting year. The
single point reserve estimate is management's best estimate which the Group
considers to be one that has an equal likelihood of developing a redundancy or
deficiency as the loss experience matures. On a quarterly basis the Group
analyses and records its loss reserve estimates across over 400 detailed lines
of business which reflect class of business, geographic location, insurance
versus reinsurance, proportional versus non-proportional, and treaty versus
facultative exposures. In addition, a limited number of the Group's largest
contracts are reviewed individually.
During the loss settlement period, additional facts regarding claims are
reported. As this occurs it may be necessary to increase or decrease the unpaid
losses and loss expense reserves. The actual final liability may be
significantly different to prior estimates. The Group reviews additional
reported claim information on a monthly basis. Actual claim experience is
compared to that expected from the most recent actuarial reserve review to
highlight significant variances. A complete actuarial analysis by detailed line
of business including selection of single point estimates is completed
semi-annually and is reviewed by the Group's management.
Underwriting year table
+--------------+------------------+-----+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | Total |
| | and | | | | | | | |
| | prior | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Gross | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Estimate of | | | | | | | |
| cumulative claims: | | | | | | | |
+---------------------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| At end of | 3,022,313 | 367,605 | 386,762 | 590,359 | 821,724 | 1,092,870 | 630,215 | |
| underwriting | | | | | | | | |
| year | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| One year | 4,564,137 | 452,324 | 396,996 | 612,137 | 816,546 | 990,260 | 610,599 | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Two years | 4,710,816 | 485,269 | 417,049 | 611,228 | 794,346 | 883,970 | 616,375 | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Three | 4,755,187 | 507,747 | 441,839 | 654,210 | 786,147 | 874,949 | 629,467 | |
| years | | | | | | | | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Four years | 4,828,948 | 539,694 | 440,855 | 660,908 | 790,476 | 856,061 | 352,727 | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Five years | 4,874,927 | 550,212 | 459,255 | 655,037 | 763,564 | 482,364 | | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Six years | 4,883,595 | 563,532 | 467,672 | 652,421 | 441,916 | | | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Seven | 4,893,658 | 560,023 | 468,770 | 444,285 | | | | |
| years | | | | | | | | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Eight | 4,874,618 | | 295,311 | | | | | |
| years | | 560,844 | | | | | | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Nine years | | 476,304 | | | | | | |
| later | 4,858,150 | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Ten years | 3,204,974 | | | | | | | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Estimate | 3,204,974 | 476,304 | 295,311 | 444,285 | 441,916 | 482,364 | 352,727 | 5,697,881 |
| of | | | | | | | | |
| cumulative | | | | | | | | |
| claims as | | | | | | | | |
| at 31 | | | | | | | | |
| December | | | | | | | | |
| 2009 | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Cumulative | (3,127,878) | (427,515) | (256,026) | (399,500) | (381,550) | (395,528) | (261,689) | (5,249,686) |
| payments | | | | | | | | |
| at 31 | | | | | | | | |
| December | | | | | | | | |
| 2009 | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Earned | 77,096 | 48,789 | 39,285 | 44,785 | 60,366 | 86,836 | 91,038 | 448,195 |
| non-life | | | | | | | | |
| reserves | | | | | | | | |
| before | | | | | | | | |
| effect of | | | | | | | | |
| discounting | | | | | | | | |
| as at 31 | | | | | | | | |
| December | | | | | | | | |
| 2009 | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Life and | | | | | | | | 370,816 |
| finite | | | | | | | | |
| reserves | | | | | | | | |
| as at 31 | | | | | | | | |
| December | | | | | | | | |
| 2009 | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Claims | | | | | | | | 5,780 |
| handling | | | | | | | | |
| provisions | | | | | | | | |
| as at 31 | | | | | | | | |
| December | | | | | | | | |
| 2009 | | | | | | | | |
+--------------+------------------------+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| Present value | | | | | | 824,791 |
| of life | | | | | | |
| reserves and | | | | | | |
| undiscounted | | | | | | |
| non-life | | | | | | |
| reserves | | | | | | |
| as at 31 | | | | | | |
| December 2009 | | | | | | |
+---------------------------------+---------------------------------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
| | | | | | | | | | |
+--------------+------------------+-----+--------------------+------------------+-----------------+-----------------+------------------+-----------------+-----------------------------------+
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | Total |
| | and | | | | | | | |
| | prior | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Reinsurance | | | | | | | | |
| recoverable | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Estimate of | | | | | | | |
| cumulative claims: | | | | | | | |
+----------------------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| At end of | 557,558 | 87,617 | 140,151 | 176,731 | 165,184 | 177,565 | 144,472 | |
| underwriting | | | | | | | | |
| year | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| One year | 1,544,260 | 163,700 | 173,153 | 196,084 | 184,701 | 145,792 | 132,953 | |
| later | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Two years | 1,662,449 | 156,068 | 177,605 | 211,944 | 190,173 | 137,365 | 128,042 | |
| later | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Three years | 1,646,776 | 149,374 | 152,152 | 212,974 | 182,641 | 147,960 | 129,399 | |
| later | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Four years | 1,660,199 | 136,623 | 146,574 | 199,845 | 173,223 | 134,717 | 47,854 | |
| later | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Five years | 1,684,626 | 130,220 | 157,163 | 181,349 | 167,985 | 73,055 | | |
| later | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Six years | 1,667,762 | 130,984 | 157,466 | 183,557 | 134,630 | | | |
| later | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Seven years | 1,669,539 | 128,163 | 157,615 | 148,749 | | | | |
| later | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Eight years | 1,652,959 | 129,583 | 73,645 | | | | | |
| later | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Nine years | 1,646,197 | 91,157 | | | | | | |
| later | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Ten years | 725,855 | | | | | | | |
| later | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Estimate of | 725,855 | 91,157 | 73,645 | 148,749 | 134,630 | 73,055 | 47,854 | 1,294,945 |
| cumulative | | | | | | | | |
| recoveries | | | | | | | | |
| at 31 | | | | | | | | |
| December 2009 | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Cumulative | (724,993) | (85,986) | (66,439) | (140,991) | (122,377) | (60,922) | (38,794) | (1,240,502) |
| recoveries | | | | | | | | |
| received at | | | | | | | | |
| 31 December | | | | | | | | |
| 2009 | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Earned net | 862 | 5,171 | 7,206 | 7,758 | 12,253 | 12,133 | 9,060 | 54,443 |
| non-life | | | | | | | | |
| reinsurance | | | | | | | | |
| recoverable | | | | | | | | |
| before effect | | | | | | | | |
| of | | | | | | | | |
| discounting | | | | | | | | |
| as at 31 | | | | | | | | |
| December 2009 | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Life and | | | | | | | | 280,657 |
| finite | | | | | | | | |
| reinsurance | | | | | | | | |
| recoverable | | | | | | | | |
| as at 31 | | | | | | | | |
| December 2009 | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
| Present value | | | | | | | | 335,100 |
| of life | | | | | | | | |
| reinsurance | | | | | | | | |
| recoverable | | | | | | | | |
| and | | | | | | | | |
| undiscounted | | | | | | | | |
| non-life | | | | | | | | |
| reinsurance | | | | | | | | |
| recoverable | | | | | | | | |
| recognised in | | | | | | | | |
| the balance | | | | | | | | |
| sheet as at | | | | | | | | |
| 31 December | | | | | | | | |
| 2009 | | | | | | | | |
+---------------+------------------------+---------------------+----------------+----------------+-----------------+------------------+----------------+-----------------------+
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |
| | and | | | | | | | Total |
| | prior | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | |
| | | | | | | | | $'000 |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Net | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Estimate of | | | | | | | |
| cumulative claims: | | | | | | | |
+---------------------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| At end of | 2,464,755 | 279,988 | 246,611 | 413,628 | 656,540 | 915,305 | 485,743 | |
| underwriting | | | | | | | | |
| year | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| One year | 3,019,877 | 288,624 | 223,843 | 416,053 | 631,845 | 844,468 | 477,646 | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Two years | 3,048,367 | 329,201 | 239,444 | 399,284 | 604,173 | 746,605 | 488,333 | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Three years | 3,108,411 | 358,373 | 289,687 | 441,236 | 603,506 | 726,989 | 500,068 | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Four years | 3,168,749 | 403,071 | 294,281 | 461,063 | 617,253 | 721,344 | 304,873 | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Five years | 3,190,301 | 419,992 | 302,092 | 473,688 | 595,579 | 409,309 | | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Six years | 3,215,833 | 432,548 | 310,206 | 468,864 | 307,286 | | | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Seven years | 3,224,119 | 431,860 | 311,155 | 295,536 | | | | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Eight years | 3,221,659 | 431,261 | 221,666 | | | | | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Nine years | 3,211,953 | 385,147 | | | | | | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Ten years | 2,479,119 | | | | | | | |
| later | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Estimate of | 2,479,119 | 385,147 | 221,666 | 295,536 | 307,286 | 409,309 | 304,873 | 4,402,936 |
| net | | | | | | | | |
| cumulative | | | | | | | | |
| claims at 31 | | | | | | | | |
| December | | | | | | | | |
| 2009 | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Net | (2,402,885) | (341,529) | (189,587) | (258,509) | (259,173) | (334,606) | (222,895) | (4,009,184) |
| cumulative | | | | | | | | |
| payments | | | | | | | | |
| at 31 | | | | | | | | |
| December | | | | | | | | |
| 2009 | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Earned net | 76,234 | 43,618 | 32,079 | 37,027 | 48,113 | 74,703 | 81,978 | 393,752 |
| non-life | | | | | | | | |
| reserves | | | | | | | | |
| before | | | | | | | | |
| effect of | | | | | | | | |
| discounting | | | | | | | | |
| as at 31 | | | | | | | | |
| December | | | | | | | | |
| 2009 | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Net life and | | | | | | | | 90,159 |
| finite | | | | | | | | |
| reserves as | | | | | | | | |
| at 31 | | | | | | | | |
| December | | | | | | | | |
| 2009 | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Claims | | | | | | | | 5,780 |
| handling | | | | | | | | |
| provisions | | | | | | | | |
| as at 31 | | | | | | | | |
| December | | | | | | | | |
| 2009 | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
| Present | | | | | | | | 489,691 |
| value of net | | | | | | | | |
| life | | | | | | | | |
| reserves and | | | | | | | | |
| net | | | | | | | | |
| undiscounted | | | | | | | | |
| non-life | | | | | | | | |
| reserves | | | | | | | | |
| recognised | | | | | | | | |
| in the | | | | | | | | |
| balance | | | | | | | | |
| sheet as | | | | | | | | |
| at 31 | | | | | | | | |
| December | | | | | | | | |
| 2009 | | | | | | | | |
+--------------+------------------------+--------------------+-----------------+----------------+-----------------+------------------+-----------------+----------------------+
(1) In June 2000 the Group added a UK insurance and reinsurance license through
the acquisition of The Imperial Fire And Marine Company Limited ('Imperial')
(now called Alea London Limited). In acquiring this entity, the Group assumed
insurance and reinsurance liabilities relating to 1999 and prior underwriting
years written by Imperial. This explains the significant increase in cumulative
claims in respect of 1999 and prior underwriting years that occurs in the table
above between 31 December 1999 and 31 December 2000. The increase in gross
cumulative claims in respect of 1999 and prior as a result of the acquisition
was $1,620.2 million and the increase in ceded cumulative claims was $897.7
million.
(2) The underwriting year development table above includes all cumulative claims
in respect of underwriting years 1987 to 2005. It also includes 1986 and prior
underwriting year claims paid in calendar years 1999 to 2009, and the reserves
in respect of 1986 and prior at each balance sheet date from 1999 to 2009.
(3) The insurance and reinsurance claims outstanding carried in the balance
sheet of the Group include gross and ceded amounts in respect of Canadian
structured settlement life business. The gross and ceded amounts match exactly,
to leave no net liability. As these balances relate to life business they are
excluded from the underwriting year development table. Consequently, in order to
achieve reconciliation to the balance sheet gross and ceded claims outstanding,
they are added back in the table above. The amount as at 31 December 2009 was
$280.7 million (2008: $260.2 million).
(4) In the year ended 31 December 2009, the estimate of gross cumulative claims
has been adversely impacted by $76.5 million in respect of foreign currency
revaluation net of commutation savings (2008: $51.1 million favourable impact)
and the estimate of net cumulative claims has been adversely impacted by $66.6
million in respect of foreign currency revaluation net of commutation savings
(2008: $41.6 million favourable impact)
Sale of Alea Holdings UK Limited disposal group
On 29 October 2009 the Group disposed of Alea Holdings UK Limited and its
subsidiaries Alea London Limited and Alea Services UK Limited. Consequently, in
the underwriting year tables provided above, the estimates of cumulative claims
as at 31 December 2009 do not include the estimates of cumulative claims of Alea
London Limited. The prior year diagonals in the underwriting year tables above
have not been adjusted to reflect this disposal. The estimated of cumulative
claims relating to Alea London Limited as at 31 December 2008 were as follows:
+------------------+-----------+---------+---------+---------+---------+---------+---------+-----------+
| | 1999 | | | | | | | |
| | and | | | | | | | |
| | prior | | | | | | | |
+------------------+ +---------+---------+---------+---------+---------+---------+-----------+
| | | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | Total |
+------------------+-----------+---------+---------+---------+---------+---------+---------+-----------+
| | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
+------------------+-----------+---------+---------+---------+---------+---------+---------+-----------+
| Estimate of | 1,639,699 | 159,095 | 185,218 | 216,054 | 329,605 | 382,555 | 277,446 | 3,189,672 |
| gross cumulative | | | | | | | | |
| claims as at 31 | | | | | | | | |
| December 2008 | | | | | | | | |
+------------------+-----------+---------+---------+---------+---------+---------+---------+-----------+
| | | | | | | | | |
+------------------+-----------+---------+---------+---------+---------+---------+---------+-----------+
| Estimate of | 888,633 | 49,614 | 89,088 | 39,764 | 38,450 | 64,252 | 88,804 | 1,258,605 |
| cumulative | | | | | | | | |
| recoveries as at | | | | | | | | |
| 31 December 2008 | | | | | | | | |
+------------------+-----------+---------+---------+---------+---------+---------+---------+-----------+
| | | | | | | | | |
+------------------+-----------+---------+---------+---------+---------+---------+---------+-----------+
| Estimate of net | 751,066 | 109,481 | 96,130 | 176,290 | 291,155 | 318,303 | 188,642 | 1,931,067 |
| cumulative | | | | | | | | |
| claims as at 31 | | | | | | | | |
| December 2008 | | | | | | | | |
+------------------+-----------+---------+---------+---------+---------+---------+---------+-----------+
28 Borrowings
+------------------------------------+---+-------------------------------+-------------------------------+
| The borrowings are repayable as | | As at | As at |
| follows: | | | |
+------------------------------------+---+-------------------------------+-------------------------------+
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+------------------------------------+---+-------------------------------+-------------------------------+
| | | $'000 | $'000 |
+------------------------------------+---+-------------------------------+-------------------------------+
| | | | |
+------------------------------------+---+-------------------------------+-------------------------------+
| On demand or within one year | | - | |
| | | | - |
+------------------------------------+---+-------------------------------+-------------------------------+
| In the second year | | - | |
| | | | - |
+------------------------------------+---+-------------------------------+-------------------------------+
| In the third to fifth years | | 3,493 | |
| inclusive | | | - |
+------------------------------------+---+-------------------------------+-------------------------------+
| After five years | | 120,000 | 120,000 |
+------------------------------------+---+-------------------------------+-------------------------------+
| Total borrowings | | 123,493 | 120,000 |
+------------------------------------+---+-------------------------------+-------------------------------+
| | | | |
+------------------------------------+---+-------------------------------+-------------------------------+
| Less: Capitalised debt raising | | (2,052) | (2,133) |
| expenses | | | |
+------------------------------------+---+-------------------------------+-------------------------------+
| Total borrowings net of | | 121,441 | 117,867 |
| capitalised expenses | | | |
+------------------------------------+---+-------------------------------+-------------------------------+
| | | | |
+------------------------------------+---+-------------------------------+-------------------------------+
| Analysis of borrowings: | | | |
+------------------------------------+---+-------------------------------+-------------------------------+
| | | As at | As at |
+------------------------------------+---+-------------------------------+-------------------------------+
| | | 31 December | 31 December |
| | | 2009 | 2008 |
+------------------------------------+---+-------------------------------+-------------------------------+
| | | $'000 | $'000 |
+------------------------------------+---+-------------------------------+-------------------------------+
| | | | |
+------------------------------------+---+-------------------------------+-------------------------------+
| Trust preferred securities | | 123,493 | 120,000 |
+------------------------------------+---+-------------------------------+-------------------------------+
| Total borrowings | | 123,493 | 120,000 |
+------------------------------------+---+-------------------------------+-------------------------------+
All borrowings are recorded at amortised cost. The directors consider the
carrying values disclosed above to be a reasonable approximation of the fair
value at the year end.
Trust preferred securities
In December 2004, the Group issued $100.0 million of trust preferred securities
and had in place a commitment for an additional $20.0 million of trust preferred
securities issued in January 2005. These securities (issued from three Delaware
trusts established by Alea Holdings US Company ('AHUSCO'), of which one trust
was established in January 2005) provide for a preferred dividend at a rate of
three month LIBOR plus 285 basis points and are consolidated due to the
guarantee that the Group issued to the holders of these securities. These
securities allow for the postponement of preferred dividends under certain
circumstances for up to five years. These securities carry no financial
covenants and no cross default covenants, have a fixed maturity of 30 years, and
are callable after five years. AHUSCO may not optionally redeem the Debentures
and thereby retire the trust preferred securities until the interest payment
date following the fifth anniversary of issue. The earliest call date is 15
March 2010 for the first issue and 15 June 2010 for the second and third issues.
The holders of the Debentures may not call the Debentures prior to their
maturity dates.
Commencing on the 15 June 2009 interest payment date, Alea Holdings US Company
("AHUSCO") has elected to defer the payment of interest on debentures underlying
$120.0 million of trust preferred securities due 2034 and 2035. As at 31
December 2009 the deferred interest was $3.5 million (2008: $nil). The deferral
may be continued for a period not to exceed five years under the terms of the
debentures. During the deferral period, unpaid quarterly coupons will compound
at the rate of three month LIBOR (reset quarterly) plus 285 basis points. While
the deferral remains in effect, neither Alea nor AHUSCO may make any payments on
any securities that are pari passu or subordinate to the debentures, including
any common shares.
29 Provisions
+-----------------------------------------------------+-----------------------------+
| | Restructuring |
| | Provision |
+-----------------------------------------------------+-----------------------------+
| | $'000 |
+-----------------------------------------------------+-----------------------------+
| | |
+-----------------------------------------------------+-----------------------------+
| At 1 January 2008 | 2,837 |
+-----------------------------------------------------+-----------------------------+
| | |
+-----------------------------------------------------+-----------------------------+
| Utilisation of provision due to onerous contracts | (271) |
+-----------------------------------------------------+-----------------------------+
| Utilisation of provision due to severance payments | (923) |
+-----------------------------------------------------+-----------------------------+
| Additional restructuring provision established 1 | 1,120 |
+-----------------------------------------------------+-----------------------------+
| Exchange difference | 45 |
+-----------------------------------------------------+-----------------------------+
| | |
+-----------------------------------------------------+-----------------------------+
| At 31 December 2008 | 2,808 |
+-----------------------------------------------------+-----------------------------+
| | |
+-----------------------------------------------------+-----------------------------+
| Utilisation of provision due to onerous contracts | (271) |
+-----------------------------------------------------+-----------------------------+
| Utilisation of provision due to severance payments | (529) |
+-----------------------------------------------------+-----------------------------+
| Exchange difference | 46 |
+-----------------------------------------------------+-----------------------------+
| | |
+-----------------------------------------------------+-----------------------------+
| At 31 December 2009 | 2,054 |
+-----------------------------------------------------+-----------------------------+
1As a result of the outsourcing arrangement entered into in the year ended 31
December 2008, an
additional provision was established to reflect contractual obligations made in
respect of staff retention
bonuses and severance payments.
For further details regarding the restructuring costs see note 5.
+-----------------------------------------------------+----------------+
| At 31 December 2009 | |
+-----------------------------------------------------+----------------+
| Current liabilities | 1,692 |
+-----------------------------------------------------+----------------+
| Non-current liabilities | 362 |
+-----------------------------------------------------+----------------+
| | 2,054 |
+-----------------------------------------------------+----------------+
+-----------------------------------------------------+----------------+
| At 31 December 2008 | |
+-----------------------------------------------------+----------------+
| Current liabilities | 2,197 |
+-----------------------------------------------------+----------------+
| Non-current liabilities | 611 |
+-----------------------------------------------------+----------------+
| | 2,808 |
+-----------------------------------------------------+----------------+
30 Other liabilities and charges
+-------------------+----------------------+------+-------------------------------+------------+
| | Deferred | Other accruals | Total |
| | reinsurance | and deferred | |
| | commission | income 1 | |
+-------------------+-----------------------------+-------------------------------+------------+
| | $'000 | $'000 | $'000 |
+-------------------+-----------------------------+-------------------------------+------------+
| | | | |
+-------------------+-----------------------------+-------------------------------+------------+
| At 1 January 2008 | 1,441 | 31,794 | 33,235 |
+-------------------+-----------------------------+-------------------------------+------------+
| | | | |
+-------------------+-----------------------------+-------------------------------+------------+
| Change in the | (575) | (10,344) | (10,919) |
| period | | | |
+-------------------+-----------------------------+-------------------------------+------------+
| Exchange | - | (508) | (508) |
| difference | | | |
+-------------------+-----------------------------+-------------------------------+------------+
| | | | |
+-------------------+-----------------------------+-------------------------------+------------+
| At 31 December | 866 | 20,942 | 21,808 |
| 2008 | | | |
+-------------------+-----------------------------+-------------------------------+------------+
| | | | |
+-------------------+-----------------------------+-------------------------------+------------+
| Change in the | 249 | (2,545) | (2,296) |
| period | | | |
+-------------------+-----------------------------+-------------------------------+------------+
| Disposed on sale of Alea | - | (1,940) | (1,940) |
| Holdings UK Limited | | | |
+------------------------------------------+------+-------------------------------+------------+
| Exchange | - | 189 | 189 |
| difference | | | |
+-------------------+-----------------------------+-------------------------------+------------+
| | | | |
+-------------------+-----------------------------+-------------------------------+------------+
| At 31 December | 1,115 | 16,646 | 17,761 |
| 2009 | | | |
+-------------------+-----------------------------+-------------------------------+------------+
| | | | | |
+-------------------+----------------------+------+-------------------------------+------------+
1 Includes regulatory levies of $5.3 million for Alea US (2008: $5.1
million).
+-----------------------------------------------------+--------------------------+
| At 31 December 2009 | |
+-----------------------------------------------------+--------------------------+
| Current liabilities | 17,761 |
+-----------------------------------------------------+--------------------------+
| Non-current liabilities | - |
+-----------------------------------------------------+--------------------------+
| | 17,761 |
+-----------------------------------------------------+--------------------------+
+-----------------------------------------------------+--------------------------+
| At 31 December 2008 | |
+-----------------------------------------------------+--------------------------+
| Current liabilities | 15,350 |
+-----------------------------------------------------+--------------------------+
| Non-current liabilities | 6,458 |
+-----------------------------------------------------+--------------------------+
| | 21,808 |
+-----------------------------------------------------+--------------------------+
31 Trade and other payables
+-----------------------------------------+--------+-------+-------------------------------+
| | As at | As at |
+-----------------------------------------+----------------+-------------------------------+
| | 31 December | 31 December |
| | 2009 | 2008 |
+-----------------------------------------+----------------+-------------------------------+
| | $'000 | $'000 |
+-----------------------------------------+----------------+-------------------------------+
| | | |
+-----------------------------------------+----------------+-------------------------------+
| Insurance balance payable | 2,567 | 4,543 |
+-----------------------------------------+----------------+-------------------------------+
| Reinsurance balance payable | 45,402 | 64,041 |
+-----------------------------------------+----------------+-------------------------------+
| Deposits received from reinsurers | 18,796 | 24,697 |
+-----------------------------------------+----------------+-------------------------------+
| Reserves withheld creditors | - | 859 |
+-----------------------------------------+----------------+-------------------------------+
| Liabilities from reinsurance operations not | 1,759 | 278 |
| transferring significant risk | | |
+--------------------------------------------------+-------+-------------------------------+
| Other taxes and social securities | 738 | 807 |
+-----------------------------------------+----------------+-------------------------------+
| | | |
+-----------------------------------------+----------------+-------------------------------+
| Total trade and other payables | 69,262 | 95,225 |
+-----------------------------------------+----------------+-------------------------------+
| Current liabilities | 19,363 | 25,830 |
+-----------------------------------------+----------------+-------------------------------+
| Non-current liabilities | 49,899 | 69,395 |
+-----------------------------------------+----------------+-------------------------------+
| | 69,262 | 95,225 |
+-----------------------------------------+----------------+-------------------------------+
| | | | |
+-----------------------------------------+--------+-------+-------------------------------+
32 Share capital
+---------------------------------+------------+----------------+------------+------------+
| | | As at | | As |
| | | | | at |
+---------------------------------+------------+----------------+------------+------------+
| | 31 December 2009 | 31 December |
| | | 2008 |
+---------------------------------+-----------------------------+-------------------------+
| | Number | $'000 | Number | $'000 |
| | '000s | | '000s | |
+---------------------------------+------------+----------------+------------+------------+
| Authorised: | | | | |
+---------------------------------+------------+----------------+------------+------------+
| Common shares of $0.01 | 1,000,000 | 10,000 | 1,000,000 | 10,000 |
+---------------------------------+------------+----------------+------------+------------+
| Total authorised | 1,000,000 | 10,000 | 1,000,000 | 10,000 |
+---------------------------------+------------+----------------+------------+------------+
| | | | | |
+---------------------------------+------------+----------------+------------+------------+
| Allotted, called up and fully | | | | |
| paid: | | | | |
+---------------------------------+------------+----------------+------------+------------+
| Common shares of $0.01 | 173,908 | 1,739 | 173,769 | 1,738 |
+---------------------------------+------------+----------------+------------+------------+
| Total allotted, called up share | 173,908 | 1,739 | 173,769 | 1,738 |
| capital and fully paid | | | | |
+---------------------------------+------------+----------------+------------+------------+
The allotted, called up and fully paid share capital of the Group increased from
173,769,226 as at 31 December 2008 to 173,908,465 as at 31 December 2009 as a
result of the issue of 139,239 shares in relation to the restricted stock units
granted to certain members of key management. Further details are provided in
note 38.
33 Stock options and restricted shares
Bermuda Plan
Alea Group Holdings AG (a former Group company which was merged with Alea Europe
Ltd in 2005) had in place a stock purchase and option plan for key employees and
advisors known as the 1998 Amended and Restated Stock Option Plan for Key
Employees and Subsidiaries (the "Swiss Plan"). The Company adopted a 2002
Stock Purchase and Option Plan for Key Employees of the Company and its
Subsidiaries, as amended (the "Bermuda Plan"), in connection with the
re-domiciling of the ultimate parent company of the Group to Bermuda and all
awards under the Swiss Plan are now governed by the terms of the Bermuda Plan.
The terms of the Bermuda Plan are substantially similar to the terms of the
Swiss Plan. All Alea Group Holdings AG non-voting participation shares and
options were exchanged for common shares and options in connection with an
equity exchange offer that was completed on 3 April 2002. In total, 15,000,000
common shares are authorised for use under the Bermuda Plan.
The exercise price of the options will be the fair market value of the common
shares on the grant date. Generally, the options vest rateably over a five-year
period except in the case of performance options where vesting is affected by
attainment of certain pre-approved financial targets. The exercisability of the
options accelerates upon a change of control of the Group. Options expire and
are no longer exercisable on the tenth anniversary or in certain circumstances
at the end of the three month period following such tenth anniversary of the
grant date. The expiration of the options can accelerate due to termination of
employment. Certain options granted contain shortened expiration and vesting
periods.
The terms of the Company's common shares and the exercise price of the options
to acquire company common shares on the purchase/grant date were determined by
the Remuneration Committee in accordance with the terms of the Bermuda Plan. The
Bermuda Plan was terminated as to future grants with effect from 19 November
2003.
Executive Plan
The Company's shareholders have adopted the Alea Executive Option and Stock Plan
and the Alea Sharesave Plan ("Executive Plan"). The Executive Plan provides for
the grant of time and performance options, restricted stock units and share
savings for employees. The exercise price of options granted shall not be less
than the middle market quotation for the Company's shares on the dealing day
preceding the date of grant. The number of common shares granted in any period
under all of the Company's employee share schemes (excluding shares issuable on
exercise of options granted prior to 19 November 2003) may not exceed 10% of the
Company's issued ordinary share capital. Generally, the vesting period of an
option granted under the Executive Plan is subject to the discretion of the
Board (or a committee thereof) provided that vesting for certain tax qualified
options may not be earlier than 3 years or more than 10 years after the date of
grant and unless any relevant performance conditions have been satisfied.
Other
The company has issued to Fisher Capital Corp. LLC certain options to acquire
common shares, which are fully vested and are exercisable within 15 years of the
date of grant. These shares and options were not granted pursuant to either
Plan.
Transactions involving common share options are disclosed in note 34.
34 Share-based payments
Equity-settled share option plan
The Group plans provide for a grant price equal to the average quoted market
price of the Group shares on the date of grant. The vesting period is generally
5 years. If the options remain unexercised after a period of 10 years from the
date of grant, the options expire. Options are typically contractually forfeited
if the employee leaves the Group subject to certain exercise periods that apply
to vested options and to certain options granted in 2005 pursuant to the
Executive Plan.
+-------------------------+-----------+----------+-------------+----------+
| | Year ended | Year ended |
+-------------------------+----------------------+------------------------+
| | 31 December 2009 | 31 December 2008 |
+-------------------------+----------------------+------------------------+
| | Number | Weighted | Number of | Weighted |
| | of | average | options | average |
| | options | exercise | | exercise |
| | | price in | | price in |
| | | $ | | $ |
+-------------------------+-----------+----------+-------------+----------+
| | | | | |
+-------------------------+-----------+----------+-------------+----------+
| Options outstanding at | 2,710,480 | 3.39 | 3,023,734 | 3.62 |
| beginning of year | | | | |
+-------------------------+-----------+----------+-------------+----------+
| | | | | |
+-------------------------+-----------+----------+-------------+----------+
| Options granted during | | | | |
| the year | - | - | - | - |
+-------------------------+-----------+----------+-------------+----------+
| | | | | |
+-------------------------+-----------+----------+-------------+----------+
| Options forfeited | (383,360) | 3.61 | (313,254) | 3.16 |
| during the year | | | | |
+-------------------------+-----------+----------+-------------+----------+
| | | | | |
+-------------------------+-----------+----------+-------------+----------+
| Options exercised | | | | |
| during the year | - | - | - | - |
+-------------------------+-----------+----------+-------------+----------+
| | | | | |
+-------------------------+-----------+----------+-------------+----------+
| Options which expired | | | | |
| during the year | - | - | - | - |
+-------------------------+-----------+----------+-------------+----------+
| | | | | |
+-------------------------+-----------+----------+-------------+----------+
| Options outstanding at | 2,327,120 | 3.43 | 2,710,480 | 3.39 |
| end of year | | | | |
+-------------------------+-----------+----------+-------------+----------+
| | | | | |
+-------------------------+-----------+----------+-------------+----------+
| Options exercisable at | 2,327,120 | 3.43 | 2,686,480 | 3.39 |
| end of year | | | | |
+-------------------------+-----------+----------+-------------+----------+
No options were exercised during the year. The options outstanding at 31
December 2009 had a weighted average exercise price of $3.43 (2008: $3.39), and
the weighted average remaining contractual lives of those options are as
follows.
+----------------+-------+-+-------+-------------------+---------------------+-------+-+-------+------------------+------------------+
| | Year ended | Year ended |
+----------------+-----------------------------------------------------------+-------------------------------------------------------+
| | 31 December 2009 | 31 December 2008 |
+----------------+-----------------------------------------------------------+-------------------------------------------------------+
| | Range | Weighted | Number | Range | Weighted | Number |
| | of | Average | of | of | Average | of |
| | exercise | Remaining | share | exercise | Remaining | share |
| | prices | Contractual | options | prices | Contractual | options |
| | | Life | outstanding | | Life | outstanding |
+----------------+-----------------+-------------------+---------------------+-----------------+------------------+------------------+
| | | | | | | | | | | |
+----------------+-------+-+-------+-------------------+---------------------+-------+-+-------+------------------+------------------+
| Options outstanding at end of | | | | | | |
| year divided into meaningful | | | | | | |
| ranges: | | | | | | |
+------------------------------------------------------+---------------------+-------+-+-------+------------------+------------------+
| | | | | | | | | | | |
+----------------+-------+-+-------+-------------------+---------------------+-------+-+-------+------------------+------------------+
| Share options | $3.22 |to | $3.22 | - | - | $3.22 |to | $3.22 | 0.27 | 12,600 |
| issued in | | | | | | | | | | |
| respect of | | | | | | | | | | |
| Alea Group | | | | | | | | | | |
| Holdings AG | | | | | | | | | | |
| after | | | | | | | | | | |
| re-pricing | | | | | | | | | | |
+----------------+-------+-+-------+-------------------+---------------------+-------+-+-------+------------------+------------------+
| Alea Group | $3.22 |to | $4.30 | 0.92 | 2,062,120 | $3.22 |to | $4.30 | 2.06 | 2,229,880 |
| Holdings | | | | | | | | | | |
| (Bermuda) | | | | | | | | | | |
| Limited | | | | | | | | | | |
| options | | | | | | | | | | |
| granted pre - | | | | | | | | | | |
| IPO | | | | | | | | | | |
+----------------+-------+-+-------+-------------------+---------------------+-------+-+-------+------------------+------------------+
| Alea Group | $3.21 |to | $4.31 | 4.81 | 265,000 | $3.21 |to | $4.31 | 5.80 | 468,000 |
| Holdings | | | | | | | | | | |
| (Bermuda) | | | | | | | | | | |
| Limited | | | | | | | | | | |
| options | | | | | | | | | | |
| granted post - | | | | | | | | | | |
| IPO | | | | | | | | | | |
+----------------+-------+-+-------+-------------------+---------------------+-------+-+-------+------------------+------------------+
| All options | $3.21 |to| $4.31 | 1.37 | 2,327,120 | $3.21 |to | $4.31 | 2.70 | 2,710,480 |
+----------------+-------+-+-------+-------------------+---------------------+-------+-+-------+------------------+------------------+
No options were granted during the twelve months ended 31 December 2009 (2008:
no options granted).
The Group recognised the following total expenses and repurchases in respect of
equity-settled share-based payment transactions:
+-----------------------------------------+--+-----------+----------+
| | | Year | Year |
| | | ended | ended |
+-----------------------------------------+--+-----------+----------+
| | | 31 | 31 |
| | | December | December |
| | | 2009 | 2008 |
+-----------------------------------------+--+-----------+----------+
| | | '000 | '000 |
+-----------------------------------------+--+-----------+----------+
| | | | |
+-----------------------------------------+--+-----------+----------+
| Total expense recognised for the year | | - | (125) |
| arising from share-based payment | | | |
| transactions | | | |
+-----------------------------------------+--+-----------+----------+
| | | | |
+-----------------------------------------+--+-----------+----------+
| RSU expense charged in year | | 316 | 470 |
+-----------------------------------------+--+-----------+----------+
| | | | |
+-----------------------------------------+--+-----------+----------+
| | | 316 | 345 |
+-----------------------------------------+--+-----------+----------+
35 Cash used in operations
+-------------------------------------+-------+----------+--------------+---------------------------+
| | | Year ended | Year ended |
+-------------------------------------+------------------+--------------+---------------------------+
| | | 31 December | 31 |
| | | 2009 | December |
| | | | 2008 |
+-------------------------------------+------------------+--------------+---------------------------+
| | | $'000 | $'000 |
+-------------------------------------+------------------+--------------+---------------------------+
| | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| (Loss) / profit for the year | | (78,164) | 3,939 |
+-------------------------------------+------------------+--------------+---------------------------+
| Adjustments for: | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| - tax (credit)/expense | | (325) | 2,239 |
+-------------------------------------+------------------+--------------+---------------------------+
| - depreciation | | 1,605 | 1,774 |
+-------------------------------------+------------------+--------------+---------------------------+
| - impairment loss recognised in | | 30,493 | 2,563 |
| respect of financial assets | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| - net realised loss on disposal of | | 16,671 | - |
| subsidiary | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| - realisation of revaluation reserve and | | (3,292) | - |
| hedging and translation reserve | | | |
+---------------------------------------------+----------+--------------+---------------------------+
| Net cash flows for the year | | (18,894) | (45,276) |
| transferred to investing activities | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| (Profit)/loss on sale of property, | | (6) | 11 |
| plant and equipment | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| Debt interest expense | | 4,774 | 7,511 |
+-------------------------------------+------------------+--------------+---------------------------+
| Loss/(profit) on foreign exchange | | 2,272 | (7,668) |
+-------------------------------------+------------------+--------------+---------------------------+
| | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| Change in operating assets and liabilities (excluding the effect of | |
| acquisitions and exchange differences on consolidation) | |
+-----------------------------------------------------------------------+---------------------------+
| | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| Net decrease in insurance | | (120,342) | (394,302) |
| liabilities | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| Net decrease in reinsurance assets | | 7,562 | 143,649 |
+-------------------------------------+------------------+--------------+---------------------------+
| Net decrease in loans and | | 15,670 | 72,235 |
| receivables | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| Net decrease in renewal rights | | 15,000 | - |
| accrued income | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| Net decrease in other operating | | (13,751) | (105,429) |
| liabilities | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| Net increase in deferred interest | | 3,493 | - |
| on trust preferred securities | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| Net movement in share-based payment | | 316 | 345 |
| reserve | | | |
+-------------------------------------+------------------+--------------+---------------------------+
| Cash used in operations | | (136,918) | (318,409) |
+-------------------------------------+------------------+--------------+---------------------------+
| | | | | |
+-------------------------------------+-------+----------+--------------+---------------------------+
36 Contingent liabilities
Structured settlements
The Group, through the Canadian branch of Alea (Bermuda) Ltd, has assumed
ownership of certain structured settlements and has purchased annuities from
life assurers to provide fixed and recurring payments to those underlying
claimants. As a result of these arrangements, the Group is exposed to a credit
risk to the extent that any of these insurers are unable to meet their
obligations under the structured settlements. This risk is viewed by the
Directors as being remote as the annuities are fully funded and the Group has
only purchased annuities from Canadian insurers with a financial stability of AA
or higher (Standard & Poor's). The Canadian branch is in run-off and the branch
discontinued accepting assignments of annuities in August 2001.
In the event of all the relevant life insurers being unable to meet their
obligations under the structured settlements, at 31 December 2009, the total
exposure, net of amounts that may be recoverable from the Compensation
Corporation of Canada (a Canadian industry-backed compensation scheme), is
estimated to be $44.1 million Canadian Dollars ($42.1 million) and the maximum
in relation to any one insurer $21.7 million Canadian Dollars ($20.7 million).
Subpoenas and requests for information/regulatory matters
In connection with a periodic market conduct examination, the California
Department of Insurance has disputed certain fees collected from policyholders
by two agents of one of the Group's subsidiaries. The Group disagrees with the
Department's position, but is cooperating to audit these fee arrangements. The
agreements with the agents involved have been terminated. It is not possible to
predict the impact of this dispute on the Group's financial results.
Company contingent liabilities
In 2002 the Company entered into a top down guarantee with each of the Group's
rated insurance operating entities. These guarantees were in addition to the
pre-existing guarantees already in place between certain subsidiaries of the
Group. Subject to applicable corporate and regulatory requirements, the top down
guarantees required that the Company make funds available to the insurance
operating entities to allow the entities to fulfil their insurance or
reinsurance obligations to the client/customer incurred while the guarantee
remained in effect. The Group terminated all top down and other intra-Group
guarantees effective 30 November 2006.
Legion Companies in Liquidation
Alea (Bermuda) Ltd is in dispute with Legion Insurance Company (in liquidation)
and Villanova Insurance Company (in liquidation) regarding the terms of an
aggregate excess reinsurance reinsurance treaty that was automatically commuted
on 31 July 2006 in accordance with an agreed formula. Legion and Villanova have
sought to draw a letter of credit in the amount of $6,818,480 in connection with
their claim that amounts remain due under this treaty. Alea (Bermuda) Ltd sued
Legion and Villanova in Connecticut District Court and obtained a temporary
restraining order preventing Legion and Villanova from drawing the letter of
credit. Based upon an agreement to arbitrate the matter, Alea (Bermuda) Ltd has
withdrawn the litigation on condition that Legion not draw the letter of credit
for sums relating to the aggregate excess reinsurance treaty until a final
arbitration decision on the matter has been rendered. Alea (Bermuda) Ltd intends
to vigorously pursue its interests in this matter.
37 Exposure to specific credit risk
Exposure to Lumbermens
In connection with the Group's acquisition of the Equus Re reinsurance division
of Lumbermens on 3 December 1999, Alea (Bermuda) Ltd and Lumbermens entered into
a 100% quota share reinsurance of the Lumbermens business written by Equus Re
through 3 December 1999 (namely, business written by Equus Re prior to the
Group's acquisition of the Equus Re operations). Lumbermens, in turn, provides
stop loss reinsurance to Alea (Bermuda) Ltd for losses in excess of a 75% paid
loss ratio on the same business incepting prior to 1 October 1999 (the
"Protected Business"). In addition to the Protected Business, the parties agreed
that the Group would write new and renewal business on behalf of Lumbermens (as
the reinsurer) up to 31 December 2001, which business is ceded by a 100% quota
share reinsurance to Alea (Bermuda) Ltd (the "Fronted Business"). Concurrent
with these arrangements, Lumbermens retained Alea North America Company ("ANAC")
as its agent to adjust and pay claims and collect premiums for both the
Protected Business and the Fronted Business.
The respective obligations of Alea (Bermuda) Ltd and Lumbermens noted above are
subject to contractual mutual offset provisions under the reinsurance agreements
and as permitted under Illinois law. Further, in respect of the Protected
Business, Lumbermens is contractually required to fund losses on its own behalf
once the 75% paid loss ratio is met. The Group's balance sheet therefore,
records (i) no net balance due from Lumbermens under the Protected Business, as
the 75% paid loss ratio was met in late December 2003 (specifically, $64.4
million due to and from Lumbermens), and (ii) as at 31 December 2009, an
aggregate balance due to Lumbermens under the Fronted Business and in respect of
business written by Equus Re between 1 October 1999 and 3 December 1999 of $39.9
million (2008: $37.4 million), after taking credit for amounts treated as paid
for accounting purposes.
As is required for credit for reinsurance purposes when cessions are made to
non-US licensed reinsurers, Alea (Bermuda) Ltd must collateralise its
obligations to Lumbermens. Pursuant to contract, the amount of posted collateral
is required to equal 120% of the estimated loss reserves, which based on the
above year-end balance due from Alea (Bermuda) Ltd would be approximately $47.9
million (2008: $44.9 million).
Alea (Bermuda) Ltd and Lumbermens continue to disagree over the level of
reserves requiring collateralisation. On 31 December 2009, the market value of
the posted collateral was $69.3 million (31 December 2008 $79.8 million).
Either party may require an independent actuarial estimate of applicable
reserves to resolve their differences with regard to the required collateral
calculation. Neither party has required another independent reserve estimate
since the last independent reserve estimate dated as of 30 September 2004.
Lumbermens risk based capital level allows the Illinois Department of Insurance
to assume control of Lumbermens at its discretion. The mutual obligations of
Alea (Bermuda) Ltd and Lumbermens described above are subject to contractual
mutual offset provisions under the agreements and as permitted under Illinois
law. Accordingly, having taken legal advice, the Group believes that the Group
should not be exposed to material credit risk resulting from these arrangements
with Lumbermens. However, no assurance can be given that a court would uphold
these mutual offset provisions and contractual rights.
38 Related party transactions
Fortress Investment Group
At 31 December 2009, certain parties related to Fortress Investment Group owned
72.35% of the Company's issued shares. Effective 1 October 2007 the Company put
in place an amended and restated advisory fee agreement with FIG LLC, a Fortress
affiliate ("Fortress"), under which the Company has agreed to pay Fortress
$1,000,000 per year, payable quarterly in arrears, for advisory services. At 31
December 2009, Fortress had received $1,000,000. As at 31 December 2009, the
outstanding balance due under these arrangements was $nil. The Fortress
Directors' beneficial interests in common shares of the Company as at 31
December 2009 were as follows:
+-----------------------------+--------------------------------------+
| Name of Director | Number of common shares |
+-----------------------------+--------------------------------------+
| Robert I Kauffman1 | 125,826,832 |
+-----------------------------+--------------------------------------+
| Randal A Nardone1 | 125,826,832 |
+-----------------------------+--------------------------------------+
1 Robert Kauffman and Randal Nardone are members of the Joint Investment
Committee formed pursuant to the terms of a Joint Investment Committee Agreement
("JICA") by and among FIG Corp., Fortress Investment Group LLC (the direct
parent of FIG Corp. "Fortress"), Fortress Operating Entity I LP, Fortress
Operating Entity II LP, Messrs Kauffman, Nardone, Peter L. Briger Jr., Wesley R.
Edens and Michael R. Novogratz. Under the terms of the JICA, each other party to
the Joint Investment Committee Agreement has delegated all power to control, to
direct or to cause the direction of the management and policies of the Company
to Messrs Kauffman, Nardone and Edens. As such Messrs Kauffman and Nardone are
interested in the 125,826,832 common shares owned by FIN Acquisition Limited, an
indirect wholly-owned subsidiary of Fortress.
In connection with services involving potential acquisition opportunities in the
property and casualty insurance sector that may be performed by Mark Cloutier,
an executive director of the Company, Mr Cloutier entered into a consultancy
agreement effective 1 October 2007 with Fortress Capital Finance III (A) LLC, a
Fortress affiliate, whereby he would be paid $2,000 per day spent on such
activities plus a discretionary bonus. At 31 December 2009, $Nil had been paid
or accrued under this arrangement.
Investment Management
Fortress Fund IV Advisor LLC ("FFIVA"), a Fortress affiliate, provides
investment management services to the Company and certain of its subsidiaries
pursuant to investment management agreements. FFIVA is paid a flat service fee
of 11 basis points per annum on the total fair market value of the assets under
management, payable quarterly in arrears. At 31 December 2009, FFIVA had
approximately $205.4 millionin assets under management.
Key management personnel
The Group considers its key management personnel to include its Directors and
those members of management reporting directly to its Executive Director that
have executive management responsibility for Group-wide operations.
Remuneration of key management personnel
The remuneration of the Directors and those members of management reporting
directly to its Executive Directors that have executive management
responsibility for Group-wide operations, who are the key management personnel
of the Group, is set out below in aggregate for each of the categories specified
in IAS 24 Related Party Disclosures. For the year ended 31 December 2009 this
included 6 individuals (2008: 8).
+-------------------------+----------------+-------+----------------+
| | Year ended | | Year ended 31 |
| | 31 December | | December 2008 |
| | 2009 | | |
+-------------------------+----------------+-------+----------------+
| | $ | | $ |
+-------------------------+----------------+-------+----------------+
| | | | |
+-------------------------+----------------+-------+----------------+
| Short-term employee | 2,350,384 | | 3,040,840 |
| benefits | | | |
+-------------------------+----------------+-------+----------------+
| Post-employment | 153,847 | | 116,372 |
| benefits | | | |
+-------------------------+----------------+-------+----------------+
| Other long-term | - | | - |
| benefits | | | |
+-------------------------+----------------+-------+----------------+
| Termination benefits | - | | 278,925 |
+-------------------------+----------------+-------+----------------+
| Share-based payment | 154,555 | | - |
+-------------------------+----------------+-------+----------------+
| | | | |
+-------------------------+----------------+-------+----------------+
| Total | 2,658,786 | | 3,436,137 |
+-------------------------+----------------+-------+----------------+
Key management personnel employment and retention contracts
Members of the Group have entered into employment and retention contracts with
Executive Directors and/or certain members of key management, in each case
taking into account the practices in the jurisdiction where the Group operates.
Compensation and termination benefits in the table above include amounts paid in
2008 and 2009 to Executive Directors and certain members of key management under
(and if applicable, settlement of) such contracts, to the extent not reported
in earlier periods.
Share and loan transactions with members of key management
Mark Cloutier
Mr Cloutier was awarded 140,647 restricted stock units on 19 June
2008. These restricted stock units were awarded pursuant to Part C of the Alea
Group Executive Option and Stock Plan. The restricted stock units were priced
in accordance with the terms of the Plan. The Restricted Stock Units vested 33%
on 31 December 2008 and 2009, respectively, and the remainder will vest on 31
December 2010 and are not subject to financial performance requirements.
Carl Speck
Mr Speck received an advance in the amount of $8,000 from a subsidiary of the
Company in payment of advance rental due to his landlord in the United States as
a result of his relocation to the United States at the Company's request. This
amount was repaid in 2008. In addition the Company paid a rental deposit of
$16,000 on behalf of Mr Speck. The rental deposit was paid under a residential
lease between Mr Speck and his landlord that was co-signed by a subsidiary of
the Company. That lease was terminated in January 2009 when Mr Speck moved to a
new rental property and paid the rental deposit on that property. The Company
has guaranteed lease payments due on Mr Speck's new rental property through 31
March 2010.
Mr Speck was awarded 140,647 restricted stock units on 19 June 2008. These
restricted stock units were awarded pursuant to Part C of the Alea Group
Executive Option and Stock Plan. The restricted stock units were priced in
accordance with the terms of the Plan. The Restricted Stock Units vested 33% on
31 December 2008 and 2009, respectively, and the remainder will vest on 31
December 2010 and are not subject to financial performance requirements.
George Judd
Mr Judd was awarded 140,647 restricted stock units on 19 June 2008. These
restricted stock units were awarded pursuant to Part C of the Alea Group
Executive Option and Stock Plan. The restricted stock units were priced in
accordance with the terms of the Plan. The Restricted Stock Units vested 33% on
31 December 2008 and 2009, respectively, and the remainder will vest on 31
December 2010 and are not subject to financial performance requirements.
During the period ending 31 December, 2009, a subsidiary of the Company paid
$769 in total to Mr Judd's spouse, Sally Judd, for filing and record keeping
services at $25.00 per hour.
39 Retirement benefit scheme
Defined contribution schemes
The employees of the Group are covered by defined contribution schemes the costs
of which are charged to the income statement when incurred. The total cost of
retirement benefits for the Group in the year ended 31 December 2009 was $0.8
million (31 December 2008: $1.3 million).
40 Operating leases
At the following balance sheet dates, the Group was committed to paying total
future minimum lease payments under non-cancellable operating leases in each of
the following periods:
+------------------------+-----------+-------+-------+-----------+-------+--------+
| | Year ended | Year ended |
+------------------------+---------------------------+----------------------------+
| | 31 December 2009 | 31 December 2008 |
+------------------------+---------------------------+----------------------------+
| | Land | Other | Total | Land | Other | Total |
| | and | | | and | | |
| | buildings | | | buildings | | |
+------------------------+-----------+-------+-------+-----------+-------+--------+
| | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
+------------------------+-----------+-------+-------+-----------+-------+--------+
| | | | | | | |
+------------------------+-----------+-------+-------+-----------+-------+--------+
| - within one year | 1,745 | 25 | 1,770 | 2,477 | 40 | 2,517 |
+------------------------+-----------+-------+-------+-----------+-------+--------+
| - between two and five | 1,859 | 27 | 1,886 | 3,304 | 35 | 3,339 |
| years | | | | | | |
+------------------------+-----------+-------+-------+-----------+-------+--------+
| | 3,604 | 52 | 3,656 | 5,781 | 75 | 5,856 |
+------------------------+-----------+-------+-------+-----------+-------+--------+
The total of future minimum sublease payments expected to be received under
non-cancellable subleases at 31 December 2009 was $1.7 million (31 December
2008: $2.7 million).
The gross amount incurred under operating leases during the year ended 31
December 2009 was $2.3 million (31 December 2008: $3.4 million) before deducting
income receivable from subleases of $1.1 million (31 December 2008: $1.0
million).
41 Group subsidiaries
The consolidated financial information presents the financial record of the
Group for the years ended 31 December 2009 and 31 December 2008. A list of all
investments in Group subsidiaries, including the name and country of
incorporation is given below. All companies listed are wholly owned
subsidiaries of the Group and are fully consolidated into the Group accounts.
The ultimate parent company of the Group is Alea Group Holdings (Bermuda) Ltd.
Details of the Company's subsidiaries at 31 December 2009 are as follows:
+--------------------------------+---------------+------------+------------+
| Name of subsidiary | Place of | Proportion | Proportion |
| | incorporation | of | of voting |
| | (or | ownership | power held |
| | registration) | interest | in % |
| | and operation | in % | |
+--------------------------------+---------------+------------+------------+
| | | | |
+--------------------------------+---------------+------------+------------+
| Alea (Bermuda) Ltd | Bermuda | 100 | 100 |
+--------------------------------+---------------+------------+------------+
| Alea Holdings US Company | USA | 100 | 100 |
+--------------------------------+---------------+------------+------------+
| Alea North America Insurance | USA | 100 | 100 |
| Company | | | |
+--------------------------------+---------------+------------+------------+
| Alea North America Company | USA | 100 | 100 |
+--------------------------------+---------------+------------+------------+
| Alea Services AG | Switzerland | 100 | 100 |
+--------------------------------+---------------+------------+------------+
| AHUSCO Statutory Trust I | USA | 100 | 100 |
+--------------------------------+---------------+------------+------------+
| AHUSCO Statutory Trust II | USA | 100 | 100 |
+--------------------------------+---------------+------------+------------+
| AHUSCO Statutory Trust III | USA | 100 | 100 |
+--------------------------------+---------------+------------+------------+
| Alea Syndicate Management | England and | 100 | 100 |
| Limited | Wales | | |
+--------------------------------+---------------+------------+------------+
| Alea Corporate Member Limited | England and | 100 | 100 |
| | Wales | | |
+--------------------------------+---------------+------------+------------+
| | | | |
+--------------------------------+---------------+------------+------------+
Alea Europe Ltd was re-domiciled / continued into Bermuda and subsequently
merged / amalgamated into Alea (Bermuda) Ltd effective 14 September 2009.
Alea Services AG became a subsidiary of Alea (Bermuda) Ltd on 14 September 2009
upon the amalgamation/merger of Alea Europe Ltd into Alea (Bermuda) Ltd. The
domicile of Alea Services AG was moved from Cham, Switzerland to Zug,
Switzerland on 19 October 2009.
Alea Holdings UK Limited and its subsidiaries, Alea London Limited and Alea
Services UK Limited, were sold on 29 October 2009.
SHAREHOLDER INFORMATION
Forward Looking Statements
Certain statements made in this report that are not based on current or
historical facts are forward-looking in nature including, without limitation,
statements containing the words 'believes,' 'anticipates,' 'plans,' 'projects,'
'intends,' 'expects,' 'estimates,' 'predicts,' 'targets' and words of similar
import. All statements other than statements of historical facts including,
without limitation, those regarding the Group's financial position, business
strategy, plans and objectives of management for future operations (including
development plans and objectives) are forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Group to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements. In particular, forecasting of reserves for future losses is based on
historical experience and future assumptions. As a result they are inherently
subjective and may fluctuate based on actual future experience and changes to
current or future trends in the legal, social or economic environment.
Forward-looking statements are based on numerous assumptions regarding the
Group's present and future business strategies and the environment in which the
Group will operate in the future. These forward-looking statements speak only as
at the date of this report or other information concerned. Alea Group Holdings
(Bermuda) Ltd expressly disclaims any obligations or undertaking (other than
reporting obligations imposed on us in relation to our listing on the London
Stock Exchange) to disseminate any updates or revisions to any forward-looking
statements contained herein to reflect any changes in the Group's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based. References in this paragraph to the Group are
to Alea Group Holdings (Bermuda) Ltd and its subsidiaries from time to time.
Registrar
Appleby Services (Bermuda) Ltd., Canon's Court,
22 Victoria Street, Hamilton HM12, Bermuda. T +1 441 295 1443
United Kingdom transfer agent, paying agent and depositary interests registrar
Shareholders based in the United Kingdom who hold share certificates and holders
of depositary interests on the CREST system should contact:
Capita Registrars Ltd, The Registry, 34 Beckenham Road, Beckenham,
Kent BR3 4TU, United Kingdom.
T 0871 664 0300 (within the UK - calls cost 10p per minute plus network extras,
lines are open 8:30am - 5:30pm Mon-Fri)
or +44 20 8639 3399 (outside the UK)
Alea has appointed Capita Registrars Ltd as a transfer agent in the United
Kingdom with the authority to remit transfers to the registrar or the branch
registrar in respect of shareholders holding share certificates in the United
Kingdom and to act as paying agent for all depositary interest holders and
shareholders.
United States transfer agent and branch registrar
Shareholders holding share certificates (other than shareholders based in the
United Kingdom) or shares via book entry through our United States Transfer
Agent and Branch Registrar should contact:
BNY Mellon Shareowner Services, 480 Washington Boulevard,
Jersey City, New Jersey 07310, United States.
T 1 800 522 6645 (within the US)
or +1 201 329 8660 (outside the US)
Alea has appointed BNY Mellon Shareowner Services (formerly known as Mellon
Investor Services LLC) as a branch registrar to manage the shareholder register,
ensuring that all information held about Alea's shareholders is kept up to date.
Changes to personal details
As a shareholder or a holder of a depositary interest in CREST, you may be sent
information about Alea. If you are a shareholder based in the United Kingdom who
holds share certificates, it is important to ensure that Capita Registrars Ltd
is kept up to date about any changes to your personal details, such as your name
and home address. Holders of depositary interests in CREST should refer to the
appropriate CREST procedure to update their details. If you otherwise hold share
certificates or shares via book entry through our United States transfer agent
and branch registrar, it is important to ensure that BNY Mellon Shareowner
Services is kept up to date about any changes to your personal details, such as
your name and home address. Further details are given in the frequently asked
questions section.
Internet
The annual report and accounts, interim statements and other useful information
on the Company are available through the internet at www.aleagroup.com.
Annual General Meeting
We welcome the views of shareholders and hope that you will be able to attend
the Company's Annual General Meeting, which will be held at:
Alea Group Holdings (Bermuda) Ltd., Crown House, 3rd Floor, 4 Par-la-Ville Road,
Hamilton HM 08, Bermuda.
at 10:00 am Bermuda time on 17 June 2010. The Notice of the Meeting and the
Proxy Form accompany this document. If you are unable to attend the Annual
General Meeting to ask a question in person, you may write to us at:
Crown House, 3rd Floor, PO Box HM 2983, 4 Par-la-Ville Road,
Hamilton HM 08, Bermuda
or contact us through our Group website at www.aleagroup.com.
Shareholder Information
For further information about Alea, please contact Sheel Sawhney c/o Alea Group
Holdings (Bermuda) Ltd., Crown House, 3rd Floor, PO Box HM 2983, 4 Par-la-Ville
Road, Hamilton HM 08, Bermuda. T +1 441 296 9150. E mail:
sheel.sawhney@aleagroup.com.
The Group's share price is shown on the Company's website and on
www.londonstockexchange.com.
Registered Office
Canon's Court, 22 Victoria Street, Hamilton HM 12, Bermuda.
T +1 441 295 2244
Registered Number in Bermuda
31408
Worldwide Group Office
Crown House, 3rd Floor, PO Box HM 2983, 4 Par-la-Ville Road,
Hamilton HM 08, Bermuda. T +1 441 296 9150
FREQUENTLY ASKED QUESTIONS
Q: I have recently moved. Who should I tell?
A: If you are a shareholder based in the United Kingdom who holds share
certificates, you should notify Capita Registrars Ltd in writing at the address
indicated above, remembering to clearly state your old address. Holders of
depositary interests in CREST should refer to the appropriate CREST procedure to
update their details. If you otherwise hold share certificates or shares via
book entry through our United States transfer agent and branch registrar, you
should notify BNY Mellon Shareowner Services in writing at the address indicated
above, remembering to clearly state your old address. If you hold shares in
joint names, the shares will be registered in the name of the person who appears
first on your share certificate and the letter must be signed by them.
Q: What do I do if I change my name?
A: To ensure the shares are registered in your new name, you will need to
notify Capita Registrars Ltd in writing if you are a shareholder based in the
United Kingdom who holds share certificates. Holders of depositary interests in
CREST should refer to the appropriate CREST procedure to update their details.
You will need to notify BNY Mellon Shareowner Services if you otherwise hold
share certificates or shares via book entry through our United States transfer
agent and branch registrar. You will also need to enclose evidence of the
change, for example, a marriage certificate or change of name deed (please do
not send the original), or a certified name change document if you are a company
or other entity, together with your share certificates, if applicable, and any
uncashed dividend cheques. New documents can then be issued in the correct name.
Q: I receive multiple sets of information whenever you send anything to me.
How can I make sure that in the future only one copy is sent?
A: If you have acquired shares on more than one occasion, your shareholdings
may have been recorded on the share register with slightly different details. As
a result, two or more accounts may have been set up for you. Sometimes we need
to maintain more than one account, for example, if you hold shares in your own
name and also in joint names with your partner; however sometimes multiple
accounts can be amalgamated. Please notify Capita Registrars Ltd or BNY Mellon
Shareowner Services, as appropriate, of any accounts you believe should be
amalgamated. They will do so if it is possible.
Q: My share certificate has been lost/stolen. What should I do to obtain a
replacement?
A: You should immediately inform Capita Registrars Ltd if you are a
shareholder based in the United Kingdom, or BNY Mellon Shareowner Services if
you are not a shareholder based in the United Kingdom. They will require you to
pay an administration charge, and they will send you a form of indemnity. The
indemnity is required to protect Alea from the potential misuse of the missing
share certificate and must be returned before a new certificate can be issued.
Q: I would like to transfer shares to someone I know. How do I arrange this?
A: As these transactions do not involve a stockbroker, you can use a stock
transfer form. You can obtain a form from Capita Registrars Ltd if you are a
shareholder based in the United Kingdom who holds share certificates. You can
obtain a form from BNY Mellon Shareowner Services if you otherwise hold share
certificates or shares via book entry through our United States transfer agent
and branch registrar.
Q: My partner/relative has died. What should I do about their shareholding?
A: Contact Capita Registrars Ltd if your partner/relative was a shareholder
based in the United Kingdom who held share certificates and they will guide you
through what you need to do. Holders of depositary interests in CREST should
refer to the appropriate CREST procedure to update their details. Contact BNY
Mellon Shareowner Services if your partner/relative otherwise held share
certificates or shares via book entry through our United States transfer agent
and branch registrar, and they will guide you through what you need to do.
Q: Can I elect to receive any dividend or distribution payment in a currency
other than US Dollars?
A: Yes. Shareholders will have the option to receive dividends in US Dollars,
British Pounds or Swiss Francs. Shareholders may make currency elections by
returning a currency election form to the paying agent, Capita Registrars Ltd. A
currency election form can be obtained from Capita Registrars Ltd. If no
election is made, shareholders will receive US Dollars. If a shareholder has
already submitted a currency election form, future dividend payments will
continue be made in accordance with that election unless they submit a new form
to Capita Registrars Ltd. The British Pound or Swiss Franc equivalent of any
dividend will be calculated by reference to an exchange rate prevailing on a
date prior to payment selected by the Company. Dividend cheques will be drawn on
a UK bank account.
FINANCIAL CALENDAR
MAY
18 May 2010*
Announcement of First Interim Management Statement
June
17 June 2010
Annual General Meeting
AUGUST
26 August 2010*
Announcement of results for six months ending 30 June 2010
NOVEMBER
17 November 2010*
Announcement of Second Interim Management Statement
MARCH
17 March 2011*
Announcement of results for 2009
* Provisional date
This information is provided by RNS
The company news service from the London Stock Exchange
END
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