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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Helios Underwriting Plc | LSE:HUW | London | Ordinary Share | GB00B23XLS45 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 162.50 | 160.00 | 165.00 | 162.50 | 162.50 | 162.50 | 3,794 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Insurance Carriers, Nec | 148.35M | -3.32M | -0.0434 | -37.44 | 124.27M |
From Apr 2019 to Apr 2024
TIDMHUW
RNS Number : 2637P
Helios Underwriting Plc
25 May 2018
Helios Underwriting plc
("Helios" or the "Company")
Final results for the year ended 31 December 2017
Helios is pleased to announce its final results for the year ended 31 December 2017.
Highlights
-- Gross premium written during the period totalled GBP34.7m (2016: GBP31.3m)
-- (Loss)/profit before impairment, goodwill and tax for the year of GBP(406,000) (2016: GBP1,334,000)
-- (Loss)/earnings per share of (4.75)p (2016: 6.22p) -- Helios retained capacity for 2018 open underwriting year GBP12.3m (2017: GBP10.6m)
-- 2015 underwriting year of account profit return on capacity of 12.9% (2014 underwriting year: 15.6%)
-- Recommended total dividend for this year of 1.5p per share (2016: 5.5p per share) -- Adjusted net asset value per share GBP1.60 per share (2016: GBP1.96 per share) -- Record insured losses for natural catastrophes of $144bn in 2017
-- Helios gross loss for the 2017 underwriting year of GBP5.8m reduced by reinsurance protection to GBP1.9m
-- Board to seek authority to buy back shares at this year's annual general meeting. Given the existence of a
Hot Features
Premium
concert party, a "whitewash" resolutions will also be sought at the AGM.
Year ended 31 December
2017 2016 2015
--------- -------- ------
(Loss)/profit before impairment
and tax (GBP'000) (406) 1,334 753
--------- -------- ------
Adjusted net asset value per
share - basic (GBP) 1.60 1.96 2.01
--------- -------- ------
Year ended 31 December
2017 2016 2015 Final dividend Special
dividend
----- ----- ----- --------------- -----------
Dividends (p) 1.5 5.5 5.0 2017: 1.5 2017: nil
2016: 1.5 2016: 4.0
2015: 1.5 2015: 3.5
----- ----- ----- --------------- -----------
Year ended 31 December
2018 2017 2016 2015
------ ------ ------ -----
Growth in capacity (GBPm) 41.0 32.6 28.1 20.5
------ ------ ------ -----
Year ended 31 December
2017 2016 2015
-------- -------- -------
Value of capacity fund (WAV)
(GBP'000) 13,046 14,918 11,762
-------- -------- -------
For further information please contact:
Helios Underwriting plc
Nigel Hanbury - Chief Executive 020 7863 6655 / nigel.hanbury@huwplc.com
Arthur Manners - Chief Financial Officer 07754 965 917
Stockdale Securities Limited
Robert Finlay/David Coaten 020 7601 6100
Chairman's statement
Summary
-- Loss before tax and impairment of GBP406,000 (2016 profit: GBP1,336,000) -- Adjusted net asset value at GBP1.60 per share (2016: GBP1.96) -- Five acquisitions in 2017 added GBP4.4m of capacity to 2017 underwriting year - 13% increase -- 1.5p per share total dividend payable (2016: 5.5p)
The Board announces the results for 2017 which were affected by the underwriting losses arising from natural catastrophes that occurred in 2017 and by the reduction in the value of the syndicate portfolio of capacity. The loss before impairment for the year is GBP406,000 (2016 profit: GBP1,334,000), whilst the adjusted net asset value of the Group is GBP1.60 per share (2016: GBP1.96).
The full impact of the 2017 losses on the Helios portfolio of GBP5.8m was mitigated by the use of quota share and stop loss reducing the net loss for 2017 to GBP1.9m.
Underwriting profits from the two older underwriting years, the "off-risk" years, made a good contribution but the 2017 underwriting year in its first 12 months recognised a significant loss following the series of natural catastrophes in the second half of 2017.
Other income arising from fees from reinsurers, recoveries from reinsurance policies and investment income have contributed to this year results. Total costs of GBP1.8m included the expenditure on protecting the portfolio using stop loss reinsurance and foreign exchange losses from the strengthening of the US$.
Strategy
The building of a portfolio of participations on leading Lloyd's syndicates remains the strategic objective of the Group. During 2017 the key developments were:
-- building the portfolio of capacity to GBP41m for 2018 by acquiring a further five limited liability vehicles ("LLVs");
-- maintaining the quality of the portfolio and the outperformance of the underwriting results average against the Lloyd's market as a whole;
-- continuing to use quota share reinsurance to reduce the risk from the underwriting and to assist in the financing of the underwriting capital of the portfolio; and
-- broadening the access to the portfolio to private capital by using a protected cell reinsurance structure.
Capacity acquired
During 2017 a further five corporate members were acquired that increased the capacity for the 2015 to 2017 years of account as shown below.
Year of account - GBPm
----------------------------
2015 2016 2017 2018
----------------------------- ------ ------ ----- -----
Capacity at 1 January 2017 32.2 33.7 32.6 41.0
Acquired during 2017 4.1 4.1 4.4 -
----------------------------- ------ ------ ----- -----
Capacity at 31 December 2017 36.3 37.8 37.0 41.0
----------------------------- ------ ------ ----- -----
These five acquisitions in 2017 were purchased for a total consideration of GBP4.8m, of which GBP2.1m was attributed to the value of capacity acquired. Given the uncertainty generated as to valuation of LLVs in the second half of the year arising from the natural catastrophes, the flow of potential acquisitions slowed.
With prospective 2017 underwriting year losses and the reduction in the value of capacity, there is the prospect of acquiring further LLVs in the future at lower prices. We will continue to build on the quality of the capacity portfolio as it is essential to acquire and retain the participations on the better managed syndicates.
Adjusted net asset value per share
2017 2016
GBP'000 GBP'000
----------------------------------------- -------- --------
Net tangible assets 8,835 11,787
Group letters of credit 1,532 1,922
Value of capacity 13,046 14,918
----------------------------------------- -------- --------
23,412 28,627
----------------------------------------- -------- --------
Shares in issue 14,604 14,604
Adjusted net asset value per share (GBP) 1.60 1.96
----------------------------------------- -------- --------
The Adjusted Net Asset Value has declined due to funding the loss and the fall in capacity value. In addition, funds have been taken from tangible assets to pay for acquisitions which are reflected in the capacity value total. This portfolio value is subject to fluctuation and the value could recover when cash from underwriting activities becomes available at corporate member level. This basis of valuation is commonly used for the valuation of LLV's in Lloyd's market.
Dividend
The Board recommends that the final dividend remains the same as last year at 1.5p per share (2016: final dividend of 1.5p plus a special dividend 4.0p, a total for 2016 of 5.5p). This dividend will be payable to shareholders on the register on 8 June 2018. If approved, the dividend will be paid in a single payment on 6 July 2018. The board has considered the existing dividend policy which would in normal circumstances have paid a special dividend between 20-30% of the 2015 underwriting year profits received. In view of the opportunities for acquisitions at favourable prices and the possibility of share buybacks (see below) the board believes that it is prudent to retain the cash for these purposes and does not recommend a special dividend this year.
Share Buyback and Whitewash Resolution
The Directors are seeking authority to purchase up to a maximum of 1,510,424 ordinary shares (being equivalent to approximately 10% of the Company's issued share capital). The proposed buyback(s) would only be implemented if the Board believes that the purchase(s) would enhance net asset value per share and be in the best interests of shareholders generally.
As the proposed buyback would result in an increase of the proportionate voting interest of each shareholder who retains their full shareholding following such transaction, it gives rise to certain considerations under the City Code. Each of Nigel Hanbury, Hampden Capital Limited, Nicholas Wentworth-Stanley, Jeremy Evans, Sir Michael Oliver, Peter Nutting, Timothy Oliver and his immediate family members are considered by the Panel to be acting in concert, as the concert party, in respect of the Company and together, as the concert party are interested in 29.62% of the Company's issued share capital. Were the aggregate interests of the concert party in the voting rights of the Company to reach 30% or more as a result of the proposed buyback, the members of the concert party would be required to make a mandatory offer under Rule 9 of the City Code.
The Takeover Panel may waive the requirement for a general offer to be made in accordance with Rule 9 if, amongst other things, the shareholders of a company who are independent of the person who would otherwise be required to make an offer, and any person acting in concert with it, pass an ordinary resolution on a poll approving such a waiver.
Accordingly, the Company has prepared a circular and related resolutions for consideration by the independent shareholders at the Annual General Meeting, notice of which is being circulated with the Annual Report and financial statements.
Outlook
The objective to provide access to insurance exposures at Lloyd's on quality syndicates continues to develop with the growth of the capacity portfolio and the implementation of a protected cell reinsurance structure for participation by private capital.
The 2017 underwriting year was affected by the worst catastrophe losses for some years, in addition, 2016 returns were lower due to softening market conditions. The 2017 losses have been fully recognised in these accounts so any improvement in the next two years will contribute to earnings. In addition, firmer market conditions should be reflected in the underwriting returns in the future.
The strategy of building a capacity portfolio of the better available syndicates at Lloyd's should allow Helios to maintain its outperformance of returns on capacity against the Lloyd's market. The recent soft underwriting conditions will distinguish the better managed syndicates which will deliver top quartile performance within the Lloyd's market which will reinforce the demand for these syndicates and assist in the recovery of the auction values. We see the lower auction values and the prospective 2017 underwriting year losses as an opportunity to continue to build the portfolio of capacity by purchasing LLVs at lower values.
Board
This is my first report as your Chairman and I would like to pay tribute to my predecessor Sir Michael Oliver for his valuable contribution to the Company since its inception. I would also like to welcome Edward Fitzalan-Howard to the board and look forward to working with him in the future. The 2017 underwriting year has fully tested our strategy and I am pleased to say that all the protections that have been developed and executed have proved to be successful in insulating the Company from severe losses. In addition, cash resources are available to take advantage of lower prices to enable the Company to increase capacity in line with the existing strategy. The executive team are to be congratulated on achieving an excellent result in the circumstances.
Michael Cunningham
Non-executive Chairman
24 May 2018
Chief Executive's review
Summary
Adjusted net asset value at GBP1.60 per share (2016: GBP1.96)
Five acquisitions in 2017 added GBP2.1m of capacity to 2017 underwriting year
1.5p per share total dividend payable (2016: 5.5p)
Highlights
-- The strategy of building a quality portfolio of syndicate capacity continues successfully as the portfolio increased from GBP32.6m to GBP41.0m - a 26% increase
-- The use of quota share has provided finance for acquisitions and has mitigated the loss from 2017 catastrophe losses
-- The reduction of the value of the capacity portfolio to GBP13.0m (2016: GBP14.9m) will provide opportunities to acquire further LLVs at reduced prices
-- Helios' portfolio underwriting results for 2015 underwriting year outperformed Lloyd's return on capacity by 6.6% demonstrating the quality of the portfolio
-- Market conditions for underwriting are improving after the 2017 losses
-- With the prospect of improving underwriting returns, together with the opportunity to acquire LLVs at lower values, Helios is well placed to deliver value to shareholders in the future
Capacity value
The value of the portfolio of the syndicate capacity remains the major asset of the Group and an important factor in delivering overall returns to shareholders. The adjusted net asset value ("ANAV"), being the value of the net tangible assets of the Group, together with the current value of the portfolio capacity, is a key management metric in determining growth in value to shareholders.
The Board had recognised that the average prices derived from the annual capacity auctions managed by the Corporation of Lloyd's could be subject to material change if the level of demand for syndicate capacity reduces or if the supply of capacity for sale should increase. In 2017, the supply of capacity increased due in the main to surplus pre-emption capacity being sold. Capacity traded increased to GBP181.3m compared with GBP66.7m a year earlier while. Subscription demand reduced as the cash available to LLV's was used to reserve for the losses from the significant catastrophes in 2017.
The fall in the weighted average prices for the 2017 auctions valued the Helios portfolio at 31 December 2017 at GBP13.0m (2016: GBP14.9m). The movement in the capacity and its value is as follows:
2016 2017
--------------- ---------------
Capacity Value Capacity Value
GBPm GBPm GBPm GBPm
-------------------------------- -------- ----- -------- -----
At 1 January 28.1 11.8 32.6 14.9
Capacity acquired with LLVs 5.5 2.3 4.4 2.1
Other capacity movements/change
in value (1.0) 0.8 4.0 (4.0)
-------------------------------- -------- ----- -------- -----
At 31 December 32.6 14.9 41.0 13.0
-------------------------------- -------- ----- -------- -----
The weighted average price of capacity has now fallen back to just above levels last seen in 2012 - a time following a period of higher catastrophe loss activity when surplus cash in LLV's was reduced. Internal valuation assessments of capacity values have indicated the sensitivity to the expected values from the immediate expected profit distributions. As both 2016 and 2017 underwriting years in aggregate will have limited cash distributions to LLV's, this has implicitly been reflected in the price of syndicate capacity traded at auction. As syndicate profitability resumes, the Board expects the projected cash flows will lead to higher valuations for capacity by stimulating the demand in the capacity auctions as some owners of the LLV's will wish to reinvest cash generated within the LLV in auction purchases.
We will continue to invest in the better managed syndicates at Lloyd's, to provide the outperformance of returns that justify the capacity values.
The accounting policy requires an assessment of the carrying value of each syndicate participation against the latest average auction prices. The impairment charge for this year of GBP899,000 (2016: GBP555,000) results in a reduction in the fair value of the syndicate capacity held on the balance sheet.
These movements in the carrying value of capacity have no impact on cash flow.
Underwriting result
The calendar year underwriting profit from the Helios retained capacity for 2017 has been generated from results recognised in the portfolio from the 2015 to 2017 underwriting years as follows:
Underwriting year contribution
Helios retained profits
2017 2016
Underwriting year GBP'000 GBP'000
------------------ -------- --------
2014 - 1,661
2015 1,294 1,031
2016 741 (484)
2017 (1,852) -
------------------ -------- --------
183 2,208
------------------ -------- --------
During 2017, the 2015 underwriting year midpoint estimate increased from 8.2% return on capacity to a final result of 12.9%. The overall return on capacity for 2015 benefited from the below average loss activity. The midpoint estimate for the 2016 underwriting year at 31 December 2017 was 3.5% (2016: 3.5%). The expected improvement in the midpoint estimate for 2016 has been impacted by the 2017 hurricane losses as this underwriting year had some exposure to those events. Nevertheless, we would expect the 2016 underwriting year forecast to improve over the next 12 months to make a contribution to 2018 calendar year underwriting profits.
The level of major claims for the whole of Lloyd's during 2017 at GBP4.5bn (2016: GBP2.2bn) was the third highest since the turn of the century and above the long-term average. These losses were incurred mainly as a result of the three hurricanes (Harvey, Irma and Maria) and the wild fires in California. Consequently, the 2017 underwriting year result in the first 12 months retained by Helios made a significant negative contribution mainly arising from this claims experience. The 2017 result at 12 months represents a loss of 15% of the retained capacity but we expect profits earned after January 2018 to reduce the 2017 underwriting year loss substantially; it is too early to forecast an expected result.
Following the recent receipt of the first estimates of the 2017 year of account we are pleased the Helios mid-point loss of 8.4% is in line with the market figure of 8.0%.
The underwriting environment has improved in 2018 following these losses within most classes of business although the availability of additional capital has restricted the upwards price adjustment following the 2017 losses.
Other income
Helios generates additional income at Group level from the following:
2017 2016
GBP'000 GBP'000
--------------------------------- -------- --------
Fees from reinsurers 426 557
Corporate reinsurance recoveries 629 -
Goodwill on bargain purchases 65 -
Investment income 158 347
--------------------------------- -------- --------
Total other income 1,278 904
--------------------------------- -------- --------
Fees and profit commission from reinsurers have reduced as the profit commission falls with the level of underwriting profits recognised.
The Group has reinsurance policies at member level where any expected year losses can be recovered up the level of indemnity for the member. For the 2017 year of account, an assessment has been made of the likely year of account loss and a potential reinsurance recovery has been made.
The Group Funds at Lloyd's are invested to produce consistent long-term returns.
Total costs
The costs of the Group comprise the operating expenses and the cost of the stop loss protection bought to mitigate the downside from large underwriting losses.
2017 2016
GBP'000 GBP'000
---------------- -------- --------
Pre-acquisition (38) 63
Stop loss costs 259 248
Operating costs 1,646 1,467
---------------- -------- --------
Total costs 1,867 1,778
---------------- -------- --------
The costs have increased as foreign exchange losses arising from the strengthening of the US$ have been incurred.
Growth in capacity through acquisitions
The strategy of building a portfolio of underwriting capacity at Lloyd's has continued through the purchase of further corporate members. There remains a steady flow of vehicles for sale as existing owners wish to cease underwriting due to a change of circumstances. During 2017 GBP4.4m (2016: GBP5.6m) of capacity was acquired. We remained selective on the purchases and as the effect of the 2017 losses became apparent the discounts to the formal valuations increased. We would anticipate that the LLVs that are marketed for sale in 2018 will have lower values attributed as the average capacity prices are lower and as the prospective 2017 losses are factored into the valuations.
There remains a risk to the implementation of our strategy if suitable vehicles are not available at attractive prices.
Summary of acquisitions
---------------------------------------------
Cash Humphrey Premium
consideration Capacity value over
GBPm GBPm GBPm Humphrey
----------------------------- -------------- -------- -------- ---------
Pooks Limited 0.9 0.8 0.9 98%
Charmac Underwriting 2.2 1.6 2.3 96%
Nottus No 51 Limited 1.0 0.7 1.0 96%
Inversanda LLP 0.2 0.6 0.3 76%
Chapman Underwriting Limited 0.5 0.7 0.8 70%
----------------------------- -------------- -------- -------- ---------
Total since 1 January 2017 4.8 4.4 5.3
----------------------------- -------------- -------- -------- ---------
Quality of portfolio
We continue to focus ruthlessly on the quality syndicates. In order to maintain the quality, we strive to acquire LLVs with portfolios that comprise quality syndicates thereby having to pay the average auction prices. Participations on weaker syndicates in acquired portfolios are sold to maintain the overall quality. The six largest participations with the leading managing agents at Lloyd's account for 79% of the portfolio. These participations in syndicates managed by these managing agents represent shares in the better managed businesses at Lloyd's.
The underwriting results of the Helios portfolio have on average outperformed the Lloyd's market average. Helios' average return on capacity over the last three closed years is 14.2% and is on average 5.4% higher than the average of the Lloyd's market.
The combined ratio of the portfolio (before Helios corporate costs) has been 5.79% lower on average over the last three calendar years. These incremental returns demonstrate the diversity and breadth of underwriting expertise within the businesses comprising the portfolio of syndicate capacity.
Helios current portfolio
Top six holdings by managing agent
2018 Helios 2018
portfolio Helios
capacity portfolio
Syndicate Managing agent GBP'000 % of total Largest class
--------- -------------------------------- ----------- ----------- ---------------------
623/6107 Beazley Furlonge Ltd 7,098 17 Composite/reinsurance
Composite/non-marine
510/557 Tokio Marine Kiln Syndicates Ltd 6,717 16 XL
33/6104 Hiscox Syndicates Ltd 6,252 15 Composite/reinsurance
2791/6103 Managing Agency Partners 5,558 14 Composite/reinsurance
609 Atrium Underwriters Ltd 3,906 10 Composite
6117 Argo Managing Agency 2,810 7 Reinsurance
--------- -------------------------------- ----------- ----------- ---------------------
Sub-total 32,341 79
------------------------------------------- ----------- ----------- ---------------------
Other 8,677 21
------------------------------------------- ----------- ----------- ---------------------
Total 2018 Helios portfolio 41,018 100
------------------------------------------- ----------- ----------- ---------------------
Source: 2018 syndicate capacities sourced from Lloyd's.
Reinsurance quota share
The use of quota share reinsurance to provide access to the Lloyd's underwriting exposures for reinsurers and private capital has been expanded. The core of the panel of reinsurers remains XL Group plc and Everest Reinsurance Bermuda Limited.
This reinsurance reduces the exposure of the portfolio and assists in the financing of the underwriting capital. Helios will seek to reinsure a significant proportion of the capacity at the start of the underwriting year to mitigate the open-year underwriting exposures. For corporate members acquired during the year, a proportion of the "on-risk" capacity will be ceded to reinsurers whilst the capacity on older years will be retained 100% by Helios. Therefore, the proportion of the overall capacity that Helios retains is expected to rise as further corporate members are acquired in the future. The profits earned after the company has been acquired will be recognised by Helios.
The table shows that the Helios retained capacity increases significantly in years 2 and 3 as further corporate members are acquired and the older years are not reinsured. Capacity on underwriting years after 18 months of development is substantially "off risk" as the underlying insurance contracts have mostly expired.
Therefore, the profits from the capacity on the older years are retained 100% by Helios. The proportion of overall capacity retained by Helios for the 2016 and 2017 underwriting years is expected to increase to approximately 50% as further corporate members are acquired.
Year of account - GBPm
----------------------------
2015 2016 2017 2018
------------------------------- ------ ------ ----- -----
Helios capacity at outset 20.5 28.1 32.6 41.0
Retained capacity in year 1 10.6 10.9 12.0 12.3
Retained capacity in years 2
and 3 9.1 7.7 - -
------------------------------- ------ ------ ----- -----
Helios retained capacity 19.7 17.8 12.0 12.3
------------------------------- ------ ------ ----- -----
% of off-risk capacity
------------------------------- ------ ------ ----- -----
Ceded capacity at outset 14.3 17.2 22.8 28.7
Further capacity ceded to QS 2.2 2.8 2.2 -
------------------------------- ------ ------ ----- -----
Total capacity ceded 16.5 20.0 25.0 28.7
------------------------------- ------ ------ ----- -----
Current total capacity 36.3 37.8 37.0 41.0
------------------------------- ------ ------ ----- -----
Helios share of total capacity 54% 47% 32% 30%
------------------------------- ------ ------ ----- -----
Development of profit estimates
As Helios has no active involvement in the underwriting or management of the syndicates in which it participates, it relies on information on forecast profitability of the portfolio that is released on a quarterly basis by the managing agents of the syndicates. The managing agents have traditionally been conservative in the estimation of the profitability of a year of account, waiting until the development of the underlying reserves for the claims can be assessed with greater certainty.
The capacity acquired on the "off-risk" years that is retained 100% by Helios contributes a significant part of the profits of the Group. Even though the 2017 underwriting year has incurred significant catastrophe losses and is currently forecast to close at an overall loss for the underwriting year at 36 months, the loss recognised at 12 months for 2017 of approximately 15% of capacity is higher that the ultimate expected loss to be declared at 36 months. Therefore, Helios will benefit from profits recognised from the 12-month stage on 2017 underwriting year.
Risk management
Helios continues to ensure that the portfolio is well diversified across classes of businesses and managing agents at Lloyd's.
The purchase of quota share reinsurance cedes 70% of the risk on the younger or "on-risk" years, which has remained consistent for the last three years.
Following the 2017 losses there has been a change in pricing for most classes of business and the rate change data published shows increases on average of 5 per cent. The 2017 losses from three hurricanes making landfall in the US were significant but the losses were absorbed by the strong capital position of the insurance industry. The high aggregation of coastal exposures in the US and other developed markets is one reason why further catastrophe losses and dislocations cannot be ruled out in the future.
The biggest single risk faced by insurers arises from the possibility of mispricing insurance on a large scale. This is mitigated by the diversification of the syndicate portfolio and by the depth of management experience within the syndicates that Helios supports. These management teams have weathered multiple market cycles and the risk management skills employed should reduce the possibility of substantial under-reserving of previous-year underwriting.
We assess the downside risk in the event of a major loss through the monitoring of the aggregate net losses estimated by managing agents to the catastrophe risk scenarios ("CRS") prescribed by Lloyd's.
The individual syndicate net exposures will depend on the business underwritten during the year and the reinsurance protections purchased at syndicate level.
The aggregate exceedance probability ("AEP") assesses the potential impact across the portfolio from either single or multiple large losses with a probability of occurring greater than once in a 30-year period.
In addition, Helios buys stop loss reinsurance that will mitigate the impact of a significant loss to the portfolio.
For 2018, the scope of the stop loss cover has been rationalised and terms have been included which will assist in funding a large loss.
Capital position
The underwriting capital for the Helios portfolio is supplied as follows:
Underwriting capital as at 31 2017 2016 December GBPm GBPm ------------------------------ ----- ----- Reinsurance panel 15.7 13.6 Helios own funds 10.5 4.1 Group letters of credit 2.1 1.9 ------------------------------ ----- ----- Total 28.3 19.6 ------------------------------ ----- -----
Helios has generated free cash of GBP1m in 2017 (2016: GBP3m) from the distribution of its share of the final underwriting profits of the 2015 underwriting year. During the year, the Group funded a 2017 solvency deficit in November 2017, contributing to the increase in Helios own funds used as underwriting capital. We anticipate that GBP3m of the Helios own funds will be released by Lloyds in 2018, which together with the 2015 distribution of retained profits will provide free cash to Helios of GBP4m for acquisitions in 2018.
Corporate, social and environmental responsibility
Helios aims to meet its expectations of its shareholders and other stakeholders in recognising, measuring and managing the impacts of its business activities.
As Helios manages a portfolio of Lloyd's syndicate capacity, it has no direct responsibility for the management of those businesses. Each managing agent has responsibility for the management of those businesses, their staff and employment policies and the environmental impact.
Therefore, the Board does not consider it appropriate to monitor or report any performance indicators in relation to corporate, social or environmental matters.
Nigel Hanbury
Chief Executive
24 May 2018
Lloyd's Advisers' report - Hampden Agencies
Outperformance by quality syndicates increases compared with Lloyd's average
Market conditions improving with modestly positive rate increases in most classes of business
The underwriting results of the Helios portfolio of syndicates have consistently outperformed the Lloyd's market average both on an annually accounted basis measured by combined ratio and on a three-year account basis, measured by return on underwriting capacity. Helios' calendar year combined ratio (before corporate costs) was 106.9% in 2017 (94.6% in 2016) compared with the Lloyd's combined ratio which was 114% in 2017 (97.9% in 2016).
Over the last four calendar years, the average combined ratio of the Helios portfolio was 91.5%, outperforming Lloyd's by six percentage points a year. These incremental returns compared with the Lloyd's market average demonstrate the quality of the syndicates in the Helios portfolio.
With the closure of the 2015 Account at 31 December 2016 the Helios portfolio has outperformed Lloyd's for the seventh successive three-year account result, reporting a profit of 12.9% on capacity compared with the Lloyd's market average of 6.3% on capacity.
$144bn record insured losses from natural catastrophes in 2017
The increase in Helios' calendar year combined ratio in 2017 was driven in large part by record insured losses from natural catastrophes estimated at $144bn by Swiss Re Sigma. Insured claims were up from $56bn in 2016 and above the inflation-adjusted annual average of the previous ten years of $58bn a year. The largest losses were three major category four plus hurricanes (Harvey, Irma and Maria) which Swiss Re estimates will cost around $92bn with claims from the Caribbean Islands, Puerto Rico, Texas and parts of western Florida. Major losses included earthquakes in Mexico in September 2017 costing $1.6bn and a series of wildfires in California costing just over $12bn.
Supply of capital still at all-time highs
Despite the hurricane losses at year end 2017 global reinsurer capital again reached a record high, according to Aon Benfield, of $605bn increasing by 2% on year end 2016. Alternative capital grew by 10% to $89bn principally reflecting additional deployment into collateralised reinsurance structures as investors "reloaded" capital following the hurricane losses. Alternative capital is now 15% of total reinsurance underwriting capital and continues to provide strong competition to traditional reinsurers as well as enabling traditional reinsurers to buy protection themselves from catastrophe bonds, collateralised reinsurance and (sidecar) reinsurers. Alternative capital has increased significantly in the past ten years with assets under management of the ILS fund managers increasing by 1,000%. Global reinsurance capital has increased by 78% since 2008.
Both individually and collectively measured as a percentage of US industry capital the 2017 hurricane losses were not as significant as previous major hurricane years such as 2005 (Katrina, Rita and Wilma) and 1992 (Andrew). Collectively Hurricanes Harvey, Irma and Maria cost 10.1% of US industry capital with Maria being the larger at 4.0%. Insurers benefited from the fact that much of the flood loss for Hurricane Harvey, around 70% according to CoreLogic, was not covered by insurance while a government entity, the National Flood Insurance Programme, is estimated to lose $8bn, although $1bn may be recoverable from reinsurers.
In 2005, Hurricanes Katrina, Rita and Wilma cost 15.9% of US industry capital with Katrina on its own amounting to 11.3%, while in 1992 Hurricane Andrew cost 9.5%. The strong capital position of both insurers and reinsurers has enabled the 2017 catastrophe losses to be absorbed with a much more muted impact on rates in 2018 than in 1993 or 2006.
The insurance market in 2018
Market conditions remain the most competitive in Lloyd's since the late 1990s when Lloyd's reported four consecutive years of underwriting losses on a three-year account basis. Increasing broker power is a symptom of the soft market as are acquisition costs. However, Lloyd's acquisition costs and administrative expenses as a percentage of net premium reduced marginally to 39% in 2017 compared with 40% in 2016.
The start point for Lloyd's is challenging with the 2017 combined ratio excluding prior year releases and major losses being only marginally profitable at 98.4%. This demonstrates the compounding effect of rate reductions for the previous four to five years. On the same basis Lloyd's combined ratio was 87.8% in 2011 and 83.8% in 2005, the two most recent above average catastrophe loss years before 2017.
Analysis by leading US analyst VJ Dowling suggests that we are now in the "cheating phase" of the cycle over distribution from prior years. Despite this, AM Best reports that it expects US companies to release $4.6bn from reserves in 2017. The last period when US companies were boosting reserves declaring prior years' losses was 2000 to 2005. Commercial lines which include other liability are where reserve weakness is evident with Aon's annual Industry Reserve Study estimating that commercial lines had an overall reserve deficiency of $4.2bn at year end 2016 compared with its estimate of a $1.8bn reserve deficiency at year end 2015. Reserving concerns on US liability business is likely to be the reason for liability rate increases being higher than expected so far in 2018.
The rating environment
The final quarter of 2017 and the first quarter of 2018 has marked a change in trend with market conditions in most classes of business moving from a prolonged period of rate reductions to modestly positive rate increases combined with growing exposures benefiting in particular from a solid US economy. Across all classes of business, based on Hampden's rate index, risk-adjusted rate changes were up by 5% in January/February 2018.
At 1 January 2018, following five years of rate reductions for US reinsurance business, rates increased by 13% using Guy Carpenter's rate index and are now the same level as in 2014 and 2002. The rate index shows that rates are now down by 23% compared with rating levels in 2012 (the reduction was 31% a year ago in January 2017). While major losses in 2017 were concentrated on US business reinsurance, rating is also up for international business with the average rate online globally increasing by 6.1%, again using Guy Carpenter's rate index.
Despite reinsurance rate increases the level of reinsurance pricing continues to be at a level which enables cost-effective risk transfer for insurers to reinsurers; the change in trend in insurance rates is potentially more significant given that insurance business comprises 72.3% of Helios' portfolio for 2018 compared with only 27.7% of reinsurance business.
The economy drives the property casualty insurance industry with net written premiums, a proxy for demand, tracking nominal GDP fairly well other than in "hard markets". For the full year 2017, US nominal GDP grew by 2.9%, down from 3.7% in 2015. Net written premium growth for all property/casualty insurers in the US was 4.1% for the first three quarters of 2017, up from 2.8% in 2016.
A continued focus on quality
Our focus in this market is to focus syndicate portfolios on quality syndicates with key success characteristics being conservative reserving and a focus on profit rather than growth.
The Helios portfolio for 2018 continues to provide a good spread of business across managing agents and classes of business. The two largest classes of business remain reinsurance at 27.7% (26.0% in 2017) where the Hampden Rate Index currently shows rate rises of 7.1% and US dollar property insurance at 18.2% (16.9% in 2016) where the Hampden Rate Index shows rate rises of 7.4%.
Capacity auction values
The Helios portfolio for 2018 continues to have an above average auction value for freehold tradable syndicates. The weighted average price of auction tradable syndicates was 37.5p per GBP in 2017 (GBP34.8m of capacity) or 19.8% higher than the 31.3p per GBP average for capacity by Third Party Members (unaligned to the managing agents). On the same basis in 2017 the Helios portfolio with GBP26.3m of auction tradable capacity was valued at 56.7p per GBP of capacity or 42.1% higher than the 39.9p per GBP average for Third Party Members. The fall in prices at the 2017 auctions was due to increased volumes of capacity traded which increased to GBP181m (GBP67m in 2016) as pre-emptions were offered on freehold tradable syndicates totalling GBP216m. Pre-emptions tend to reduce auction prices as the monetary goodwill is diluted by the increased capacity.
Most of the higher priced and higher graded syndicates have a history of conservative reserving which has boosted Helios's three year account results by an average of 4.8% of capacity for the last four closed years, 2012 to 2015 compared with the Lloyd's market average of 4.0% of capacity. Some syndicates also reserve at higher than the actuarial best estimate which gives rise to a capital credit within the Funds at Lloyd's requirement partially offsetting the auction value.
Hampden Agencies
24 May 2018
Summary financial information
The information set out below is a summary of the key items that the Board assesses in estimating the financial position of the Group. Given the Board has no active role in the management of the syndicates within the portfolio, the following approach is taken:
(a) It relies on the quarterly syndicate forecasts to assess its share of the underlying profitability of the syndicates within the portfolio.
(b) It calculates the amounts due to/from the quota share reinsurers in respect of their share of the profits/losses as well as fees and commissions due.
(c) An adjustment is made to exclude pre-acquisition profits on companies bought in the year.
(d) Costs relating to stop loss reinsurance and operating costs are deducted.
Year to 31 December
---------------------
2017 2016
GBP'000 GBP'000
----------------------------------- ---------- ---------
Underwriting profit 183 2,208
Other income:
- fees from reinsurers 426 557
- corporate reinsurance recoveries 629 -
- goodwill on bargain purchase 65 -
- investment income 158 347
----------------------------------- ---------- ---------
Total other income 1,278 904
----------------------------------- ---------- ---------
Costs:
- pre-acquisition 38 (63)
- stop loss costs (259) (248)
- operating costs (1,646) (1,467)
----------------------------------- ---------- ---------
Total costs (1,867) (1,778)
----------------------------------- ---------- ---------
Operating profit before impairment (406) 1,334
Impairment charge (899) (555)
Tax 611 (66)
----------------------------------- ---------- ---------
Profit for the year (694) 713
----------------------------------- ---------- ---------
Year to 31 December 2017
Helios
retained
capacity Total % earned
at profit in the
31 December Portfolio currently 2017 Helios
2017 midpoint estimated calendar profits
Underwriting year GBPm forecasts GBP'000 year GBP'000
------------------ ------------ ---------- ---------- --------- --------
2015 19.7 12.9% 2,547 51% 1,294
2016 18.3 3.5% 641 116% 741
2017 12.0 N/A - - (1,852)
------------------ ------------ ---------- ---------- --------- --------
183
------------------ ------------ ---------- ---------- --------- --------
Year to 31 December 2016
Helios
retained
capacity Total % earned
at profit in the
31 December Portfolio currently 2016 Helios
2016 midpoint estimated calendar profits
Underwriting year GBPm forecasts GBP'000 year GBP'000
------------------ ------------ ---------- ---------- --------- --------
2014 20.6 15.5% 3,193 52% 1,661
2015 16.1 8.2% 1,314 79% 1,031
2016 10.8 N/A - - (484)
------------------ ------------ ---------- ---------- --------- --------
2,208
------------------ ------------ ---------- ---------- --------- --------
Summary balance sheet
See Note 27 for further information.
2017 2016
GBP'000 GBP'000
----------------------- -------- --------
Intangible assets 12,175 10,732
Funds at Lloyd's 10,489 4,083
Other cash 1,078 7,229
Other assets 6,669 3,480
----------------------- -------- --------
Total assets 30,411 25,524
----------------------- -------- --------
Deferred tax 2,963 3,581
Borrowings 1,094 -
Other liabilities 4,390 4,618
----------------------- -------- --------
Total liabilities 8,447 8,199
----------------------- -------- --------
Total syndicate equity (954) 5,194
----------------------- -------- --------
Total equity 21,010 22,519
----------------------- -------- --------
Cash flow
Helios has generated GBP1.3m of cash in 2018 from the distribution of the profits from the 2015 underwriting year.
Year to Year to
31 December 31 December
2017 2016
Analysis of free working capital GBP'000 GBP'000
------------------------------------------------ ------------ ------------
Opening balance (free cash) 7,229 2,973
Income
Cash acquired on acquisition 420 413
Distribution of profits (net of tax retentions) 4,064 3,378
Transfers from Funds at Lloyd's 2,211 3,775
Other income 300 271
Proceeds from the issue of shares - 5,722
Transfers from PTF accounts (early release) 1,081 -
Expenditure
Operating costs (1,281) (815)
Reinsurance cost (262) (237)
Payments to QS reinsurers (550) (741)
Acquisition of LLVs (4,858) (5,592)
Transfers to Funds at Lloyd's (5,818) (1,524)
Tax (655) (95)
Dividends paid (803) (299)
------------------------------------------------ ------------ ------------
Closing balance 1,078 7,229
------------------------------------------------ ------------ ------------
Year to Year to
31 December 31 December
2017 2016
Adjusted NAV GBP'000 GBP'000
--------------------------------------- ------------ ------------
Net tangible assets 8,835 11,787
Group letters of credit 1,532 1,922
Value of capacity (WAV) 13,046 14,918
--------------------------------------- ------------ ------------
23,413 28,627
--------------------------------------- ------------ ------------
Shares in issue - basic & diluted 14,604 14,604
Adjusted net asset value per share GBP 1.60 1.96
--------------------------------------- ------------ ------------
Consolidated statement of comprehensive income
- Year ended 31 December 2017
Year ended Year ended
31 December 31 December
2017 2016
Note GBP'000 GBP'000
-------------------------------------------------------- ----- ------------ ------------
Gross premium written 6 34,701 31,307
Reinsurance premium ceded 6 (6,717) (7,772)
-------------------------------------------------------- ----- ------------ ------------
Net premium written 6 27,984 23,535
-------------------------------------------------------- ----- ------------ ------------
Change in unearned gross premium provision 7 1,761 (826)
Change in unearned reinsurance premium provision 7 (319) 199
-------------------------------------------------------- ----- ------------ ------------
Net change in unearned premium provision 7 1,442 (627)
-------------------------------------------------------- ----- ------------ ------------
Net earned premium 5,6 29,426 22,908
Net investment income 8 1,010 885
Other underwriting income 267 -
Other income (35) 2,134
--------------------------------------------------------------- ------------ ------------
Revenue 30,668 25,927
--------------------------------------------------------------- ------------ ------------
Gross claims paid (19,204) (13,355)
Reinsurers' share of gross claims paid 4,905 2,472
--------------------------------------------------------------- ------------ ------------
Claims paid, net of reinsurance (14,299) (10,883)
--------------------------------------------------------------- ------------ ------------
Change in provision for gross claims 7 (8,761) (3,826)
Reinsurers' share of change in provision for gross
claims 7 5,028 1,904
-------------------------------------------------------- ----- ------------ ------------
Net change in provision for claims 7 (3,733) (1,922)
-------------------------------------------------------- ----- ------------ ------------
Net insurance claims incurred and loss adjustment
expenses 6 (18,032) (12,805)
-------------------------------------------------------- ----- ------------ ------------
Expenses incurred in insurance activities (11,819) (10,819)
Other operating expenses (1,288) (969)
--------------------------------------------------------------- ------------ ------------
Operating expenses 9 (13,107) (11,788)
-------------------------------------------------------- ----- ------------ ------------
Operating (loss)/profit before goodwill and impairment 6 (471) 1,334
Goodwill on bargain purchase 22 65 -
Impairment of goodwill 13,22 - -
Impairment of syndicate capacity 13 (899) (555)
-------------------------------------------------------- ----- ------------ ------------
(Loss)/profit before tax (1,305) 779
Income tax credit/(charge) 10 611 (66)
-------------------------------------------------------- ----- ------------ ------------
(Loss)/profit for the year (694) 713
--------------------------------------------------------------- ------------ ------------
Other comprehensive income
Foreign currency translation differences - -
Income tax relating to the components of other comprehensive
income - -
--------------------------------------------------------------- ------------ ------------
Other comprehensive income for the year, net of tax - -
--------------------------------------------------------------- ------------ ------------
Total comprehensive (loss)/income for the year (694) 713
--------------------------------------------------------------- ------------ ------------
(Loss)/profit for the year attributable to owners of
the Parent (694) 713
--------------------------------------------------------------- ------------ ------------
Total comprehensive (loss)/income for the year attributable
to owners of the Parent (694) 713
--------------------------------------------------------------- ------------ ------------
(Loss)/earnings per share attributable to owners
of the Parent
Basic & diluted 11 (4.75)p 6.22p
-------------------------------------------------------- ----- ------------ ------------
The profit/(loss) attributable to owners of the Parent, the total comprehensive income and the earnings per share set out above are in respect of continuing operations.
The notes are an integral part of these Financial Statements.
Consolidated statement of financial position
- At 31 December 2017
31 December 31 December
2017 2016
Note GBP'000 GBP'000
------------------------------------------------------- ----- ----------- -----------
Assets
Intangible assets 13 12,175 10,732
Financial assets at fair value through profit
or loss 15 48,074 45,580
Reinsurance assets:
- reinsurers' share of claims outstanding 7 14,836 9,674
- reinsurers' share of unearned premium 7 2,354 2,548
Other receivables, including insurance and reinsurance
receivables 16 32,949 30,243
Deferred acquisition costs 17 4,420 4,255
Prepayments and accrued income 268 187
Cash and cash equivalents 2,844 6,212
-------------------------------------------------------------- ----------- -----------
Total assets 117,920 109,431
-------------------------------------------------------------- ----------- -----------
Liabilities
Insurance liabilities:
- claims outstanding 7 59,833 50,087
- unearned premium 7 15,916 16,821
Deferred income tax liabilities 18 2,963 3,581
Borrowings 19 1,094 -
Other payables, including insurance and reinsurance
payables 20 15,558 14,708
Accruals and deferred income 1,546 1,715
-------------------------------------------------------------- ----------- -----------
Total liabilities 96,910 86,912
-------------------------------------------------------------- ----------- -----------
Equity
Equity attributable to owners of the Parent:
Share capital 21 1,510 1,460
Share premium 21 15,387 15,399
Other reserves - treasury shares (50) -
Retained earnings 4,163 5,660
-------------------------------------------------------------- ----------- -----------
Total equity 21,010 22,519
-------------------------------------------------------------- ----------- -----------
Total liabilities and equity 117,920 109,431
-------------------------------------------------------------- ----------- -----------
The Financial Statements were approved and authorised for issue by the Board of Directors on 24 May 2018, and were signed on its behalf by:
Nigel Hanbury
Chief Executive
The notes are an integral part of these Financial Statements.
Parent Company statement of financial position
- At 31 December 2017
Company number: 05892671
31 December 31 December
2017 2016
Note GBP'000 GBP'000
-------------------------------------------------- ---- ----------- -----------
Assets
Investments in subsidiaries 14 15,456 19,503
Financial assets at fair value through profit or
loss 15 1 2,380
Other receivables 16 9,446 4,488
Cash and cash equivalents 982 3,845
-------------------------------------------------- ---- ----------- -----------
Total assets 25,885 30,216
-------------------------------------------------- ---- ----------- -----------
Liabilities
Borrowings 19 1,094 -
Other payables 20 182 328
-------------------------------------------------- ---- ----------- -----------
Total liabilities 1,276 328
-------------------------------------------------- ---- ----------- -----------
Equity
Equity attributable to owners of the Parent:
Share capital 21 1,510 1,460
Share premium 21 15,387 15,399
-------------------------------------------------- ---- ----------- -----------
16,897 16,859
-------------------------------------------------- ---- ----------- -----------
Retained earnings:
At 1 January 13,029 11,015
(Loss)/profit for the year attributable to owners
of the Parent (4,514) 2,539
Other changes in retained earnings (803) (525)
-------------------------------------------------- ---- ----------- -----------
At 31 December 7,712 13,029
-------------------------------------------------- ---- ----------- -----------
Total equity 24,609 29,888
-------------------------------------------------- ---- ----------- -----------
Total liabilities and equity 25,885 30,216
-------------------------------------------------- ---- ----------- -----------
The Financial Statements were approved and authorised for issue by the Board of Directors on 24 May 2018, and were signed on its behalf by:
Nigel Hanbury
Chief Executive
The notes are an integral part of these Financial Statements.
Consolidated statement of changes in equity
- Year ended 31 December 2017
Attributable to owners of
the Parent
-------------------------------- ---- -----------------------------------------
Share Share Other Retained Total
capital premium reserves earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ---- -------- --------- --------- --------- --------
At 1 January 2016 as originally
reported 1,050 9,901 121 5,351 16,423
Effect of reclassification* - - (121) 121 -
-------------------------------- ---- -------- --------- --------- --------- --------
At 1 January 2016 as restated 1,050 9,901 - 5,472 16,423
-------------------------------- ---- -------- --------- --------- --------- --------
Total comprehensive income for the year:
Profit for the year - - - 713 713
Other comprehensive income, net of
tax - - - - -
-------------------------------------- -------- --------- --------- --------- --------
Total comprehensive income for the
year - - - 713 713
-------------------------------------- -------- --------- --------- --------- --------
Transactions with owners:
Dividends paid 12 - - - (525) (525)
Joint Share Ownership Plan - - - - -
Share issue, net of transaction
costs 21 410 5,498 - - 5,908
-------------------------------- ---- -------- --------- --------- --------- --------
Total transactions with owners 410 5,498 - (525) 5,383
-------------------------------------- -------- --------- --------- --------- --------
At 31 December 2016 1,460 15,399 - 5,660 22,519
-------------------------------------- -------- --------- --------- --------- --------
At 1 January 2017 1,460 15,399 - 5,660 22,519
-------------------------------------- -------- --------- --------- --------- --------
Total comprehensive income for the year:
Loss for the year - - - (694) (694)
Other comprehensive income, net of
tax - - - - -
-------------------------------------- -------- --------- --------- --------- --------
Total comprehensive income for the
year - - - (694) (694)
-------------------------------------- -------- --------- --------- --------- --------
Transactions with owners:
Dividends paid 12 - - - (803) (803)
Treasury shares (JSOP) 23 - - (50) - (50) Share issue, net of transaction costs 21 50 (12) - - 38 -------------------------------- ---- -------- --------- --------- --------- -------- Total transactions with owners 50 (12) (50) (803) (815) -------------------------------------- -------- --------- --------- --------- -------- At 31 December 2017 1,510 15,387 (50) 4,163 21,010 -------------------------------------- -------- --------- --------- --------- --------
* The position as at 1 January 2016 was restated within the audited Financial Statements of the year ended 31 December 2016. This was necessary as the profit for the year 2015, the other comprehensive income for the year 2015 and the retained earnings as at 31 December 2015 have been restated to reflect the effects of the reclassification of foreign exchanges gains and losses, which were originally recognised within the other comprehensive income, to be reclassified and recognised in the underwriting profits in the consolidated income statement (refer to Note 28).
The notes are an integral part of these Financial Statements.
Parent Company statement of changes in equity
- Year ended 31 December 2017
Share Share Retained Total
capital premium earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ---- -------- -------- --------- --------
At 1 January 2016 1,050 9,901 11,015 21,966
-------------------------------------- ---- -------- -------- --------- --------
Total comprehensive income for the
year:
Profit for the year - - 2,539 2,539
Other comprehensive income, net of
tax - - - -
-------------------------------------- ---- -------- -------- --------- --------
Total comprehensive income for the
year - - 2,539 2,539
-------------------------------------- ---- -------- -------- --------- --------
Transactions with owners:
Dividends paid 12 - - (525) (525)
Share issue, net of transaction costs 21 410 5,498 - 5,908
-------------------------------------- ---- -------- -------- --------- --------
Total transactions with owners 410 5,498 (525) 5,383
-------------------------------------- ---- -------- -------- --------- --------
At 31 December 2016 1,460 15,399 13,029 29,888
-------------------------------------- ---- -------- -------- --------- --------
At 1 January 2017 1,460 15,399 13,029 29,888
-------------------------------------- ---- -------- -------- --------- --------
Total comprehensive income for the
year:
Profit for the year - - (4,514) (4,514)
Other comprehensive income, net of
tax - - - -
-------------------------------------- ---- -------- -------- --------- --------
Total comprehensive income for the
year - - (4,514) (4,514)
-------------------------------------- ---- -------- -------- --------- --------
Transactions with owners:
Dividends paid 12 - - (803) (803)
Share issue, net of transaction costs 21 50 (12) - 38
-------------------------------------- ---- -------- -------- --------- --------
Total transactions with owners - (12) (803) (815)
-------------------------------------- ---- -------- -------- --------- --------
At 31 December 2017 1,510 15,387 7,712 24,609
-------------------------------------- ---- -------- -------- --------- --------
The notes are an integral part of these Financial Statements.
Consolidated statement of cash flows
- Year ended 31 December 2017
Year ended Year ended
31 December 31 December
2017 2016
Note GBP'000 GBP'000
----------------------------------------------------- ---- ------------ ------------
Cash flows from operating activities
Profit before tax (1,305) 779
Adjustments for:
- interest received 8 (126) (113)
- investment income 8 (731) (594)
- goodwill on bargain purchase 22 (65) -
- impairment of goodwill 22 - -
- profit on sale of intangible assets (4) (94)
- impairment of intangible assets 13 899 555
Changes in working capital:
- change in fair value of financial assets held
at fair value through profit or loss 8 426 (256)
- decrease/(increase) in financial assets at fair
value through profit or loss 2,314 (6,825)
- decrease/(increase) in other receivables 2,920 (3,848)
- (decrease)/increase in other payables (1,790) 3,090
- net (decrease)/increase in technical provisions (2,801) 8,361
----------------------------------------------------- ---- ------------ ------------
Cash generated (used in)/from operations (262) 1,055
----------------------------------------------------- ---- ------------ ------------
Income tax paid (630) (15)
----------------------------------------------------- ---- ------------ ------------
Net cash (used in)/from operating activities (893) 1,040
----------------------------------------------------- ---- ------------ ------------
Cash flows from investing activities
Interest received 126 113
Investment income 731 594
Purchase of intangible assets 13 (180) (6)
Proceeds from disposal of intangible assets 28 137
Acquisition of subsidiaries, net of cash acquired (3,471) (4,723)
----------------------------------------------------- ---- ------------ ------------
Net cash used in investing activities (2,766) (3,885)
----------------------------------------------------- ---- ------------ ------------
Cash flows from financing activities
Net proceeds from issue of ordinary share capital* - 5,722
Borrowings 19 1,094 -
Dividends paid to owners of the Parent 12 (803) (299)
----------------------------------------------------- ---- ------------ ------------
Net cash from financing activities 291 5,423
----------------------------------------------------- ---- ------------ ------------
Net (decrease)/increase in cash and cash equivalents (3,368) 2,578
Cash and cash equivalents at beginning of year 6,212 3,634
----------------------------------------------------- ---- ------------ ------------
Cash and cash equivalents at end of year 2,844 6,212
----------------------------------------------------- ---- ------------ ------------
* Net proceeds from issue of ordinary share capital excludes shares issued via a scrip dividend of GBP226,000 and accrued expenses incurred of GBP40,000.
Cash held within the syndicates' accounts is GBP1,766,000 (2016: GBP2,163,000) of the total cash and cash equivalents held at the year end of GBP2,844,000 (2016: GBP6,212,000). The cash held within the syndicates' accounts is not available to the Group to meet its day-to-day working capital requirements.
Cash and cash equivalents comprise cash at bank and in hand.
The notes are an integral part of these Financial Statements.
Parent Company statement of cash flows
- Year ended 31 December 2017
Year ended Year ended
31 December 31 December
2017 2016
Note GBP'000 GBP'000
----------------------------------------------------- ----- ------------ ------------
Cash flows from operating activities
Loss before tax (4,672) 2,334
Adjustments for:
- investment income 1 1
- dividends received (4,361) (3,226)
- impairment of investment in subsidiaries 14 8,099 -
Changes in working capital:
- change in fair value of financial assets held
at fair value through profit or loss 21 (19)
- decrease/(increase) in financial assets at fair
value through profit or loss 2,347 (2,339)
- decrease in other receivables 163 5
- (decrease)/increase in other payables (146) 215
----------------------------------------------------- ----- ------------ ------------
Net cash from/(used in) operating activities 1,452 (3,029)
----------------------------------------------------- ----- ------------ ------------
Cash flows from investing activities
Investment income (1) (1)
Dividends received 4,361 3,226
Acquisition of subsidiaries 14,22 (4,052) (4,797)
Amounts owed by subsidiaries 24 (4,914) 933
----------------------------------------------------- ----- ------------ ------------
Net cash used in investing activities (4,606) (639)
----------------------------------------------------- ----- ------------ ------------
Cash flows from financing activities
Net proceeds from issue of ordinary share capital - 5,722
Borrowings 19 1,094 -
Dividends paid to owners of the Parent 12 (803) (299)
----------------------------------------------------- ----- ------------ ------------
Net cash from financing activities 291 5,423
Net (decrease)/increase in cash and cash equivalents (2,863) 1,755
Cash and cash equivalents at beginning of year 3,845 2,090
----------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at end of year 982 3,845
----------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents comprise cash at bank and in hand.
The notes are an integral part of these Financial Statements.
Notes to the financial statements
- Year ended 31 December 2017
1. General information
The Company is a public limited company listed on AIM. The Company was incorporated in England and is domiciled in the UK and its registered office is 40 Gracechurch Street, London EC3V 0BT. These Financial Statements comprise the Company and its subsidiaries (together referred to as the "Group"). The Company participates in insurance business as an underwriting member at Lloyd's through its subsidiary undertakings.
2. Significant accounting policies
The principal accounting policies adopted in the preparation of the Group and Parent Company Financial Statements (the "Financial Statements") are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as endorsed by the European Union ("EU"), IFRS Interpretations Committee ("IFRIC") interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
No statement of comprehensive income is presented for Helios Underwriting plc, as a Parent Company, as permitted by Section 408 of the Companies Act 2006.
The Financial Statements have been prepared under the historical cost convention as modified by the revaluation of financial assets at fair value through profit or loss.
Use of judgements and estimates
The preparation of Financial Statements in conformity with IFRS requires the use of judgements, estimates and assumptions in the process of applying the Group's accounting policies that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting year. Although these estimates are based on management's best knowledge of the amounts, events or actions, actual results may ultimately differ from these estimates. Further information is disclosed in Note 3.
The Group participates in insurance business through its Lloyd's member subsidiaries. Accounting information in respect of syndicate participations is provided by the syndicate managing agents and is reported upon by the syndicate auditors.
Going concern
The Group and the Company have net assets at the end of the reporting period of GBP21,010,000 and GBP24,609,000 respectively.
The Company's subsidiaries participate as underwriting members at Lloyd's on the 2015, 2016 and 2017 years of account, as well as any prior run-off years, and they have continued this participation since the year end on the 2018 year of account. This underwriting is supported by Funds at Lloyd's totalling GBP12,164,000 (2016: GBP6,006,000), letters of credit provided through the Group's quota share reinsurance agreements totalling GBP15,683,000 (2016: GBP13,641,000) and solvency credits issued by Lloyd's totalling GBP1,052,000 (2016: GBP837,000).
The Directors have a reasonable expectation that the Group and the Company have adequate resources to meet their underwriting and other operational obligations for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the annual Financial Statements.
International Financial Reporting Standards
Adoption of new and revised standards
During the current year the Group and the Company adopted all the new and revised IFRS, amendments and interpretations that are relevant to its operations and are effective for accounting periods beginning on 1 January 2017. These are set out below and did not have a material impact on the accounting policies of the Group and the Company:
-- Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses, issued on 19 January 2016 (effective 1 January 2017).
-- Amendments to IAS 7: Disclosure Initiative, issued on 29 January 2016 (effective 1 January 2017).
-- Annual Improvements to IFRS 2014-2016 Cycle, issued on 8 December 2016 (effective 1 January 2018).
New standards, amendments and interpretations not yet adopted
At the date of authorisation of these Financial Statements, the following standards, amendments and interpretations were in issue but not yet effective:
(i) Adopted by the EU
-- IFRS 9 "Financial Instruments", issued on 24 July 2014 (effective 1 January 2018).
-- IFRS 15 "Revenue from Contracts with Customers", issued on 28 May 2014, including amendments to IFRS 15, issued on 11 September 2015 (effective 1 January 2018).
-- IFRS 16 "Leases", issued on 13 January 2016 (effective 1 January 2019).
-- Clarifications to IFRS 15 "Revenue from Contracts with Customers", issued on 12 April 2014 (effective 1 January 2018).
-- Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions, issued on 20 June 2016 (effective 1 January 2018).
-- Amendments to IFRS 4: Applying IFRS 9 "Financial Instruments" with IFRS 4 "Insurance Contracts", issued on 12 September 2016 (effective 1 January 2018).
-- IFRIC Interpretation 22 "Foreign Currency Transactions and Advance Consideration", issued on 8 December 2016 (effective 1 January 2018).
-- Amendments to IAS 40: Transfers of Investment Property, issued on 8 December 2016 (effective 1 January 2018).
(ii) Not adopted by the EU
Standards:
-- IFRS 17 "Insurance Contracts", issued on 18 May 2017, (effective date 1 January 2021).
-- IFRS 23 "Uncertainty over Income Tax Treatments", issued on 7 June 2017, (effective date 1 January 2019).
Amendments:
-- Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures, issued on 12 December 2017, (effective date 1 January 2019).
-- Annual improvements to IFRS 2015-2017 Cycle, issued on 12 December 2017, (effective date 1 January 2019).
-- Amendments to IAS 19: Plan Amendment, Curtailment or Settlement, issued on 7 February 2017, (effective date 1 January 2019).
-- Amendments to References to the Conceptual Framework in IFRS, issued on 29 March 2017, (effective date 1 January 2020).
Principles of consolidation, business combinations and goodwill
(a) Consolidation and investments in subsidiaries
The Group Financial Statements incorporate the Financial Statements of Helios Underwriting plc, the Parent Company, and its directly and indirectly held subsidiaries being Hampden Corporate Member Limited, Nameco (No. 365) Limited, Nameco (No. 605) Limited, Nameco (No. 321) Limited, Nameco (No. 917) Limited, Nameco (No. 229) Limited, Nameco (No. 518) Limited, Nameco (No. 804) Limited, Halperin Underwriting Limited, Bernul Limited, Dumasco Limited, Nameco (No. 311) Limited, Nameco (No. 402) Limited, Updown Underwriting Limited, Nameco (No. 507) Limited, Nameco (No. 76) Limited, Kempton Underwriting Limited, Devon Underwriting Limited, Nameco (No. 346) Limited, Pooks Limited, Charmac Underwriting Limited, Nottus (No 51) Limited, Chapman Underwriting Limited, RBC CEES Trustee Limited (newly incorporated, see Notes 14 and 23), Helios UTG Partner Limited, Nomina No 035 LLP, Nomina No 342 LLP, Nomina No 380 LLP, Nomina No 372 LLP, Salviscount LLP and Inversanda LLP (Notes 4 and 14).
The Financial Statements for all of the above subsidiaries are prepared for the year ended 31 December 2017 under UK GAAP. Consolidation adjustments are made to convert the subsidiary Financial Statements prepared under UK GAAP to IFRS so as to align accounting policies and treatments.
No income statement is presented for Helios Underwriting plc as permitted by Section 408 of the Companies Act 2006. The loss after tax for the year of the Parent Company was GBP4,514,000 (2016: profit GBP2,539,000).
Subsidiaries are entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding or partnership participation of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
Intra-group transactions, balances and unrealised gains on intra-group transactions are eliminated.
In the Parent Company's Financial Statements, investments in subsidiaries are stated at cost and are reviewed for impairment annually or when events or changes in circumstances indicate the carrying value to be impaired.
(b) Business combinations and goodwill
The Group uses the acquisition method of accounting to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisition costs are expensed as incurred.
The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is capitalised and recorded as goodwill. Following initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is tested for impairment annually or if events or changes in circumstances indicate that the carrying value may be impaired and recognised directly in the consolidated income statement. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the consolidated income statement as a bargain purchase.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as Nigel Hanbury.
Foreign currency translation
Items included in the Financial Statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The Financial Statements are presented in thousands of pounds sterling, which is the Group's functional and presentational currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.
Foreign currency transactions and non-monetary assets and liabilities, including deferred acquisition costs and unearned premiums, are translated into the functional currency using annual average rates of exchange prevailing at the time of the transaction as a proxy for the transactional rates. The translation difference arising on non-monetary asset items is recognised in the consolidated income statement.
Certain supported syndicates have non-sterling functional currencies and any exchange movement that they would have reflected in other comprehensive income as a result of this has been included within profit before tax at consolidation level, to be consistent with the Group's policy of using sterling as the functional currency.
Monetary items are translated at period-end rates; any exchange differences arising from the change in rates of exchange are recognised in the consolidated income statement of the year.
Underwriting
Premiums
Gross premium written comprises the total premiums receivable in respect of business incepted during the year, together with any differences between booked premiums for prior years and those previously accrued, and includes estimates of premiums due but not yet receivable or notified to the syndicates on which the Group participates, less an allowance for cancellations. All premiums are shown gross of commission payable to intermediaries and exclude taxes and duties levied on them.
Unearned premiums
Gross premium written is earned according to the risk profile of the policy. Unearned premiums represent the proportion of gross premium written in the year that relates to unexpired terms of policies in force at the end of the reporting period calculated on a time apportionment basis having regard, where appropriate, to the incidence of risk. The specific basis adopted by each syndicate is determined by the relevant managing agent.
Deferred acquisition costs
Acquisition costs, which represent commission and other related expenses, are deferred over the period in which the related premiums are earned.
Reinsurance premiums
Reinsurance premium costs are allocated by the managing agent of each syndicate to reflect the protection arranged in respect of the business written and earned.
Reinsurance premium costs in respect of reinsurance purchased directly by the Group are charged or credited based on the annual accounting result for each year of account protected by the reinsurance.
Claims incurred and reinsurers' share
Claims incurred comprise claims and settlement expenses (both internal and external) occurring in the year and changes in the provisions for outstanding claims, including provisions for claims incurred but not reported ("IBNR") and settlement expenses, together with any other adjustments to claims from previous years. Where applicable, deductions are made for salvage and other recoveries.
The provision for claims outstanding comprises amounts set aside for claims notified and IBNR. The amount included in respect of IBNR is based on statistical techniques of estimation applied by each syndicate's in-house reserving team and reviewed, in certain cases, by external consulting actuaries. These techniques generally involve projecting from past experience the development of claims over time to form a view of the likely ultimate claims to be experienced for more recent underwriting, having regard to variations in the business accepted and the underlying terms and conditions. The provision for claims also includes amounts in respect of internal and external claims' handling costs. For the most recent years, where a high degree of volatility arises from projections, estimates may be based in part on output from the rating and other models of the business accepted, and assessments of underwriting conditions.
The reinsurers' share of provisions for claims is based on calculated amounts of outstanding claims and projections for IBNR, net of estimated irrecoverable amounts, having regard to each syndicate's reinsurance programme in place for the class of business, the claims experience for the year and the current security rating of the reinsurance companies involved. Each syndicate uses a number of statistical techniques to assist in making these estimates.
Accordingly, the two most critical assumptions made by each syndicate's managing agent as regards claims provisions are that the past is a reasonable predictor of the likely level of claims development and that the rating and other models used, including pricing models for recent business, are reasonable indicators of the likely level of ultimate claims to be incurred.
The level of uncertainty with regard to the estimations within these provisions generally decreases with time since the underlying contracts were exposed to new risks. In addition, the nature of short-tail risks, such as property where claims are typically notified and settled within a short period of time, will normally have less uncertainty after a few years than long-tail risks, such as some liability business where it may be several years before claims are fully advised and settled. In addition to these factors if there are disputes regarding coverage under policies or changes in the relevant law regarding a claim this may increase the uncertainty in the estimation of the outcomes.
The assessment of these provisions is usually the most subjective aspect of an insurer's accounts and may result in greater uncertainty within an insurer's accounts than within those of many other businesses. The provisions for gross claims and related reinsurance recoveries have been assessed on the basis of the information currently available to the directors of each syndicate's managing agent. However, ultimate liability will vary as a result of subsequent information and events and this may result in significant adjustments to the amounts provided. Adjustments to the amounts of claims provisions established in prior years are reflected in the Financial Statements for the period in which the adjustments are made. The provisions are not discounted for the investment earnings that may be expected to arise in the future on the funds retained to meet the future liabilities. The methods used, and the estimates made, are reviewed regularly.
Quota share reinsurance
Under the Group's quota share reinsurance agreements, 70% of the 2016, 2017 and 2018 underwriting year of insurance exposure is ceded to the reinsurers. Amounts payable to the reinsurers are included within "reinsurance premium ceded" in the consolidated income statement of the year and amounts receivable from the reinsurers are included within "reinsurers share of gross claims paid" in the consolidated income statement of the year.
Unexpired risks provision
Provision for unexpired risks is made where the costs of outstanding claims, related expenses and deferred acquisition costs are expected to exceed the unearned premium provision carried forward at the end of the reporting period. The provision for unexpired risks is calculated separately by reference to classes of business that are managed together, after taking into account relevant investment return. The provision is made on a syndicate-by-syndicate basis by the relevant managing agent.
Closed years of account
At the end of the third year, the underwriting account is normally closed by reinsurance into the following year of account. The amount of the reinsurance to close premium payable is determined by the managing agent, generally by estimating the cost of claims notified but not settled at 31 December, together with the estimated cost of claims incurred but not reported ("IBNR") at that date and an estimate of future claims handling costs. Any subsequent variation in the ultimate liabilities of the closed year of account is borne by the underwriting year into which it is reinsured.
The payment of a reinsurance to close premium does not eliminate the liability of the closed year for outstanding claims. If the reinsuring syndicate were unable to meet any obligations, and the other elements of Lloyd's chain of security were to fail, then the closed underwriting account would have to settle any outstanding claims.
The Directors consider that the likelihood of such a failure of the reinsurance to close is extremely remote and consequently the reinsurance to close has been deemed to settle the liabilities outstanding at the closure of an underwriting account. The Group will include its share of the reinsurance to close premiums payable as technical provisions at the end of the current period and no further provision is made for any potential variation in the ultimate liability of that year of account.
Run-off years of account
Where an underwriting year of account is not closed at the end of the third year (a "run-off" year of account) a provision is made for the estimated cost of all known and unknown outstanding liabilities of that year. The provision is determined initially by the managing agent on a similar basis to the reinsurance to close. However, any subsequent variation in the ultimate liabilities for that year remains with the corporate member participating therein. As a result, any run-off year will continue to report movements in its results after the third year until such time as it secures a reinsurance to close.
Net operating expenses (including acquisition costs)
Net operating expenses include acquisition costs, profit and loss on exchange and other amounts incurred by the syndicates on which the Group participates.
Acquisition costs, comprising commission and other costs related to the acquisition of new insurance contracts, are deferred to the extent that they are attributable to premiums unearned at the end of the reporting period.
Investment income
Interest receivable from cash and short-term deposits and interest payable are accrued to the end of the period.
Dividend income from financial assets at fair value through profit or loss is recognised in the income statement when the Group's right to receive payments is established.
Syndicate investments and cash are held on a pooled basis, the return from which is allocated by the relevant managing agent to years of account proportionate to the funds contributed by the year of account.
Other operating expenses
All expenses are accounted for on an accruals basis.
Intangible assets: syndicate capacity
Syndicate capacity is an intangible asset which represents costs incurred in the Corporation of Lloyd's auctions in order to acquire rights to participate on syndicates' years of account.
At the individual subsidiary company level, the syndicate capacity is stated at cost, less any provision for impairment at initial recognition, and amortised on a straight line basis over the useful economic life, which is estimated to be five years (up to 2014: estimated to be seven years). No amortisation is charged until the following year when underwriting commences in respect of the purchased syndicate participation.
At the consolidation level, the Group's accounting policy for the year 2014 was consistent with the accounting policy of the subsidiaries as described above. As of 1 January 2015, the Group changed its accounting policy for accounting for the intangible asset, syndicate capacity, as set out below:
The syndicate capacity represents the cost of purchasing the Group's participation in the combined syndicates. The capacity is capitalised at cost in the statement of financial position. It has an indefinite useful life and is carried at cost less accumulated impairment. It is annually tested for impairment for each syndicate by reference to the weighted average value at Lloyd's auctions and expected future profit streams to be earned by those syndicates in which the Group participates and provision is made for any impairment in the consolidated income statement.
Financial assets
(a) Classification
The Group classifies its financial assets in the following categories: at fair value through profit or loss, and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. The Group does not make use of the held-to-maturity and available-for-sale classifications.
(i) Financial assets at fair value through profit or loss
All financial assets at fair value through profit or loss are categorised as designated at fair value through profit or loss upon initial recognition because they are managed and their performance is evaluated on a fair value basis in accordance with the Company's documented investment strategy. Information about these financial assets is provided internally on a fair value basis to the Group's key management.
The Group's investment strategy is to invest and evaluate their performance with reference to their fair values. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as current assets, except for maturities greater than 12 months after the reporting period. The latter ones are classified as non-current assets.
The Group's loans and receivables comprise "other receivables, including insurance and reinsurance receivables" and "cash and cash equivalents".
The Parent Company's loans and receivables comprise "other receivables" and "cash and cash equivalents".
(b) Recognition, derecognition and measurement
Regular purchases and sales of financial assets are recognised on the trade date, being the date on which the Group commits to the purchase or sale of the asset. Financial assets are derecognised when the right to receive cash flows from the financial assets has expired or are transferred and the Group has transferred substantially all its risks and rewards of ownership.
Financial assets at fair value through profit or loss are initially recognised at fair value and transaction costs incurred expensed in the income statement.
Loans and receivables are initially recognised at fair value plus transaction costs and are subsequently carried at amortised cost less any impairment losses.
Fair value estimation
The fair value of financial assets at fair value through profit or loss which are traded in active markets is based on quoted market prices at the end of the reporting period. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regular occurring market transactions on an arm's length basis. The quoted market price used for financial assets at fair value through profit or loss held by the Group is the current bid price.
The fair value of financial assets at fair value through profit or loss that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity-specific estimates.
Unrealised gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the income statement within "net investment income".
The fair values of short-term deposits are assumed to approximate to their book values. The fair values of the Group's debt securities have been based on quoted market prices for these instruments.
(c) Impairment
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
Asset carried at amortised cost
For loans and receivables, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of the estimated future cash flows (excluding future credit losses that has not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument's fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss.
Cash and cash equivalents
For the purposes of the statements of cash flows, cash and cash equivalents comprise cash and short-term deposits at bank.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings, using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services, and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.
Borrowing costs
Borrowing costs are recognised in income statement in the period in which they are incurred.
Joint Share Ownership Plan ("JSOP")
On 14 December 2017, the Company issued and allotted 500,000 new ordinary shares of GBP0.10 each ("ordinary shares"). The new ordinary shares have been issued at a subscription price of 133.5p per ordinary share, being the closing price of an ordinary share on 13 December 2017, pursuant to The Helios Underwriting plc Employees' Joint Share Ownership Plan (the "Plan").
The new ordinary shares have been issued into the respective joint beneficial ownership of (i) each of the participating Executive Directors as shown in Note 23 and (ii) the Trustee of RBC CEES Trustee Limited ("The Trust") upon and are subject to the terms of joint ownership agreements ("JOAs") respectively entered into between the Director, the Company and the Trustee. The nominal value of the new ordinary shares has been paid by the Trust out of funds advanced to it by the Company with the additional consideration of 123.5p left outstanding until such time as new ordinary shares are sold. The Company has waived its lien on the shares such that there are no restrictions on their transfer.
The terms of the JOAs provide, inter alia, that if jointly owned shares become vested and are sold, the proceeds of sale will be divided between the joint owners so that the participating Director receives an amount equal to any growth in the market value of the jointly owned ordinary shares above the greater of either:
(a) the initial market value (133.5p per share), less a "carrying cost" (equivalent to simple interest at 4.5% per annum on the initial market value accruing over the three years from the date of award) and the Trust receives the initial market value of the jointly owned shares plus the carrying cost; or
(b) if higher, 150p (so that the participating Director will only ever receive value if the share sale price exceeds this).
The vesting of the award will be subject to performance conditions measured over the three calendar years from the award date.
A proportion of the Jointly Owned Shares shall vest pro rata to the percentage by which the average return on capacity of the last three closed underwriting years of account of the Helios Capacity Portfolio outperforms on average the return on capacity of the Lloyd's market ("the Performance Percentage") over the Performance Period such that:
(i) if the Performance Percentage is 4% or greater, all of the Jointly Owned Shares shall vest; and
(ii) if the Helios Capacity Portfolio fails to outperform the return on capacity of the Lloyds Market, none of the Jointly Owned Shares shall vest; but
(iii) if the performance Percentage is between 0% and 4%, a proportion of the Jointly Owned Shares shall vest pro rata on a straight line basis.
The Plan was established and approved by resolution of the Remuneration Committee of the Company on 13 December 2017 and provides for the acquisition by employees, including Executive Directors, of beneficial interests as joint owners (with the Trust) of ordinary shares in the Company upon the terms of a JOA. The terms of the JOA provide that if the jointly owned shares become vested and are sold, the proceeds of sale will be divided between the joint owners on the terms set out above.
Current and deferred tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case tax is also recognised in other comprehensive income or directly in equity, respectively.
Current tax
The current income tax charge is calculated on the basis of the tax laws enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management establishes provisions when appropriate, on the basis of amounts expected to be paid to the tax authorities.
Deferred tax
Deferred tax is provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements.
However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for.
Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.
Other payables
These present liabilities for services provided to the Group prior to end of the financial year which are unpaid. These are classified as current liabilities, unless payment is not due within 12 months after the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.
Share capital and share premium
Ordinary shares are classified as equity.
The difference between the fair value of the consideration received and the nominal value of the share capital issued is taken to the share premium account. Incremental costs directly attributable to the issue of shares or options are shown in equity as a deduction, net of tax, from proceeds.
Dividend distribution policy
Dividend distribution to the Company's shareholders is recognised in the Group's and the Parent Company's Financial Statements in the period in which the dividends are approved by the Company's shareholders.
3. Segmental information
Nigel Hanbury is the Group's chief operating decision-maker. He has determined its operating segments based on the way the Group is managed, for the purpose of allocating resources and assessing performance.
The Group has three segments that represent the primary way in which the Group is managed, as follows:
-- syndicate participation;
-- investment management; and
-- other corporate activities.
Other
Syndicate Investment corporate
participation management activities Total
Year ended 31 December 2017 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- -------------- ----------- ----------- --------
Net earned premium 29,426 - - 29,426
Net investment income 909 101 - 1,010
Other income (169) - 401 232
Net insurance claims and loss adjustment
expenses (19,621) - 1,589 (18,032)
Expenses incurred in insurance activities (11,543) - (276) (11,819)
Other operating expenses 30 - (1,318) (1,288)
Goodwill on bargain purchase - - 65 65
Impairment of goodwill - - - -
Impairment of syndicate capacity (see Note
13) - - (899) (899)
------------------------------------------- -------------- ----------- ----------- --------
Profit before tax (968) 101 (438) (1,305)
------------------------------------------- -------------- ----------- ----------- --------
Other
Syndicate Investment corporate
participation management activities Total
Year ended 31 December 2016 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- -------------- ----------- ----------- --------
Net earned premium 24,302 - (1,394) 22,908
Net investment income 663 222 - 885
Other income 643 - 1,491 2,134
Net insurance claims and loss adjustment
expenses (12,805) - - (12,805)
Expenses incurred in insurance activities (10,422) - (397) (10,819)
Other operating expenses 884 - (1,853) (969)
Goodwill on bargain purchase - - - -
Impairment of goodwill - - - -
Impairment of syndicate capacity (see Note
13) - - (555) (555)
------------------------------------------- -------------- ----------- ----------- --------
Profit before tax 3,265 222 (2,708) 779
------------------------------------------- -------------- ----------- ----------- --------
The Group does not have any geographical segments as it considers all of its activities to arise from trading within the UK.
No major customers exceed 10% of revenue.
Net insurance claims and loss adjustment expenses within 2017 other corporate activities totalling GBP1,589,000 (net earned premium within 2016: GBP1,394,000 - 2014, 2015 and 2016 year of account) presents the 2015, 2016 and 2017 years of account net Group quota share reinsurance premium recoverable to HIPCC Limited - Cell 6 (Note 24). This net quota share reinsurance premium payable is included within "reinsurance premium ceded" in the consolidated income statement of the year.
4. Operating profit before goodwill and impairment
Underwriting year of account*
---------------------- ------------ ------------ ---------- --------
2015 Pre- Corporate Other
Year ended 31 December and prior 2016 2017 Sub-total acquisition reinsurance corporate Total
2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------- --------- --------- ---------- ------------ ------------ ---------- --------
Gross premium written 15 4,688 32,021 36,724 (2,023) - - 34,701
---------------------- ---------- --------- --------- ---------- ------------ ------------ ---------- --------
Reinsurance ceded 128 (789) (6,244) (6,905) 447 - (259) (6,717)
---------------------- ---------- --------- --------- ---------- ------------ ------------ ---------- --------
Net premium written 143 3,899 25,777 29,819 (1,576) - (259) 27,984
---------------------- ---------- --------- --------- ---------- ------------ ------------ ---------- --------
Net earned premium 1,974 15,063 14,151 31,188 (1,503) - (259) 29,426
Other income 211 313 233 757 (98) 425 158 1,242
Net insurance claims
incurred and loss
adjustment expenses 1,742 (8,524) (14,458) (21,240) 990 1,589 629 (18,032)
Operating expenses (1,588) (4,825) (5,697) (12,110) 649 - (1,646) (13,107)
---------------------- ---------- --------- --------- ---------- ------------ ------------ ---------- --------
Operating profit
before goodwill and
impairment 2,339 2,027 (5,771) (1,405) 38 2,014 (1,118) (471)
---------------------- ---------- --------- --------- ---------- ------------ ------------ ---------- --------
Quota share adjustment (1,044) (1,287) 3,920 1,589 - (1,589) - -
---------------------- ---------- --------- --------- ---------- ------------ ------------ ---------- --------
Operating profit
before goodwill and
impairment after
quota share
adjustment 1,294 741 (1,852) 183 38 425 (1,118) (471)
---------------------- ---------- --------- --------- ---------- ------------ ------------ ---------- --------
* The underwriting year of account results represent the Group's share of the syndicates' results by underwriting year of account before corporate member level reinsurance and members' agent's charges.
Underwriting year of account*
------------------------ ------------------------------------------ ------------ ------------ ---------- --------
2014 Pre- Corporate Other
Year ended 31 December and prior 2015 2016 Sub-total acquisition reinsurance corporate Total
2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------- --------- -------- --------- ------------ ------------ ---------- --------
Gross premium written 250 3,521 30,131 33,902 (2,595) - - 31,307
------------------------ ---------- --------- -------- --------- ------------ ------------ ---------- --------
Reinsurance ceded 26 (487) (6,244) (6,705) 575 (1,394) (248) (7,772)
------------------------ ---------- --------- -------- --------- ------------ ------------ ---------- --------
Net premium written 276 3,035 23,887 27,197 (2,020) (1,394) (248) 23,535
Net earned premium 1,679 11,986 12,676 26,341 (1,791) (1,394) (248) 22,908
------------------------ ---------- --------- -------- --------- ------------ ------------ ---------- --------
Other income 1,566 543 82 2,191 (76) 557 347 3,019
Net insurance claims
incurred and loss
adjustment expenses 990 (6,196) (8,680) (13,886) 1,081 - - (12,805)
Operating expenses (1,300) (4,169) (5,575) (11,044) 723 - (1,467) (11,788)
------------------------ ---------- --------- -------- --------- ------------ ------------ ---------- --------
Operating profit
before goodwill and
impairment 2,935 2,164 (1,497) 3,602 (63) (837) (1,368) 1,334
------------------------ ---------- --------- -------- --------- ------------ ------------ ---------- --------
Quota share adjustment (1,274) (1,133) 1,013 (1,394) - 1,394 - -
------------------------ ---------- --------- -------- --------- ------------ ------------ ---------- --------
Operating profit
before goodwill and
impairment after
quota share adjustment 1,661 1,031 (484) 2,208 (63) 557 (1,368) 1,334
------------------------ ---------- --------- -------- --------- ------------ ------------ ---------- --------
* The underwriting year of account results represent the Group's share of the syndicates' results by underwriting year of account before corporate member level reinsurance and members' agent's charges.
Pre-acquisition relates to the element of results from the new acquisitions before they were acquired by the Group.
5. Net investment income
Year ended Year ended
31 December 31 December
2017 2016
GBP'000 GBP'000
---------------------------------------------------------- ------------ ------------
Investment income 731 594
Realised losses on financial assets at fair value through
profit or loss 652 (19)
Unrealised (losses)/gain on financial assets at fair
value through profit or loss (426) 256
Investment management expenses (73) (59)
Bank interest 126 113
---------------------------------------------------------- ------------ ------------
Net investment income 1,010 885
---------------------------------------------------------- ------------ ------------
6. Operating expenses (excluding goodwill and amortisation)
Year ended Year ended
31 December 31 December
2017 2016
GBP'000 GBP'000
------------------------------------------------------------- ------------ ------------
Expenses incurred in insurance activities:
Acquisition costs 8,174 7,052
Change in deferred acquisition costs 207 (49)
Administrative expenses 3,539 3,528
Other (101) 288
------------------------------------------------------------- ------------ ------------
11,819 10,819
------------------------------------------------------------- ------------ ------------
Other operating expenses:
Exchange differences 284 (16)
Directors' remuneration 196 312
Acquisition costs in connection with the new subsidiaries
acquired in the year 64 100
Professional fees 402 443
Administration and other expenses 240 10
Auditor's remuneration:
- audit of the Parent Company and Group Financial Statements 31 31
- audit of subsidiary company Financial Statements 33 35
- underprovision of prior year audit fee 16 34
- audit related assurance services 22 20
------------------------------------------------------------- ------------ ------------
1,288 969
------------------------------------------------------------- ------------ ------------
Operating expenses 13,107 11,788
------------------------------------------------------------- ------------ ------------
The Group has no employees other than the Directors of the Company.
Details of the Directors' remuneration are disclosed below:
Year ended Year ended
31 December 31 December
2017 2016
GBP'000 GBP'000
------------------- ------------ ------------
Sir Michael Oliver 12,000 20,000
Jeremy Evans 15,000 15,000
Michael Cunningham 18,000 15,000
Andrew Christie 15,000 15,000
Arthur Manners 61,000 118,000
Nigel Hanbury 75,000 129,000
------------------- ------------ ------------
Total 196,000 312,000
------------------- ------------ ------------
The Chief Executive, Nigel Hanbury, and the Finance Director, Arthur Manners, had a bonus incentive scheme during 2016 in addition to their basic remuneration. The above figures for Nigel Hanbury and Arthur Manners include an accrual for the year of GBPnil each (2016: GBP50,000 each for Nigel Hanbury and Arthur Manners) in respect of this scheme. No other Directors derive other benefits, pension contributions or incentives from the Group. During 2017, a Joint Share Ownership Plan was implemented as an incentive scheme for the Chief Executive, Nigel Hanbury, and the Finance Director, Arthur Manners (see Note 23).
7. Earnings per share
Basic earnings per share is calculated by dividing the net profit attributable to ordinary equity holders of the Company after tax by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share is calculated by dividing the net profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year, plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
Earnings per share has been calculated in accordance with IAS 33 "Earnings per Share".
The earnings per share and weighted average number of shares used in the calculation are set out below:
Year ended Year ended
31 December 31 December
2017 2016
------------------------------------------------------ ------------ ------------
(Loss)/profit for the year after tax attributable
to ordinary equity holders of the Parent GBP(694,000) GBP713,000
------------------------------------------------------ ------------ ------------
Basic and diluted weighted average number of ordinary
shares in issue 14,604,240 11,463,456
------------------------------------------------------ ------------ ------------
Basic and diluted (loss)/earnings per share (4.75)p 6.22p
------------------------------------------------------ ------------ ------------
The basic and diluted earnings per share for the year are the same. The issue of the 500,000 partly paid ordinary shares (Note 21) gives rise to an anti-dilutive element.
8. Intangible assets
Syndicate
Goodwill capacity Total
GBP'000 GBP'000 GBP'000
-------------------------------------- -------- --------- ---------
Cost
At 1 January 2016 - 8,798 8,798
Additions 493 6 499
Disposals - (87) (87)
Impairment - - -
Acquired with subsidiary undertakings - 2,364 2,364
-------------------------------------- -------- --------- ---------
At 31 December 2016 493 11,081 11,574
-------------------------------------- -------- --------- ---------
At 1 January 2017 493 11,081 11,574
Additions 263 180 443
Disposals - (90) (90)
Impairment - - -
Acquired with subsidiary undertakings - 1,989 1,989
-------------------------------------- -------- --------- ---------
At 31 December 2017 756 13,160 13,916
-------------------------------------- -------- --------- ---------
Impairment
At 1 January 2016 - 287 287
Impairment for the year - 555 555
Disposals - - -
-------------------------------------- -------- --------- ---------
At 31 December 2016 - 842 842
-------------------------------------- -------- --------- ---------
At 1 January 2017 - 842 842
Impairment for the year - 899 899
Disposals - - -
-------------------------------------- -------- --------- ---------
At 31 December 2017 - 1,741 1,741
-------------------------------------- -------- --------- ---------
Net book value
At 31 December 2016 493 10,239 10,732
-------------------------------------- -------- --------- ---------
At 31 December 2017 756 11,419 12,175 -------------------------------------- -------- --------- ---------
Note 22 sets out the details of the entities acquired by the Group during the year, the fair value adjustments and the goodwill arising.
9. Financial statements
The financial information set out in this announcement does not constitute statutory accounts but has been extracted from the Group's Financial Statements which have not yet been delivered to the Registrar. The Group's annual report will be posted to shareholders shortly and further copies will be available from the Company's registered office: 40 Gracechurch Street, London EC3V 0BT and on the Company's website www.huwplc.com.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR FKQDQOBKDNPB
(END) Dow Jones Newswires
May 25, 2018 02:00 ET (06:00 GMT)
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