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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Brit Ins Hldgs | LSE:BRE | London | Ordinary Share | NL0009347863 | ORD 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1,075.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jul 2019 to Jul 2024
TIDMBRE
RNS Number : 8569B
Brit Insurance Holdings N.V.
25 February 2011
Brit Insurance Holdings N.V.
PRESS RELEASE
FOR IMMEDIATE RELEASE
25 february 2011
preliminary announcement for the year ended 31 december 2010
Financial highlights
Return on equity excluding the effect of foreign exchange on non-monetary items of 14.4% (2009: 17.4%)
Headline return on equity of 14.2% (2009: 12.2%)
Gross written premium of GBP1,530.2m, a reduction of 9.8% or 10.4% at constant currency. The reduction reflects active management of the underwriting portfolio and is in line with the Group's plan
Combined ratio excluding the effect of foreign exchange on non-monetary items of 97.1% (2009: 94.0%) affected by significantly higher charge for major claims during the year
Profit before tax excluding the effect of foreign exchange on non-monetary items of GBP119.2m (2009: GBP171.3m)
Profit after tax of GBP110.5m up 26.2% (2009: GBP87.5m) and earnings per share of 142.4p up 25.8% (2009: 113.2p)
Distributions of 60.5p paid during 2010 (2009: 60.0p). In light of the recommended cash offer by Achilles Netherlands Holdings B.V., no final distribution for 2010 has been recommended
Net tangible assets (NTA) per share of GBP11.41 represents growth of 8.5% during 2010
The calculation of adjusted NTA has been agreed with Achilles Netherlands Holdings B.V. (Achilles) as GBP11.21 resulting in the full 25p per share Contingent Value Payment (CVP)
Operational and strategic highlights
Successful first year with new Netherlands-based holding company
Continued active management of the underwriting portfolio throughout the business
Further talent attracted to the Group together with a number of senior appointments from within the business
Significant progress made on driving upper quartile performance throughout the Group as part of the "Average to Outperform" agenda
Dane Douetil, Chief Executive Officer of Brit Insurance Holdings N.V., commented:
"2010 was a year of solid and consistent progress for Brit insurance returning 14.4% on equity, with EPS up 25% to 142.4p and NTA growth of 8.5% to GBP11.41 a share. Much of the year was dominated by takeover discussions, finally culminating in October with a recommended offer for the Group by Achilles, a company majority-owned by Apollo and CVC. It is pleasing that strong year end NTA (GBP11.21 on an adjusted basis for the purpose of the CVP) will mean that the full 25 pence per share CVP, in addition to the GBP10.45 per share offered, will be paid by Achilles to accepting shareholders following successful completion of its acquisition of Brit Insurance.
"It is a testament to the dedication and hard work of everyone at Brit Insurance that in a year defined by stodgy pricing conditions and higher than average catastrophes that the Group's claims ratio improved by 1.5 percentage points to 60.7% and that the underlying attritional loss ratio improved by five percentage points. The Group was able to keep its costs broadly flat despite a more intrusive and costly regulatory environment and the significant costs for the implementation of Solvency II. The UK needs to guard carefully against becoming uncompetitive as the cocktail effect of costly regulation and the potential over-engineering of Solvency II relative to the rest of Europe pushes even more business overseas.
"Brit Insurance is in good shape with its strong franchise, recognisable brand and well diversified customer base to take advantage of the opportunities that will arise from its move to private ownership."
Financial highlights
Hot Features
Premium
Year ended Year ended
31 December 31 December
2010 2009
-------------------------------------------------- ------------ ------------
Gross written premiums (GBPm) 1,530.2 1,696.4
Net written premiums (GBPm) 1,278.4 1,471.4
Net earned premiums (GBPm)(2) 1,312.7 1,495.5
Investment return (GBPm) 113.4 137.4
Profit before tax excluding the effect of
foreign exchange on non-monetary items (GBPm)(1) 119.2 171.3
Profit before tax (GBPm) 116.4 116.4
Profit after tax (GBPm) 110.5 87.5
Net assets (GBPm) 971.6 894.6
Net tangible assets (GBPm) 889.8 813.4
Total invested assets including cash (GBPm) 3,544.4 3,475.3
Diluted earnings per share (pence) 142.4 113.2
Distribution per share for the year - paid
(pence)(3) 60.5 60.0
Net assets per share (GBP) 12.46 11.57
Net tangible assets per share (GBP) 11.41 10.52
Return on equity excluding the effect of foreign
exchange on non-monetary items 14.4% 17.4%
Return on equity 14.2% 12.2%
Claims ratio(2) 60.7% 62.2%
Expense ratio(2) 36.4% 31.8%
Combined ratio(2) 97.1% 94.0%
Investment return 3.2% 4.2%
Tax rate 5.1% 24.8%
-------------------------------------------------- ------------ ------------
(1) Under International Financial Reporting Standards (IFRS), unearned premium and deferred acquisition costs are classified as non-monetary items and therefore translated at historic exchange rates. Corresponding monetary items are translated at closing rates. If non-monetary items were to be translated at closing rates, the 2010 result would increase by GBP2.8m (2009 result increase by GBP54.9m).
(2) Excluding the effect of foreign exchange on non-monetary items.
For further information, please contact
Brit Insurance Holdings N.V. +31 (0) 20 719 1100 Dane Douetil, Chief Executive Officer, Brit Insurance +44 (0) 20 7984 8500 Neil Manser, Head of Investor Relations, Brit Insurance +44 (0) 20 7098 6980 Peter Rigby/Juliet Tilley, Haggie Financial +44 (0) 20 7417 8989
Notes to Editors
Brit Insurance is an international general insurance and reinsurance group specialising in commercial insurance. The Group writes a diverse portfolio of insurance and reinsurance, offering worldwide protection. The scope is wide-ranging: from sole traders to the largest multinational corporations; from manufacturers to professional services; from shops to satellites. Our distribution model is centred on brokers and intermediaries. Reflecting where our customers trade, we are organized into three strategic business units - Global Markets, UK and Reinsurance - which have access to our underwriting platforms including Brit Insurance Limited and our Lloyd's syndicate, Syndicate 2987.
www.britinsurance.com
CONTENTS PAGE Preliminary Announcement for the year ended 31 December 2010 Chairman's statement 4 Financial results 5 Global Markets 13 Reinsurance 16 UK 19 Investments 22 Condensed Consolidated Financial Statements Consolidated Income Statement 25 Consolidated Statement of Comprehensive Income 26 Consolidated Statement of Financial Position 27 Consolidated Statement of Cash Flows 28 Consolidated Statement of Changes in Equity 29 Notes to the Financial Statements 30 Company Information 60 ---------------------------------------------------------- -----
This document does not constitute or form part of, and should not be construed as, an offer for sale or subscription of, or solicitation of any offer or invitation or advice or recommendation to subscribe for, underwrite or otherwise acquire or dispose of any securities (including share options and debt instruments) of the Company nor any other body corporate nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever which may at any time be entered into by the recipient or any other person, nor does it constitute an invitation or inducement to engage in investment activity under Section 21 of the Financial Services and Markets Act 2000 (FSMA). This document does not constitute an invitation to effect any transaction with the Company or to make use of any services provided by the Company. Past performance cannot be relied on as a guide to future performance.
Chairman's statement
Result
I am pleased to announce that the Group recorded profit before tax of GBP119.2m and a return on equity of 14.4% (both excluding the effect of foreign exchange on non-monetary items). This is a good result given the increased major claim burden faced by the Group and the continued tough economic conditions.
Strategic progress during 2010
2010 was a quieter period in terms of headline strategic activity but underlying this a huge effort has been put in by all staff to build on the "Average to Outperform" programme established in 2009. This programme is designed to raise performance across the entire Group and develop a culture of outperformance. Major strides have been made during 2010 in terms of managing and optimising the underwriting portfolio, as can be seen in the significant improvement to Global Markets's attritional claims ratio, improving expense efficiency and the continuation of talent management through internal promotions and external recruitment. Managing the underwriting portfolio has constrained growth but has already improved its underlying quality. Much of the benefit from these initiatives will become evident over the coming years.
Recommended cash offer by Achilles Netherlands Holdings B.V.
On 26 October 2010 Brit Insurance announced that the Independent Directors of the Board were recommending a cash offer from Achilles. The per share proposal of 1045p, a Contingent Value Payment (CVP) of up to 25p and the 2010 interim distribution valued each Brit Insurance share at up to 1100p. The acquisition of the Group is expected to close during the first quarter of 2011.
Shareholder distributions
In light of the recommended cash offer from Achilles, the Board is not recommending a final distribution for 2010. Shareholders have, however, received distributions of 60.5p per share during 2010 in the form of reductions in the par value of each share.
Board of Directors
In December 2010, Matthew Scales stepped down from the Board after 15 years with the Group and the last ten years as Group Finance Director, I would like to take this opportunity to once again thank Matthew for his service over the years and his steadfast loyalty to the Group.
In the event that the acquisition of the Group by Achilles is successful, there will be a number of changes to the Board. A number of the Non-Executive Directors including me will step down and be replaced by six new Non-Executive Directors. These appointments were approved by shareholders in December 2010 and will take effect once the offer is declared unconditional. I wish to thank all the Board Directors for their service and wisdom, and wish the new Directors good luck in steering the Group through the next stage of its development.
John Barton
Chairman
24 February 2011
Financial results
In 2010 Brit Insurance produced a return on equity excluding the effect of foreign exchange on non-monetary items of 14.4% (2009: 17.4%). The lower return reflects lower premium volumes, a higher burden of major claims and lower investment returns, partially offset by a lower tax charge.
12 months ended 12 months ended
31 December 31 December
2010 2009
Summary income statement GBPm GBPm
------------------------------------------ ---------------- ----------------
Gross written premium 1,530.2 1,696.4
Net written premium 1,278.4 1,471.4
Net earned premium(1) 1,312.7 1,495.5
Underwriting result(1) 36.9 84.2
Investment return 113.4 137.4
Other expenses (38.9) (39.5)
Other foreign exchange 24.1 (3.3)
Other income, finance costs and
associates (16.3) (7.5)
---------------- ----------------
Profit before tax(1) 119.2 171.3
Effect of foreign exchange on
non-monetary items (2.8) (54.9)
---------------- ----------------
Profit before tax 116.4 116.4
Tax (5.9) (28.9)
---------------- ----------------
Profit after tax 110.5 87.5
---------------- ----------------
Combined ratio(1) 97.1% 94.0%
RoE(1) 14.4% 17.4%
------------------------------------------ ---------------- ----------------
(1) Excluding the effect of foreign exchange on non-monetary items
Premiums
Gross written premium (GWP) for the 12 months to 31 December 2010 fell 9.8% to GBP1,530.2m (2009: GBP1,696.4m). This reflected the Group's active management of the underwriting portfolio and the non-recurrence of prior year premium adjustments experienced in 2009. At constant exchange rates the reduction was 10.4% (2009: growth of 10.4%) and excluding the movement on the re-estimation of prior year premium, which primarily arose in the Reinsurance SBU, underlying premium fell by 3.8%.
Movement at
Gross written 12 months ended 12 months ended constant exchange
premium 31 December 2010 31 December 2009 rates
GBPm GBPm %
------------------ ------------------ ------------------ ------------------
Global Markets 778.3 875.3 (11.8)
Reinsurance 309.6 364.2 (15.8)
UK 441.2 455.4 (3.2)
Other(2) 1.1 1.5 -
------------------ ------------------ ------------------
Total Group 1,530.2 1,696.4 (10.4)
------------------ ------------------ ------------------ ------------------
(2) Includes the run-off of historic participations including Life Syndicate 389.
Premium rate increases for the year were 1.0% (2009: 4.8%) with either flat or increasing rates in each of the Group's three SBUs. The UK experienced the highest rate increases at 3.0% aided by rate increases of over 10% in Motor. Within Global Markets, rate increases mainly fell within the -1% to +1% range, with overall rates flat. Reinsurance rates were marginally lower in Property lines and marginally higher in Casualty lines, whilst Marine XL experienced the highest rate increase at 7.6%.
12 months ended 12 months ended
Premium rating increases on 31 December 2010 31 December 2009
renewal business % %
Global Markets 0.0 4.3
Reinsurance 0.4 7.4
UK 3.0 3.7
------------------ ------------------
Total Group 1.0 4.8
----------------------------- ------------------ ------------------
During the year, the Group continued to manage actively its underwriting portfolio. Since 2008, Global Markets has non-renewed over GBP160m of premium as it exited lines of business that no longer produced acceptable returns. It also increased the weighting in short-tail lines in response to the economic and investment return environment. In 2010, the UK SBU continued this trend by exiting the Local Authority (Municipal) market as pricing levels did not reflect the anticipated outlook for claims. It also substantially reduced its exposure to Private Motor during the period. At the same time the UK SBU continued to expand its micro insurance product offering which maintains its strong growth profile.
Net written premium (NWP) fell by 13.1% to GBP1,278.4m (2009: GBP1,471.4m) and net earned premium (NEP) excluding the effect of foreign exchange on non-monetary items reduced by 12.2% to GBP1,312.7m (2009: GBP1,495.5m).
Underwriting
The Group combined ratio - excluding the effect of foreign exchange on non-monetary items - increased to 97.1% (2009: 94.0%) with a 1.5 percentage point reduction in the claims ratio offset by a 4.6 percentage point increase in the expense ratio. The combined ratios for Global Markets and UK were broadly stable at 97.7% and 99.8% respectively whereas the combined ratio for Reinsurance increased by 8.3 percentage points to 88.2%.
Combined
ratio
(excluding
the effect of
foreign
exchange on
non-monetary 12 months ended 31 December 12 months ended 31 December
items) 2010 2009
-------------- ----------------------------- -------------------------------
Claims Expense Combined Claims Expense Combined
ratio ratio ratio ratio ratio ratio
--------------
% % % % % %
-------------- -------- -------- --------- --------- --------- ---------
Global
Markets 57.4 40.3 97.7 62.7 34.2 96.9
Reinsurance 59.6 28.6 88.2 54.9 25.0 79.9
UK 64.7 35.1 99.8 66.7 33.0 99.7
Total
Group(3) 60.7 36.4 97.1 62.2 31.8 94.0
-------------- -------- -------- --------- --------- --------- ---------
(3) Includes the run-off of historic participations including Life Syndicate 389 and specific XL contracts underwritten by BIG.
The reduction in the Group claims ratio reflects a better underlying performance offset by an increase in major claims. Major claims in 2010 were GBP57.8m relating to the earthquakes in Chile (GBP29.9m) and New Zealand (GBP27.9m). These added 4.4 percentage points to the Group claims ratio (2009: GBP12m claims from Air France; 0.8 percentage points). Claims estimates for the Chilean earthquake continued to improve from initial estimates in March 2010 of GBP47m, subsequently revised in June 2010 to GBP44m.
Excluding the effect of major claims, the accident year attritional claims ratio improved by 5.0 percentage with each of the three SBUs showing an improvement. Most notable was Global Markets which saw an 8.4 percentage point improvement in its accident year attritional claims ratio, a reflection of the portfolio improvements made over the last two years.
As part of the Group's standard quarterly reserving reviews, the Group released GBP72.4m of claims reserves from prior years (2009: GBP81.2m) equivalent to 5.5 percentage points of net earned premium (2009: 5.4 percentage points of net earned premium). The Group experienced reserve releases in the majority of classes of business, particularly in Property (Global Markets and Reinsurance), Casualty Treaty Reinsurance and UK Liability.
12 months ended 12 months ended
31 December 2010 31 December 2009
Net reserve movements by SBU GBPm GBPm
Global Markets 9.6 13.8
Reinsurance 25.0 24.1
UK 39.0 41.2
Other (1.2) 2.1
------------------ ------------------
Total Group 72.4 81.2
------------------------------ ------------------ ------------------
The Group's reserving policy is to reserve at actuarial best estimate and in addition to retain a margin to allow for uncertainties.
The Group has benefited from consistent net reserve releases over the last five years as claims in the 2002 to 2004 underwriting years have settled materially below initial estimates. Modest releases have also been experienced on the 2005 and 2006 underwriting years. More recent underwriting years are at an earlier stage of development but the Group's reserving process over this period was unchanged from prior years.
The margin retained by the Group to allow for uncertainties over the actuarial best estimate is GBP40m, which has remained unchanged over the last three years. For many years the Group has had an external actuarial firm review the reserves annually and the internal actuarial best estimate has consistently been higher than the external best estimate, i.e. more conservative.
To aid understanding of the Group's reserving track record, the ultimate net loss ratios on an underwriting year basis are set out below. This table should be read horizontally and shows how over time the ultimate net loss ratio on each underwriting year develops from the level at which it was initially set. These figures are based on premium net of brokerage which is the basis on which the Group sets its claims reserves.
Development of Group ultimate net loss ratio by underwriting year
------------------------------------------------------------------------------
After After After After After After After
1 2 3 4 5 6 7 After
year years years years years years years 8 years
----- ------- ------ ------- ------- ------- ------- ------- ---------
2003 74% 72% 64% 59% 56% 53% 51% 50%
2004 81% 79% 72% 70% 68% 66% 65%
2005 106% 110% 107% 104% 102% 96%
2006 81% 83% 80% 76% 74%
2007 89% 92% 92% 92%
2008 95% 99% 100%
2009 85% 87%
----- ------- ------ ------- ------- ------- ------- ------- ---------
This data is based on an underwriting year approach and hence a significant amount of risk remains in force after one year. The ultimate net loss ratio after one year is therefore not necessarily a good indicator for the ultimate outcome as it can still be affected by new claim events. After two years the majority of risk has expired and consequently the movement in the ultimate net loss ratio from this point offers a better indicator of the reserving track record. For example the increase in the ultimate net loss ratio for 2009 is partially caused by claims from the Chile earthquake which, although occurring in 2010, relates to risks written in the 2009 (and to a lesser extent 2008) underwriting year.
In the 2005 to 2009 financial years the Group released cumulatively GBP364m from claims reserves (averaging GBP73m per annum) and this trend has continued in 2010 with a release of GBP72.4m. Taken together, the maintenance of a consistent margin and continued reserve releases demonstrates the strength of the Group's reserving position.
The expense ratio of 36.4% was 4.6 percentage points higher than 2009. The increase was due to a number of factors including higher commission levels arising from business mix and premium reductions (2.0 percentage points), the impact of lower earned premium on the direct cost ratio (1.2 percentage points) and higher regulatory levies and other direct costs including bonus accrual (1.4 percentage points).
The Group combined ratio, including the effect of foreign exchange on non-monetary items, was 97.6% (2009: 95.6%). See 'Foreign exchange' for more detail.
Other underwriting-related items
The charge relating to the Group's catastrophe swap contract with Fremantle Limited, which is accounted for as a derivative, was GBP1.8m in 2010 (2009: GBP4.8m). This contract expired in June 2010.
Investment return
The Group continued to maintain a cautious investment stance during 2010 with the majority of investments in cash and short-dated high quality bonds. Investment return was GBP113.4m for the period (2009: GBP137.4m), a return of 3.2% (2009: 4.2%). During the first nine months of 2010 the Group continued to benefit from the impact of falling yields on the mark to market of the fixed income portfolio, whilst equity markets failed to make significant headway. In the last quarter however, this reversed with strong equity markets offsetting weak bond markets as yields on government debt rose. Throughout the period specialised funds made solid returns and yields on cash holdings remained low.
The Investments section of this report contains a detailed breakdown of the investment portfolio and investment return for 2010.
Other corporate expenses
Other non-insurance related expenses, which include Group central costs as well as one-off project costs, decreased by 1.5% to GBP38.9m compared with 2009. The decrease arose from a lower number of one-off projects compared with 2009, but still included GBP2.8m in relation to the recommended cash offer by Achilles Netherlands Holdings B.V. The Group estimates that a further GBP8.6m of costs would be charged in 2011 if the recommended cash offer is declared wholly unconditional.
Year ended Year ended
31 December 31 December
2010 2009
----------------- -----------------
Expenses Ratio Expenses Ratio
GBPm % GBPm %
----------------------------------- --------- ------ --------- ------
Acquisition costs - commission(4) 329.5 25.1 345.1 23.1
Other insurance related expenses 147.9 11.3 130.7 8.7
Underwriting expenses 477.4 36.4 475.8 31.8
Other corporate expenses 38.9 3.0 39.5 2.6
Total expenses 516.3 39.1 515.3 34.4
----------------------------------- --------- ------ --------- ------
(4) Excluding the effect of foreign exchange on non-monetary items.
Group headcount at 31 December 2010 was 746. Headcount has remained broadly constant since 31 December 2009 (741).
Foreign exchange
The Group experienced a total net foreign exchange benefit of GBP21.3m in 2010 (2009: GBP58.2m charge) made up of the following two elements.
The Group experienced a benefit of GBP24.1m in the period relating to a real gain on the revaluation of the element of the Group's capital that it holds in non-Sterling currencies. At 31 December 2010, GBP262.8m of the Group's net tangible assets were denominated in non-Sterling currencies.
Additionally, the Group recognised a charge of GBP2.8m relating to the IFRS requirement to recognise non-monetary assets and liabilities (DAC and UPR) at historic rather than closing exchange rates. At 31 December 2009, the difference between recognising non-monetary assets and liabilities at historic rather than closing exchange rates was an additional net liability of GBP0.9m. At 31 December 2010, the difference between recognising non-monetary assets and liabilities at historic rather than closing exchange rates was an additional GBP3.7m net liability. The charge in 2010 of GBP2.8m is the movement between the differences at 31 December 2009 and 31 December 2010.
On the basis that exchange rates remain constant, the additional net liability at 31 December 2010 of GBP3.7m will reverse as a gain to earnings during 2011. Figures relating to this adjustment are disclosed separately in the segmental information in the column 'Effect of foreign exchange on non-monetary items'. The Group considers this purely a timing difference in profit recognition and has therefore presented additional profit before tax and RoE figures excluding its effect.
The total foreign exchange related gain of GBP21.3m is made up of GBP29.3m 'Net foreign exchange gain' per the face of the income statement and a reclassification of part of the foreign exchange translation on non-monetary items to premium and acquisition costs. This latter adjustment can be seen in the column 'Effect of foreign exchange on non-monetary items' in Note 5 to the Financial Statements - Segmental information.
12 months ended 12 months ended
Effect of foreign exchange on 31 December 2010 31 December 2009
non-monetary items GBPm GBPm
-------------------------------------- ------------------ ------------------
UPR/DAC valued at historic rates of
exchange 433.6 461.8
UPR/DAC valued at closing rates of
exchange 429.9 460.9
-------------------------------------- ------------------ ------------------
Valuation difference in closing
balance sheet (A) (3.7) (0.9)
Valuation difference in opening
balance sheet (B) (0.9) 54.0
-------------------------------------- ------------------ ------------------
Effect of foreign exchange on
non-monetary items (A-B) (2.8) (54.9)
-------------------------------------- ------------------ ------------------
12 months ended 12 months ended
31 December 2010 31 December 2009
Foreign exchange (losses)/gains GBPm GBPm
-------------------------------------- ------------------ ------------------
Gains/(losses) on exchange 24.1 (3.3)
Effect of FX on non-monetary items
(from above) (2.8) (54.9)
-------------------------------------- ------------------ ------------------
Total foreign exchange gains/(losses) 21.3 (58.2)
-------------------------------------- ------------------ ------------------
Of which:
Net FX gains/(losses) (per face of
income statement) 29.3 (33.4)
Included within premium and
acquisition costs (per segmental) (8.0) (24.8)
-------------------------------------- ------------------ ------------------
Associated undertakings
The Group's share of the result of associated undertakings was a loss of GBP1.8m (2009: loss of GBP2.3m). GBP0.8m of the loss relates to the Group's interest in Ri3K which was disposed of in December 2010. The loss on disposal of GBP0.4m is shown separately.
Profit before tax
The Group's profit before tax - excluding the effect of foreign exchange on non-monetary items - was GBP119.2m, a decrease of 30.4% over the prior period (2009: GBP171.3m). Including the effect of foreign exchange on non-monetary items, the profit before tax was stable at GBP116.4m (2009: GBP116.4m).
Tax
The Group's effective tax rate was 5.1% (2009: 24.8%) and benefited from the Group reorganisation, which was completed in late 2009, as well as favourable development relating to prior year provisions.
Net income, EPS and return on equity
Net income for the 12 months to 31 December 2010 was GBP110.5m compared to GBP87.5m in 2009. This translates into earnings per share (EPS) of 142.4p (2009: 113.2p) and return on equity of 14.2% (2009: 12.2%).
Excluding the effect of foreign exchange on non-monetary items, the annualised return on equity was 14.4% (2009: 17.4%).
Distributions
Distributions equivalent to 60.5p per share have been paid (2009: 60.0p paid) to shareholders during the year, with GBP41.1m being settled in cash and GBP5.9m in the form of new shares via the scrip option. Given the recommended cash offer by Achilles Netherlands Holdings B.V., the Board is not recommending a final distribution for the year ended 31 December 2010.
Net asset value
Net tangible asset value (NTA) of GBP889.8m was 9.4% higher than at 31 December 2009. This growth reflects the profit after tax for the period of GBP110.5m less the cash element of the 2009 final and 2010 interim distributions of GBP41.1m. NTA per share at 31 December 2010 was GBP11.41 compared with GBP10.52 at 31 December 2009, a growth of 8.5%.
Financing
On 9 November 2009 and as part of the Group reorganisation, the Group entered into a three-year revolving credit facility agreement for up to GBP175m with The Royal Bank of Scotland plc, Lloyds TSB Bank plc and Calyon. At 31 December 2010, GBP37.0m of the facility was drawn down (2009: GBP107.0m). At 24 February 2011, the facility was undrawn.
On 26 October 2010 the Group agreed to enter into a new GBP200m four-year revolving credit facility, effective if the acquisition of the Group by Achilles Netherlands Holdings B.V. is declared wholly unconditional, with The Royal Bank of Scotland plc, Lloyds TSB Bank Plc, Bank of America, N.A. and Citibank N.A., London Branch.
The Group gearing ratio at 31 December 2010 was 16.5% (31 December 2009: 25.1%). The Group's current appetite is to retain a gearing ratio below 30%.
Capital management
The main internal benchmark for assessing capital adequacy is management capital. This is defined as 120% of the Individual Capital Assessment (ICA), plus a capital buffer designed to deal with shock events. Management capital must at all times be covered entirely by net tangible assets and long-term debt. Throughout 2010 this condition was met.
31
December 31 31 31 31
Capital 2010 December December December December
resources GBPm 2009 GBPm 2008 GBPm 2007 GBPm 2006 GBPm
-------------- ---------- ----------- ----------- ----------- -----------
Net tangible
assets 889.8 813.4 767.6 768.4 724.3
Long-term
subordinated
debt* 133.0 132.8 132.7 147.3 147.2
---------- ----------- ----------- ----------- -----------
Total capital
resources 1,022.8 946.2 900.3 915.7 871.5
-------------- ---------- ----------- ----------- ----------- -----------
* Subordinated borrowings which have at least five years remaining to maturity or call and are of the types which qualify as regulatory capital
The Group's capital position is currently in excess of regulatory requirements. On an Enhanced Capital Requirement (ECR) basis the Group's coverage at 31 December 2010 was estimated at 1.32 times. The ECR approach uses a common factor-based model to calculate required capital on a risk-by-risk basis and does not explicitly allow for the potential diversification within an individual company or group.
The Group's ICA requirement, however, is based on the Group's internal model and takes into account the Group's specific portfolio and recent and expected future performance. The Group's coverage of its ICA requirement is estimated at 1.49 times at 31 December 2010.
Solvency II
Following research and assessment of the potential impacts of Solvency II, the Group remains convinced that significant competitive advantage can be gained by those firms who embrace the change and use it to drive improvements within their business.
This approach has already led the Group to consider and implement key changes around its governance, risk processes and organisation, including the recent appointment of the Group Chief Risk Officer. We expect these changes to result in further improvements in how risk and reward are balanced throughout the business.
The Group also made significant progress towards Solvency II compliance including the successful completion of QIS5 for Brit Insurance Limited, Brit Syndicates Limited, Brit Insurance (Gibraltar) PCC Limited and the Brit Insurance Group.
Working closely with regulators resulted in the approval of the FSA to enter the Internal Model Approval Process (IMAP) and positive feedback from Lloyd's and the Gibraltar FSC on progress made to date. A strong dialogue with key regulators will be maintained during 2011 to gain Internal Model approval in line with the start of Solvency II.
The Solvency II framework continues to evolve, and Brit Insurance will continue its work with regulators and trade bodies to ensure a pragmatic and balanced approach continues through its implementation.
Strategic development during the year
2010 has been another key year in the development of Brit Insurance to become a leading international insurance and reinsurance group. Whilst the headlines may have been dominated by the recommended cash offer by Achilles Netherlands Holdings B.V., the real hard work of developing Brit Insurance has continued unabated. Thanks to the dedication of Brit Insurance's employees the Group ended 2010 in a far stronger position than it began the year.
Key highlights for 2010 include:
-- Developing the "Average to Outperform" programme that aims to take the Group's performance to the top quartile of its peer group
-- Continued active management of the underwriting portfolio, with underwriters supporting brokers and clients in areas where sustainable returns can be achieved - but willing to walk away where this is no longer the case
-- Managing the expense base so as to allow the flexibility to reduce top line when it is the right thing to do rather than slavishly following the market cycle
-- Further developing the talent within the organisation through a combination of promotion and advancement for key internal talent, high quality external hires and a more proactive approach to managing poor performance
Each of these developments, discussed in more detail below, is aimed at improving the sustainability and effectiveness of the operations and consequently supporting the relentless focus on improving return on equity.
Average to Outperform
In late 2009 an agenda which targeted top quartile performance across the Group was set out. This is known internally as "Average to Outperform". The focus during 2010 was on putting in place the necessary building blocks for delivering the changes required by this agenda.
Areas of focus have included enhanced external benchmarking, significantly improved underwriting analytical tools and management information, improved training for professional managers and underwriters, including a relaunched underwriters toolkit, and a series of workshops to help all Group staff understand the cultural and behavioural aspects of the change.
Whilst the framework for "Average to Outperform" is now in place, delivery will depend on how well this is translated into "business as usual", a journey that is only just beginning.
Active management of the underwriting portfolio
Faced with a competitive market, the SBUs have continued to be active in their management of the Group's underwriting portfolio. In 2008 and 2009 the most significant portfolio adjustments came within Global Markets as it reduced weighting to long-tail casualty lines of business that more heavily rely on investment income and towards short-tail property and marine classes. In 2010, this portfolio management approach delivered, with a short-tail combined ratio in Global Markets of 91.5% despite catastrophe claims equivalent to 4.2 percentage points.
For 2010, the UK SBU streamlined its product focus with a significant reduction in the private motor account and a withdrawal from Local Authority (Municipal) business. These underwriting decisions were made in response to a combination of changing distribution trends, a prediction of a deteriorating claims environment and current underwriting returns. In each case the Group concluded that it was unlikely to generate a sustainable profit stream into the future. These actions have also enabled the UK to focus on its core client base of small to mid-sized commercial enterprises with a turnover of less than GBP300m per annum.
Managing the expense base
The key markets in which the Group operates remain competitive and as such the Group is prepared in the short-term to walk away from inadequately priced business. In order to achieve this without a significant impact on expense ratios the Group remains focused on cost management throughout the business. In 2010 core expenses (excluding commissions, regulatory levies and offer related costs) were stable despite a new holding company in the Netherlands and the high cost of preparing for Solvency II. The Group will continue to work on managing its cost base such that it can make the required underwriting decisions without having to make short-term expense reductions.
Talent management
Employees remain the lifeblood of an insurer and managing talent appropriately will be key to the Group's success. During 2010 Brit Insurance continued to attract high quality external talent as well as developing internal talent through advancement and promotion. These trends have been experienced at all levels of the organisation. The Executive Management Committee in the UK has made three internal appointments - Ray Cox to CEO of the UK SBU, Baldeep Johal to the newly-created role of Chief Risk Officer and Lorraine Denny continuing her role as Director of Human Resources - as well as welcoming Scott Egan as Chief Financial Officer, who joined in January 2011 from Zurich Financial Services.
At the same time the Group improved its performance management system and updated its remuneration policy to ensure that it has a greater emphasis on rewarding excellent performance as well as identifying and addressing poor performance in a more proactive manner. The Group is confident these changes will drive the business forward and help raise the bar across the entire organisation.
Outlook
The backdrop of competitive market conditions and modest pressure on premium rates is expected to continue in 2011. The Global Markets SBU will continue to take a defensive position in longer-tail casualty classes of business until it sees rate increases that offset the effect of low interest rates. Within short-tail lines, results have again been good and the SBU will need to focus even more on its core underwriting skills of risk selection to steer it through this point of the underwriting cycle.
The UK market is pushing through rate increases albeit at a slower rate than the SBU believes is required. The Group remains concerned that the longer this situation continues, the greater the potential market correction will need to be; a situation that is likely to be to the detriment of the market's reputation as a whole. The SBU will continue to support its clients through its regional network of offices during this tough phase of the market.
Within Reinsurance, January 2011 renewals showed continued competitive pressure across most classes of business, most noticeably in the US Property Treaty account. However, despite this and thanks to the spread of the SBU's portfolio, rates overall on the renewal book remained broadly flat compared to 2010.
During the first quarter of 2011 above average claims activity has continued in the International Property arena with extensive flooding in Eastern Australia, Cyclone Yasi affecting Queensland, Australia and a major earthquake near Christchurch, New Zealand. Early indications suggest that neither of the Australian events should be major claims for the Group (i.e. more than GBP10m net to the Group) and in aggregate are estimated not to exceed GBP15m. The Group expects claims arising from the February 2011 New Zealand quake to be significant for the market. It is too early to assess accurately the Group's exposure to this event.
The Group's focus in 2011 will be on continuing to develop the "Average to Outperform" agenda and embedding the disciplines required to be an upper quartile performer. The current competitive market means that this journey is not an easy one. However, the strides made by the Group's staff over the last 18 months demonstrate that Brit Insurance has the ambition, skills and strategic plans to achieve this.
Global Markets SBU
Vision
Global Markets seeks to be a highly respected market leader delivering underwriting excellence based on market intelligence and innovation in its chosen fields and disciplines.
About Global Markets
Global Markets has an extensive history of providing a comprehensive range of insurance products for small to medium sized enterprises as well as large corporate customers globally. The SBU is made up of a number of niches which are expert in their respective fields and bring a broad spread to the portfolio. Business is distributed entirely through intermediaries. The SBU accesses business through leading brokers in its main operations in London as well as through delegated authorities with selected coverholders, including the Group's wholly-owned service company, who distribute products into local markets.
Global Markets's underwriting expertise and local relationships make it a market leader and it is the lead underwriter on 56% of the premium it underwrites. This offers excellent market visibility and enhances its ability to manage the underwriting portfolio through the insurance cycle. This underwriting capability is backed up by first class claims handling through specialist staff in London and in overseas claims hubs.
Year Year ended Year ended Year ended Year ended
ended 31 31 31 31 31
Financial December December December December December
Performance 2010 2009 2008 2007 2006
GBPm GBPm GBPm GBPm GBPm
Gross written
premium:
Accident &
Health 56.4 87.4 144.1 143.7 140.2
Aerospace 23.7 22.9 20.3 16.5 23.9
Specialty
Lines 137.1 151.9 175.9 188.1 196.8
Professional
Lines 124.0 161.6 132.4 88.4 71.0
Marine 250.8 253.8 186.5 165.9 143.4
Property 186.3 197.7 122.1 146.6 131.6
---------- ----------- ----------- ----------- -----------
Total 778.3 875.3 781.3 749.2 706.9
---------- ----------- ----------- ----------- -----------
Business led
(%) 56.0 59.1 57.7 58.8
Retention
ratio (%) 74.0 71.3 76.6 80.1
Net earned
premium 673.0 819.9 665.9 630.4 557.5
Underwriting
profit 14.8 22.6 20.7 67.8 81.2
Profit before
tax 34.6 42.8 57.6 123.7 127.5
Claims ratio
(%) 57.4 62.7 61.2 54.4 46.5
Expense Ratio
(%) 40.3 34.2 35.2 34.9 38.9
Combined
Ratio (%) 97.7 96.9 96.4 89.3 85.4
-------------- ---------- ----------- ----------- ----------- -----------
Portfolio
In 2010, Global Markets wrote GBP778.3m of gross premium across five underwriting divisions (2009: GBP875.3m). The portfolio is managed in two parts with a short-tail portfolio representing 66% and a long-tail portfolio representing 34%.
The short-tail portfolio consists of the Property & Space, Marine and Accident & Health divisions and underwrote GBP517.2m of gross premium in 2010, a reduction of 8.9% at constant currency. This reduction arose across all divisions although more than half of the reduction was the delayed effect of the withdrawal from US Medical Expenses in 2008. Property (36% of short-tail) and Marine (48% of short-tail) both saw premiums fall modestly during the year as the SBU managed competitive market conditions.
The Property portfolio consists of a broad-based book of business with particular strengths in the US through Property Financial (Lender Placed Property) and other US binding authority arrangements. Property coverage is offered on an "all risks" or named peril basis with associated extensions of coverage such as business interruption. Clients range from individual homeowners and small enterprises to Fortune 1000 companies. During the year the Direct and Facultative (D&F) property account, offering coverage for large individual risks, was extended to offer additional balance to the division.
Brit Insurance is recognised as one of the leading insurers in the Space arena and runs the leading London Market Aerospace consortium on behalf of a number of third party insurers. The Space team works closely with one of the world's largest satellite operators, Telesat, who provide valuable technical expertise. With a line size of US$40m it is a lead market globally for launch and in-orbit risks.
The Marine portfolio offers a broad array of coverages including Hull, Cargo and Energy (upstream and downstream) and Liability. Coverage is provided for both traditional (including nuclear) and renewable energy sources. During the year the SBU experienced growth in the Cargo and the Liability elements of the account, offset by reductions in Hull and Energy - upstream. Overall Hull, Energy and Cargo each account for approximately 25% of the division's premium.
Accident & Health is the smallest division in the short-tail portfolio and writes a selection of diverse classes including Bloodstock, Contingency and Personal Accident. Premium written fell by 35.9% at constant currency reflecting the delayed impact of the withdrawal from US Medical Expenses in 2008 and a significant contraction in the Bloodstock book.
The long-tail portfolio is split into two underwriting divisions - Specialty Lines (53%) and Professional Lines (47%). Since 2007 the SBU has made significant changes to the long-tail portfolio to insulate it from potential claims arising from economic uncertainty and to reflect the effect of lower investment returns on risk adjusted returns on capital.
The Specialty Lines division offers Legal Expenses coverage for adverse legal costs, Directors and Officers (D&O) coverage for individuals and corporations, as well as Financial Institutions insurance which can include crime and professional indemnity as well as D&O. Volumes across the Financial Institutions and D&O accounts reduced during the year as the SBU retained its underwriting discipline in the face of tough trading conditions. Financial Institutions and D&O now account for less than 40% of the division.
Within Professional Lines the SBU underwrites Professional Indemnity on a global basis. Professional Indemnity insurance protects a professional against liability arising from negligent advice. Particular areas of strength include law firms, architects & engineers and technology firms. Professional Lines is written in the open market and through a selected network of coverholders. During 2010 there was a material reduction in the areas of the International PI account which are no longer regarded as core.
The majority of Global Markets's business (82.2%) is written through the Group's Lloyd's Syndicate 2987 with the remainder through Brit Insurance Limited.
Brit Insurance Services USA Inc
Brit Insurance Services USA Inc (BISI) was established in Chicago in May 2009 and represents the SBU's first Group-owned overseas underwriting presence. BISI is a service company which underwrites risks on behalf of Global Markets using Syndicate 2987 as the insurance carrier. Initially, a GBP20m book of Public Entity and Religious package business previously underwritten in London was transferred to BISI. BISI is part of the Group's wider strategy to get closer to its underlying clients whilst continuing to recognise the importance of, and support for, London's position as a wholesale insurance market.
During 2010 the number of employees in BISI has grown from eight to 15 reflecting the build out of its infrastructure as well as additional underwriting capacity. Premium written by BISI grew by 39.5% in 2010 to US$43.4m as it expanded both the transferred book and its new Facultative Property offering.
Average to Outperform
As part of the Group's "Average to Outperform" agenda the SBU has made a number of important strides. In particular the SBU has developed and launched a new underwriting performance management portal which allows for a substantial amount of pre-underwriting ahead of renewals and significantly improves transparency around underwriting decisions.
Furthermore as a result of the decisive portfolio actions and improved focus over the last two years a number of previously underperforming classes are now showing profitable results - this includes Accident & Health following the withdrawal from US Medical Expenses.
In order to create further focus within the underwriting divisions, the Property division has been split into separate Open Market and Facilities divisions, each headed up by an internally appointed divisional director. A similar change to the Marine division is planned for 2011 and a separate Energy division will be formed. This new structure should enable more transparency within the underlying operating units within Global Markets and promote additional focus.
2010 Financial performance
Operating profit fell 19% to GBP34.6m as a result of lower premium volume and a higher burden from major claims.
Gross written premium fell by 11.8% at constant currency as the SBU continued its active management of the underwriting portfolio. Gross premium written fell by 36% in Accident and Health reflecting the withdrawal from US Medical Expenses. Specialty Lines premiums reduced by 10% as the Group continued its defensive stance in longer-tail casualty business. Premium reductions in the core short-tail lines of Marine (-2%) and Property (-7%) were lower, reflecting the continuation of better underwriting margins than longer tail lines.
Premium rates on renewed business were on average flat across the portfolio with most classes experiencing movements in the +1% to -1% range.
Premium Rating Index (Year 2000 as base year)
Full Full Full Full Full Full Full Full Full Full Full
year year year year year year year year year year year
--------------
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000
-------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Accident &
Health 173 172 170 169 164 152 149 142 131 100 n/a
Aerospace 171 188 203 215 254 268 260 237 202 158 100
Specialty
Lines 268 266 246 240 246 249 252 246 220 140 100
Professional
Lines 288 287 280 294 305 312 302 260 194 120 100
Marine 191 189 177 181 182 171 160 156 144 112 100
Property 158 161 156 168 171 151 152 155 150 112 100
-------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
The rate movements should be read with caution. They are based on underwriters' estimates of rate changes, including adjustments to terms and conditions. They relate to renewal business only, since this represents the business for which there is the best year-on-year data.
Global Markets's combined ratio of 97.7% deteriorated by 0.8 percentage points compared with 2009 as a result of higher major claims which offset a significant improvement in the attritional claims ratio. In particular underlying performance from the short-tail portfolio was positive. The SBU continued to reserve conservatively for the long-tail portfolio. Reserve releases of GBP9.6m were equivalent to 1.4 percentage points compared with GBP13.8m equivalent to 1.7 percentage points in 2009.
Claims experience during the year was mixed. The accident year attritional claims ratio improved by 8.4 percentage points reflecting the positive results from the portfolio actions taken by the SBU over the last two years. This was, however, partially offset by an increase in major claims arising from the earthquakes in Chile and New Zealand during 2010. Global Markets's share of the Group's major claims was GBP19.2m. Overall the claims ratio improved by 5.3 percentage points to 57.4%.
The SBU's focus on expense control resulted in a 13% reduction in management expenses, a reduction slightly higher than the move in gross written premium. The reported expense ratio rose to 40.3% as a result of an 18% fall in net earned premium, changes in business mix and higher regulatory levies.
Outlook
The key markets that Global Markets operates in are expected to remain competitive through 2011. In many respects this is similar to the "finely poised" message in last year's outlook. Consequently the SBU expects modest rate pressure to prevail in 2011 and in particular will continue its defensive position on longer tail casualty lines.
During 2011, the prospect for further growth within BISI will be assessed conservatively; where there are opportunities in London, the SBU will continue to manage its underwriting portfolio on a proactive basis.
Reinsurance
Vision
Reinsurance aims to build a diverse and high quality multi-class and multi-territory book of business by participating in this potentially high margin but volatile global business.
About Reinsurance
Reinsurance writes multi-class and multi-territory reinsurance with a focus on providing excess of loss reinsurance to a broad range of clients globally. The SBU transacts reinsurance business exclusively through broker intermediaries with clients ranging from small local mutual insurers to large well-known global insurance groups. It offers the capacity to quote and lead business, whilst aiming to deliver a first class all-round service to customers backed up by its specialist contractual documentation and claims handling teams.
The SBU accesses global business through its main underwriting operation in London with representative offices in Japan and Australia and a relationship office in Denmark. This structure is designed to maintain the SBU's profile overseas whilst balancing that with the needs of an efficient operating model in a cyclical market.
Year Year Year ended Year ended Year ended
ended 31 ended 31 31 31 31
Financial December December December December December
Performance 2010 2009 2008 2007 2006
GBPm GBPm GBPm GBPm GBPm
--------------- ---------- ---------- ----------- ----------- -----------
Gross written
premium:
Property
Treaty North
America 101.0 116.2 81.5 71.7 -
Property
Treaty
International 63.5 64.0 55.3 47.8 -
Property
Treaty - - - - 139.5
Casualty
Treaty 111.7 142.0 82.6 85.1 95.5
Marine XL 24.3 20.8 17.8 9.1 9.4
Reinsurance
Other 9.1 21.2 23.5 25.7 16.5
---------- ---------- ----------- ----------- -----------
Total 309.6 364.2 260.7 239.4 260.9
---------- ---------- ----------- ----------- -----------
Business led
(%) 35.9 36.0 33.9 29.6
Retention
ratio (%) 85.6 87.0 82.8 87.4
Net earned
premium 249.7 297.6 209.9 208.3 237.0
Underwriting
profit 28.3 57.6 13.9 35.4 50.3
Profit before
tax 37.2 66.1 30.8 61.0 76.5
Claims ratio
(%) 59.6 54.9 65.3 56.4 50.0
Expense ratio
(%) 28.6 25.0 26.4 26.6 28.8
Combined ratio
(%) 88.2 79.9 91.7 83.0 78.8
--------------- ---------- ---------- ----------- ----------- -----------
Portfolio
In 2010 the SBU wrote GBP309.6m of gross premium across its core specialist reinsurance classes of Property, Casualty and Marine.
The largest portfolio is Property Treaty which accounted for 53.1% of the account in 2010 (2009: 49.5%). This is split into two classes - North America (61%) and International (39%). Each offers reinsurance cover against catastrophe events or large individual claims arising from either man-made or natural events. The North America class is a combination of regional and nationwide business, but with a strong bias towards regionally-based clients who write specialised books of business.
The unit's second largest portfolio is Casualty Treaty which accounted for 36.1% of the SBU's premiums in 2010 (2009: 39.0%). The Casualty Treaty account combines a number of sub-classes including Personal Accident catastrophe, clash and individual per risk protection for General Liability, Professional Indemnity and Directors & Officers, as well as whole account coverage. The Casualty Treaty portfolio is almost entirely written on an excess of loss basis with approximately 40% of the book exposed to catastrophe-type events. Consequently the portfolio is less exposed to potential attrition-type claims experienced in economic downturns.
Other smaller areas of the reinsurance book include Marine and Agriculture. Both accounts generate high margins albeit with higher than average volatility. 54.1% of the SBU's business is classified as short-tail, with 16.0% medium-tail and 29.9% long-tail.
The Reinsurance SBU utilises each of the Group's insurance carriers with 64.7% written through Syndicate 2987 and 35.3% in Brit Insurance Limited (BIL). The majority of the SBU's North American business is written using Syndicate 2987, making use of the extensive licenses available whereas the majority of the International and European business is written through BIL. The use of two carriers aims to maximise returns on capital and to cater for client wishes where appropriate.
Average to Outperform
In line with the Group's "Average to Outperform" programme, the SBU has developed enhanced portfolio segmentation tools during the year. These tools have created improved transparency that allows each underwriter to segment his account on a contract by contract basis and has led to a full underwriting review on the worst performing 20% of the Reinsurance portfolio.
Furthermore the SBU has enhanced its management team by recruiting a Reinsurance Underwriting Director who reports directly to the Reinsurance SBU CEO and a new Head of Outwards Reinsurance. Both positions have attracted highly experienced individuals with backgrounds in insurance, reinsurance and broking.
2010 Financial Performance
In 2010 the Reinsurance SBU's underlying portfolio remained relatively stable. Gross written premium on a constant currency basis fell by 15.8% to GBP309.6m but this was almost entirely due to the non-recurrence of positive movements on the re-estimation of prior year premium for Casualty Treaty, Property Treaty North America and the Aviation XL run-off portfolio in 2009. Underlying premium growth on a constant currency basis and excluding re-estimates of prior year premium was -1.1% with modest underlying growth in Marine XL being offset by reductions in Property Treaty.
Average premium rates on renewals were up 0.4%. Movements were generally small across all classes with marginal increases on Casualty Treaty and International Property Treaty offsetting reductions in Property Treaty North America.
Premium Rating Index (Year 2000 as base year)
Full Full Full Full Full Full Full Full Full Full Full
year Year year year year year year year year year year
----------
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000
---------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Property
Treaty -
NA 234 238 215 234 221 159 155 154 149 110 100
Property
Treaty -
Int'l 114 113 108 109 107 98 98 100 n/a n/a n/a
Casualty
Treaty 243 241 226 230 234 228 230 215 182 115 100
Marine XL 356 331 279 288 286 193 183 179 171 115 100
---------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
The rate movements should be read with caution. They are based on underwriters' estimates of rate changes, including adjustments to terms and conditions. They relate to renewal business only, since this represents the business for which there is the best year-on-year data.
Reinsurance spend was GBP61.2m equivalent to 19.8% of gross written premium. Net written premium fell by 19.0% with net earned premium falling by 16.1%.
The SBU's combined ratio of 88.2% was 8.3 percentage points higher than 2009 directly as a result of higher Property Treaty International claims during the year. Major claims of GBP36.0m contributed 14.4 percentage points to the SBU's combined ratio and arose from earthquakes in Chile and New Zealand. The major claim burden in 2009 of GBP12.0m arose from the Air France plane crash and contributed 4.0 percentage points to the combined ratio,
Despite the well-publicised Deepwater Horizon event the Marine XL account produced a highly credible financial result for the year with a combined ratio of 86.0%. The circumstances of the loss led to rates hardening notably in the London market segment of the portfolio. The Agriculture XL account has produced another profitable year.
The combined ratio also benefited from reserve releases of GBP25.0m equivalent to 10.0 percentage points of net earned premium compared with a release of GBP24.1m (8.1 percentage points of net earned premium) in 2009. Reserve releases arose across all classes but with the highest contribution from Casualty Treaty.
It is a sign of the diverse nature of the Group's Reinsurance portfolio that in a year of heavy claim activity in International Property, the SBU still managed a combined ratio below 90%. This demonstrates the real diversification value of writing Casualty Treaty alongside the two Property Treaty classes.
The expense ratio increased by 3.6 percentage points to 28.6% (2009: 25.0%). Commission costs were stable at 17.5% whereas the non-commission expense ratio rose to 11.1% (2009: 7.6%)
Overall operating profit was GBP37.2m, a reduction of 43.7% compared with 2009 but still a credible result given the major claim activity during the period.
Outlook
The outlook for 2011 is mixed. A benign US hurricane season (from an insurance perspective) will likely put downward pressure on US pricing; however, if the reinsurance industry continues to behave in a disciplined manner this should be manageable. In 2010 the International Property market has seen claims of more than US$15bn from earthquakes in Chile and New Zealand as well as floods and hailstorms in Australia; it is expected that this will stabilise pricing generally and increase rates on claim-affected business. Furthermore a new version of one of the leading catastrophe modelling software programmes launching in late February 2011 is expected to support pricing in the US Property Catastrophe arena.
The Casualty Treaty portfolio remains one of the differentiating factors for the SBU. Within this, pricing for short-tail business remains competitive but there is generally less available capacity than in the Property arena.
The SBU will continue to focus on optimising its portfolio and position the account for the opportunities that will inevitably arise.
UK
Vision
The UK SBU has established itself as a key provider to the regional UK market and aims to be a significant player in its chosen market segments. Ease of access, expertise, service and execution skills will differentiate the SBU from its peers.
About the UK SBU
The UK SBU underwrites a diverse book of UK commercial insurance through a combination of regional, national and international brokers. The SBU's target market focuses on sole traders through to corporates with turnover of up to GBP300m. Over the last three years the Group has been successful in developing online trading solutions for micro-SME business, underwriting commercial insurance with premium values typically less than GBP2,000 per policy. The UK SBU has a carefully targeted distribution strategy with 80% of its commercial business sourced through its top 75 brokers.
Year Year Year Year Year
ended 31 ended 31 ended 31 ended 31 ended 31
Financial December December December December December
Performance 2010 2009 2008 2007 2006
GBPm GBPm GBPm GBPm GBPm
------------------- --------- ---------- ---------- ---------- ----------
Gross written
premium:
Employers'/Public
Liability 116.0 116.7 103.5 89.8 91.4
Professional
Indemnity/D&O 33.5 38.3 34.0 36.3 36.7
Motor 81.6 115.2 87.3 63.8 91.3
Property &
Commercial
Packages 210.1 185.2 125.8 84.1 60.5
Total 441.2 455.4 350.6 274.0 279.9
--------- ---------- ---------- ---------- ----------
Business led (%) 92.5 94.1 91.2 87.1
Retention ratio
(%) 66.4 68.6 78.0 72.3
Net earned premium 376.2 362.4 259.9 262.8 251.2
Underwriting
profit/(loss) 0.3 0.9 1.5 (24.3) 7.7
Profit before tax 14.3 14.2 35.7 15.8 40.4
Claims ratio (%) 64.7 66.7 66.4 76.3 69.6
Expense ratio (%) 35.1 33.0 32.9 33.0 27.3
Combined ratio (%) 99.8 99.7 99.3 109.3 96.9
------------------- --------- ---------- ---------- ---------- ----------
Portfolio
In 2010, the UK SBU underwrote GBP441.2m of gross premium in four main classes of business.
The UK SBU's largest class of business is Property and Commercial Packages which accounts for 47.6% of the portfolio. The SBU underwrites a wide range of property from shops and offices through to large manufacturing and warehouse risks as well as mid to high net worth home insurance. The portfolio is underwritten directly through brokers, or through specialist coverholders. During 2010 the SBU withdrew from the Local Authority (Municipal) market as pricing levels did not reflect the anticipated outlook for claims.
Liability, which accounts for 26.3% of the portfolio, is split into Employers' Liability insurance, which is a compulsory purchase in the UK, and Public/Products Liability. Within this account the SBU underwrites a specialist book focusing on a number of industries including construction. In addition the SBU has a strong presence in electronically traded covers and more broadly based risks sourced through its regional network. It also participates on a small number of International programmes.
The Motor insurance portfolio consists of commercial - fleets and haulage, as well as specialist personal motor. Motor insurance accounted for 18.5% of the portfolio in 2010, down from 25.3% in 2009. During 2010 the SBU substantially reduced its exposure to Private Motor as part of its ongoing management of the UK underwriting portfolio.
The smallest element of the portfolio relates to Professional Lines, which includes Professional Indemnity (PI) and Directors and Officers (D&O) insurance. This accounts for 7.6% of the portfolio, with the vast majority being PI sourced through both London and regional offices. The SBU has also developed a PI product especially tailored for the micro-SME market.
The UK SBU is committed to operating a regional office structure and opened its first office outside London in 2003. It now has nine offices serving the key insurance markets across the UK. The offices outside London experienced further premium growth in 2010 and on an underwriting year basis now represent 30% of the SBU's portfolio, up from 20% three years ago. These offices transact business that is placed locally and does not normally reach the London market. Without an established regional office network, the UK SBU would not be able to access this business.
Consistency in underwriting in the UK SBU is achieved through the use of a matrix approach. Each portfolio class, e.g. Property, Liability, Fleet and Financial Lines, has a Portfolio Manager who is responsible for managing the technical integrity of the portfolio. This includes setting the underwriting and pricing guidelines across each of the distribution platforms.
In 2010 the UK SBU wrote 28.8% of the Group's gross premium which was split 47.3% short-tail, 18.5% medium-tail and 34.2% long-tail. Brit Insurance Limited (BIL) is the carrier for the majority of the SBU's business (87.4%) with Syndicate 2987 (12.6%) primarily used for the international elements of the portfolio.
Micro insurance
During 2010, the SBU continued to develop its distribution edge in the small commercial and micro-SME insurance market.
Brit Lite, which focuses on providing commercial insurance to businesses typically with fewer than 10 employees and insurance spend of less than GBP2,000, has grown to represent 12% of the SBU's portfolio from a standing start in 2007. The success of the proposition has been built on providing a flexible offering to brokers backed up with experienced referrals support, a comprehensive product range, and rapid speed of execution. Customers can access the SBU's suite of products via carefully selected partners either through the traditional broking channel or through e-trading. The SBU's largest e-trading relationship is with Simply Business, an online insurance broker. The Group has a 38.4% shareholding in Simply Business which is owned by Xbridge Limited.
Average to Outperform
As part of the Group's "Average to Outperform" agenda, the SBU has been active in managing its UK underwriting portfolio. In particular in early 2010 the SBU exited Local Authority (Municipal) business as pricing levels did not compensate for the expectation of a more difficult claims environment arising from a squeeze on public sector budgets. Furthermore the SBU decided to reduce substantially its Private Motor portfolio to concentrate on the commercial elements of its motor portfolio. Private Motor peaked at 11% of the SBU's premiums but recent structural developments have reduced its attractiveness. It is no longer viewed as a sustainable class of business for the Group.
2010 Financial performance
Gross written premium fell by 3.1% to GBP441.2m. The headline decline in premium was a direct result of the withdrawal from Local Authority (Municipal) business and the substantial reduction in the Private Motor account. The Property account posted healthy growth of 21.2% as a number of contract wins from previous years started to deliver. The Liability account fell by 1.2%, reflecting the tough stance taken by the SBU's underwriters in declining business under the most pricing pressure.
Increases in premium rates on renewed business for 2010 averaged 3.0%. Within this, all lines posted positive rate movements although the Property and Liability accounts have not yet experienced a significant turn in pricing.
Premium Rating Index (Year 2000 as base year)
Full Full Full Full Full Full Full Full Full Full Full
Year Year year year year year year year year year year
-------------------
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000
------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Employers'/Public
Liability 206 205 206 217 237 257 284 286 200 100 n/a
Professional
Indemnity/D&O 110 107 105 111 118 130 132 130 100 n/a n/a
Motor 132 118 108 101 104 111 122 120 115 108 100
Property 124 124 121 122 125 130 131 132 123 104 100
------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
The rate movements should be read with caution. They are based on underwriters' estimates of rate changes, including adjustments to terms and conditions. They relate to renewal business only, since this represents the business for which there is the best year-on-year data.
Reinsurance spend was similar to 2009 and net earned premium increased by 3.8% as premium written in previous periods was earned.
The combined ratio of 99.8% was in line with 2009 (2009: 99.7%). The claims ratio improved by 2.0 percentage points as recent portfolio actions - together with modestly higher premium rates - began to have an effect. The claims ratio also benefited from a continuation of positive reserve development from prior years with GBP39.0m of releases during 2010 (2009: GBP41.2m), equivalent to 10.4 percentage points of net earned premium (2009: 11.4 percentage points). Reserve releases arose predominately from the Liability class of business.
The result includes GBP8.0m in relation to net claims arising from the UK freeze in December 2010 which added 2.1 percentage points to the claims ratio.
The unit's expense base remained under control with the expense ratio marginally higher at 35.1%. The increase was almost entirely due to a higher commission ratio as business non-renewed as part of the portfolio actions during the year tended to have lower acquisition costs than the ongoing portfolio.
Operating profit for the UK SBU rose by 0.7% to GBP14.3m.
Outlook
The UK market continues to experience premium rate rises but these remain below the level needed to restore accident year profitability to the wider market. If this situation continues there is a significant risk that, when premium rates do finally turn, the scale of the required rate increases will be detrimental to the reputation of the UK insurance sector.
During this tough phase of the market the UK SBU is determined to continue to deliver first class service and support to its clients, brokers and coverholders. In particular the SBU's regional network of offices enables it to demonstrate commitment to national and regional brokers alike.
Investments
Strategy
The Group allocates its investment holdings into one of three internal portfolios - the liability portfolio, the working capital portfolio and the capital portfolio.
The largest portfolio represents funds that are expected to be called upon to pay claims to policyholders (the liability portfolio). These liabilities are segmented by currency and legal entity, and a benchmark is chosen for each segment that matches the characteristics of the liabilities. The investment objective in the liability portfolio is safety, liquidity and return of capital. Assets are primarily allocated to high quality fixed income securities.
The remaining investments, net of cash held in treasury (the working capital portfolio), are allocated to the capital portfolio. The objective of this portfolio is to support the long-term growth of shareholders' funds by earning a competitive return on capital. The current benchmark for the capital fund is LIBOR + 3%, which was comfortably exceeded during 2010. Assets are allocated to all types of fixed income securities (including corporates, mortgages and index-linked bonds), equities and alternative assets.
The Group adheres to a detailed set of investment guidelines that have been approved by the Board. The guidelines have been constructed with the intention of allowing the Group to achieve a competitive investment return while minimising the risk of a meaningful reduction in capital arising from market volatility. All material decisions regarding the allocation of assets within the guidelines are taken by the Investment Committee.
Performance
In 2010 the Group's investments produced a total return for the year of GBP113.4m (3.2%), compared to a return of GBP137.4m (4.2%) in 2009.
Year ended Year ended
Investment return 31 December 2010 31 December 2009
-------------------- --------------------
GBPm % GBPm %
--------------------------- ---------- -------- ---------- --------
Equity securities 17.6 16.5 13.8 17.5
Debt securities 80.0 3.1 92.5 4.5
Specialised investment
funds 11.3 11.8 17.9 19.2
Cash and cash equivalents 4.5 0.5 13.2 1.5
---------- -------- ---------- --------
Total portfolio 113.4 3.2 137.4 4.2
--------------------------- ---------- -------- ---------- --------
The fixed income portfolio return of 3.1% was lower than last year's 4.5%. The drivers of performance during 2010 were quite different when compared to 2009. Over 2010, the US Treasury yield curve rallied by between 50 to 70 basis points for two to ten year yields, while in the UK the Gilt curve flattened as it rallied. In the UK, shorter-term two to four year yields rallied by about 20 basis points, while the longer end of the yield curve rallied by about 50 basis points. Within this context higher returns were available for longer durations in both the UK and in US.
The Group continued to hold corporate exposure at the upper end of its guideline limits throughout the year and corporate bonds generally outperformed government bonds as spreads tightened modestly. Over 2010 the Group initiated two new fixed income mandates which helped to maintain and manage its interest rate and credit exposures.
The equities and the specialised investment funds performed well during 2010. The equity portfolio provided a return of 16.5%, albeit with periods of volatility, whilst specialised investment funds produced a return of 11.8%. Illiquid equity investments were exited and replaced by high quality dividend yielding companies in the directly managed portfolios together with new long-only equity funds.
Specialised investment funds were further streamlined as a result of redemptions, takeovers and restructurings.
Asset Allocation
Asset allocation by
asset class 31 December 2010 31 December 2009
GBPm % GBPm %
--------------------------- ---------- ------- ---------- -------
Equity securities 125.7 3.5 102.0 2.9
Debt securities 2,692.7 76.0 2,282.4 65.7
Specialised investment
funds 102.6 2.9 96.7 2.8
Cash and cash equivalents 623.4 17.6 994.2 28.6
---------- ------- ---------- -------
Total 3,544.4 100.0 3,475.3 100.0
--------------------------- ---------- ------- ---------- -------
Brit Insurance entered the year with high cash balances and a high weighting in corporate bonds towards the top of the range established by the Group's investment guidelines. The overweight position in corporate credit was broadly maintained throughout 2010 as non-financial corporate issues were added to the portfolio. Cash balances declined during most of 2010 and were reinvested in debt securities. It is expected that cash holdings will continue to decline during the first half of 2011.
Breakdown of debt securities at 31 December 2010
BBB and
GBPm Government P-1 AAA AA A lower Total
------------- ----------- ------ ------ ------ ------ -------- --------
Government
issue* 1,435.5 - - - - - 1,435.5
Corporate
bonds - - 21.6 211.6 514.7 87.7 835.6
CDs and CPs - 279.7 - - - - 279.7
Other - - 141.9 - - - 141.9
----------- ------ ------ ------ ------ -------- --------
1,435.5 279.7 163.5 211.6 514.7 87.7 2,692.7
------------- ----------- ------ ------ ------ ------ -------- --------
* All government issue bonds are from either the US, Canada, UK or eurozone countries.
Breakdown of debt securities at 31 December 2009
BBB and
GBPm Government P-1 AAA AA A lower Total
------------- ----------- ------ ------ ------ ------ -------- --------
Government
issue* 1,045.5 - - - - - 1,045.5
Corporate
bonds - - 163.3 218.5 282.9 58.1 722.8
CDs and CPs - 346.9 - - - - 346.9
Other - - 111.1 42.7 13.4 - 167.2
----------- ------ ------ ------ ------ -------- --------
1,045.5 346.9 274.4 261.2 296.3 58.1 2,282.4
------------- ----------- ------ ------ ------ ------ -------- --------
* All government issue bonds are from either the US, Canada, UK or eurozone countries.
At 31 December 2010 the Group held GBP12.5m in debt securities relating to Italy and Spain. The Group had no direct holdings in debt securities relating to Portugal, Greece or Ireland.
During the first half of the year, additional investments were made in asset-backed securities (ABS), residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS). Holdings at 31 December 2010 totalled GBP139.4m and were all rated AAA.
Investments by currency 31 December 2010 31 December 2009
GBPm % GBPm %
------------------------- ---------- ------- ---------- -------
Sterling 1,787.5 50.4 1,780.1 51.2
US dollar 1,224.1 34.5 1,226.6 35.3
Euro 387.8 11.0 348.2 10.0
Canadian dollar 145.0 4.1 120.4 3.5
---------- ------- ---------- -------
Total 3,544.4 100.0 3,475.3 100.0
------------------------- ---------- ------- ---------- -------
The Group remained conservatively positioned during 2010 with respect to asset duration although both Sterling and US dollar duration increased slightly during the year. Duration in the US dollar portfolio ended the year at 1.8 years with the duration of the Sterling portfolio also at 1.8 years. The duration of both portfolios is likely to increase further during 2011.
Debt securities (ex CDs/CPs) 31 December 2010 31 December 2009 duration Years Years Sterling 1.8 1.2 US dollar 1.8 1.5 Euro 2.1 1.4 Canadian dollar 1.8 1.6 ------------------------------ ----------------- -----------------
Outlook
The outlook for the Group's investment return remains challenging. The macro issues will continue to focus on concerns surrounding peripheral Europe, fears of overheating and inflation in the emerging markets and ultimately a normalisation of monetary policies in the developed world. In markets the search for income will remain a powerful driver and 2011 may see investors seeking it in increasingly unfamiliar places. In such an environment Brit Insurance believes a conservative approach remains appropriate, but will continue to explore new opportunities.
Consolidated Income Statement
for the year ended 31 December 2010
Year ended Year ended
31 December 31 December
2010 2009
Note GBPm GBPm
Revenue
Gross premiums written 5 1,530.2 1,696.4
Less premiums ceded to reinsurers 5 (251.8) (225.0)
----------------------------------------- ----- ------------- -------------
Premiums written, net of reinsurance 1,278.4 1,471.4
Gross amount of change in provision for
unearned premiums 20.5 (0.3)
Reinsurers' share of change in provision
for unearned premiums 3.4 (7.2)
Net change in provision for unearned
premiums 23.9 (7.5)
Earned premiums, net of reinsurance 1,302.3 1,463.9
----------------------------------------- ----- ------------- -------------
Investment return 6 113.4 137.4
Return on derivative contracts (1.9) (4.1)
Disposal of associated undertakings (0.4) 4.2
Net foreign exchange gains 7 29.3 -
Other income - 1.4
Total revenue 1,442.7 1,602.8
----------------------------------------- ----- ------------- -------------
Expenses
Claims incurred:
Claims paid:
Gross amount (926.2) (792.2)
Reinsurers' share 181.6 110.8
----------------------------------------- ----- ------------- -------------
Claims paid, net of reinsurance (744.6) (681.4)
Change in the provision for claims:
Gross amount (38.5) (262.1)
Reinsurers' share (13.5) 12.8
----------------------------------------- ----- ------------- -------------
Net change in the provision for claims (52.0) (249.3)
Claims incurred, net of reinsurance 5 (796.6) (930.7)
Acquisition costs (396.1) (396.9)
Other operating expenses (117.8) (111.6)
Net foreign exchange losses 7 - (33.4)
Total expenses excluding finance costs (1,310.5) (1,472.6)
----------------------------------------- ----- ------------- -------------
Operating profit 132.2 130.2
Finance costs (14.0) (11.5)
Share of loss after tax of associated
undertakings (1.8) (2.3)
Profit on ordinary activities before tax 116.4 116.4
Tax expense 8(i) (5.9) (28.9)
Profit attributable to owners of the
parent 110.5 87.5
----------------------------------------- ----- ------------- -------------
Basic earnings per share (pence per 9 142.4p 113.2p
share) (restated for 25 February 2010
share consolidation)
Diluted earnings per share (pence per 9 142.4p 113.2p
share) (restated for 25 February 2010
share consolidation)
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2010
Year ended Year ended
31 December 31 December
2010 2009
Note GBPm GBPm
Profit for the year 110.5 87.5
------------------------------------------------ ------------- -------------
Other comprehensive income
Actuarial gains/(losses) on defined benefit
pension scheme 8.1 (2.5)
Tax relating to actuarial
gains/(losses) on defined benefit
pension scheme 8(ii) (2.2) 0.7
Foreign exchange differences arising on the
revaluation of foreign operations - 0.1
Reversal of foreign exchange translation
differences resulting from the disposal of
foreign operations - (4.2)
Effect of associates' capital
movements 0.3 -
--------------------------------------- ------- ------------- -------------
Other comprehensive income for the year net
of tax 6.2 (5.9)
Total comprehensive income for the
year
attributable to owners of the parent 116.7 81.6
------------------------------------------------ ------------- -------------
Consolidated Statement of Financial Position
at 31 December 2010
31 December 31 December
2010 2009
Note GBPm GBPm
Assets
Property, plant and equipment 6.5 6.0
Intangible assets 81.8 81.2
Deferred acquisition costs 166.7 162.4
Investments in associated undertakings 15.3 15.3
Current taxation 19.5 -
Reinsurance contracts 10 519.5 523.5
Employee benefits 9.6 -
Financial investments 11 2,921.0 2,481.1
Derivative contracts 0.4 0.6
Insurance and other receivables 540.8 537.0
Cash and cash equivalents 12 623.4 994.2
Total assets 4,904.5 4,801.3
------------------------------------------- ----- ------------ ------------
Liabilities and Equity
Liabilities
Insurance contracts 10 3,485.3 3,439.4
Employee benefits - 4.1
Borrowings 13 168.4 237.6
Current taxation 10.3 4.7
Deferred taxation 15.6 19.0
Provisions 1.6 0.3
Derivative contracts - 0.9
Insurance and other payables 251.7 200.7
Total liabilities 3,932.9 3,906.7
------------------------------------------- ----- ------------ ------------
Equity
Called up share capital 16 221.9 277.9
Share premium account 615.9 612.0
Own shares (9.8) (10.7)
Retained earnings 143.6 15.4
Total equity attributable to owners of the
parent 971.6 894.6
------------------------------------------- ----- ------------ ------------
Total liabilities and equity 4,904.5 4,801.3
------------------------------------------- ----- ------------ ------------
Net assets per share (pence per share) 9 1,245.6p 1,156.8p
(restated for 25 February 2010 share
consolidation)
------------------------------------------- ----- ------------ ------------
Net tangible assets per share (pence per 9 1,140.8p 1,052.0p
share) (restated for 25 February 2010
share consolidation)
------------------------------------------- ----- ------------ ------------
Consolidated Statement of Cash Flows
for the year ended 31 December 2010
Year ended Year ended
31 December 31 December
2010 2009
Note GBPm GBPm
Cash generated from operations
Cash flows provided by operating
activities 17 (317.7) 73.5
Tax paid (25.4) (32.1)
Interest paid (13.2) (11.3)
Interest received 98.6 116.0
Dividends received 7.1 2.4
Net cash (outflows)/inflows from
operating activities (250.6) 148.5
----------------------------------------- ----- ------------- -------------
Cash flows from investing activities
Purchase of property, plant and
equipment (4.3) (1.0)
Purchase of intangible assets (5.4) (5.5)
Net proceeds from disposals of
associated undertakings 0.7 15.4
Movements in associated undertaking loan
and preference share balances (2.6) (3.8)
Net cash (outflows)/inflows from
investing activities (11.6) 5.1
----------------------------------------- ----- ------------- -------------
Cash flows from financing activities
Equity dividends paid 14 - (46.4)
Capital distributions paid 15 (41.1) -
Proceeds from exercised share options 0.1 -
(Repayment)/draw down on revolving
credit facility (70.0) 104.8
Repurchase of US dollar floating rate
unsecured subordinated loan notes - (9.1)
Acquisition of own shares for employee
incentive schemes (6.4) (0.4)
Net cash (outflows)/inflows from
financing activities (117.4) 48.9
----------------------------------------- ----- ------------- -------------
Net (decrease)/increase in cash and cash
equivalents (379.6) 202.5
Cash and cash equivalents at beginning
of the year 994.2 840.7
Effect of exchange rate fluctuations on
cash and cash equivalents 8.8 (49.0)
------------- -------------
Cash and cash equivalents at the end of
the year 12 623.4 994.2
----------------------------------------- ----- ------------- -------------
Consolidated Statement of Changes in Equity
for the year ended 31 December 2010
Called Total equity
up Share Capital attributable
share premium redemption Translation Own Retained to owners of
Note capital account reserve reserve shares earnings the parent
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- -------- ----------- ------------ ------- --------- -------------
At 1 January
2010 277.9 612.0 - - (10.7) 15.4 894.6
------------ --------- -------------
Total
comprehensive
income for
the year - - - - - 116.7 116.7
Capital
distributions 15 (45.7) 3.9 - - - 0.7 (41.1)
Exchange
difference on
retranslation
of share
capital (10.3) - - - - 10.3 -
Acquisition of
own shares
for share
schemes - - - - (6.4) - (6.4)
Vesting of own
shares - - - - 7.3 (7.2) 0.1
Share-based
payments - - - - - 7.7 7.7
At 31 December
2010 221.9 615.9 - - (9.8) 143.6 971.6
--------------- ----- -------- -------- ----------- ------------ ------- --------- -------------
Consolidated Statement of Changes in Equity
for the year ended 31 December 2009
Called Total equity
up Share Capital attributable
share premium redemption Translation Own Retained to owners of
Note capital account reserve reserve shares earnings the parent
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- -------- ----------- ------------ ------- --------- -------------
At 1 January
2009 247.3 - - 4.1 (64.2) 662.5 849.7
------------ --------- -------------
Total
comprehensive
income for the
year - - - (4.1) - 85.7 81.6
Cancellation of
treasury
shares (11.9) - 11.9 - 53.4 (53.4) -
Equity
dividends 14 - - - - - (46.4) (46.4)
Corporate
reorganisation (235.4) (11.9) - - 247.3 -
Establishment
of Brit
Insurance
Holdings N.V. 278.7 612.0 - - - (890.7) -
Exchange
difference on
retranslation
of share
capital (0.8) - - - - 0.8 -
Acquisition of
own shares for
share schemes - - - - (0.4) - (0.4)
Vesting of own
shares - - - - 0.5 (0.5) -
Share-based
payments - - - - - 10.1 10.1
At 31 December
2009 277.9 612.0 - - (10.7) 15.4 894.6
---------------- ----- -------- -------- ----------- ------------ ------- --------- -------------
Notes to the Financial Statements
1 General information
Brit Insurance Holdings N.V. (the Company) was incorporated and registered in the Netherlands on 22 June 2009 as a public company limited by shares with registered number 24464323. The address of the registered office is provided in the company's website at www.britinsurance.com.
2 Accounting policies
The preliminary results have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU).
This preliminary announcement is prepared on the same basis as set out in the previous year's annual accounts with the exception of the following:
During the year the Group has adopted IFRS 3R: 'Business Combinations', IAS 27R: 'Consolidated and Separate Financial Statements', IFRIC 17: 'Distributions of Non-Cash assets to Owners' and IFRIC 18: 'Transfers of Assets from Customers'. The adoption of these standards has had no effect on the consolidated financial statements for the year ended 31 December 2010.
Share consolidation
On 25 February 2010, the Company undertook a consolidation of its share capital, such that the shareholders received one ordinary EUR4 share for every four ordinary EUR1 shares owned as at that date. All comparatives have been restated for the share consolidation.
Basis of preparation
The preliminary results have been prepared in accordance with IFRS and Part 9 of Book 2 of the Dutch Civil Code. IFRS comprises standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) and as endorsed by the EU.
At the date of authorisation of these financial statements, the following standards which have not been applied in these financial statements were in issue but not yet effective:
Standard Effective
IFRS 9 Financial Instruments Periods commencing on or after
1 January 2013
IAS 24R Related Party Disclosures Periods commencing on or after
1 January 2011
Amendments to IAS 32 Classification Periods commencing on or after
of a Rights Issue 1 February 2010
IFRIC 14 Prepayments of a Minimum Funding Periods commencing on or after
Requirement 1 January 2011
IFRIC 19 Extinguishing Financial Liabilities Periods commencing on or after
with Equity Instruments 1 July 2010
--------------------------------------------- -------------------------------
The impact of IFRS 9 is still being evaluated. The Directors anticipate that the adoption of the other standards in future periods will have no material impact on the financial statements of the Group.
In accordance with IFRS 4, 'Insurance Contracts', the Group continues to comply with the recommendations of the Statement of Recommended Practice on Accounting for Insurance Businesses issued by the Association of British Insurers in December 2005 (as revised in December 2006). However the Group has the option to make improvements to its policies if the changes make the financial statements more relevant and no less reliable to the decision making needs of the users.
Certain amounts recorded in the financial information include estimates and assumptions made by management, particularly about insurance liability reserves, investment valuations, interest rates and other factors. Actual results may differ from the estimates made. For further information on the use of estimates and judgements, refer to Note 3.
3 Critical accounting estimates and judgements in applying accounting policies
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
i) The ultimate liability arising from claims made under insurance contracts
The estimation of the ultimate liability arising from claims made under insurance contracts is the Group's most critical accounting estimate. There are several sources of uncertainty that need to be considered in the estimate of the amounts that the Group will ultimately pay to settle such claims.
Significant areas requiring estimation and judgement include:
a) estimates of the amount of any liability in respect of claims notified but not settled and incurred but not reported claims provisions (IBNR) included within provisions for insurance and reinsurance contracts.
b) the corresponding estimate of the amount of reinsurance recoveries which will become due as a result of these estimated claims.
c) the recoverability of amounts due from reinsurers.
d) estimates of the proportion of exposure which has expired in the period as represented by the earned proportion of premiums written.
The assumptions used and the manner in which these estimates and judgements are made are set out below:
a) quarterly statistical data is produced in respect of gross and net premiums and claims (paid and incurred).
b) projections are produced by an internal actuarial department, with appropriate adjustment for specific claims made by management where deemed appropriate.
c) the resulting projections are discussed with experienced underwriting and claims personnel and claims provision recommendations made to an internal reserving committee consisting of senior underwriters, claims managers and finance staff.
d) claims provisions are subject to independent external actuarial review at least annually.
e) some classes of business have characteristics which do not necessarily lend themselves easily to statistical estimation techniques. These classes would include Financial Risk, Casualty Treaty, Catastrophe Retrocessional and Mortgage Indemnity Guarantee business. In these cases review is carried out on a policy-by-policy basis to support statistical estimates.
f) in the event of catastrophe losses and prior to detailed claims information becoming available, claims provision estimates are compiled using a combination of specific recognised modelling software and reviews of material contracts exposed to the event in question.
Overall the objectives of the estimates and judgements applied to claims provisions seek to state such provisions on a best estimate, undiscounted basis.
In addition to claims provisions, the reserve for future loss adjustment expenses is also subject to estimation. In arriving at this estimate, regard is had to the levels of internal and third party loss adjusting expenses incurred annually. The estimated loss adjustment expenses are expressed as a percentage of net claims reserves and are benchmarked to assess the reasonableness of the estimate.
Further judgements are made as to the recoverability of amounts due from reinsurers. Provisions for bad debts are made specifically, based on the solvency of reinsurers, internal and external ratings, payment experience with them and any disputes of which the Group is aware.
The carrying value at the date of the statement of financial position of gross claims reported and loss adjustment expenses and claims incurred but not reported were GBP2,818.5m (2009: GBP2,752.1m) as set out in Note 10 to the accounts.
The amount of reinsurance recoveries estimated at that date is GBP453.0m (2009: GBP460.4m).
ii) Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value, both of which are material sources of uncertainty.
The carrying amount of goodwill at the date of the statement of financial position was GBP63.7m (2009: GBP63.7m).
iii) Financial investments
Financial investments are carried in the statement of financial position at fair value. The carrying amount of financial investments at the date of the statement of financial position was GBP2,921.0m (2009: GBP2,481.1m). Determining the fair value of certain investments requires estimation.
For further information, refer to Note 11.
4 Risk management policies
The Group's activities expose the business to a number of key risks which have the potential to affect its ability to achieve its business objectives. The following describes the Group's financial and insurance risk management from a quantitative and qualitative perspective.
The Board is responsible for the Group's systems of internal control and for reviewing their effectiveness. The systems of internal control are designed to manage rather than eliminate risk and aim to provide reasonable and not absolute assurance. Group underwriting activities are co-ordinated through a system of strategic business unit management committees as well as the Executive Management Committee and the Boards for the regulated entities. Investment risk is managed in accordance with investment frameworks which are set by the Investment Committee which meets monthly.
Financial risk
(i) Credit risk
This is the risk that one party to a financial arrangement will fail to discharge an obligation and cause the other party to incur a financial loss. The following is an overview of how the Group manages its significant credit risk exposures.
Reinsurance assets
Reinsurance is placed in line with policy guidelines and concentration of risk is managed by reference to counterparties' limits that are set each year and are subject to regular reviews. On a regular basis management performs assessments of creditworthiness of reinsurers to update reinsurance purchase strategy and to ascertain suitable allowance for impairment of reinsurance assets.
Financial investments and cash and cash equivalents
Credit risk relating to financial investments and cash and cash equivalents is monitored by the Investment Committee. The Group's investment guidelines specify the maximum percentage of the portfolios that can be invested in or with any single counterparty - these limits are determined using the Moody's or other recognised credit rating of each asset. In addition the Group's Investment Committee will from time to time impose special limits on assets that are deemed more at risk than the rating agencies currently imply.
Derivative contracts
The Group may use derivatives from time to time, with prior approval from the Investment Committee. The four main derivative classes are credit derivatives, foreign exchange forwards and options, interest rate derivatives and equity index options. Derivatives are only used for the purposes of efficient portfolio management, reduction in investment risk and to mitigate the credit risk of certain reinsurance counterparties.Credit risk with respect to derivatives, where deemed necessary, is controlled with the implementation of collateral agreements with derivative counterparties that put a finite limit on the credit risk of each transaction.
Insurance receivables
The Group credit risk is in respect of balances with customers, intermediaries and reinsurers. The Group seeks to reduce its credit exposure to intermediaries through application of its internal credit vetting processes and its active credit control procedures. Wherever possible, the Group includes premium payment warranties in its terms and conditions which gives it the right to cancel policies in the event of non-payment. Insurance receivables are made up of debtors arising out of direct and reinsurance operations.
The following credit risk table in respect of monetary assets and derivatives provides information regarding the credit risk exposure of the Group by classifying the assets according to credit ratings of the counterparties. Ratings in respect of financial investments and cash and cash equivalents are from the Moody's rating scale and ratings in respect of reinsurance assets are from the Standard and Poor's rating scale. These amounts represent the maximum credit risk exposure.
31 December 2010
BBB
and Not
Government AAA AA A P-1 below Collateralised Equities rated Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Reinsurance
assets (a) - 0.6 164.2 197.8 - 5.7 71.2 - 13.5 453.0
Financial
investments (b) 1,435.5 163.5 211.6 514.7 279.7 87.7 - 125.7 102.6 2,921.0
Derivative
contracts - - - - - - - - 0.4 0.4
Insurance
receivables (c) - - - - - - - - 498.0 498.0
Cash and
cash
equivalents (d) - 356.8 96.0 11.2 88.2 71.2 - - - 623.4
------------- ----- ------ ------ ------ ------ ------ --------------- --------- ------ --------
1,435.5 520.9 471.8 723.7 367.9 164.6 71.2 125.7 614.5 4,495.8
------------------- ----------- ------ ------ ------ ------ ------ --------------- --------- ------ --------
31 December 2009
BBB
and Not
Government AAA AA A P-1 below Collateralised Equities rated Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Reinsurance
assets (a) - 7.7 178.7 176.3 4.0 75.4 - 18.3 460.4
Financial
investments (b) 1,045.5 274.4 261.2 296.3 346.9 58.1 - 102.0 96.7 2,481.1
Derivative
contracts - - - - - - - - 0.6 0.6
Insurance
receivables (c) - - - - - - - - 493.4 493.4
Cash and
cash
equivalents (d) - 613.3 63.1 138.7 33.6 145.5 - - - 994.2
------------- ----- ------ ------ ------ ------ ------ --------------- --------- ------ --------
1,045.5 895.4 503.0 611.3 380.5 207.6 75.4 102.0 609.0 4,429.7
------------------- ----------- ------ ------ ------ ------ ------ --------------- --------- ------ --------
a Amounts recoverable from reinsurers on claims reported and loss adjustment expenses and claims incurred
b Financial investments categorised as government, are bonds issued by the governments of Eurozone countries, the UK, Canada and the US.
c Insurance receivables arising out of direct and reinsurance operations.
d Insurance receivables are generally due from customers and intermediaries who are unlikely to seek ratings as part of their normal course of business.
At 31 December 2010, the Group held GBP12.5m in debt securities relating to Italy and Spain. The Group had no direct holdings in debt securities relating to Portugal, Greece or Ireland.
Impairment
The Group considers reinsurer ratings, notified disputes and collection experience in determining which assets should be impaired.
The following table shows the movements in impairment provisions during the year.
Impairment provision Impairment provision
against reinsurance against insurance
assets receivables
------------------------- ------------------------
31
31 31 December December 31 December
December 2009 2010 2009
2010 GBPm GBPm GBPm GBPm
------------------------- ----------- ------------ ---------- ------------
1 January 12.4 15.5 6.3 5.1
(Release)/strengthening
for the year (1.8) (2.2) (3.4) 1.2
Net foreign exchange
differences 0.2 (0.9) - -
------------------------- ----------- ------------ ---------- ------------
31 December 10.8 12.4 2.9 6.3
------------------------- ----------- ------------ ---------- ------------
The following table shows a breakdown of the impairment provision against reinsurance assets.
31 December 2010 31 December 2009
GBPm GBPm
---------------
AAA - 0.2
AA 4.6 5.8
A 5.6 5.7
BBB and below 0.2 0.1
Not rated 0.4 0.6
--------------- ----------------- -----------------
Total 10.8 12.4
--------------- ----------------- -----------------
The following table shows the amount of insurance receivables that were past due but not impaired at the end of the year.
31 December 2010 31 December 2009
GBPm GBPm
0-3 months past due 26.4 20.3
4-6 months past due 3.3 2.7
7-9 months past due 0.4 0.5
10-12 months past due 1.0 0.3
More than 12 months past
due 0.6 1.9
-------------------------- ----- -----------------
Total 31.7 25.7
-------------------------- ----- -----------------
(ii) Liquidity risk
This is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by cash or another financial asset.
The most significant liquidity risk confronting the Group is the daily calls on its available cash resources in respect of claims arising from insurance contracts. This liquidity risk is increased by the requirement to ring fence funds in respect of US and Canadian regulated business.
The Group manages this risk by maintaining sufficient liquid assets or assets that can be translated into liquid assets at short notice to meet the expected cash flow requirements. The Group's Investment Guidelines also set out various short term cash balances to be held by external fund managers.
The Group has determined the minimum amount of funds required to ensure that the Group has sufficient liquid assets to withstand claim scenarios at the extreme end of business plan projections by reference to modelled Realistic Disaster Scenario events.
The table below analyses the fair value of monetary assets and the undiscounted value of monetary liabilities of the Group into their relevant maturing groups based on the remaining period at the end of the year to their contractual maturities or expected repayment dates.
31 December 2010
Fair values
-------------------------------------------------------
Statement
of Over
Financial Up to 1-3 3-5 5
Assets Position a year years years years Equities Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Reinsurance
assets 453.0 150.8 171.8 73.7 56.7 - 453.0
Financial
investments 2,921.0 558.7 1,316.4 641.8 278.4 125.7 2,921.0
Derivative
contracts 0.4 - - - - - -
Insurance
receivables 498.0 498.0 - - - - 498.0
Cash and
cash
equivalents 623.4 623.4 - - - - 623.4
------------- ---------- -------- -------- ------ ------ --------- --------
4,495.8 1,830.9 1,488.2 715.5 335.1 125.7 4,495.4
Undiscounted values
------------- ---------- -------------------------------------------------------
Statement
of Over
Financial Up to 1-3 3-5 5
Liabilities Position a year years years years Total
GBPm GBPm GBPm GBPm GBPm GBPm
Insurance
contract
liabilities 2,818.5 884.1 1,020.9 485.8 427.7 2,818.5
Derivative
contracts - - - - - -
Borrowings 168.4 10.4 57.5 17.9 179.7 265.5
Insurance
and other
payables 251.7 251.7 - - - 251.7
3,238.6 1,146.2 1,078.4 503.7 607.4 3,335.7
------------- ---------- -------- -------- ------ ------ --------- --------
31 December 2009
Fair values
-------------------------------------------------------
Statement
of Over
Financial Up to 1-3 3-5 5
Assets Position a year years years years Equities Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Reinsurance
assets 460.4 164.0 122.2 74.0 100.2 - 460.4
Financial
investments 2,481.1 767.4 1,194.2 242.3 175.2 102.0 2,481.1
Derivative
contracts 0.6 - - - - - -
Insurance
receivables 493.4 493.4 - - - - 493.4
Cash and
cash
equivalents 994.2 994.2 - - - - 994.2
------------- ---------- -------- -------- ------ ------ --------- --------
4,429.7 2,419.0 1,316.4 316.3 275.4 102.0 4,429.1
Undiscounted values
------------- ---------- -------------------------------------------------------
Statement
of Over
Financial Up to 1-3 3-5 5
Liabilities Position a year years years years Total
GBPm GBPm GBPm GBPm GBPm GBPm
Insurance
contract
liabilities 2,752.1 980.1 730.2 442.5 599.3 2,752.1
Derivative
contracts 0.9 2.4 - - - 2.4
Borrowings 237.6 13.1 132.4 17.9 188.7 352.1
Insurance
and other
payables 200.7 200.7 - - - 200.7
3,191.3 1,196.3 862.6 460.4 788.0 3,307.3
------------- ---------- -------- -------- ------ ------ --------- --------
The nature of insurance is that the requirements of funding cannot be predicted with absolute certainty and therefore the theory of probability is applied to insurance contracts to ascertain the likely provision and the time period when such liabilities will require settlement. The amounts and maturities in respect of insurance liabilities are thus based on management's best estimate based on statistical techniques and past experience.
(iii) Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and price risk.
Market risk can be caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market.
a Currency risk
The Group writes a significant proportion of its insurance business in currencies other than Sterling.
Currency risk is mitigated by the Group mainly maintaining financial assets denominated in the same currencies as its liabilities which is demonstrated in the table below. This is monitored by reviewing the Group's currency statement of financial position on a quarterly basis.
31 December 2010
Sterling equivalent
US Canadian Sterling
dollars dollars Euros and others Total
Assets GBPm GBPm GBPm GBPm GBPm
Reinsurance assets 244.6 9.1 31.2 168.1 453.0
Financial investments 995.2 121.3 236.4 1,568.1 2,921.0
Derivative contracts - - - 0.4 0.4
Insurance receivables 242.7 13.8 36.6 204.9 498.0
Cash and cash
equivalents 228.9 23.7 151.4 219.4 623.4
Total monetary assets 1,711.4 167.9 455.6 2,160.9 4,495.8
------------------------ --------- --------- ------ ------------ --------
Non-monetary assets 95.3 23.8 18.6 271.0 408.7
------------------------ --------- --------- ------ ------------ --------
Total assets 1,806.7 191.7 474.2 2,431.9 4,904.5
------------------------ --------- --------- ------ ------------ --------
US Canadian Sterling
dollars dollars Euros and others Total
Liabilities GBPm GBPm GBPm GBPm GBPm
Insurance contract
liabilities 1,242.9 108.0 394.2 1,073.4 2,818.5
Borrowings - - - 168.4 168.4
Insurance and other
payables 75.4 3.1 19.3 153.9 251.7
Total monetary
liabilities 1,318.3 111.1 413.5 1,395.7 3,238.6
------------------------ --------- --------- ------ ------------ --------
Non-monetary
liabilities 305.8 25.7 35.4 327.4 694.3
------------------------ --------- --------- ------ ------------ --------
Total liabilities 1,624.1 136.8 448.9 1,723.1 3,932.9
------------------------ --------- --------- ------ ------------ --------
Net assets and
liabilities 182.6 54.9 25.3 708.8 971.6
------------------------ --------- --------- ------ ------------ --------
31 December 2009
Sterling equivalent
US Canadian Sterling
dollars dollars Euros and others Total
Assets GBPm GBPm GBPm GBPm GBPm
Reinsurance assets 248.4 7.6 31.1 173.3 460.4
Financial investments 827.4 93.4 242.4 1,317.9 2,481.1
Derivative contracts (0.6) - - 1.2 0.6
Insurance receivables 226.0 25.8 32.6 209.0 493.4
Cash and cash
equivalents 399.2 27.0 105.8 462.2 994.2
Total monetary assets 1,700.4 153.8 411.9 2,163.6 4,429.7
------------------------ --------- --------- ------ ------------ --------
Non-monetary assets 88.4 14.6 22.1 246.5 371.6
------------------------ --------- --------- ------ ------------ --------
Total assets 1,788.8 168.4 434.0 2,410.1 4,801.3
------------------------ --------- --------- ------ ------------ --------
US Canadian Sterling
dollars dollars Euros and others Total
Liabilities GBPm GBPm GBPm GBPm GBPm
Insurance contract
liabilities 1,246.5 95.8 359.0 1,050.8 2,752.1
Derivative contracts - - - 0.9 0.9
Borrowings - - - 237.6 237.6
Insurance and other
payables 65.5 2.1 12.3 120.8 200.7
Total monetary
liabilities 1,312.0 97.9 371.3 1,410.1 3,191.3
------------------------ --------- --------- ------ ------------ --------
Non-monetary
liabilities 275.2 17.4 57.6 365.2 715.4
------------------------ --------- --------- ------ ------------ --------
Total liabilities 1,587.2 115.3 428.9 1,775.3 3,906.7
------------------------ --------- --------- ------ ------------ --------
Net assets and
liabilities 201.6 53.1 5.1 634.8 894.6
------------------------ --------- --------- ------ ------------ --------
The matching of assets and liabilities prevents economic exposure to currency risk but it does not prevent exposure to exchange gains or losses recorded in the income statement created as a result of the IFRS accounting treatment of certain assets and liabilities. IFRS requires that gross and reinsurers share of unearned premium reserves and deferred acquisition costs are translated at historical transaction rate rather than closing rate. This means that these amounts in the statement of financial position are carried at a different exchange rate to the remaining assets and liabilities with the resulting exchange differences that are created being recognised in the income statement.
A strengthening of the following currencies relative to Sterling by 10% would have resulted in an additional net foreign exchange gain/(loss) before tax in the income statement as set out below.
Year ended Year ended
31 December 31 December
2010 2009
GBPm GBPm
------------------ ------------- -------------
US dollars 44.5 44.8
Canadian dollars 8.1 8.1
Euros 5.5 5.2
------------------ ------------- -------------
b Interest rate risk and price risk
The Group is exposed to interest rate and price risk on its investment portfolio. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Price risk is the risk that the value of investments decreases due to market factors.
In order to manage interest rate and price risk the Group uses Value at Risk (VaR) methodology with the objective of minimising the risk taken on the investment portfolio in targeting a desired return. This is performed by examining the asset allocation of the portfolio and modelling the portfolio's expected return and associated risk. Different asset combinations are then modelled to examine the effect of the changes on risk, determining which combination of changes is expected to minimise risk.
The model uses assumptions of risks, correlations and expected returns for each asset class. Interest rate risk, price risk and currency risk are all included in the model both independently and in their interaction with each other. Assumptions for future market returns, volatilities and correlations are provided by independent investment consultants.
A principal measure of risk produced by the model is one year VaR. One year VaR measures the minimum amount by which the assets should be expected to underperform the expected annual return of the portfolio with a one in twenty probability.
The model used by the Group estimates the VaR and the tracking error. The tracking error measures annual volatility as the standard deviation of the asset returns relative to the expected return. Whereas VaR expresses a 1 in 20 probability of the portfolio returns being reduced by at least that amount in one year, the tracking error is the expected deviation above or below the expected return.
31 December 2010 31 December 2009
Value at Risk 95% 3.55% 2.01%
Tracking Error 2.08% 1.33%
As an illustration of the above information, if the expected return as at 31 December 2010 for the following year was 5.0%, then there would be a 1 in 20 probability that if the asset portfolio remained unaltered, the actual return for the following year would underperform the 5.0% expected return by at least 3.55% i.e. a 1.45% return or less.
The model is designed to illustrate the future range of returns stemming from different asset classes and their inter-relationship. The assumptions have incorporated a degree of subjective judgement to complement the information provided by historical returns and current conditions.
(iv) Capital risk management
The total amount of capital of the Group is GBP1,022.8m (2009: GBP946.2m) consisting of net tangible assets amounting to GBP889.8m (2009: GBP813.4m) and long-term subordinated debt amounting to GBP133.0m (2009: GBP132.8m).
The capital policy, which is set by the Board, requires that the Group always holds long term capital in excess of the Management Capital requirement (derived from a risk-based internal stochastic model) and that the appropriate level of capital is held at individual insurance entity level with reference to the various regulatory or rating agency requirements.
The capital policy also requires that the appropriate mix of debt and equity is used to fund the Group and that adequate liquidity is available at all times.
The most significant entities within the Group subject to externally imposed capital requirements are Brit Insurance Limited, Brit Insurance (Gibraltar) PCC Ltd and the Lloyd's corporate member, Brit UW Limited, which provides the entire capacity of Syndicate 2987.
Brit Insurance Limited is regulated by the Financial Services Authority (FSA) in the UK which has provided the company with individual capital guidance based on the Enhanced Capital Requirements return (ECR). The ECR, which takes into account the premiums written and outstanding reserves on a class of business basis, seeks to ensure that the company has at least the minimum amount and type of capital to meet future expected claims obligations. Brit Insurance Limited holds capital in excess of the FSA requirement in order to maintain a strong 'A' credit rating.
The Group holds capital at Lloyd's which is held in trust and known as Funds at Lloyd's (FAL). These funds are intended primarily to cover circumstances where syndicate assets prove insufficient to meet participating members' underwriting liabilities. FAL is determined by a risk based capital assessment based upon the syndicate's specific circumstances and results in an individual capital assessment (ICA).
Brit Insurance (Gibraltar) PCC Ltd is regulated by the Financial Services Commission of Gibraltar which sets a capital requirement based on the Solvency I Minimum Capital Requirement (MCR). The MCR is a factor based calculation based on premiums written and earned during the year.
All externally imposed capital requirements have been complied with during the year.
Insurance risk
(i) Introduction
The risk under any one insurance contract is the possibility that an insured event occurs and a claim results. By the very nature of an insurance contract, risk is based on fortuity and is therefore unpredictable.
The principal risks that the Group faces under its insurance contracts are that the business will be under-priced, under-reserved or subject to catastrophe claims.
Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Group has developed its insurance underwriting strategy to diversify the type of insurance risks accepted to achieve a sufficiently large population of risks to reduce the variability of the expected outcome.
The Group has developed underwriting guidelines, limits of authority and business plans which are binding upon all staff authorised to underwrite. These are detailed and specific to underwriters and classes of business as well as establishing more general principles and conditions. A proportion of the Group's insurance risks are written by third parties under delegated underwriting authorities. The third parties are closely vetted in advance and are subject to tight reporting requirements. In addition the performance of these contracts is closely monitored by underwriters and regular audits are carried out.
Compliance is checked through both a peer review process and, periodically, by the Group's internal audit department which is entirely independent of the underwriting units. In order to limit risk, the number of reinstatements per policy is limited, deductibles are imposed, policy exclusions are applied and whenever allowed by statute, maximum indemnity limits are put in place per insured event.
The Group carries out an annual business planning process for each of its underwriting units. The resulting plans set out premium, territorial and aggregate limits for all classes of business. Performance against the plans is monitored on a regular basis through a system of underwriting committees as well as regularly by the Executive Management Committee and the Boards for the regulated entities.
(ii) Concentrations of risk
The concentration of insurance risk before and after reinsurance by the location of the underlying risk is summarised below:
Year ended 31 December 2010
Gross premiums Premium ceded to Net premiums
written reinsurers written
GBPm GBPm GBPm
United Kingdom 523.7 (105.8) 417.9
Europe (excluding
UK) 84.4 (18.6) 65.8
United States 343.6 (60.6) 283.0
Other (including
worldwide) 578.5 (66.8) 511.7
1,530.2 (251.8) 1,278.4
------------------- --------------- ------------------- -------------------
Year ended 31 December 2009
Gross premiums Premium ceded to Net premiums
written reinsurers written
GBPm GBPm GBPm
United Kingdom 491.0 (77.5) 413.5
Europe (excluding
UK) 128.7 (15.4) 113.3
United States 416.2 (64.2) 352.0
Other (including
worldwide) 660.5 (67.9) 592.6
1,696.4 (225.0) 1,471.4
------------------- --------------- ------------------- -------------------
The Group is organised into three Strategic Business Units, details of which are set out in Note 5.
(iii) Reinsurance
The Group purchases reinsurance to limit its exposure to individual risks and aggregation of risks arising from individual large claims and catastrophe events. The types of reinsurance purchased were as follows:
-- Facultative reinsurance purchased to reduce risk relating to an individual specific inwards contract
-- Risk excess of loss reinsurance purchased to protect a range of individual inwards contracts which could give rise to individual large claims
-- General excess of loss reinsurance purchased to provide protection from the aggregation of claims, possibly arising from catastrophe events
-- Pro rata reinsurance purchased to provide protection against claims arising either from individual large claims or aggregations
All of the Group's reinsurance purchasing is approved by the Portfolio Management Committee, a sub-committee of the Executive Management Committee. Decisions are supported by historical underwriting experience and actuarial analysis.
(iv) Aggregate exposure management
The Group monitors and controls the accumulation of risk for over 50 key Realistic Disaster Scenario (RDS) events. These RDSs reflect the diversity of the Group's exposures. There are specific scenarios for elemental, man-made and economic disasters, and for different business classes such as marine, aerospace, casualty and property. The RDSs are regularly reviewed in light of Group exposures and environmental factors.
Each scenario is reviewed quarterly, with more frequent reviews of the peak zone natural peril catastrophe RDSs which present the greatest exposure to the Group.
Aggregate claims tolerance
The Group's tolerance for catastrophe risk is a function of expected profitability and available capital. This tolerance is expressed as the maximum net claims acceptable under a number of scenarios.
Exposure and compliance with a severity band matrix is formally reviewed on a quarterly basis, with informal reviews being conducted more frequently. The Board may decide to increase or decrease the maximum tolerances based on market conditions and other factors.
The tolerance for catastrophe risk is set using industry claims bandings. For example for US Windstorm, tolerance is set for seven separate industry claims bands increasing from a 'US$20bn-US$30bn' band to a 'US$200bn-US$350bn' band.
The underlying frequency and severity of catastrophe events varies by peril and territory. For instance, a US$20bn US windstorm is expected to occur much more frequently than a US$20bn Japanese earthquake. Therefore, in terms of risk appetite and claims tolerance, it is not appropriate to treat these events equally.
The severity bands show the industry claims for each peril which are probabilistically equivalent. An example band is shown below.
US windstorm US$70bn-US$100bn ---------------------- ----------------- California earthquake US$30bn-US$40bn ---------------------- ----------------- European windstorm US$10bn-US$15bn ---------------------- ----------------- Japanese earthquake US$20bn-US$30bn ---------------------- ----------------- Japanese typhoon US$10bn-US$15bn ---------------------- -----------------
The portfolio contains a mix of business and therefore given an industry event there will be a large range of possible aggregate claims to the Group. To capture this claim distribution whilst being able to measure compliance, the measure used is a weighted 75(th) percentile of the claim distribution within a particular band. Ultimately, the size of a probable maximum loss (PML) arising from an event or series of events will always remain judgemental for Brit Insurance and others in the industry.
The Group uses its own and commercially available proprietary risk management software. However, there is always a risk that the assumptions and techniques used in these models are unreliable or that claims arising from an unmodelled event are greater than those arising from a modelled event.
As a further guide to the level of catastrophe exposure written by the Group, the table below shows hypothetical claims in the fourth quarter of 2010 for various RDS events.
Modelled
industry Brit Insurance Brit Insurance
claims gross claims net claims
Event US$m GBPm GBPm Comments
--------------- ---------- --------------- --------------- ---------------
Category 4
storm on the
Saffir-Simpson
Hurricane Wind
Scale,
landfalling in
Tampa. Brit
Insurance
claims
estimates
include demand
surge, flood
associated
with the
Florida hurricane, and
hurricane non-property
Tampa Bay 125,000 305 126 exposures.
--------------- ---------- --------------- --------------- ---------------
Category 5
storm on the
Saffir-Simpson
Hurricane Wind
Scale,
landfalling in
Miami. Brit
Insurance
claims
estimates
include demand
surge, flood
associated
with the
Florida hurricane, and
hurricane non-property
Miami 125,000 265 95 exposures.
--------------- ---------- --------------- --------------- ---------------
Category 4
storm on the
Saffir-Simpson
Hurricane Wind
Scale,
landfalling in
Suffolk
County, New
York State.
Brit Insurance
claims
estimates
include demand
surge, flood
US north associated
east coast with the
hurricane hurricane, and
New York non-property
State 78,000 264 125 exposures.
--------------- ---------- --------------- --------------- ---------------
Magnitude 7.3
earthquake on
the Modified
Mercalli
Intensity
Scale for
Earthquakes,
on the
Elsinore fault
in Los
Angeles. Brit
Insurance
claims
estimates
include demand
surge, fire
following the
earthquake,
California and
earthquake non-property
Los Angeles 78,000 292 91 exposures.
--------------- ---------- --------------- --------------- ---------------
Magnitude 7.5
earthquake on
the Modified
Mercalli
Intensity
Scale for
Earthquakes,
on the San
Andreas Fault
in San
Francisco.
Brit Insurance
claims
estimates
include demand
surge, fire
following the
earthquake,
California and
earthquake non-property
San Francisco 78,000 295 88 exposures.
--------------- ---------- --------------- --------------- ---------------
A winter storm
with peak
gusts in
excess of
112mph
resulting in a
broad swathe
of damage
across
southern
England,
France,
Belgium,
Netherlands,
Luxembourg,
Germany and
Denmark. Brit
Insurance
claims
estimates
Europe include demand
windstorm surge and UK
Western coastal
Europe 31,000 218 77 flood.
--------------- ---------- --------------- --------------- ---------------
Based on a
repeat of the
Great Kanto
event in 1923,
a magnitude
7.9 earthquake
Japan in the Tokyo
earthquake Metropolitan
Tokyo 62,000 183 74 Area.
--------------- ---------- --------------- --------------- ---------------
(v) Sensitivity
The Group profit on ordinary activities before tax is sensitive to an independent 1% change in the net claims ratio (excluding the effect of foreign exchange on non-monetary items) for each class of business as follows:
Year ended
Year ended 31 31 December
Strategic business December 2010 2009
unit Class GBPm GBPm
Global Markets Accident & Health 0.6 1.1
Aerospace 0.2 0.2
Specialty lines 1.0 1.6
Professional lines 1.1 1.3
Marine 2.3 2.3
Property 1.5 1.7
-------------
6.7 8.2
--------------- -------------
Property Treaty
Reinsurance NA 0.8 0.9
Property Treaty
INT 0.4 0.5
Casualty Treaty 1.1 1.3
Marine XL 0.2 0.2
Aviation XL 0.0 0.1
-------------
2.5 3.0
--------------- -------------
Employers'/Public
UK Liability 1.1 1.0
Professional Indemnity/D&O 0.3 0.3
Motor 0.7 0.7
Property and Commercial
Combined (Packages) 1.7 1.6
-------------
3.8 3.6
--------------- -------------
Other underwriting 0.1 0.2
Total 13.1 15.0
Subject to taxation, the impact on equity would be the same as that on profit following a change in the net claims ratio.
5 Segmental Information
The reportable segments have been identified as follows:
The Global Markets strategic business unit which underwrites the Group's international and US business other than reinsurance. In the main, Global Markets deals with wholesale buyers of insurance, not individuals. Risks are large and usually syndicated by several underwriters - the subscription market.
The Reinsurance strategic business unit which underwrites reinsurance business which is essentially the insurance of insurance and reinsurance companies and includes providing non-proportional cover for major events such as earthquakes or hurricanes. These insurance and reinsurance companies calculate how much risk they want to bear and pass on the remaining exposure to reinsurers in return for a premium.
The UK strategic business unit which is developing business opportunities within the UK general commercial insurance markets through both wholesale and retail brokers and has opened offices in key locations across the UK.
'Other underwriting' which is made up of Excess of Loss reinsurance ceded from the strategic business units to a cell of Brit Insurance (Gibraltar) PCC Limited, Syndicate 389 (Life - final year of account 2003) and historic participations on external managed syndicates in run-off (final year of account 2000).
'Other corporate' which is made up of residual income and expenditure not allocated to other segments.
Foreign exchange differences on non-monetary items are separately disclosed. This provides a fairer representation of the claims ratios and financial performance of the SBUs which would otherwise be distorted by the mismatch arising from IFRSs whereby unearned premium, reinsurers share of unearned premium and deferred acquisition costs are treated as non-monetary items and the majority of other assets and liabilities are treated as monetary items. Non-monetary items are carried at historic exchange rates, while monetary items are translated at closing rates.
The Group investment return is managed centrally and an allocation is made to each of the strategic business units based on the average risk free interest rate for the period being applied to the insurance funds of each strategic business unit.
The annualised average risk free rate applied to insurance funds was 1.65% for the year ended 31 December 2010 (31 December 2009: 1.66%).
Information regarding the Group's reportable segments is presented below.
12 months ended 31 December 2010
Total Total
underwriting underwriting
excluding after the
the effect Effect of effect of
of foreign foreign foreign
Global Other Intra exchange on exchange on exchange on Other
Markets Reinsurance UK underwriting Group non-monetary non-monetary non-monetary corporate Total
GBPm GBPm GBPm GBPm GBPm items GBPm items GBPm items GBPm GBPm GBPm
-------------
Gross premiums
written 778.3 309.6 441.2 12.2 (11.1) 1,530.2 - 1,530.2 - 1,530.2
Less premiums
ceded to
reinsurers (143.2) (61.2) (58.1) (0.4) 11.1 (251.8) - (251.8) - (251.8)
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Premiums
written, net
of
reinsurance 635.1 248.4 383.1 11.8 - 1,278.4 - 1,278.4 - 1,278.4
Gross earned
premiums 809.7 311.6 439.5 14.2 (13.1) 1,561.9 (11.2) 1,550.7 - 1,550.7
Reinsurers'
share (136.7) (61.9) (63.3) (0.4) 13.1 (249.2) 0.8 (248.4) - (248.4)
--------------- ------------- ------- ------------- ------------- ------------- ----------
Earned
premiums, net
of
reinsurance 673.0 249.7 376.2 13.8 - 1,312.7 (10.4) 1,302.3 - 1,302.3
Investment
return 19.8 8.9 14.0 0.5 - 43.2 - 43.2 70.2 113.4
Return on
derivative
contracts (0.1) (1.2) (0.5) - - (1.8) - (1.8) (0.1) (1.9)
Loss on
disposal of
associated
undertaking - - - - - - (0.4) (0.4)
Net foreign
exchange
gains - - - - - - 5.2 5.2 24.1 29.3
Total revenue 692.7 257.4 389.7 14.3 - 1,354.1 (5.2) 1,348.9 93.8 1,442.7
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Gross claims
incurred (491.0) (188.7) (284.6) (17.2) 16.8 (964.7) - (964.7) - (964.7)
Reinsurers'
share 104.2 40.0 41.1 (0.4) (16.8) 168.1 - 168.1 - 168.1
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Claims
incurred, net
of
reinsurance (386.8) (148.7) (243.5) (17.6) - (796.6) - (796.6) - (796.6)
Acquisition
costs -
commission (203.7) (43.7) (82.0) (0.1) - (329.5) 2.4 (327.1) - (327.1)
Acquisition
costs -
other (33.7) (11.5) (22.7) (1.1) - (69.0) - (69.0) - (69.0)
Other
insurance
related
expenses (33.9) (16.3) (27.2) (1.5) - (78.9) - (78.9) - (78.9)
Other expenses - - - - - - - - (38.9) (38.9)
Total expenses
excluding
finance
costs (658.1) (220.2) (375.4) (20.3) - (1,274.0) 2.4 (1,271.6) (38.9) (1,310.5)
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Operating
profit/(loss) 34.6 37.2 14.3 (6.0) - 80.1 (2.8) 77.3 54.9 132.2
------- ------------- ------------- ------------- ----------
Finance costs (14.0)
Share of loss
of associated
undertakings (1.8)
----------
Profit on
ordinary
activities
before tax 116.4
Tax expense (5.9)
Profit
attributable
to owners of
the parent 110.5
----------
Claims ratio 57.4% 59.6% 64.7% 127.6% 60.7% 61.2%
Expense ratio 40.3% 28.6% 35.1% 19.6% 36.4% 36.4%
Combined ratio 97.7% 88.2% 99.8% 147.2% 97.1% 97.6%
12 months ended 31 December 2009
Total Total
underwriting underwriting
excluding after the
the effect Effect of effect of
of foreign foreign foreign
Global Other Intra exchange on exchange on exchange on Other
Markets Reinsurance UK underwriting Group non-monetary non-monetary non-monetary corporate Total
GBPm GBPm GBPm GBPm GBPm items GBPm items GBPm items GBPm GBPm GBPm
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Gross premiums
written 875.3 364.2 455.4 16.5 (15.0) 1,696.4 - 1,696.4 - 1,696.4
Less premiums
ceded to
reinsurers (116.8) (57.4) (64.9) (0.9) 15.0 (225.0) - (225.0) - (225.0)
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Premiums
written, net
of
reinsurance 758.5 306.8 390.5 15.6 - 1,471.4 - 1,471.4 - 1,471.4
Gross earned
premiums 944.4 354.5 430.1 16.4 (15.0) 1,730.4 (34.3) 1,696.1 - 1,696.1
Reinsurers'
share (124.5) (56.9) (67.7) (0.8) 15.0 (234.9) 2.7 (232.2) - (232.2)
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Earned
premiums, net
of
reinsurance 819.9 297.6 362.4 15.6 - 1,495.5 (31.6) 1,463.9 - 1,463.9
Investment
return 20.2 8.5 13.3 0.1 - 42.1 - 42.1 95.3 137.4
Return on
derivative
contracts (2.3) (2.2) (0.3) - - (4.8) - (4.8) 0.7 (4.1)
Disposal and
partial
disposal of
associated
undertaking - - - - - - - - 4.2 4.2
Other income - - - - - - - - 1.4 1.4
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Total revenue 837.8 303.9 375.4 15.7 - 1,532.8 (31.6) 1,501.2 101.6 1,602.8
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Gross claims
incurred (582.7) (180.5) (290.8) (13.0) 12.7 (1,054.3) - (1,054.3) - (1,054.3)
Reinsurers'
share 68.5 17.1 49.2 1.5 (12.7) 123.6 - 123.6 - 123.6
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Claims
incurred, net
of
reinsurance (514.2) (163.4) (241.6) (11.5) - (930.7) - (930.7) - (930.7)
Acquisition
costs -
commission (220.2) (51.6) (73.9) 0.6 - (345.1) 6.8 (338.3) - (338.3)
Acquisition
costs -
other (29.6) (9.3) (18.1) (1.6) - (58.6) - (58.6) - (58.6)
Other
insurance
related
expenses (31.0) (13.5) (27.6) - - (72.1) - (72.1) - (72.1)
Other expenses - - - - - - - (39.5) (39.5)
Net foreign
exchange
losses - - - - - - (30.1) (30.1) (3.3) (33.4)
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Total expenses
excluding
finance
costs (795.0) (237.8) (361.2) (12.5) - (1,406.5) (23.3) (1,429.8) (42.8) (1,472.6)
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Operating
profit/(loss) 42.8 66.1 14.2 3.2 - 126.3 (54.9) 71.4 58.8 130.2
--------------- -------- ------------ -------- ------------- ------- ------------- ------------- ------------- ---------- ----------
Finance costs (11.5)
Share of loss
of associated
undertakings (2.3)
Profit on
ordinary
activities
before tax 116.4
Tax expense (28.9)
Profit
attributable
to owners of
the parent 87.5
Claims ratio 62.7% 54.9% 66.7% 73.7% 62.2% 63.6%
Expense ratio 34.2% 25.0% 33.0% 6.4% 31.8% 32.0%
Combined ratio 96.9% 79.9% 99.7% 80.1% 94.0% 95.6%
6 Investment Return
Year ended 31 December 2010
-------------------------------------------------------------
Investment Net realised Net unrealised Total
income gains/(losses) gains investment
GBPm GBPm GBPm return GBPm
Equity
securities 3.6 7.0 7.0 17.6
Debt
securities 93.3 (13.3) - 80.0
Specialised
investment
funds 4.1 (16.1) 23.3 11.3
Cash and cash
equivalents 4.5 - - 4.5
105.5 (22.4) 30.3 113.4
--------------- ----------- --------------- --------------- --------------
Year ended 31 December 2009
--------------- -------------------------------------------------------------
Investment Net realised Net unrealised Total
income gains/(losses) gains investment
GBPm GBPm GBPm return GBPm
Equity
securities 2.4 6.7 4.7 13.8
Debt
securities 81.2 6.6 4.7 92.5
Specialised
investment
funds 2.6 (12.3) 27.6 17.9
Cash and cash
equivalents 13.2 - - 13.2
99.4 1.0 37.0 137.4
--------------- ----------- --------------- --------------- --------------
7 Net foreign exchange gains/(losses)
The Group recognised foreign exchange gains of GBP29.3m (31 December 2009: loss of GBP33.4m) in the income statement in the period.
Foreign exchange gains and losses result from the translation of the balance sheet to closing exchange rates and the income statement to average exchange rates. However, as an exception to this, International Accounting Standard 21 'The Effects of Changes in Foreign Exchange Rates' requires that net unearned premiums and deferred acquisition costs (UPR/DAC), being non-monetary items, remain at historic exchange rates. This creates a foreign exchange mismatch, the financial effects of which are shown in the table below.
Year ended Year ended
31 December 31 December
2010 2009
GBPm GBPm
Gains/(losses) on foreign exchange arising
from:
Translation of the balance sheet and income
statement 24.1 (3.3)
Maintaining UPR/DAC items in the balance
sheet at historic rates (2.8) (54.9)
Maintaining UPR/DAC items in the income
statement at historic rates 8.0 24.8
------------- -------------
Net foreign exchange gains/(losses) 29.3 (33.4)
--------------------------------------------- ------------- -------------
Included within foreign exchange gains/(losses) are exchange gains of GBP20.6m (2009: losses of GBP103.6m) arising on the retranslation of monetary items that are classified as fair value through profit or loss.
Principal exchange rates applied are set out in the table below.
Year ended 31 December Year ended 31 December
2010 2009
Average Closing Average Closing
US dollar 1.55 1.57 1.57 1.61
Canadian dollar 1.59 1.56 1.78 1.69
Euro 1.17 1.17 1.12 1.13
In accordance with International Accounting Standard 1 'Presentation of Financial statements', exchange gains and losses are presented on a net basis.
They are reported within revenue where they result in a net gain and within expenses where they result in a net loss.
8 Tax expense
(i) Tax (charged)/credited to income statement
Year ended Year ended
31 December 31 December
2010 2009
GBPm GBPm
-------------
Current tax:
Current taxes on income for the year
United Kingdom (19.4) (37.9)
United States (10.2) (6.6)
(29.6) (44.5)
Double tax relief 8.1 -
Adjustments in respect of prior years 10.0 5.8
Total current tax (11.5) (38.7)
------------------------------------------- ------------- -------------
Deferred tax:
Relating to the origination and reversal
of temporary differences 3.2 9.9
Relating to changes in tax rates 0.6 -
Adjustments in respect of prior years 1.8 (0.1)
Total deferred tax 5.6 9.8
------------------------------------------- ------------- -------------
Total tax charged to income statement (5.9) (28.9)
------------------------------------------- ------------- -------------
Tax relating to associated companies of GBP0.3m (2009: GBPnil) has been credited to the income statement within the Group's share of loss after tax of associated undertakings.
United States tax and the double tax relief principally arise from taxes suffered as a result of the Group's operations at Lloyd's. Double tax relief is effectively limited to an amount equal to the tax due at the UK tax rate on the same source of income.
(ii) Tax (charged)/credited to other comprehensive income
Year ended Year ended
31 December 31 December
2010 2009
GBPm GBPm
Deferred tax on actuarial losses on defined
benefit pension scheme (2.2) 0.7
--------------------------------------------- ------------- -------------
(iii) Tax reconciliation
Based on the analysis of Group profits the weighted average rate of tax is 10.88% (2009: 25.6%). The tax on the Group's profits before tax differs from the theoretical amount that would arise based on the weighted average rate of tax as follows:
Year ended Year ended
31 December 31 December
2010 2009
GBPm GBPm
Profit on ordinary activities before tax 116.4 116.4
------------------------------------------------ ------------- -------------
Tax calculated at weighted average rate
of tax on income (12.7) (29.8)
Expenses not deductible for tax purposes (2.4) (2.4)
Equity dividends not subject to corporation
tax 1.7 0.1
Taxes on income at rates in excess of the
domestic rate and where credit is unavailable (2.2) (5.3)
Profit on sale and unrealised gain on
substantial shareholdings - 0.4
Effect of temporary differences not recognised (2.1) 3.0
Tax effect of share of results of associated
undertakings (0.5) (0.6)
Deferred tax effect of change in the rate
of tax 0.5 -
Other adjustments to tax charge in respect
of prior years 11.8 5.7
(5.9) (28.9)
------------------------------------------------ ------------- -------------
The weighted average rate of tax is based on the geographic split of Group profit across entities in jurisdictions with differing tax rates. As the mix of taxable profits changes so will the weighted average rate of tax.
The adjustment to tax charge in respect of prior years relates to the finalisation of some outstanding matters with Revenue authorities.
9 Earnings and net assets per share
Basic and diluted earnings per share are as follows:
Year ended Year ended
31 December 2010 31 December 2009
GBPm GBPm
Profit on ordinary activities after
tax 110.5 87.5
------------------------------------- ------------------ ------------------
Year ended
Year ended 31 December 2009
31 December 2010 Number in millions
Number in millions (restated)
Basic weighted average number of
shares 77.6 77.3
Employee share options - -
Diluted weighted average number
of shares 77.6 77.3
---------------------------------- -------------------- --------------------
Basic earnings per share (pence
per share) 142.4 113.2
Diluted earnings per share (pence
per share) 142.4 113.2
---------------------------------- -------------------- --------------------
Net assets and net tangible assets per share are as follows:
31 December 2010 31 December 2009
GBPm GBPm
Net assets 971.6 894.6
Intangible assets (81.8) (81.2)
Net tangible assets 889.8 813.4
--------------------- ----------------- -----------------
31 December 2009
31 December 2010 Number in millions
Number in millions (restated)
Number of shares in issue at end
of period 79.2 78.5
Own shares (1.2) (1.2)
Number of shares in issue less
own shares 78.0 77.3
---------------------------------- -------------------- --------------------
Net assets per share (pence per
share) 1,245.6 1,156.8
Net tangible assets per share
(pence per share) 1,140.8 1,052.0
10 Insurance and reinsurance contracts
(i) Balances on insurance and reinsurance contracts
31 December 31 December
2010 2009
GBPm GBPm
Gross
Insurance contracts
Claims reported and loss adjustment
expenses 1,585.1 1,511.7
Claims incurred but not reported 1,233.4 1,240.4
----------------------------------------- ------------ ------------
2,818.5 2,752.1
Unearned premiums 666.8 687.3
Total insurance contracts 3,485.3 3,439.4
----------------------------------------- ------------ ------------
Recoverable from reinsurers
Reinsurance contracts
Claims reported and loss adjustment
expenses 265.8 284.5
Claims incurred but not reported 198.0 188.3
Impairment provision (10.8) (12.4)
----------------------------------------- ------------ ------------
453.0 460.4
Unearned premiums 66.5 63.1
Total reinsurance contracts 519.5 523.5
----------------------------------------- ------------ ------------
Net
Claims reported and loss adjustment
expenses 1,319.3 1,227.2
Claims incurred but not reported 1,035.4 1,052.1
Impairment provision 10.8 12.4
----------------------------------------- ------------ ------------
2,365.5 2,291.7
Unearned premiums 600.3 624.2
Net insurance and reinsurance contracts 2,965.8 2,915.9
----------------------------------------- ------------ ------------
Insurance contracts - assumptions and changes in assumptions
Process used to decide on assumptions required
The risks associated with these insurance contracts and in particular with casualty insurance contracts are complex and subject to a number of variables that complicate quantitative sensitivity analysis.
The Group uses several statistical methods to incorporate the various assumptions made in order to estimate the ultimate costs of claims. The two methods more commonly used are the chain-ladder and the Bornhuetter-Ferguson methods.
Chain-ladder methods may be applied to premiums, paid claims or incurred claims (i.e. paid claims plus case estimates). The basic technique involves the analysis of historical claims development factors and the selection of estimated development factors based on this historical pattern. The selected development factors are then applied to cumulative claims data for each underwriting year that is not yet fully developed to produce an estimated ultimate claims cost for each underwriting year.
Chain-ladder techniques are most appropriate for mature classes of business that have a relatively stable development pattern. Chain-ladder techniques are less suitable in cases in which the insurer does not have a developed claims history for a particular class of business.
The Bornhuetter-Ferguson method uses a combination of a benchmark or market-based estimate and an estimate based on claims experience. The former is based on a measure of exposure such as premiums; the latter is based on the paid or incurred claims to date. The two estimates are combined using a formula that gives more weight to the experience-based estimate as time passes. This technique is used in situations in which developed claims experience are not available for the projection (recent underwriting years or new classes of business).
The choice of selected results for each year of each class of business depends on an assessment of the technique that has been most appropriate to observed historical developments. In certain instances, this has meant that different techniques or combination of techniques have been selected for the individual underwriting year or groups of underwriting years within the same class of business.
Claims for a number of classes of business, including Financial Risk, Mortgage Indemnity Guarantee, Catastrophe Retrocession and Casualty Treaty, do not always conform to the statistical distribution expected. For these classes claims reserves are additionally reviewed on a policy by policy basis by underwriters and claims managers and these reviews take account of market intelligence in addition to notified claims.
In addition to the estimation of claims reserves certain estimates are produced for unearned premiums. For open market business earned premium is calculated at policy level. However, premium derived from delegated underwriting authorities is calculated by applying the 1/144ths method to estimated premiums applied to the master policy. This assumes that attachments to master policies arise evenly throughout the period of that master policy.
Reinsurance outwards premiums are earned according to the nature of the cover. 'Losses occurring during' policies are earned evenly over the policy period. 'Risks attaching' policies are earned on the same basis as the inwards business being protected.
Changes in assumptions
The Group did not change its estimation techniques for the insurance contracts disclosed in this note during the year.
Claims development tables
The tables below show the development of claims over a period of time on a gross and net of reinsurance basis. The claims development tables have been presented on an underwriting year basis. The tables show the cumulative incurred claims, including both notified and IBNR claims, for each successive underwriting year at the end of each year, together with cumulative paid claims as at the end of the current year. The claims have been adjusted to make them comparable on a year by year basis.
They have been grossed up to include 100% of the managed syndicate claims rather than the claims that reflects the Brit Insurance percentage ownership of each syndicate's capacity during the respective underwriting years. In addition, claims in currencies other than Sterling have been retranslated at 31 December 2010 exchange rates.
Ultimate gross claims
2001 Intra Group
and and other
prior underwriting
Underwriting years 2002 2003 2004 2005 2006 2007 2008 2009 2010 adjustments Total
year GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At end of
underwriting
year 2,144.0 358.2 601.0 841.6 1,341.2 826.8 1,022.1 1,072.6 972.2 922.8
One year later 2,202.1 356.6 568.6 797.8 1,376.5 840.2 1,091.5 1,177.2 1,011.5
Two years
later 2,227.4 343.8 512.9 758.4 1,390.7 836.5 1,101.4 1,207.5
Three years
later 2,229.3 342.9 487.0 740.3 1,363.8 805.0 1,117.3
Four years
later 2,236.3 327.3 476.3 721.3 1,334.7 774.9
Five years
later 2,192.6 321.2 465.1 707.0 1,303.6
Six years
later 2,205.9 318.9 451.2 688.8
Seven years
later 2,198.5 318.6 435.8
Eight years
later 2,196.5 314.5
Nine years
later 2,170.9
Total ultimate
gross claims
at 31
December
2010 2,170.9 314.5 435.8 688.8 1,303.6 774.9 1,117.3 1,207.5 1,011.5 922.8 - 9,947.6
Less
accumulated
gross paid
claims (2,041.3) (289.6) (375.5) (603.6) (1,163.9) (538.6) (649.7) (586.0) (340.0) (67.4) - (6,655.6)
Unearned
portion of
gross
ultimate
claims 0.0 0.0 0.0 (0.1) (1.5) (3.4) (4.3) (2.8) (40.4) (466.7) - (519.2)
Claims
handling
provision 1.6 0.3 0.9 1.4 2.4 4.0 7.2 10.4 10.1 5.8 - 44.1
Outstanding
gross claims
at 31
December
2010 131.2 25.2 61.2 86.5 140.6 236.9 470.5 629.1 641.2 394.5 - 2,816.9
Other
corporate
adjustments - - - - - - - - - - 1.6 1.6
Total
outstanding
gross claims
at 31
December
2010 131.2 25.2 61.2 86.5 140.6 236.9 470.5 629.1 641.2 394.5 1.6 2,818.5
Ultimate
movement in
gross claims
during 2010
calendar
year (25.6) (4.1) (15.4) (18.2) (31.1) (30.1) 15.9 30.3 39.3 - - (39.0)
of which
relates to
re-estimation
of ultimate
premium 1.7 0.0 0.2 (1.3) (0.6) 0.1 (1.3) 5.9 (1.3) - - 3.4
of which
relates to
re-estimation
of gross
ultimate
claims (27.3) (4.1) (15.6) (16.9) (30.5) (30.2) 17.2 24.4 40.6 - - (42.4)
Ultimate net claims
2001 and other
prior underwriting
Underwriting years 2002 2003 2004 2005 2006 2007 2008 2009 2010 adjustments Total
year GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At end of
underwriting
year 1,417.6 302.2 545.6 711.6 945.4 738.3 882.4 912.3 835.3 780.4
One year later 1,494.6 297.1 503.4 626.7 944.0 765.3 930.1 1,011.6 844.9
Two years
later 1,512.3 279.1 443.8 592.1 951.7 741.2 949.5 1,025.2
Three years
later 1,504.1 262.2 422.6 582.9 926.4 714.3 945.1
Four years
later 1,507.7 254.5 401.4 568.0 900.5 692.2
Five years
later 1,484.0 248.9 384.3 553.8 873.2
Six years
later 1,491.8 242.8 370.7 540.4
Seven years
later 1,478.9 242.0 358.8
Eight years
later 1,470.3 237.8
Nine years
later 1,454.8
Total ultimate
net claims at
31 December
2010 1,454.8 237.8 358.8 540.4 873.2 692.2 945.1 1,025.2 844.9 780.4 - 7,752.8
Less
accumulated
net paid
claims (1,373.7) (218.2) (314.3) (472.7) (750.5) (489.6) (567.4) (494.8) (290.4) (57.4) - (5,029.0)
Unearned
portion of
net ultimate
claims 0.0 0.0 0.0 (0.1) (1.5) (3.4) (4.3) (2.8) (34.8) (398.1) - (445.0)
Claims
handling
provision 1.6 0.3 0.9 1.4 2.4 4.0 7.2 10.4 10.1 5.8 - 44.1
Bad debt
provision 1.3 0.2 0.4 0.4 1.2 0.9 2.6 1.7 1.4 0.7 - 10.8
Outstanding
net claims at
31 December
2010 84.0 20.1 45.8 69.4 124.8 204.1 383.2 539.7 531.2 331.4 - 2,333.7
Other
corporate
adjustments - - - - - - - - - - 31.8 31.8
Total
outstanding
net claims at
31 December
2010 84.0 20.1 45.8 69.4 124.8 204.1 383.2 539.7 531.2 331.4 31.8 2,365.5
Ultimate
movement in
net claims
during 2010
calendar
year (15.5) (4.2) (11.9) (13.4) (27.3) (22.1) (4.4) 13.6 9.6 - - (75.6)
of which
relates to
re-estimation
of ultimate
premium (4.3) 0.0 0.4 (0.7) (0.7) (0.6) (3.9) 3.2 (12.6) - - (19.2)
of which
relates to
re-estimation
of ultimate
net claims (11.2) (4.2) (12.3) (12.7) (26.6) (21.5) (0.5) 10.4 22.2 - - (56.4)
Material surpluses released
The net aggregate reserve releases from prior years amounted to GBP72.4m (2009: GBP81.2m). In part this arises from the Group's reserving philosophy which aims to make the most recent years, with the greatest uncertainty of result, prudently reserved leaving a potential for subsequent release.
This differs from the GBP56.4m stated in the table above as the table above is on an underwriting year basis and the surpluses in this narrative are on an annually accounted basis. The reconciling items are the 2009 underwriting year not being fully earned and the Chile and New Zealand earthquake losses which are 2010 accident year losses but relate to 2008 to 2010 underwriting year policies.
Releases have been made in the Global Markets strategic business unit of GBP9.6m (2009: GBP13.8m), Reinsurance strategic business unit of GBP25.0m (2009: GBP24.1m) and UK strategic business unit of GBP39.0m (2009: GBP41.2m) and a strengthening has been made in Other Underwriting of GBP1.2m (2009: release of GBP2.1m).
(ii) Movements in insurance and reinsurance contracts
a) Claims and loss adjustment expenses
31 December 2010 31 December 2009
-------------------------------- --------------------------------
Gross Reinsurance Net Gross Reinsurance Net
GBPm GBPm GBPm GBPm GBPm GBPm
As at 1
January 2,752.1 (460.4) 2,291.7 2,657.7 (479.2) 2,178.5
Cash paid
for claims
settled in
the year (926.2) 181.6 (744.6) (792.2) 110.8 (681.4)
Increase in
liabilities 964.7 (168.1) 796.6 1,054.3 (123.6) 930.7
Net foreign
exchange
differences 27.9 (6.1) 21.8 (167.7) 31.6 (136.1)
-------- ------------ -------- ------------ --------
As at 31
December 2,818.5 (453.0) 2,365.5 2,752.1 (460.4) 2,291.7
b) Unearned premiums
31 December 2010 31 December 2009
------------------------------------ ------------------------------------
Gross Reinsurance Net Gross Reinsurance Net
GBPm GBPm GBPm GBPm GBPm GBPm
As at 1
January 687.3 (63.2) 624.1 687.0 (70.4) 616.6
Premiums
written
in the
year 1,530.2 (251.8) 1,278.4 1,696.4 (225.0) 1,471.4
Premiums
earned
during
the
year (1,550.7) 248.5 (1,302.2) (1,696.1) 232.2 (1,463.9)
---------- ------------ ---------- ---------- ------------ ----------
As at 31
December 666.8 (66.5) 600.3 687.3 (63.2) 624.1
11 Financial Investments
31 December 31 December
2010 2009
GBPm GBPm
------------ ------------
Equity securities 125.7 102.0
Debt securities 2,692.7 2,282.4
Specialised investment funds 102.6 96.7
2,921.0 2,481.1
------------------------------ ------------ ------------
All financial investments have been designated as held at fair value through profit or loss.
12 Cash and cash equivalents
31 December 31 December
2010 2009
GBPm GBPm
Cash at bank and on deposit 601.8 949.2
Cash equivalents 21.6 45.0
623.4 994.2
----------------------------- ------------ ------------
The carrying amounts disclosed above reasonably approximate fair values.
Included in cash and cash equivalents are amounts totalling GBP150.1m (2009: GBP357.8m) not available for use by the Group which are held within the Lloyd's syndicates or as Funds at Lloyd's.
13 Borrowings
31 December 31 December
2010 2009
Initial
Effective capitalised Amortised Fair Amortised Fair
interest borrowing cost value cost value
Maturity Call rate % costs GBPm GBPm GBPm GBPm GBPm
Non-current
Lower Tier
Two
subordinated
debt 2030 2020 6.84 1.8 133.0 89.4 132.8 95.6
Revolving
credit LIBOR
facility 2012 - + 3.25 2.2 35.4 37.0 104.8 107.0
4.0 168.4 126.4 237.6 202.6
-------------- --------- ----- ---------- ------------ ---------- ------- ---------- -------
14 Equity dividends
Amount 31 December 31 December
(pence per ordinary share) 2010 2009
Dividend paid (restated) GBPm GBPm
Final 2008 30.0 - 23.2
Interim 2009 30.0 - 23.2
- 46.4
--------------- ---------------------------- ------------ ------------
15 Capital distributions
At the time of the Group reorganisation in December 2009, it was announced that for an initial period the Group would make distributions to shareholders by way of reductions of the par value of Brit Insurance Holdings N.V. shares.
Settled
with cash Settled
Amount 31 with
(pence per December shares 31 Total 31 Total 31
Distribution ordinary 2010 December December December
paid share) GBPm 2010 GBPm 2010 GBPm 2009 GBPm
Final 2009 30.1 17.4 5.9 23.3 -
Interim 2010 30.4 23.7 - 23.7 -
41.1 5.9 47.0 -
-------------- ----------- ---------- ----------- ----------- -----------
A final distribution of 30.1p per ordinary share for the year ended 31 December 2009 was approved by the Annual General Meeting on 6 May 2010 and paid on 15 July 2010. This was satisfied in the form of 675,217 newly issued shares for shareholders who elected to take the distribution in the form of a scrip and GBP17.4m in cash for the remaining shareholders. As a result of the distribution, the nominal value of the share capital was reduced by 36 Euro cents from EUR4.00 to EUR3.64 in respect of each registered share.
An interim distribution of 30.4p per ordinary share for the period ended 30 June 2010 was approved by the General Meeting on 23 September 2010 and paid on 7 December 2010. As a result of the distribution, the nominal value of the share capital was reduced by 36 Euro cents from EUR3.64 to EUR3.28 in respect of each registered share.
The amounts stated above do not include distributions amounting to GBP0.7m paid in respect of own shares held by the Group's Employee Share Participation Trust as these are eliminated on consolidation of the trust.
No final distribution has been recommended for the year ended 31 December 2010.
16 Share capital
31 31
December December
31 31 31 31 2010 2009
December December December December Number Number in
2010 2009 2010 2009 in millions
GBPm GBPm EURm EURm millions (restated)
Authorised:
Ordinary
shares 700.9 885.0 820.0 1,000.0 250.0 250.0
------------- --------- --------- --------- --------- --------- -----------
Allotted,
issued and
fully paid:
Ordinary
shares 221.9 277.9 259.6 314.0 79.2 78.5
------------- --------- --------- --------- --------- --------- -----------
As at 31 December 2010, the nominal value per ordinary share was EUR3.28 (2009: EUR4.00) (restated).
Share capital has been translated from Euros into Sterling using an exchange rate of 1.17 as at the end of the year (2009: 1.13).
31 December
31 December 2009
2010 Number in millions
Number in millions (restated)
Ordinary shares in issue
-------------------- --------------------
At 1 January / on incorporation 78.5 -
Issue of ordinary shares on
corporate reorganisation - 78.5
Issued in respect of capital
distribution 0.7 -
At 31 December 79.2 78.5
---------------------------------- -------------------- --------------------
There were no shares reserved for issue under options as at 31 December 2010 or 31 December 2009.
On 25 February 2010, the Company undertook a consolidation of its share capital, such that the shareholders received one ordinary EUR4 share for every four ordinary EUR1 shares owned as at that date. The comparatives have been restated to reflect this share consolidation.
17 Cash flows provided by operating activities
Year ended Year ended
31 December 31 December
2010 2009
GBPm GBPm
Profit on ordinary activities before tax 116.4 116.4
Adjustments for non-cash movements:
Realised and unrealised gains on investments (7.9) (38.0)
Realised and unrealised losses on derivatives 1.9 4.1
Loss on sale of property, plant and equipment - 0.1
Amortisation of software 4.1 4.2
Impairment of software 0.7 2.2
Depreciation of property, plant and equipment 3.5 2.9
Impairment of property, plant and equipment 0.3 -
Foreign exchange gains on financing items - (1.4)
Foreign exchange (gains)/losses on cash
and cash equivalents (8.8) 49.0
Share of loss after tax of associated
undertakings 1.8 2.3
Charges in respect of employee share schemes 7.7 10.1
Cash contributions (in excess of)/lower
than defined benefit pension scheme charges (5.6) 0.2
Interest income (98.4) (97.1)
Dividend income (7.1) (2.4)
Finance costs on borrowing 14.0 11.5
Loss/(profit) on disposal of associated
undertakings 0.4 (4.2)
Changes in working capital:
Deferred acquisition costs (4.3) (10.3)
Insurance and other receivables excluding
accrued income (4.0) (37.5)
Insurance and reinsurance contracts 49.9 120.8
Financial investments (432.0) (50.1)
Derivative contracts (2.6) (7.8)
Insurance and other payables 51.0 (1.4)
Provisions 1.3 (0.1)
Cash flows provided by operating activities (317.7) 73.5
------------------------------------------------ ------------- -------------
18 Post balance sheet events
On 23 November 2010, a recommended cash offer was made by Achilles Netherlands Holdings B.V. (Achilles) for the entire share capital of the Group. The offer was subject to a number of conditions including receiving valid acceptances in respect of not less than 95% of the diluted share capital (or a lesser number on which Achilles may decide) and certain regulatory approvals.
On 15 February 2011, Achilles announced that the FSA had given formal notice of its approval in respect of the acquisitions of control over the relevant members of the Brit Insurance Group which would result from the implementation of the offer. It was also announced that Lloyd's approval had been granted.
On 17 February 2011, Achilles announced that it had reduced the number of acceptances required to fulfil the acceptance condition from 95% of the diluted share capital to 80% of the existing share capital. Based on the number of valid acceptances received at that time, Achilles announced that it was treating the acceptance condition as satisfied.
As at 24 February 2011, certain other conditions remain outstanding.
19 Financial Information and posting of accounts
The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2009 or 2010, but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Dutch Chamber of Commerce. The auditor has reported on the statutory accounts for 2009 in accordance with article 293 sub 5 of the Dutch Civil Code; their reports were unqualified.
The auditor has reported on the statutory accounts for 2010 in accordance with article 293 sub 5 of the Dutch Civil Code.
The report of the auditor is unqualified. Statutory accounts for 2010 will be delivered to the Netherlands Authority for the Financial Markets by no later than 15 May 2011.
The audited Annual Report and Accounts for 2010 are expected to be posted to shareholders by no later than 25 March 2011. Copies of the Report may be obtained from that date by writing to Brit Insurance Holdings N.V., PO Box 79083, 070 NC, Amsterdam, The Netherlands. Details of the 2011 Annual General Meeting (AGM) will be contained in the AGM notice of meeting, which is expected to be posted to shareholders on or about 25 March 2011.
The Preliminary Results were approved by the Board on 24 February 2011.
Company Information
The Board: Useful details:
Robert John Orr Barton (John) Investor Relations
Chairman investor.relations@britinsurance.com
Dane Jonathan Douetil CBE Media Queries
Chief Executive Officer Brit Insurance
Joseph Patrick MacHale (Joe) T: +44 (0) 20 7098 6626
Non-Executive Director Haggie Financial
Peter Frank Hazell T: +44 (0) 20 7417 8989
Non-Executive Director Registered Office
Maarten Joannes Hulshoff Brit Insurance Holdings N.V.
Non-Executive Director SOM II, Claude Debussylaan 11
Drs Cornelis Antonius Carolus 1082 MC
Maria Schrauwers (Cees) Amsterdam
Senior Independent Director The Netherlands
Willem Frans Casimir Stevens Registered under No. 24464323 with
Non-Executive Director the Trade Register of the Chambers
of Commerce in the Netherlands
Tel: +31 (0) 20 719 1100
W: www.britinsurance.com
E: enquiries@britinsurance.com
Registrars
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
United Kingdom
T: +44 (0) 871 495 0102*
W: www.computershare.com
*Calls to this number are charged
at 8p per minute from a BT landline.
Other telephony providers' charges
may vary.
Corporate Brokers
JP Morgan Securities Limited
125 London Wall
London EC2Y 5AS
United Kingdom
Numis Securities Limited
10 Paternoster Square
London EC4M 7LT
United Kingdom
Auditor
Ernst & Young Accountants LLP
PO Box 90636
2509 LP The Hague
The Netherlands
This information is provided by RNS
The company news service from the London Stock Exchange
END
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