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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 12.50 | 8.06% | 167.50 | 165.00 | 170.00 | 167.50 | 155.00 | 155.00 | 15,716 | 15:26:08 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Insurance Carriers, Nec | 148.35M | -3.32M | -0.0434 | -38.59 | 128.09M |
From Apr 2022 to Apr 2024
TIDMHUW
RNS Number : 0021N
Helios Underwriting Plc
27 May 2022
27 May 2022
Helios Underwriting plc
("Helios" or the "Company")
Final results for the year ended 31 December 2021
Helios, the unique investment vehicle which acquires and consolidates underwriting capacity at Lloyd's, is pleased to announce its audited final results for the year ended 31 December 2021.
Highlights
-- 111% increase in the capacity portfolio to GBP232.7m (2020: GBP110.3m) -- Total comprehensive income for the year of GBP4.9m (2020: GBP4.3m)
-- Helios retained capacity for 2022 open underwriting year of GBP171.9m (2021 year of account: GBP58.7m)
-- Net tangible asset value of GBP1.57 per share (2020: GBP1.51 per share) -- Stop loss in 2022 continues to protect the downside and provides underwriting capital support
Helios Group Summary Profits
Hot Features
Premium
2021 2020
GBP'000 GBP'000
Underwriting profits 3,401 639
Total other income 2,700 2,887
Total costs (6,746) (3,190)
Revaluation of syndicate
capacity 8,132 5,604
Tax (2,555) (1,657)
Total comprehensive
income 4,932 4,283
Earnings per share
Basic (0.75p) 1.59p
Diluted (0.74p) 1.55p
Nigel Hanbury, Chief Executive, commented:
"We have successfully navigated a challenging period, with reinsurance mitigating the COVID-19 losses and managing the volatility of the portfolio. This demonstrates our success in building a high quality portfolio of syndicate capacity. Our acquisition strategy has continued apace, with 28 LLV's purchased, for a total consideration of GBP26.5m.
"Our capacity portfolio has increased 111%, from GBP110m to GBP233m, and retained capacity increases at the outset of the underwriting year from GBP59m to GBP172m, an increase of 193%. This decision to increase the retained capacity substantially for the second year reflects the confidence in the timing of the market cycle and that it is now the right time to assume more underwriting risk for shareholders.
"It is pleasing to note that we have once again outperformed the Lloyd's market by an average of 4.9%.
"With the prospect of improving underwriting returns, together with the opportunity to continue to build the capacity portfolio, Helios is well placed to deliver value to shareholders in the future."
For further information, please contact:
Helios Underwriting plc
Nigel Hanbury - Chief Executive +44 (0)7787 530 404 / nigel.hanbury@huwplc.com Arthur Manners - Chief Financial Officer +44 (0)7754 965 917
Shore Capital (Nomad and Broker)
Robert Finlay +44 (0)20 7408 4080
David Coaten
Buchanan (PR)
Helen Tarbet / Henry Wilson / George Beale +44 (0)7872 604 453
+44 (0)20 7466 5111
About Helios
Helios provides a limited liability direct investment into the Lloyd's insurance market and is quoted on the London Stock Exchange's AIM market (ticker: HUW). Helios trades within the Lloyd's insurance market writing approximately GBP233m of capacity for the 2022 account. The portfolio provides a good spread of business being concentrated in property insurance and reinsurance. For further information please visit www.huwplc.com.
Chairman's statement
In summary
-- Total comprehensive income of GBP4.9m (2020: GBP4.3m) -- Net tangible asset value at GBP1.57 per share (2020: GBP1.51) -- A final dividend of 3p per share is being recommended (2020: 3p) -- Capital employed per share of GBP1.78 (2020: GBP1.70) -- Successful equity raise from new investors to raise GBP54m in April 2021
-- The capacity retained by Helios increased to GBP172m (2020: GBP59m) an increase of over 193%
-- 28 LLVs were acquired in 2021 for a total consideration of GBP27.3m (2020: 5 LLVs for GBP10m)
-- Cumulative rate increases since 1 January 2017 in excess of 50% for the Helios portfolio
The board is pleased to announce results for the year ended 31 December 2021. The total comprehensive income for the year was GBP4.9m (2020: GBP4.3m), and the net tangible asset value of the Group has increased to GBP1.57 per share (2020: GBP1.51). Although these results show a pre-tax loss, they include the GBP8.1m profit on the revaluation of capacity but do not yet reflect the successful trading that has taken place over the last few years. The underwriting cycle typically can last for ten years of which three or four may be difficult. The Board believes that we are at the point of the underwriting cycle where the prospects for underwriting profitability are much improved.
It is important to understand that there is a three year lag in the recognition of underwriting profits in our accounts so at the moment we are still working through the results of difficult unprofitable years. Lloyd's has announced a return to profitability and is expecting better results in the next few years. Helios has matched the performance of Lloyd's, so we expect to mirror these substantial improvements.
Our strategy is to continue to build a 'blue chip' portfolio of underwriting capacity and during this year the Helios retained capacity fund has grown from GBP59m to GBP172m. Returning to the 'cycle clock,' it can be seen that increasing the retained capacity at this time in the cycle will bear fruit in future good years.
The majority of the fund is comprised of freehold capacity on well-established syndicates at Lloyd's. When these syndicates wish to grow their businesses, the existing owners of the capacity have pre-emptive rights to receive additional capacity pro rata to the scale of increase in the underlying business. The additional capacity is free and the value of this additional capacity increases our asset valuation but additional capital is required to meet funds at Lloyd's. This is a major benefit in holding freehold capacity.
Earlier in the cycle we reduced underwriting risk through 'Quota share reinsurance' which transfers the underwriting risk to a third party. In past years as much as 70% of the fund has been passed to reinsurers for which Helios receives a fee. We are now at the stage in the cycle where the market has become more profitable and so the underwriting risk retained by Helios has been increased and the amount ceded to reinsurers has reduced to 26% of the overall portfolio. We continue, however, to reduce risk through stop loss policies to protect against large unexpected losses. To date we have not needed to draw on these facilities.
Helios actively manages capital. We have a number of dials we can turn to increase or decrease our exposure. Fee income from risk ceded to reinsurers remains a core and attractive earnings stream that complements our underwriting returns. As the market cycle evolves, we evaluate opportunities to retain underwriting exposure or cede risk for fees. There is no doubt that over the years the nature of the underwriting risk has changed and frequency of large losses is up. In addition we have to contemplate claims, economic inflation, the ravages of climate change and for the first time, a pandemic. The Russian invasion of Ukraine will serve to stiffen resolve among carriers, to maintain pricing discipline given the unexpected nature of the potential losses.
Summary financial information
Year to 31 December
---------------------
2021 2020
GBP'000 GBP'000
---------------------------------- ---------- ---------
Underwriting profits 3,401 639
Other income 2,700 2,887
Total costs (6,746) (3,190)
Revaluation of syndicate capacity 8,132 5,604
Tax (2,555) (1,657)
---------------------------------- ---------- ---------
Total comprehensive income 4,932 4,283
---------------------------------- ---------- ---------
Most importantly, this hard market has not been born out of capital destruction but rather from judicious capacity deployment.
The net asset value (NAV) per share has continued to grow to 157p despite a large fundraising during the year when GBP54m was raised largely from new institutional investors. These funds have been used to build the capacity fund. NAV is made up of capacity valued at the annual Lloyd's auction and other assets including cash used to support underwriting.
The Helios share price generally trades at a premium to NAV which reflects future earnings and dividends. However, it is always a comfort to know that there is an asset backed safety net provided by the NAV.
As the most profitable part of the cycle will be shown in results in future years, we would expect the share price to reflect this with a higher premium.
The board recommends a 3p dividend in line with the existing policy. The payment of this dividend reflects the board's confidence in future cash flow despite the pre tax loss this year.
The opportunity
Helios represents an opportunity for investors to access an un-correlated asset class across a managed portfolio. Capital is deployed across a diversified portfolio of syndicates offering a favourable risk / return. Private capital is a significant feature of the Lloyd's market representing approx. 8.5% of market capacity for 2022 (or GBP3.4bn). Lloyd's has clearly stated that it values private capital but Lloyd's 2025 vision states that it must be "re-energised and provided on a more flexible and efficient basis". Helios is positioning itself to be that efficient access point and is uniquely able to drive 3rd party investment into Lloyd's.
The future strategy will exploit this opportunity to bring increased predictability to both cash flow and dividends. This is an exciting time for our company and we look forward to many years of profitable trading despite the dire economic outlook which engulfs the world at this time.
I would like to congratulate the executive team in delivering a top class portfolio of upper quartile investments in leading syndicates. In addition, your non-executive directors have played an important part in developing the future strategy.
Michael Cunningham
Non-executive Chairman
26 May 2022
Chief Executive's review
Highlights
-- Net tangible asset value increased to GBP1.57 per share (2020: GBP1.51)
-- The strategy of building a quality portfolio of syndicate capacity continues successfully as the portfolio increased from GBP110m to GBP233m - a 111% increase.
-- The retained capacity increases at the outset of the underwriting year to GBP172m from GBP59m, an increase of 193%. This decision to increase the retained capacity substantially for the second year reflects the confidence in the timing of the market cycle and that it is now the correct time to assume more underwriting risk for shareholders.
-- Added to the value of the capacity portfolio through pre-emptions and capacity revaluation, the main contributor to the growth in shareholder value
-- Helios' portfolio underwriting results for 2019 underwriting year outperformed Lloyd's return on capacity by 5.6% and by an average of 4.9% for the last three closed underwriting years of account demonstrating the quality of the portfolio.
-- Combined ratio for the overall portfolio is in line with the overall Lloyd's market combined ratio of 93.5%
-- The improvement in underwriting conditions is continuing into 2022 after 17 consecutive quarters of price increases. Producing overall rate increases in excess of 50%.
-- We continue to monitor events across Ukraine and Russia with respect to potential exposure within the capacity portfolio to losses in the political violence, aviation war and marine insurance classes, as well as the aviation and specialty reinsurance classes. This continues to be a complex and evolving situation and disclosures by our syndicates will be closely reviewed.
-- With the prospect of improving underwriting returns, together with the opportunity to continue to build the capacity portfolio, Helios is well placed to deliver value to shareholders in the future.
Strategy
The building of a portfolio of participations on leading Lloyd's syndicates remains the strategic objective of the Group. During 2021 the key developments were:
-- building the portfolio of capacity to GBP233m for 2022 by acquiring 28 LLVs in 2021, taking up freehold capacity offered for nil cost by way of pre-emptions amounting to GBP3.9m and building stakes on syndicates with good prospects offering tenancy capacity;
-- maintaining the quality of the portfolio and getting access to the better managed syndicates at Lloyd's;
-- taking advantage of the underwriting cycle and increasing the capacity retained by Helios as the prospects for improved underwriting margins remain;
-- providing an income generating investment of Lloyd's underwriting capacity thereby generating returns in capital value and dividend income for shareholders; and
-- providing a cost-efficient platform for participation at Lloyd's benefitting from no profit commission potentially payable to Lloyd's members' agent and taking advantage of increased scale and, therefore, cost efficiencies.
Acquisition strategy
Helios acquired 28 LLV's in 2021 having written to approximately 1,000 owners of LLVs asking them whether they would be interested in receiving an offer from Helios to buy their LLV. This project to approach the owners of LLV's directly had the advantage of:
-- raising the profile of Helios as a potential purchaser of LLV's;
-- allowing owners of LLV's who were potentially considering ceasing underwriting at Lloyd's to have the opportunity to realise the value of their investment quickly;
-- allowing vendors a tax efficient exit if they wish to cease underwriting; and
-- being an on-going exercise to offer owners of LLV's an alternative to investing at Lloyd's by taking Helios shares as part of the consideration.
As a consequence of the improved market conditions, the discounts achievable against the Humphrey valuations narrowed. In addition, the increase in the rate of corporation tax to 25% applied to the capacity value within an LLV, will reduce the accounting fair value for the acquisition.
During 2021 a further 28 LLV's were acquired.
Summary of acquisitions Goodwill
----- --------------------------------------------- ------------------
Total Humphrey Discount
consideration Capacity value to
GBPm GBPm GBPm Humphrey Negative Positive
----- -------------- -------- -------- --------- -------- --------
2021 27.3 34.8 28.9 6% 1,219 319
2020 10.2 10.9 13.2 23% 1,260 -
2019 10.1 8.6 12.5 19% 1,707 -
----- -------------- -------- -------- --------- -------- --------
The 28 (five in 2020) acquisitions in 2021 were purchased for a total consideration of GBP27.3m (GBP10m in 2020), of which GBP18m (GBP4.7m in 2020) was attributed to the value of capacity acquired. The improved prospects for underwriting profitability after four years of marginal results at Lloyd's have increased the competition for the available LLVs to the extent that some positive goodwill has been recognised. 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.
Net tangible asset value per share
The growth in the net asset value per share remains a key management metric for determining growth in value to shareholders.
2021 2020
GBP'000 GBP'000
----------------------------------------- -------- --------
Net tangible assets 46,856 18,948
Fair value and capacity (WAV) 59,796 30,826
----------------------------------------- -------- --------
106,652 49,774
----------------------------------------- -------- --------
Shares in issue (Note 21) 67,786 33,012
Net tangible asset value per share (GBP)
(2021) 1.57 1.51
----------------------------------------- -------- --------
The capital employed per share, being the assets used to generate earnings which exclude the deferred tax liability on capacity value, is as follows:
2021
GBP'000
----------------------------------------- --------
Net assets 107,746
Deferred tax provision on capacity value 13,729
Capital employed 121,475
Shares in issue (Note 21) 67,786
Capital employed per share (GBP) 1.79
----------------------------------------- --------
The deferred tax provision on capacity value could potentially be incurred should the entire portfolio be sold. Given the strategy of the Group to grow the capacity fund, there is no intention to realise the full value of the portfolio. The capital employed by share is 22p (2020 -19p) higher than the net tangible asset value per share.
The value of capacity is subject to fluctuation and reflects the activity in the capacity auctions held in the autumn of each year.
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 growth in the net asset value ("NAV"), 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.
2021 2020
GBPm GBPm
----------------------------------- ----- -----
Freehold capacity with value 173.8 83.9
Relationship capacity 58.9 26.4
----------------------------------- ----- -----
232.7 110.3
----------------------------------- ----- -----
Value of portfolio 59.8 30.8
Value per GBP of freehold capacity 34p 37p
----------------------------------- ----- -----
The average price per GBP of freehold capacity reduced to 34p per GBP of capacity as further capacity on syndicates with lower prices was acquired. In addition, the relationship capacity on "nil value"/non-traded syndicates continued to grow as Helios is able to demonstrate long term commitment to providing third party capital to growing syndicates.
Fair value
Capacity (WAV)
GBPm GBPm
----------------------------------------- -------- ----------
At 1 January 2021 110.3 30.8
Capacity acquired with LLVs 36.2 18.2
Pre-emption capacity 3.9 1.6
Capacity purchased at auction 23.8 2.6
Tenancy capacity 58.9 -
Other capacity movements/change in value (0.4) 6.6
----------------------------------------- -------- ----------
At 31 December 2021 232.7 59.8
----------------------------------------- -------- ----------
% growth 111% 94%
----------------------------------------- -------- ----------
The portfolio's syndicates offered pre-emption increases in capacity totalling GBP3.9m (2020: GBP10.7m) for no cost to take advantage of the improving market conditions. This free capacity on syndicates that have values at auction increased the value of the fund by GBP1.6m (2020: GBP2.4m).
We acquired capacity on lower priced syndicates such as syndicates 510, 2689 and 2121 where capacity of GBP24m was acquired for GBP2.6m and which could increase in value in the future.
We continued to take a new "limited tenancy" participation on the Apollo syndicates for GBP12m, on the MCI Accrisure syndicate for GBP10m and increasing the participation on the Beat syndicate by GBP4m and the Blenheim syndicate by GBP10m.
The Board recognises 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.
A sensitivity analysis of the potential change to the NAV per share from changes to the value of the capacity portfolio is set out below:
Revised
Capacity NAV
value per share
---------------- -------- ----------
Current value 59,796 1.57
Decrease of 10% 53,807 1.50
Increase of 10% 65,765 1.64
---------------- -------- ----------
Each 10% reduction in the capacity values at the 2022 auctions will reduce the NAV by approx. 7p per share (2020: 10p per share). The increase in capital base has reduced the impact on NAV per share from changes in capacity value. Any reduction in the value will be mitigated by any pre-emption capacity on syndicates that have a value at auction.
Underwriting result
The calendar year underwriting profit from the Helios retained capacity for 2021 has been generated from the portfolio of syndicate results from the 2019 to 2021 underwriting years as follows:
2021 was a year of uncertainty for everyone as the health impacts of the pandemic, and its economic and geopolitical effects, continued to reverberate around the world.
It was the year that the reality of climate change was felt with multiple large scale natural catastrophes, from the big freeze in Texas in February, to the floods in Europe during the summer, and wildfires across the globe. Today, there can be few people who doubt that climate change is having a demonstrable impact. Starting with the 2017 wildfires moving through a range of secondary perils and coming starkly into focus in 2021, climate change is altering the predictability of natural catastrophe risk.
Industry-wide estimates place insured losses from natural catastrophes between $105 billion and $130 billion making 2021 one of the costliest years on record. These events show the critical role the industry plays in delivering risk solutions that protect people, economies, and businesses from uncertainty. When the worst happens, it means disruption and hardship for many and we recognise the human impacts these events have.
The 2021 underwriting year result at 12 months represents an accounting loss of 3.9% (2020: loss 4.6%) on the retained capacity of GBP94m (2020 - GBP31m), a threefold increase in the retained capacity in comparison to last year. The increase in retained capacity and the share of the underwriting result for 2021 has impacted the overall result for the year. In addition, two supported syndicates had material exposure to the natural catastrophes during the year and these losses have been fully recognised in the year.
During 2021, the 2019 underwriting year midpoint result improved to a profit of 2.7% (2020 - Loss 2.15%) outperforming the average of the Lloyd's market by 5.8%. Given that losses from COVID-19 of 7% of capacity for the Helios portfolio have predominantly fallen on the 2019 underwriting year, the overall profit is encouraging. The midpoint estimate for the 2020 underwriting year at 31 December 2021 is a profit of 1% (2020: loss - 2.15%).
The portfolio achieved a Combined Ratio of 93.9% in comparison with the combined ratio for the Lloyd's market of 93.5%. The larger share of the 2021 year of account - a loss at the 12 month stage, will have impacted the Helios portfolio combined ratio.
The initial mid-point forecast for 2021 year of 1.9% has been impacted by the series of catastrophic losses that occurred in 2021. The improved Lloyd's market mid-point forecast of 4.2% indicates the remediation work that has been undertaken by the syndicates within the lower quartiles of performance is showing in the overall market estimates.
We would expect the gap in relative performance to narrow over the next 18 months as it has done in the past. The syndicates supported by third party capital have been more conservative in their published estimates over the 36 months to the close of the year of account due to the transparency of each syndicate result.
Other income
Helios generates additional income at Group level from the following:
2021 2020
GBP'000 GBP'000
--------------------------------- -------- --------
Fees from reinsurers 616 334
Corporate reinsurance recoveries (372) (282)
Gain on bargain purchases 1,219 1,260
Investment income 1,237 1,575
--------------------------------- -------- --------
Total other income 2,700 2,887
--------------------------------- -------- --------
Fees from the quota share reinsurers reflect the fee payable on the Funds at Lloyd's provided and profit commission relating to 2019 year of account has been accrued.
The intragroup reinsurance policies have been cancelled and the costs relating to the cancellation have been included.
Gain on bargain purchases has reduced as increase in deferred tax to 25% has reduced the fair value of the acquisitions.
Investment income was recognised by the syndicates and in the LLV's acquired. The Helios own funds have mostly remained in cash during this period of market dislocation.
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.
2021 2020
GBP'000 GBP'000
---------------- -------- --------
Pre-acquisition 1,271 92
Stop loss costs 1,871 1,097
Operating costs 3,604 2,001
---------------- -------- --------
Total costs 6,746 3,190
---------------- -------- --------
The profits that are recognised in the LLVs acquired in the year are included in the underwriting result and the pre-acquisition element is reversed out. The increase reflects the timing of completion of the acquisitions, mostly in the fourth quarter of the year and the larger number acquisitions made.
The increase in the stop loss costs reflects cover required for the larger portfolio reinsured and as GBP7.6m of additional underwriting capital was sourced in 2021 through a reinsurance contract at a cost of GBP0.8m.
The operating costs include the transaction costs from the 28 acquisitions and the additional operating costs of those LLV's. The infrastructure required to manage the larger portfolio is not expected to materially increase.
Quality of portfolio
We continue to focus ruthlessly on the best syndicates. Therefore, we strive to acquire LLVs with portfolios that comprise quality syndicates, as such we have to pay average auction prices. Participations on weaker syndicates in acquired portfolios are sold or discarded. The syndicate participations with the leading managing agents at Lloyd's account for 71% of the portfolio. Participations in syndicates managed by these managing agents represent shares in the better managed businesses at Lloyd's.
2022 capacity portfolio
-------------------------
Capacity % of
Syndicate Managing agent GBP'000 portfolio
------------- ---------------------------- ----------- ------------
510/557 Tokio Marine Kiln Ltd 35,760 15%
623/6107/5623 Beazley Furlonge Limited 29,991 13%
5886/7218 Blenheim 17,733 8%
33/6104 Hiscox Syndicates Limited 15,499 7%
4242 Beat (Asta) 12,637 5%
2791/6103 Managing Agency Partners Ltd 12,292 5% 609 Atrium Underwriters Limited 12,072 5% 1729 Dale Underwriting Limited 10,149 4% 2010 Lancashire 10,137 4% 1200 Argo Syndicate 10,049 4% ------------- ---------------------------- ----------- ------------ Subtotal 166,319 71% ------------- ---------------------------- ----------- ------------ Other 66,381 29% ------------- ---------------------------- ----------- ------------ Total 232,700 100% ------------- ---------------------------- ----------- ------------
The underwriting results of the Helios portfolio have on average outperformed the Lloyd's market for the last three closed underwriting years by 4.9%. This material outperformance cannot be expected to be maintained.
The combined ratio for the Helios capacity portfolio was 93.9% (2020: 103.1%) with the Lloyd's market as a whole reporting its a combined ratio of 93.5%. Over the past three years Helios' calendar year combined ratio (before corporate costs) has outperformed Lloyd's by 4.4 percentage points a year. These incremental returns demonstrate the diversity and breadth of underwriting expertise within the businesses comprising the portfolio of syndicate capacity.
Reinsurance quota share
The use of quota share reinsurance to provide access to the Lloyd's underwriting exposures for reinsurers and private capital has not been expanded in 2021. The core of the panel of reinsurers remains XL Group plc and Everest Reinsurance Bermuda Limited.
This reinsurance has successfully reduced the exposure of Helios shareholders in recent years and assists in the financing of the underwriting capital. Helios has reduced the proportion of the capacity portfolio ceded for 2022 year of account. As market conditions continue to improve the Board will consider reducing the cession percentage further thereby increasing the Group's share of the underwriting. The capital raised recently has been used to increase the Group's share of the overall portfolio in this way.
The table shows that the Helios retained capacity has more than doubled in years 2 and 3 as further LLVs 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.
The profits from the capacity on the older years are retained 100% by Helios.
2019 2020 2021 2022
-------------------------------- ----- ----- ----- -----
Helios retained capacity
at outset 15.8 20.7 58.7 171.9
Retained capacity in year
1 6.4 10.1 34.8
Retained capacity in years
2 and 3 45.3 35.6
-------------------------------- ----- ----- ----- -----
Helios retained capacity 67.4 66.4 93.5 171.9
-------------------------------- ----- ----- ----- -----
Ceded capacity at outset 36.8 48.4 51.5 60.8
Further capacity ceded to
QS 2.1 0.8 0.0
-------------------------------- ----- ----- ----- -----
Total capacity ceded 38.9 49.1 51.5 60.8
-------------------------------- ----- ----- ----- -----
Current total capacity 106.4 115.6 145.0 232.7
-------------------------------- ----- ----- ----- -----
Helios share of total capacity 63% 57% 64% 74%
-------------------------------- ----- ----- ----- -----
% Increase in retained capacity
in the year 115% 116% 59%
-------------------------------- ----- ----- ----- -----
Risk management
Helios continues to ensure that the portfolio is well diversified across classes of businesses and managing agents at Lloyd's.
The biggest single risk faced by insurers arises from the possibility of mispricing insurance on a large scale. The recent correction in terms and conditions and the actions of Lloyd's to force syndicates to remediate underperforming areas of their books demonstrate the mispricing that has prevailed over the past few years. The results of this remediation work by Lloyd's is starting to be reflected in the results announced by the syndicates supported.
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. There is acceptance that catastrophe exposures are generally under-priced and hence the syndicate managers have been reducing their catastrophe exposures.
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 on balance sheet 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 purchases stop loss reinsurance for its 74% (2021 YOA: 53%) share of the portfolio with an indemnity of 10% of its share of the capacity and a claim can be made if the loss for the year of account at 36 months exceeds 7.5% of capacity.
The impact on the net asset value of Helios from the disclosed large loss scenarios are as follows:
Impact on
net asset
value
---------- -------
2022 2021
---------------------------------------------- ---------- -------
AEP 1 in 30 - whole world natural catastrophe (8.8)% (15.3)%
AEP 1 in 30 US/GOM windstorm (5.7)% (8.0)%
Terrorism (5.6)% (4.4)%
US/Canada earthquake (5.5)% (4.4)%
---------------------------------------------- ---------- -------
The assessment of the impact of the specified events is net of all applicable quota share, stop loss reinsurance contracts and corporation tax but before the likely profits to be generated from the balance of the portfolio in any year.
Capital position
The underwriting capital required by Lloyd's for the Helios portfolio comprises the funds to support the Economic Capital Requirement of the portfolio and the Solvency II adjustments is as follows:
2022 2021
Underwriting capital on underwriting year GBPm GBPm
------------------------------------------ ----- -----
Quota share reinsurance panel 26.1 27.3
Excess of loss funds at Lloyd's 20.0 8.1
Helios own funds 43.3 27.6
------------------------------------------ ----- -----
Total 89.4 63.0
------------------------------------------ ----- -----
Capacity as at 1 January 232.7 110.3
Economic capital requirement 90.9 58.2
Solvency and other adjustments (1.5) 4.8
------------------------------------------ ----- -----
89.4 63.0
------------------------------------------ ----- -----
Capital Ratio 38% 57%
------------------------------------------ ----- -----
The available funds to support Helios' share of the underwriting have been supplemented by the capital raised in April 2021 and by entering into an excess of loss banking and reinsurance agreements for the Helios portfolio. These policies provide GBP20m (2021- GBP8.1m) of FAL to Helios at a cost of GBP900K per year. The FAL provided by using a secured bank facility and from reinsurers will only be exposed to loss if all the Helios "own FAL" is eroded. Therefore, this FAL sits on the top of the Helios capital stack has very limited exposure.
In addition to the current funds lodged at Lloyd's, Helios has available the following facilities to provide additional resources to fund the necessary capital requirements:
-- a bank revolving credit bank facility of GBP10m; and
-- the stop loss reinsurance contracts for the 2022 years of account could provide additional underwriting capital of approximately GBP20m.
Environmental, social and governance 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.
We support the Environmental, Social and Governance (ESG) strategy of Lloyd's who have outlined their ambition to integrate sustainability into all of Lloyd's business activities. They will take a leadership position being the insurer of the transition to make headway against the world's objective of reaching net zero by 2050. It is their intention to build a framework to help insurance businesses in the market to integrate ESG principles into their business activities and working with insurers on their net zero plans.
The Board is committed to a high standard of corporate governance and is compliant with the principles of the Quoted Companies Alliance's Corporate Governance Code (the "QCA Code"). The Directors have complied with their responsibilities under Section 172 of the Companies Act 2006 which requires them to act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole.
Nigel Hanbury
Chief Executive
26 May 2022
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 syndicate financial information.
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
---------------------
2021 2020
GBP'000 GBP'000
------------------------------------------------------------- ---------- ---------
Underwriting profit 3,401 639
------------------------------------------------------------- ---------- ---------
Other income:
- fees from reinsurers 616 334
- corporate reinsurance policies (372) (282)
- goodwill on bargain purchase 1,219 1,260
- investment income 1,237 1,575
------------------------------------------------------------- ---------- ---------
Total other income 2,700 2,887
------------------------------------------------------------- ---------- ---------
Costs:
- pre-acquisition (1,271) (92)
- stop loss costs (1,871) (1,097)
- operating costs (3,604) (2,001)
------------------------------------------------------------- ---------- ---------
Total costs (6,746) (3,190)
------------------------------------------------------------- ---------- ---------
Operating profit before impairments of goodwill and
capacity (645) 336
Tax 211 (35)
Revaluation of syndicate capacity 8,132 5,604
Income tax relating to the components of other comprehensive
income (2,766) (1,622)
------------------------------------------------------------- ---------- ---------
Comprehensive income 4,932 4,283
------------------------------------------------------------- ---------- ---------
Year to 31 December 2021
Helios
retained
capacity
at
31 December Portfolio Helios
2021 midpoint profits
Underwriting year GBPm forecasts GBP'000
------------------ ------------ ---------- --------
2019 67.4 2.7% 4,092
2020 66.6 0.97% 2,915
2021 93.6 N/A (3,606)
------------------ ------------ ---------- --------
3,401
------------------ ------------ ---------- --------
Year to 31 December 2020
Helios
retained
capacity
at
31 December Portfolio Helios
2020 midpoint profits
Underwriting year GBPm forecasts GBP'000
------------------ ------------ ---------- --------
2018 36.1 (0.3)% 1,691
2019 31.3 (2.2)% 339
2020 30.8 N/A (1,391)
------------------ ------------ ---------- --------
639
------------------ ------------ ---------- --------
Summary balance sheet (excluding assets and liabilities held by syndicates)
See Note 28 for further information.
2021 2020
GBP'000 GBP'000
----------------------- -------- --------
Intangible assets 60,889 31,601
Funds at Lloyd's 43,589 19,713
Other cash 16,178 4,961
Other assets 5,517 12,731
----------------------- -------- --------
Total assets 126,173 69,006
----------------------- -------- --------
Deferred tax 11,887 6,492
Borrowings - 4,000
Other liabilities 3,052 2,222
----------------------- -------- --------
Total liabilities 14,939 12,714
----------------------- -------- --------
Total syndicate equity (3,488) (5,743)
----------------------- -------- --------
Total equity 107,746 50,549
----------------------- -------- --------
Cash flow
Year to Year to
31 December 31 December
2021 2020
Analysis of free working capital GBP'000 GBP'000
------------------------------------------------ ------------ ------------
Opening balance (free cash) 4,961 3,028
Income
Cash acquired on acquisition 1,939 632
Distribution of profits (net of tax retentions) 475 120
Transfers from funds at Lloyd's 336 4,901
Other income 95 248
Proceeds from the sale of capacity - 1,649
Proceeds from the issue of shares 53,231 11,283
Borrowings - 2,000
Cancelled reinsurance policy refunds 6,964 -
Expenditure
Operating costs (3,702) (2,810)
Purchase of capacity (2,663) -
Acquisition of LLVs (26,529) (6,075)
Transfers to funds at Lloyd's (12,270) (9,733)
Tax (641) (282)
Dividends paid (2,018) -
Repayment of borrowings (4,000) -
Closing balance 16,178 4,961
------------------------------------------------ ------------ ------------
Year to Year to
31 December 31 December
2021 2020
Net tangible assets GBP'000 GBP'000
--------------------------------------------------------- ------------ ------------
Net assets less intangible assets 46,856 18,948
Fair value of capacity (WAV) 59,796 30,826
--------------------------------------------------------- ------------ ------------
106,652 49,774
--------------------------------------------------------- ------------ ------------
Shares in issue - on the market (Note 21) 67,786 33,012
Shares in issue - total of on the market and JSOP shares
(Note 21) 68,886 33,512
Net tangible asset value per share GBP - on the market 1.57 1.51
Net tangible asset value per share GBP - on the market
and JSOP shares 1.55 1.49
--------------------------------------------------------- ------------ ------------
Combined ratio summary of Helios Portfolio (see
Note 6) 2021 2020 2019
--------------------------------------------------- -------- -------- --------
Net premiums earned 92,692 55,682 47,454
Net insurance claims (54,086) (37,881) (28,237)
Operating expenses included in underwriting result (32,921) (19,503) (17,125)
--------------------------------------------------- -------- -------- --------
Insurance result 5,685 (1,702) 2,092
--------------------------------------------------- -------- -------- --------
Combined ratio 93.9% 103.1% 95.6%
--------------------------------------------------- -------- -------- --------
Consolidated statement of comprehensive income -
Year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Note GBP'000 GBP'000
----------------------------------------------------- ---- ------------ ------------
Gross premium written 6 106,058 68,263
Reinsurance premium ceded 6 (26,935) (17,660)
----------------------------------------------------- ---- ------------ ------------
Net premium written 6 79,123 50,603
----------------------------------------------------- ---- ------------ ------------
Change in unearned gross premium provision 7 (11,201) (2,481)
Change in unearned reinsurance premium provision 7 1,484 647
----------------------------------------------------- ---- ------------ ------------
Net change in unearned premium and reinsurance
provision 7 (9,717) (1,834)
----------------------------------------------------- ---- ------------ ------------
Net earned premium 5,6 69,406 48,769
Net investment income 8 568 2,006
Other underwriting income 723 420
Gain on bargain purchase 22 1,219 1,260
Other income (82) 1,399
----------------------------------------------------- ---- ------------ ------------
Revenue 71,834 53,845
----------------------------------------------------- ---- ------------ ------------
Gross claims paid (46,478) (38,496)
Reinsurers' share of gross claims paid 11,328 9,967
----------------------------------------------------- ---- ------------ ------------
Claims paid, net of reinsurance (35,150) (28,529)
----------------------------------------------------- ---- ------------ ------------
Change in provision for gross claims 7 (15,796) (8,255)
Reinsurers' share of change in provision for gross
claims 7 6,204 2,704
----------------------------------------------------- ---- ------------ ------------
Net change in provision for claims 7 (9,592) (5,551)
----------------------------------------------------- ---- ------------ ------------
Net insurance claims incurred and loss adjustment
expenses 6 (44,742) (34,080)
----------------------------------------------------- ---- ------------ ------------
Expenses incurred in insurance activities (25,407) (17,916)
Other operating expenses (2,330) (1,522)
----------------------------------------------------- ---- ------------ ------------
Total expenses 9 (27,737) (19,438)
----------------------------------------------------- ---- ------------ ------------
Operating profit before impairments of goodwill
and capacity 6 (645) 336
Income tax credit/(charge) 10 211 (35)
----------------------------------------------------- ---- ------------ ------------
(Loss)/profit for the year (434) 301
----------------------------------------------------- ---- ------------ ------------
Other comprehensive income
Revaluation of syndicate capacity 8,132 5,604
Deferred tax relating to the components of other
comprehensive income (2,766) (1,622)
----------------------------------------------------- ---- ------------ ------------
Other comprehensive income for the year, net of
tax 5,366 3,982
----------------------------------------------------- ---- ------------ ------------
Total comprehensive income for the year 4,932 4,283
----------------------------------------------------- ---- ------------ ------------
(Loss)/profit for the year attributable to owners
of the Parent (434) 301
----------------------------------------------------- ---- ------------ ------------
Total comprehensive income for the year attributable
to owners of the Parent 4,932 4,283
----------------------------------------------------- ---- ------------ ------------
(Loss)/earnings per share attributable to owners
of the Parent
Basic 11 (0.75p) 1.59p
Diluted 11 (0.74p) 1.55p
----------------------------------------------------- ---- ------------ ------------
The profit 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 2021
Company number 05892671
31 December 31 December
2021 2020
Note GBP'000 GBP'000
------------------------------------------------------- ----- ----------- -----------
Assets
Intangible assets 13 60,889 31,601
Financial assets at fair value through profit
or loss 15 153,844 85,277
Reinsurance assets:
- reinsurers' share of claims outstanding 7 53,433 30,781
- reinsurers' share of unearned premium 7 10,538 6,028
Other receivables, including insurance and reinsurance
receivables 16 87,859 58,348
Deferred acquisition costs 17 13,615 7,726
Prepayments and accrued income 799 1,176
Cash and cash equivalents 24,624 8,495
------------------------------------------------------- ----- ----------- -----------
Total assets 405,601 229,432
------------------------------------------------------- ----- ----------- -----------
Liabilities
Insurance liabilities:
- claims outstanding 7 186,653 113,371
- unearned premium 7 59,611 32,356
Deferred income tax liabilities 18 11,965 6,507
Borrowings 19 - 4,000
Other payables, including insurance and reinsurance
payables 20 34,927 19,356
Accruals and deferred income 4,699 3,293
------------------------------------------------------- ----- ----------- -----------
Total liabilities 297,855 178,883
------------------------------------------------------- ----- ----------- -----------
Equity
Equity attributable to owners of the Parent:
Share capital 21 6,931 3,393
Share premium 21 86,330 35,525
Revaluation reserve 9,348 3,982
Other reserves - treasury shares (JSOP) (110) (50)
Retained earnings 5,247 7,699
------------------------------------------------------- ----- ----------- -----------
Total equity 107,746 50,549
------------------------------------------------------- ----- ----------- -----------
Total liabilities and equity 405,601 229,432
------------------------------------------------------- ----- ----------- -----------
The Financial Statements were approved and authorised for issue by the Board of Directors on 26 May 2022, and were signed on its behalf by:
Nigel Hanbury
Chief Executive
26 May 2022
The notes are an integral part of these Financial Statements.
Parent Company statement of financial position -
At 31 December 2021
Company number: 05892671
31 December 31 December
2021 2020
Note GBP'000 GBP'000
---------------------------------------------- ---- ----------- -----------
Assets
Investments in subsidiaries 14 71,362 41,233
Financial assets at fair value through profit
or loss 15 285 -
Other receivables 16 38,496 20,796
Cash and cash equivalents 14,094 4,106
---------------------------------------------- ---- ----------- -----------
Total assets 124,237 66,135
---------------------------------------------- ---- ----------- -----------
Liabilities
Borrowings 19 - 4,000
Other payables 20 3,864 3,892
---------------------------------------------- ---- ----------- -----------
Total liabilities 3,864 7,892
---------------------------------------------- ---- ----------- -----------
Equity
Equity attributable to owners of the Parent:
Share capital 21 6,931 3,393
Share premium 21 86,330 35,525
---------------------------------------------- ---- ----------- -----------
93,261 38,918
---------------------------------------------- ---- ----------- -----------
Retained earnings:
At 1 January 19,325 16,712
Profit for the year attributable to owners of
the Parent 9,805 2,636
Other changes in retained earnings (2,018) (23)
---------------------------------------------- ---- ----------- -----------
At 31 December 27,112 19,325
---------------------------------------------- ---- ----------- -----------
Total equity 120,373 58,243
---------------------------------------------- ---- ----------- -----------
Total liabilities and equity 124,237 66,135
---------------------------------------------- ---- ----------- -----------
The Financial Statements were approved and authorised for issue by the Board of Directors on 26 May 2022, and were signed on its behalf by:
Nigel Hanbury
Chief Executive
26 May 2022
The notes are an integral part of these Financial Statements.
Consolidated statement of changes in equity -
Year ended 31 December 2021
Attributable to owners of the
Parent
------------------------------------------------------
Other
Share Share reserves Retained Total
capital premium Revaluation (JSOP) earnings equity
Note GBP'000 GBP'000 reserve GBP'000 GBP'000 GBP'000
-------------------------------- ------ -------- --------- ----------- --------- --------- --------
At 1 January 2020 1,839 18,938 - (50) 7,421 28,148
-------------------------------- ------ -------- --------- ----------- --------- --------- --------
Total comprehensive income
for the year:
Profit for the year - - - - 301 301
Other comprehensive income,
net of tax - - 3,982 - - 3,982
-------------------------------- ------ -------- --------- ----------- --------- --------- --------
Total comprehensive income
for the year - - 3,982 - 301 4,283
-------------------------------- ------ -------- --------- ----------- --------- --------- --------
Transactions with owners:
Dividends paid 12 - - - - - -
Company buyback of ordinary
shares 21, 23 - - - - (23) (23)
Share issue, net of transaction
cost 21 1,554 16,587 - - - 18,141
Total transactions with
owners 1,554 16,587 - - (23) 18,118
-------------------------------- ------ -------- --------- ----------- --------- --------- --------
At 31 December 2020 3,393 35,525 3,982 (50) 7,699 50,549
-------------------------------- ------ -------- --------- ----------- --------- --------- --------
At 1 January 2021 3,393 35,525 3,982 (50) 7,699 50,549
-------------------------------- ------ -------- --------- ----------- --------- --------- --------
Total comprehensive income
for the year:
Loss for the year - - - - (434) (434)
Other comprehensive income,
net of tax - - 5,366 - - 5,366
-------------------------------- ------ -------- --------- ----------- --------- --------- --------
Total comprehensive income
for the year - - 5,366 - (464) 4,932
-------------------------------- ------ -------- --------- ----------- --------- --------- --------
Transactions with owners:
Dividends paid 12 - - - - (2,018) (2,018)
Company buyback of ordinary
shares 21, 23 - - - - - -
Share issue, net of transaction
cost 21 3,538 50,805 - (60) - 54,283
Other comprehensive income,
net of tax - - - - - -
-------------------------------- ------ -------- --------- ----------- --------- --------- --------
Total transactions with
owners 3,538 50,805 - (60) (2,018) 52,265
-------------------------------- ------ -------- --------- ----------- --------- --------- --------
At 31 December 2021 6,931 86,330 9,348 (60) 5,247 107,746
-------------------------------- ------ -------- --------- ----------- --------- --------- --------
The notes are an integral part of these Financial Statements.
Parent Company statement of changes in equity -
Year ended 31 December 2021
Share Share Retained Total
capital premium earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ------ -------- -------- --------- --------
At 1 January 2020 1,839 18,938 16,712 37,489
-------------------------------------- ------ -------- -------- --------- --------
Total comprehensive income for the
year:
Profit for the year - - 2,636 2,636
Other comprehensive income, net of
tax - - - -
-------------------------------------- ------ -------- -------- --------- --------
Total comprehensive income for the
year - - 2,636 2,636
-------------------------------------- ------ -------- -------- --------- --------
Transactions with owners:
Dividends paid 12 - - - -
Company buyback of ordinary shares 21, 23 - - (23) (23)
Share issue, net of transaction costs 1,554 16,587 - 18,141
-------------------------------------- ------ -------- -------- --------- --------
Total transactions with owners 1,554 16,587 (23) 18,118
-------------------------------------- ------ -------- -------- --------- --------
At 31 December 2020 3,393 35,525 19,325 58,243
-------------------------------------- ------ -------- -------- --------- --------
At 1 January 2021 3,393 35,525 19,325 58,243
-------------------------------------- ------ -------- -------- --------- --------
Total comprehensive income for the
year:
Profit for the year - - 9,805 9,805
Other comprehensive income, net of
tax - - - -
-------------------------------------- ------ -------- -------- --------- --------
Total comprehensive income for the
year - - 9,805 9,805
-------------------------------------- ------ -------- -------- --------- -------- Transactions with owners: Dividends paid 12 - - (2,018) (2,018) Company buyback of ordinary shares 21, 23 - - - - Share issue, net of transaction costs 3,538 50,805 - 54,343 -------------------------------------- ------ -------- -------- --------- -------- Total transactions with owners 3,538 50,805 (2,018) 52,325 -------------------------------------- ------ -------- -------- --------- -------- At 31 December 2021 6,931 86,330 27,112 120,373 -------------------------------------- ------ -------- -------- --------- --------
The notes are an integral part of these Financial Statements.
Consolidated statement of cash flows -
Year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Note GBP'000 GBP'000
----------------------------------------------------- ---- ------------ ------------
Cash flows from operating activities
(Loss)/profit before tax (645) 336
Adjustments for:
- interest received 8 (17) (156)
- investment income 8 (1,549) (1,318)
- gain on bargain purchase 22 (1,219) (1,260)
- profit on sale of intangible assets (12) (1,775)
Changes in working capital:
- change in fair value of financial assets held
at fair value through profit or loss 8 1,316 (297)
- increase in financial assets at fair value through
profit or loss (31,436) (7,768)
- decrease in other receivables 1,162 4,491
- decrease in other payables (3,800) (4,706)
- net increase/decrease in technical provisions 18,285 (650)
----------------------------------------------------- ---- ------------ ------------
Cash (used in)/from operations (17,915) (13,103)
----------------------------------------------------- ---- ------------ ------------
Income tax paid (675) (312)
----------------------------------------------------- ---- ------------ ------------
Net cash used in operating activities (18,590) (13,415)
----------------------------------------------------- ---- ------------ ------------
Cash flows from investing activities
Interest received 8 17 156
Investment income 8 1,549 1,318
Purchase of intangible assets 13 (2,984) (186)
Proceeds from disposal of intangible assets 1,809 1,779
Acquisition of subsidiaries, net of cash acquired (13,255) (364)
----------------------------------------------------- ---- ------------ ------------
Net cash from investing activities (12,864) 2,703
----------------------------------------------------- ---- ------------ ------------
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 53,601 11,193
Payment for Company buyback of shares 24 - (23)
Proceeds from borrowings 19 - 2,000
Repayment of borrowings 19 (4,000) -
Dividends paid to owners of the Parent 12 (2,018) -
----------------------------------------------------- ---- ------------ ------------
Net cash from financing activities 47,583 13,170
----------------------------------------------------- ---- ------------ ------------
Net increase in cash and cash equivalents 16,129 2,458
Cash and cash equivalents at beginning of year 8,495 6,037
----------------------------------------------------- ---- ------------ ------------
Cash and cash equivalents at end of year 24,624 8,495
----------------------------------------------------- ---- ------------ ------------
Cash held within the syndicates' accounts is GBP8,447,000 (2020: GBP3,534,000) of the total cash and cash equivalents held at the year end of GBP24,624,000 (2020: GBP8,495,000). 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 2021
Year ended Year ended
31 December 31 December
2021 2020
Note GBP'000 GBP'000
----------------------------------------------------- ------ ------------ ------------
Cash flows from operating activities
Profit before tax 9,222 2,490
Adjustments for:
- investment income 262 28
- dividends received - (3,654)
- impairment of investment in subsidiaries 14 (11,192) 37
Changes in working capital:
- change in fair value of financial assets held
at fair value through profit or loss - -
- increase in financial assets at fair value through
profit or loss (285) -
- increase in other receivables 66 1,433
- decrease in other payables (28) (3,618)
----------------------------------------------------- ------ ------------ ------------
Net cash from operating activities (1,955) (3,284)
----------------------------------------------------- ------ ------------ ------------
Cash flows from investing activities
Investment income (263) (28)
Dividends received - 3,654
Acquisition of subsidiaries 14, 22 (22,523) (2,208)
Amounts owed by subsidiaries 25 (12,854) 940
----------------------------------------------------- ------ ------------ ------------
Net cash used in investing activities (35,640) (7,971)
----------------------------------------------------- ------ ------------ ------------
Cash flows from financing activities
Net proceeds from the issue of ordinary share
capital 53,601 11,193
Payment for Company buyback of shares 24 - (23)
Proceeds from borrowings 19 - 2,000
Repayment of borrowings 19 (4,000) -
Dividends paid to owners of the Parent 12 (2,018) -
----------------------------------------------------- ------ ------------ ------------
Net cash from financing activities 47,583 13,170
----------------------------------------------------- ------ ------------ ------------
Net decrease in cash and cash equivalents 9,988 1,915
Cash and cash equivalents at beginning of year 4,106 2,191
----------------------------------------------------- ------ ------------ ------------
Cash and cash equivalents at end of year 14,094 4,106
----------------------------------------------------- ------ ------------ ------------
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 2021
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") and interpretations issued by the IFRS Interpretations Committee ("IFRIC") as adopted by the UK international accounting standards, 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 GBP107,746,000 and GBP120,374,000 respectively.
The Company's subsidiaries participate as underwriting members at Lloyd's on the 2019, 2020 and 2021 years of account, as well as any prior run-off years, and they have continued this participation since the year end on the 2022 year of account. This underwriting is supported by Funds at Lloyd's totalling GBP48,913,000 (2020: GBP26,440,000), letters of credit provided through the Group's reinsurance agreements totalling GBP37,032,000 (2020: GBP39,536,000) and solvency credits issued by Lloyd's totalling GBP239,000 (2020: GBP107,000).
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. In arriving at this conclusion the Directors have taken into account the impact of COVID-19 both on the operating activities of the Group and on the Lloyd's market.
International Financial Reporting Standards
Adoption of new and revised standards
In the current year, the Group has applied new IFRSs and amendments to IFRSs issued by the IASB that are mandatory for an accounting period that begins on or after 1 January 2021.
IFRS 16 Amendments, Leases COVID 19 Related Rent Concessions: Lessees are provided with an exemption from assessing whether a COVID-19-related rent concession is a lease modification. The Group has not applied this exemption and the amendment has not had an impact on the Consolidated Financial Statements.
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Amendments, Interest Rate Benchmark Reform Phase 2. The change relates to the modification of financial assets, financial liabilities and lease liabilities, specific hedge accounting requirements, and disclosure requirements applying IFRS 7 to accompany the amendments regarding modifications and hedge accounting. The amendment has not had a material impact on the Consolidated Financial Statements.
Amendments to IFRS 4: Insurance contracts - Deferral of IFRS 9. The amendments defer the fixed expiry date of the amendment to annual periods beginning on or after 1 January 2023.
New standards, amendments and interpretations not yet adopted
A number of new standards and amendments adopted by the UK, as well as standards and interpretations issued by the IASB but not yet adopted by the UK, have not been applied in preparing the Consolidated Financial Statements.
The Group does not plan to adopt these standards early; instead it will apply them from their effective dates as determined by their dates of UK endorsement. The Group continues to review the upcoming standards to determine their impact.
IFRS 9, Financial Instruments (IASB effective date 1 January 2018) has not been applied under IFRS 4 Amendment option to defer until IFRS 17 comes into effect on 1 January 2023.
IFRS 17 "Insurance Contracts" (IASB effective date 1 January 2023).
Amendments to IFRS 3 "Business Combinations", IAS 16 "Property, Plant and Equipment" and IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" (IASB effective date 1 January 2022).
IAS 1 Presentation of Financial Statements Amendments, Classification of Liabilities as Current or Non-current (IASB effective date 1 January 2023).
IAS 8 Accounting Policies Amendments, Changes in Accounting Estimates and Errors (IASB effective date 1 January 2023).
IFRS 9 "Financial Instruments" (IASB effective date 1 January 2018) has not been applied under the IFRS 4 amendment option. IFRS 9 provides a reform of financial instruments accounting to supersede IAS 39 "Financial Instruments: Recognition and Measurement".
Applying IFRS 9 "Financial Instruments" with IFRS 4 "Insurance Contracts" contained an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4. The Group meets the eligibility criteria and has taken advantage of this temporary exemption not to apply this standard until the effective date of IFRS 17.
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.
The Financial Statements for all of the above subsidiaries are prepared for the year ended 31 December 2021 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 profit after tax for the year of the Parent Company was GBP9,805,000 (2020: GBP2,636,000).
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 as revenue in the consolidated income statement as a gain on bargain purchase. The gain on bargain purchase is recognised within the operating profit, as acquiring LLVs at a discount to their net asset fair value, as is an important part of the predominant strategy for the Group. Insurance liabilities are not discounted on acquisition, when calculating their fair value, as these liabilities will likely all crystallise within three years due to the accounting framework Lloyd's syndicates operate under. Accordingly, any discount applied to insurance liabilities will not be material.
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 been 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 businesses 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 2020 Underwriting year, an average of 47% of the 2021 underwriting year and an average of 26% of the 2022 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 was 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
With effect from 31 December 2020, the Group changed this policy so that syndicate capacity is revalued on a regular basis to its fair value which the directors believe to be the average weighted value achieved in the Lloyd's auction process. The increase in value of syndicate capacity between its fair value and its cost less impairment is taken to the revaluation reserve through the statement of comprehensive income net of any tax effect, as required by IAS 38.
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 Group'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 is 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 have 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 the income statement in the period in which they are incurred.
Joint Share Ownership Plan ("JSOP")
On 16 August 2021, the Company issued and allotted 600,000 new ordinary shares of GBP0.10 each ("ordinary shares"). The new ordinary shares have been issued at a subscription price of 155p per ordinary share, being the closing price of an ordinary share on 16 August 2021, 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 JTC Employee Solutions Limited (the "Trust") 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 145p 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 the amount initially provided by the participating Director plus any growth in the market value of the jointly owned Ordinary Shares above a target share price of 174.8p (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 relating to growth in Net Tangible Asset Value per share measured over the three calendar years from the Net Tangible Asset per share disclosed as at 31 December 2021 of 151p.
The percentage of Jointly Owned Shares that vest shall be dependent on the average growth in Net Tangible Asset Value per share during the three financial years ending 31 December 2023. The vesting percentage shall be determined on the Average Growth in Net Tangible Asset Value per share. If the Average Growth in Net Tangible Asset Value does not exceed 5%, then no awards vest, and if the Average Growth in Net Tangible Asset Value exceeds 20% or above, then 100% of the awards vest.
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.
Where the Company buys back its own ordinary shares on the market, and these are held in treasury, the purchase is made out of distributable profits and hence shown as a deduction from the Company's retained earnings.
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. Key accounting judgements and estimation uncertainties
In applying the Company's accounting policies, the Directors are required to make judgements, estimates and assumptions in determining the carrying amounts of assets and liabilities. These judgements, estimates and assumptions are based on the best and most reliable evidence available at the time when the decisions are made, and are based on historical experience and other factors that are considered to be applicable. Due to the inherent subjectivity involved in making such judgements, estimates and assumptions, the actual results and outcomes may differ. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.
The measurement of the provision for claims outstanding is the most significant judgement involving estimation uncertainty regarding amounts recognised in these Financial Statements in relation to underwriting by the syndicates and this is disclosed further in Notes 4 and 7.
The management and control of each syndicate is carried out by the managing agent of that syndicate, and the Group looks to the managing agent to implement appropriate policies, procedures and internal controls to manage each syndicate.
The key accounting judgements and sources of estimation uncertainty set out below therefore relate to those made in respect of the Group only, and do not include estimates and judgements made in respect of the syndicates.
4. Risk management
The majority of the risks to the Group's future cash flows arise from each subsidiary's participation in the results of Lloyd's syndicates. As detailed below, these risks are mostly managed by the managing agents of the syndicates. The Group's role in managing these risks, in conjunction with its subsidiaries and members' agent, is limited to a selection of syndicate participations, monitoring the performance of the syndicates and the purchase of appropriate member level reinsurance.
Risk background
The syndicates' activities expose them to a variety of financial and non-financial risks. The managing agent is responsible for managing the syndicate's exposure to these risks and, where possible, introducing controls and procedures that mitigate the effects of the exposure to risk. For the purposes of setting capital requirements for the 2019 and subsequent years of account, each managing agent will have prepared a Lloyd's Capital Return ("LCR") for the syndicate to agree capital requirements with Lloyd's based on an agreed assessment of the risks impacting the syndicate's business and the measures in place to manage and mitigate those risks from a quantitative and qualitative perspective. The risks described below are typically reflected in the LCR and typically the majority of the total assessed value of the risks concerned is attributable to insurance risk.
The insurance risks faced by a syndicate include the occurrence of catastrophic events, downward pressure on pricing of risks, reductions in business volumes and the risk of inadequate reserving. Reinsurance risk arises from the risk that a reinsurer fails to meet its share of a claim. The management of the syndicate's funds is exposed to investment risk, liquidity risk, credit risk, currency risk and interest rate risk (as detailed below), leading to financial loss. The syndicate is also exposed to regulatory and operational risks including its ability to continue to trade. However, supervision by Lloyd's and the Prudential Regulation Authority provides additional controls over the syndicate's management of risks.
The Group manages the risks faced by the syndicates on which its subsidiaries participate by monitoring the performance of the syndicates it supports. This commences in advance of committing to support a syndicate for the following year, with a review of the business plan prepared for each syndicate by its managing agent. In addition, quarterly reports and annual accounts, together with any other information made available by the managing agent, are monitored and if necessary enquired into. If the Group considers that the risks being run by the syndicate are excessive, it will seek confirmation from the managing agent that adequate management of the risk is in place and, if considered appropriate, will withdraw support from the next year of account. The Group also manages its exposure to insurance risk by purchasing appropriate member level reinsurance.
(a) Syndicate risks
(i) Liquidity risk
The syndicates are exposed to daily calls on their available cash resources, principally from claims arising from its insurance business. Liquidity risk arises where cash may not be available to pay obligations when due, or to ensure compliance with the syndicate's obligations under the various trust deeds to which it is party.
The syndicates aim to manage their liquidity position so that they can fund claims arising from significant catastrophic events, as modelled in their Lloyd's realistic disaster scenarios ("RDS").
Although there are usually no stated maturities for claims outstanding, syndicates have provided their expected maturity of future claims settlements as follows:
No stated
maturity 0-1 year 1-3 years 3-5 years >5 years Total
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- --------- -------- --------- --------- -------- ---------
Claims outstanding 3 64,445 66,161 27,329 28,715 186,653
------------------- --------- -------- --------- --------- -------- ---------
No stated
maturity 0-1 year 1-3 years 3-5 years >5 years Total
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- --------- -------- --------- --------- -------- --------
Claims outstanding 72 40,003 38,451 18,340 16,505 113,371
------------------- --------- -------- --------- --------- -------- --------
(ii) Credit risk
Credit ratings to syndicate assets (Note 28) emerging directly from insurance activities which are neither past due nor impaired are as follows:
BBB or
AAA AA A lower Not rated Total
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- -------- -------- --------- --------
Financial investments 22,984 30,330 33,663 16,070 6,588 109,635
Deposits with ceding undertakings 3 - 597 - 20 620
Reinsurers' share of claims
outstanding 1,085 16,276 31,285 707 4,033 53,386
Reinsurance debtors 46 773 1,882 212 379 3,292
Cash at bank and in hand 675 117 7,597 19 39 8,447
---------------------------------- -------- -------- -------- -------- --------- --------
24,793 47,496 75,024 17,008 11,059 175,380
---------------------------------- -------- -------- -------- -------- --------- --------
BBB or
AAA AA A lower Not rated Total
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- -------- -------- --------- --------
Financial investments 10,098 20,099 22,142 8,378 4,840 65,557
Deposits with ceding undertakings - - - - 7 7
Reinsurers' share of claims
outstanding 1,204 8,240 18,217 531 2,538 30,730
Reinsurance debtors 12 450 1,277 169 408 2,316
Cash at bank and in hand 12 96 3,346 41 39 3,534
---------------------------------- -------- -------- -------- -------- --------- --------
11,326 28,885 44,982 9,119 7,832 102,144
---------------------------------- -------- -------- -------- -------- --------- --------
Syndicate assets (Note 28) emerging directly from insurance activities, with reference to their due date or impaired, are as follows:
Past due but not impaired
-----------------------------------------------------------------
Between
Neither 6 months Greater
past due Less than and 1 than 1
nor impaired 6 months year year Impaired Total
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------- --------- --------- -------- -------- --------
Financial investments 109,633 - - - - 109,635
Deposits with ceding undertakings 620 - - - - 620
Reinsurers' share of claims
outstanding 53,386 - - - (13) 53,373
Reinsurance debtors 3,292 2,691 66 111 - 6,160
Cash at bank and in hand 8,447 - - - - 8,447
Insurance and other debtors 88,144 2,833 835 672 (13) 92,471
---------------------------------- ------------- --------- --------- -------- -------- --------
263,524 5,524 901 783 (26) 270,706
---------------------------------- ------------- --------- --------- -------- -------- --------
Past due but not impaired
-----------------------------------------------------------------
Between
Neither 6 months Greater
past due Less than and 1 than 1
nor impaired 6 months year year Impaired Total
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------- --------- --------- -------- -------- --------
Financial investments 65,557 - - - - 65,557
Deposits with ceding undertakings 7 - - - - 7
Reinsurers' share of claims
outstanding 30,730 - - - (10) 30,720
Reinsurance debtors 2,316 1,153 57 21 - 3,547
Cash at bank and in hand 3,534 - - - - 3,534
Insurance and other debtors 49,373 1,453 458 300 (10) 51,574
---------------------------------- ------------- --------- --------- -------- -------- --------
151,517 2,606 515 321 (20) 154,939
---------------------------------- ------------- --------- --------- -------- -------- --------
(iii) Interest rate equity price risk
Interest rate risk and equity price risk are the risks that the fair value of future cash flows of financial instruments will fluctuate because of changes in market interest rates and market prices, respectively.
(iv) Currency risk
The syndicates' main exposure to foreign currency risk arises from insurance business originating overseas, primarily denominated in US dollars. Transactions denominated in US dollars form a significant part of the syndicates' operations. This risk is, in part, mitigated by the syndicates maintaining financial assets denominated in US dollars against its major exposures in that currency.
The table below provides details of syndicate assets and liabilities (Note 28) by currency:
GBP USD EUR CAD Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2021 converted converted converted converted converted converted
------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets 45,145 191,697 9,537 24,446 8,605 279,430
Total liabilities (52,934) (194,965) (12,655) (18,028) (4,335) (282,918)
------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
(Deficiency)/surplus of assets (7,789) (3,268) (3,118) 6,418 4,270 (3,488)
------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
GBP USD EUR CAD Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2020 converted converted converted converted converted converted
------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets 29,186 106,692 6,092 13,633 4,823 160,426
Total liabilities (38,021) (109,050) (6,177) (10,180) (2,741) (166,169)
------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
(Deficiency)/surplus of assets (8,835) (2,358) (85) 3,453 2,082 (5,743)
------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
The impact of a 5% change in exchange rates between GBP and other currencies would be GBP209,000 on shareholders' funds (2020: GBP153,000).
(v) Reinsurance risk
Reinsurance risk to the Group arises where reinsurance contracts put in place to reduce gross insurance risk do not perform as anticipated, result in coverage disputes or prove inadequate in terms of the vertical or horizontal limits purchased. Failure of a reinsurer to pay a valid claim is considered a credit risk, which is detailed separately below.
The Group currently has reinsurance programmes on the 2019, 2020 and 2021 years of account.
The Group has strategic collateralised quota share arrangements in place in respect of its underwriting business with XL Re Limited, Bermudan reinsurer Everest Reinsurance Bermuda Limited (part of global NYSE-quoted insurer Everest Re Group Limited), Guernsey reinsurer Polygon Insurance Co Limited and other private shareholders through HIPCC Limited.
(b) Group risks - corporate level
(i) Investment, credit, liquidity and currency risks
The other significant risks faced by the Group are with regard to the investment of funds within its own custody. The elements of these risks are investment risk, liquidity risk, credit risk, interest rate risk and currency risk. To mitigate this, the surplus Group funds are deposited with highly rated banks and fund managers. The main liquidity risk would arise if a syndicate had inadequate liquid resources for a large claim and sought funds from the Group to meet the claim. In order to minimise investment risk, credit risk and liquidity risk, the Group's funds are invested in readily realisable short-term deposits. The Group's maximum exposure to credit risk at 31 December 2021 is GBP65.3m (2020: GBP37.4m), being the aggregate of the Group's insurance receivables, prepayments and accrued income, financial assets at fair value, and cash and cash equivalents, excluding any amounts held in the syndicates. The syndicates can distribute their results in sterling, US dollars or a combination of the two. The Group is exposed to movements in the US dollar between the balance sheet date and the distribution of the underwriting profits and losses, which is usually in the May following the closure of a year of account. The Group does not use derivative instruments to manage risk and, as such, no hedge accounting is applied.
As a result of the specific nature and structure of the Group's collateralised quota share reinsurance arrangements through Cell 6 (Guernsey based protected cell managed by HIPCC), the Group's Funds at Lloyd's calculation benefits from an aggregate GBP37.0m (2020: GBP39.5m) letter of credit ("LOC") acceptable to Lloyd's, on behalf of XL Re Limited, Everest Reinsurance Bermuda Limited, Polygon Insurance Co Limited (the reinsurers) and other private shareholders. The LOC is pledged in aggregate to the relevant syndicates through Lloyd's and thus Helios Underwriting plc is not specifically exposed to counterparty credit risk in this matter. Should the bank's LOC become unacceptable to Lloyd's for any reason, the reinsurer is responsible under the terms of the contract for making alternative arrangements. The contract is annually renewable and the Group has a contingency plan in place in the event of non-renewal under both normal and adverse market conditions.
(ii) Market risk
The Group is exposed to market and liquidity risk in respect of its holdings of syndicate participations. Lloyd's syndicate participations are traded in the Lloyd's auctions held in September and October each year. The Group is exposed to changes in market prices and a lack of liquidity in the trading of a particular syndicate's capacity could result in the Group making a loss compared to the carrying value when the Group disposes of particular syndicate participations.
(iii) Regulatory risks
The Company's subsidiaries are subject to continuing approval by Lloyd's to be a member of a Lloyd's syndicate. The risk of this approval being removed is mitigated by monitoring and fully complying with all requirements in relation to membership of Lloyd's. The capital requirements to support the proposed amount of syndicate capacity for future years are subject to the requirements of Lloyd's. A variety of factors are taken into account by Lloyd's in setting these requirements including market conditions and syndicate performance and, although the process is intended to be fair and reasonable, the requirements can fluctuate from one year to the next, which may constrain the volume of underwriting a subsidiary of the Company is able to support.
The Company is subject to the AIM Rules. Compliance with the AIM Rules is monitored by the Board.
Operational risks
As there are relatively few transactions actually undertaken by the Group, there are only limited systems and operational requirements of the Group and therefore operational risks are not considered to be significant. Close involvement of all Directors in the Group's key decision making and the fact that the majority of the Group's operations are conducted by syndicates provide control over any remaining operational risks.
Capital management objectives, policies and approach
The Group has established the following capital management objectives, policies and approach to managing the risks that affect its capital position:
-- to maintain the required level of stability of the Group, thereby providing a degree of security to shareholders;
-- to allocate capital efficiently and support the development of the business by ensuring that returns on capital employed meet the requirements of the shareholders; and
-- to maintain the financial strength to support increases in the Group's underwriting through acquisition of capacity in the Lloyd's auctions or through the acquisition of new subsidiaries.
The Group's capital management policy is to hold a sufficient level of capital to allow the Group to take advantage of market conditions, particularly when insurance rates are improving, and to meet the Funds at Lloyd's ("FAL") requirements that support the corporate member subsidiaries' current and future levels of underwriting.
Approach to capital management
The capital structure of the Group consists entirely of equity attributable to equity holders of the Company, comprising issued share capital, share premium and retained earnings as disclosed in the statements of changes in equity.
At 31 December 2021, the corporate member subsidiaries had an agreed Economic Capital Assessment ("ECA") requirement of GBP90.9m (2020: GBP58.2m) to support their underwriting on the 2022 year of account (2021 year of account). The funds to support this requirement are held in short-term investment funds and deposits or provided by the quota share reinsurance capital providers by way of an LOC. The FAL requirements are formally assessed and funded twice yearly and must be met by the corporate member subsidiaries to continue underwriting. At 31 December 2021, the agreed ECA requirements for the Group were 38% (2020: 53%) of the capacity for the following year of account.
5. 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 2021 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- -------------- ----------- ----------- --------
Net earned premium 69,406 - - 69,406
Net investment income 185 383 - 568
Other income 119 - 522 641
Net insurance claims and loss adjustment
expenses (42,423) - (2,319) (44,742)
Expenses incurred in insurance activities (24,491) - (916) (25,407)
Other operating expenses (267) - (2,063) (2,330)
Gain on bargain purchase (Note 22) - - 1,219 1,219
Impairment of goodwill - - - -
Impairment of syndicate capacity (see Note
13) - - - -
------------------------------------------- -------------- ----------- ----------- --------
Loss before tax 2,529 383 (3,557) (645)
------------------------------------------- -------------- ----------- ----------- --------
Other
Syndicate Investment corporate
participation management activities Total
Year ended 31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- -------------- ----------- ----------- --------
Net earned premium 48,769 - - 48,769
Net investment income 2,126 (120) - 2,006
Other income 101 - 1,718 1,819
Net insurance claims and loss adjustment
expenses (33,990) - (90) (34,080)
Expenses incurred in insurance activities (17,573) - (343) (17,916)
Other operating expenses 203 - (1,725) (1,522)
Gain on bargain purchase (Note 22) - - 1,260 1,260
Impairment of goodwill - - - -
Impairment of syndicate capacity (see Note
13) - - - -
------------------------------------------- -------------- ----------- ----------- --------
Profit before tax (364) (120) 820 336
------------------------------------------- -------------- ----------- ----------- --------
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 2021 other corporate activities totalling GBP2,319,000 (2020: GBP90,000 - 2018, 2019 and 2020 years of account) presents the 2019, 2020 and 2021 years of account net Group quota share reinsurance premium recoverable from HIPCC Limited (Note 25). This net quota share reinsurance premium recoverable is included within "net insurance claims incurred and loss adjustments expenses" in the consolidated income statement of the year.
6. Operating loss/profit before impairments of goodwill and capacity
Underwriting year of account*
-----------------------------------------
Pre-
2019 acquisition Corporate Other
Year ended 31 December and prior 2020 2021 Sub-total ** reinsurance corporate Total
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------- -------- -------- --------- ------------ ------------ ---------- --------
Gross premium written 721 11,712 122,179 134,612 (28,554) - - 106,058
Reinsurance ceded (713) (2,569) (28,909) (32,191) 7,126 - (1,871) (26,935)
------------------------ ---------- -------- -------- --------- ------------ ------------ ---------- --------
Net premium written 8 9,143 93,270 102,421 (21,427) - (1,871) 79,123
------------------------ ---------- -------- -------- --------- ------------ ------------ ---------- --------
Net earned premium 3,426 40,573 48,693 92,692 (21,415) - (1,871) 69,406
Other income 206 (166) (3) 37 (681) 616 2,456 2,428
Net insurance claims
incurred and loss
adjustment expenses 5,113 (22,945) (36,256) (54,088) 12,037 (2,319) (372) (44,742)
Operating expenses (2,261) (12,406) (18,254) (32,921) 8,788 - (3,604) (27,737)
------------------------ ---------- -------- -------- --------- ------------ ------------ ---------- --------
Operating (loss)/profit
before impairments
of goodwill and
capacity 6,484 5,056 (5,820) 5,720 (1,271) (1,703) (3,391) (645)
Quota share adjustment (2,392) (2,141) 2,214 (2,319) - 2,319 - -
------------------------ ---------- -------- -------- --------- ------------ ------------ ---------- --------
Operating (loss)/profit
before impairments
of goodwill and
capacity, after
quota share adjustment 4,092 2,915 (3,606) 3,401 (1,271) 616 (3,391) (645)
------------------------ ---------- -------- -------- --------- ------------ ------------ ---------- --------
* 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.
Underwriting year of account*
-----------------------------------------
Pre-
2019 acquisition Corporate Other
Year ended 31 December and prior 2020 2021 Sub-total ** reinsurance corporate Total
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------- -------- -------- --------- ------------ ------------ ---------- --------
Gross premium written 348 6,105 69,693 76,146 (7,883) - - 68,263
Reinsurance ceded 202 (1,410) (16,817) (18,025) 1,462 - (1,097) (17,660)
------------------------ ---------- -------- -------- --------- ------------ ------------ ---------- --------
Net premium written 550 4,695 52,876 58,121 (6,421) - (1,097) 50,603
------------------------ ---------- -------- -------- --------- ------------ ------------ ---------- --------
Net earned premium 3,116 24,807 27,759 55,682 (5,816) - (1,097) 48,769
Other income 1,242 585 604 2,431 (515) 334 2,835 5,085
Net insurance claims
incurred and loss
adjustment expenses 579 (17,074) (21,386) (37,881) 4,174 (90) (283) (34,080)
Operating expenses (1,473) (7,373) (10,657) (19,503) 2,065 - (2,000) (19,438)
------------------------ ---------- -------- -------- --------- ------------ ------------ ---------- --------
Operating (loss)/profit
before impairments
of goodwill and
capacity 3,464 945 (3,680) 729 (92) 244 (545) 336
Quota share adjustment (1,773) (606) 2,289 (90) - 90 - -
------------------------ ---------- -------- -------- --------- ------------ ------------ ---------- --------
Operating (loss)/profit
before impairments
of goodwill and
capacity, after
quota share adjustment 1,691 339 (1,391) 639 (92) 334 (545) 336
------------------------ ---------- -------- -------- --------- ------------ ------------ ---------- --------
* 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.
7. Insurance liabilities and reinsurance balances
Movement in claims outstanding
Gross Reinsurance Net
GBP'000 GBP'000 GBP'000
---------------------------------------------- -------- ----------- --------
At 1 January 2020 95,616 25,760 69,856
Increase in reserves arising from acquisition
of subsidiary undertakings 17,737 3,592 14,145
Movement of reserves 8,255 2,704 5,551
Other movements (8,237) (1,275) (6,962)
---------------------------------------------- -------- ----------- --------
At 31 December 2020 113,371 30,781 82,590
---------------------------------------------- -------- ----------- --------
At 1 January 2021 113,371 30,781 82,590
Increase in reserves arising from acquisition
of subsidiary undertakings 57,941 15,405 42,537
Movement of reserves 15,796 6,204 9,592
Other movements (455) 1,043 (1,499)
---------------------------------------------- -------- ----------- --------
At 31 December 2021 186,653 53,433 133,220
---------------------------------------------- -------- ----------- --------
Included within other movements are the 2017 and prior years' claims reserves reinsured into the 2018 year of account on which the Group does not participate and currency exchange differences.
Movement in unearned premium
Gross Reinsurance Net
GBP'000 GBP'000 GBP'000
---------------------------------------------- -------- ----------- --------
At 1 January 2020 26,522 5,023 21,499
Increase in reserves arising from acquisition
of subsidiary undertakings 4,679 613 4,066
Movement of reserves 2,481 647 1,834
Other movements (1,326) (255) (1,071)
---------------------------------------------- -------- ----------- --------
At 31 December 2020 32,356 6,028 26,328
---------------------------------------------- -------- ----------- --------
At 1 January 2021 32,356 6,028 26,328
Increase in reserves arising from acquisition
of subsidiary undertakings 15,649 3,095 12,553
Movement of reserves 11,201 1,484 9,717
Other movements 405 (69) 475
---------------------------------------------- -------- ----------- --------
At 31 December 2021 59,611 10,538 49,073
---------------------------------------------- -------- ----------- --------
Assumptions, changes in assumptions and sensitivity
As described in Note 4, the majority of the risks to the Group's future cash flows arise from its subsidiaries' participation in the results of Lloyd's syndicates and are mostly managed by the managing agents of the syndicates. The Group's role in managing these risks, in conjunction with the Group's members' agent, is limited to a selection of syndicate participations and monitoring the performance of the syndicates and their managing agents.
The amounts carried by the Group arising from insurance contracts are calculated by the managing agents of the syndicates, derived from accounting information provided by the managing agents and reported upon by the syndicate auditors.
The key assumptions underlying the amounts carried by the Group arising from insurance contracts are:
-- the claims reserves calculated by the managing agents are accurate; and
-- the potential deterioration of run-off year results has been fully provided for by the managing agents.
There have been no changes in assumptions in 2021.
The amounts carried by the Group arising from insurance contracts are sensitive to various factors as follows:
-- a 10% increase/decrease in the managing agents' calculation of gross claims reserves will decrease/increase the Group's pre-tax profits by GBP18,665,000 (2020: GBP11,337,000);
-- a 10% increase/decrease in the managing agents' calculation of net claims reserves will decrease/increase the Group's pre-tax profits by GBP13,322,000 (2020: GBP8,259,000); and
-- a 10% increase/decrease in the run-off year net claims reserves will decrease/increase the Group's pre-tax profits by GBP43,000 (2020: GBP4,000).
The 10% movement has been selected to give an indication of the possible variations in the assumptions used.
Analysis of gross and net claims development
The tables below provide information about historical gross and net claims development:
Claims development - gross
GBPm
------------- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ---------
After After After After After After After After After After Profit
Underwriting one two three four five six seven eight nine ten on RITC
pure year* year years years years years years years years years years received
------------- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ---------
2012 28 41 40 39 38 38 37 37 36 36 5
2013 24 40 39 38 37 36 36 35 35 3
2014 22 38 38 37 37 36 36 36 5
2015 21 39 39 38 38 37 37 6
2016 24 47 48 47 46 46 3
2017 48 70 72 71 71 3
2018 41 68 72 69 4
2019 37 70 69
2020 40 72
2021 52
------------- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ---------
Claims development - net
GBPm
------------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ---------
After After After After After After After After After After Profit
Underwriting one two three four five six seven eight nine ten on RITC
pure year* year years years years years years years years years years received
------------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ---------
2012 24 35 34 33 32 32 32 31 31 31 5
2013 21 35 34 33 32 32 31 31 31 4
2014 19 33 33 32 31 31 31 31 4
2015 18 33 34 33 32 32 32 4
2016 20 38 39 38 37 37 4
2017 34 52 54 53 52 3
2018 31 51 54 52 4
2019 28 53 53
2020 29 53
2021 37
------------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ---------
* Including the new acquisitions during 2020.
At the end of the three years syndicates are normally reinsured to close. Participations on subsequent years on syndicates may therefore change. The above table shows nine years of development and how the reinsurance to close received performed.
8. Net investment income
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
---------------------------------------------------------- ------------ ------------
Investment income 1,549 1,318
Realised losses on financial assets at fair value through
profit or loss 392 288
Unrealised losses on financial assets at fair value
through profit or loss (1,316) 297
Investment management expenses (74) (53)
Bank interest 17 156
---------------------------------------------------------- ------------ ------------
Net investment income 568 2,006
---------------------------------------------------------- ------------ ------------
9. Operating expenses (excluding goodwill and capacity impairment)
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
------------------------------------------------------------- ------------ ------------
Expenses incurred in insurance activities:
Acquisition costs 20,299 13,215
Change in deferred acquisition costs (2,358) (387)
Administrative expenses 7,467 5,039
Other - 49
------------------------------------------------------------- ------------ ------------
25,408 17,916
------------------------------------------------------------- ------------ ------------
Other operating expenses:
- exchange differences 32 106
- Directors' remuneration 582 398
- acquisition costs in connection with the new subsidiaries
acquired in the year 319 72
- professional fees 1,106 439
- administration and other expenses 187 395
Auditors' remuneration:
- audit of the Parent Company and Group Financial Statements 54 47
- audit of subsidiary company Financial Statements 49 43
- underprovision of prior year audit fee - 2
- audit related assurance services - 20
------------------------------------------------------------- ------------ ------------
2,329 1,522
------------------------------------------------------------- ------------ ------------
Operating expenses 27,737 19,438
------------------------------------------------------------- ------------ ------------
The Group has three employees other than the Directors of the Company.
Details of the Directors' remuneration are disclosed below:
Year ended Year ended
31 December 31 December
2021 2020
Directors' remuneration GBP GBP
---------------------------------------- ------------ ------------
Arthur Manners 212,000 128,333
Edward William Fitzalan-Howard 26,000 18,000
Jeremy Evans (resigned 6 February 2021) 2,000 15,000
Michael Cunningham 34,000 20,000
Andrew Christie 28,000 15,000
Nigel Hanbury 246,000 201,667
Martin Reith (appointed 21 April 2021) 17,000 -
Tom Libassi (appointed 21 April 2021) 17,000 -
---------------------------------------- ------------ ------------
Total 582,000 398,000
---------------------------------------- ------------ ------------
The Chief Executive, Nigel Hanbury, and the Finance Director, Arthur Manners, had a bonus incentive scheme during 2021 in addition to their basic remuneration. The above figures for Nigel Hanbury and Arthur Manners include an accrual for the year of GBP139,000 and GBP119,000 respectively (2020: GBP116,500 for Nigel Hanbury and GBP58,500 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).
10. Income tax charge
(a) Analysis of tax (credit)/expense in the year
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
---------------------------- ------------ ------------
Current tax:
- current year 340 (297)
- prior year (35) 161
- foreign tax paid 61 45
---------------------------- ------------ ------------
Total current tax 366 (91)
---------------------------- ------------ ------------
Deferred tax:
- current year (577) 203
- prior year - (77)
---------------------------- ------------ ------------
Total deferred tax (577) 126
---------------------------- ------------ ------------
Income tax (credit)/expense (211) 35
---------------------------- ------------ ------------
(b) Factors affecting the tax credit for the year
Tax for the year is the same as (2020: the same as) the standard rate of corporation tax in the UK of 19% (2020: 19%).
The differences are explained below:
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
---------------------------------------------------------- ------------ ------------
Profit before tax (645) 336
---------------------------------------------------------- ------------ ------------
Tax calculated as profit before tax multiplied by the
standard rate of corporation tax in the UK of 19% (2020:
19%) (123) 64
Tax effects of:
- prior year adjustments (35) 84
- rate change and other adjustments (299) (189)
- permanent disallowances 184 68
- foreign taxes 61 45
- other - (37)
---------------------------------------------------------- ------------ ------------
Tax (credit/expense) for the year (211) 35
---------------------------------------------------------- ------------ ------------
The results of the Group's participation on the 2019, 2020 and 2021 years of account and the calendar year movement on 2018 and prior run-offs will not be assessed for tax until the years ended 2022, 2023 and 2024 respectively, being the year after the calendar year result of each run-off year or the normal date of closure of each year of account. Full provision is made as part of the deferred tax provisions for underwriting profits/(losses) not yet subject to corporation tax.
The UK Government announced on 3 March 2021 its intention to increase the UK rate of corporation tax to 25% from 19% from 1st April 2023. This was legislated on 10 June 2021. If a deferred tax balance, this has been calculated with reference to the substantively enacted rates as required under FA5 102.
11. 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
2021 2020
------------------------------------------------------- ------------ ------------
Profit for the year after tax attributable to ordinary
equity holders of the Parent GBP(434,000) GBP301,000
------------------------------------------------------- ------------ ------------
Basic - weighted average number of ordinary shares* 58,058,164 18,921,902
------------------------------------------------------- ------------ ------------
Adjustments for calculating the diluted earnings per
share:
Treasury shares (JSOP scheme), Note 21 1,100,000 500,000
------------------------------------------------------- ------------ ------------
Diluted - weighted average number of ordinary shares* 58,783,369 19,412,902
------------------------------------------------------- ------------ ------------
Basic (loss)/earnings per share (0.75)p 1.59p
------------------------------------------------------- ------------ ------------
Diluted (loss)/earnings per share (0.74)p 1.55p
------------------------------------------------------- ------------ ------------
* Used as the denominator in calculating the basic earnings per share, and diluted earnings per share, respectively.
12. Dividends paid or proposed
A dividend of GBP2,018,000 was paid during the year (2020: GBPnil).
A final dividend of 3p is being proposed in respect of the financial year ended 31 December 2021. The dates relevant to the payment of the dividend, if approved at the Company's Annual General Meeting, are as follows :
Event Date
Ex-dividend 23rd June 2022
date
Record date 24(th) June
2022
Payment date 18(th) July
2022
13. Intangible assets
Syndicate
Goodwill capacity Total
GBP'000 GBP'000 GBP'000
-------------------------------------- -------- --------- --------
Cost
At 1 January 2020 775 20,565 21,340
Additions - 186 186
Disposals - (520) (520)
Acquired with subsidiary undertakings - 4,991 4,991
Revaluation - 5,604 5,604
-------------------------------------- -------- --------- --------
At 31 December 2020 775 30,826 31,601
-------------------------------------- -------- --------- --------
At 1 January 2021 775 30,826 31,601
Additions 319 2,664 2,983
Disposals - - -
Acquired with subsidiary undertakings - 18,173 18,173
Revaluation - 8,132 8,132
-------------------------------------- -------- --------- --------
At 31 December 2021 1,094 59,795 60,889
-------------------------------------- -------- --------- --------
Note 22 sets out the details of the entities acquired by the Group during the year, the fair value adjustments and the goodwill arising.
14. Investments in subsidiaries
31 December 31 December
2021 2020
GBP'000 GBP'000
------ ----------- -----------
Total 71,362 41,233
------ ----------- -----------
During 2021 a reverse impairment charge of GBP11,192,000 was recognised on the cost of investments in subsidiaries and included in the Parent income statement.
At 31 December 2021, the Company owned 100% of the following companies and limited liability partnerships, either directly or indirectly. All subsidiaries are incorporated in England and Wales and their registered office address is at 40 Gracechurch Street, London EC3V 0BT, apart from RBC CEES Trustee Limited, which is incorporated in Jersey and its registered office address is Gaspé House, 66-72 Esplanade, Jersey JE2 3QT.
Direct/indirect 2021 2020
Company or partnership interest ownership ownership Principal activity
----------------------------------- ---------------- ---------- ---------- ---------------------------
Lloyd's of London corporate
Nameco (No. 917) Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Devon Underwriting Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Nameco (No. 346) Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Pooks Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Charmac Underwriting Limited Direct 100% 100% vehicle
Joint Share Ownership
RBC CEES Trustee Limited(ii) Direct 100% 100% Plan
Lloyd's of London corporate
Nottus (No 51) Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Chapman Underwriting Limited Direct 100% 100% vehicle
Llewellyn House Underwriting Lloyd's of London corporate
Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Advantage DCP Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Romsey Underwriting Limited Direct 100% 100% vehicle
Helios UTG Partner Limited(i) Direct 100% 100% Corporate partner
Lloyd's of London corporate
Salviscount LLP Indirect 100% 100% vehicle
Lloyd's of London corporate
Inversanda LLP Indirect 100% 100% vehicle
Lloyd's of London corporate
Fyshe Underwriting LLP Indirect 100% 100% vehicle
Lloyd's of London corporate
Nomina No 505 LLP Indirect 100% 100% vehicle
Lloyd's of London corporate
Nomina No 321 LLP Indirect 100% 100% vehicle
Lloyd's of London corporate
Nameco (No. 409) Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Nameco (No. 1113) Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Catbang 926 Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Whittle Martin Underwriting Direct 100% 100% vehicle
Lloyd's of London corporate
Nameco (No 408) Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Nomina No 084 LLP Indirect 100% 100% vehicle
Lloyd's of London corporate
Nameco (No 510) Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Nameco (No 544) Limited Direct 100% 100% vehicle
Lloyd's of London corporate
N J Hanbury Limited Direct 100% 100% vehicle
Lloyd's of London corporate
Nameco (No 1011) Limited Direct 100% - vehicle
Lloyd's of London corporate
Nameco (No 1111) Limited Direct 100% - vehicle
Nomina No 533 LLP Indirect 100% - Corporate partner
North Breache Underwriting Lloyd's of London corporate
Limited Direct 100% - vehicle
Lloyd's of London corporate
G T C Underwriting Limited Direct 100% - vehicle
Lloyd's of London corporate
Hillnameco Limited Direct 100% - vehicle
Lloyd's of London corporate
Nameco (No 2012) Limited Direct 100% - vehicle
Lloyd's of London corporate
Nameco (No 1095) Limited Direct 100% - vehicle
Lloyd's of London corporate
New Filcom Limited Direct 100% - vehicle
Lloyd's of London corporate
Kemah Lime Street Capital Direct 100% - vehicle
Lloyd's of London corporate
Nameco (No 1130) Limited Direct 100% - vehicle
Nomina No 070 LLP Indirect 100% - Corporate partner
Lloyd's of London corporate
Nameco (No 389) Limited Direct 100% - vehicle
Nomina No 469 LLP Indirect 100% - Corporate partner
Nomina No 536 LLP Indirect 100% - Corporate partner
Lloyd's of London corporate
Nameco (No 301) Limited Direct 100% - vehicle
Lloyd's of London corporate
Nameco (No 1232) Limited Direct 100% - vehicle
Lloyd's of London corporate
Shaw Lodge Limited Direct 100% - vehicle
Lloyd's of London corporate
Queensberry Underwriting Direct 100% - vehicle
Nomina No 472 LLP Indirect 100% - Corporate partner
Nomina No 110 LLP Indirect 100% - Corporate partner
Lloyd's of London corporate
Chanterelle Underwriting Limited Direct 100% - vehicle
Kunduz LLP Indirect 100% - Corporate partner
Lloyd's of London corporate
Exalt Underwriting Limited Direct 100% - vehicle
Lloyd's of London corporate
Nameco (No 1110) Limited Direct 100% - vehicle
Lloyd's of London corporate
Clifton 2011 Limited Direct 100% - vehicle
Nomina No 378 LLP Indirect 100% - Corporate partner
Gould Scottish Limited Partnership Indirect 100% - Corporate partner
----------------------------------- ---------------- ---------- ---------- ---------------------------
For details of all new acquisitions made during the year 2021 refer to Note 22(a).
(i) Helios UTG Partner Limited, a subsidiary of the Company, owns 100% of Salviscount LLP, Inversanda LLP, Fyshe Underwriting LLP, Nomina No 505 LLP, Nomina No 321 LLP Nomina No 084 LLP, Nomina No 533 LLP, Nomina No 070 LLP, Nomina No 469 LLP, Nomina No 536 LLP, Nomina No 472 LLP, Nomina No 110 LLP, Kunduz LLP. Nomina No 348 LLP and Gould Scottish Limited Partnership. The cost of acquisition of these LLPs is accounted for in Helios UTG Partner Limited, their immediate parent company.
During the year, the Company sold its shares in Bernul Limited, Nameco (No 229) Limited, Nameco (No 76) Limited, Updown Underwriting Limited, Nameco (No 518) Limited, Hampden Corporate Member Limited, Halperin Limited, Nameco (No 311) Limited, Nameco (No 402) Limited and Nameco (No 507) Limited for GBPnil gain or loss.
(ii) RBC CEES Trustee Limited was an incorporated entity in year 2017 to satisfy the requirements of the Joint Share Ownership Plan (see Note 23).
15. Financial assets at fair value through profit or loss
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: The fair value of financial instruments traded in active markets (such as publicly traded securities) is based on quoted market prices (unadjusted) at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in Level 1.
Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data inputs, either directly or indirectly (other than quoted prices included within Level 1) and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. This is the case for unlisted equity securities.
The Group held the following financial assets carried at fair value on the statement of financial position:
Total Level Level Level
2021 1 2 3
Group GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- -------- -------- -------- --------
Shares and other variable yield securities
and units in unit trusts 15,288 3,339 9,960 1,989
Debt securities and other fixed income securities 93,548 33,244 60,263 41
Participation in investment pools 511 161 330 20
Loans and deposits with credit institutions 245 64 - 181
Derivatives 43 36 7 -
Other investments 905 905 - -
Funds at Lloyd's 43,304 43,304 - -
-------------------------------------------------- -------- -------- -------- --------
Total - fair value 153,844 81,053 70,560 2,231
-------------------------------------------------- -------- -------- -------- --------
Total Level Level Level
2020 1 2 3
Group GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- -------- -------- -------- --------
Shares and other variable yield securities
and units in unit trusts 11,104 2,878 7,140 1,086
Debt securities and other fixed income securities 53,950 19,569 34,381 -
Participation in investment pools 219 43 134 42
Loans and deposits with credit institutions 198 87 105 6
Derivatives 115 77 38 -
Other investments 7 7 - -
Funds at Lloyd's 19,684 19,684 - -
-------------------------------------------------- -------- -------- -------- --------
Total - fair value 85,277 42,345 41,798 1,134
-------------------------------------------------- -------- -------- -------- --------
Funds at Lloyd's represent assets deposited with the Corporation of Lloyd's to support the Group's underwriting activities as described in the accounting policies. The Group entered into a Lloyd's Deposit Trust Deed which gives Lloyd's the right to apply these monies in settlement of any claims arising from the participation on the syndicates. These monies can only be released from the provision of this Deed with Lloyd's express permission and only in circumstances where the amounts are either replaced by an equivalent asset, or after the expiration of the Group's liabilities in respect of its underwriting.
In addition to funds held by Lloyd's shown above, letters of credit totalling GBP1,481,000 (2020: GBP6,971,000) are also held as part of the Group's Funds at Lloyd's.
The Directors consider any credit risk or liquidity risk not to be material.
Company
Financial assets at fair value through profit or loss are shown below:
31 December 31 December
2021 2020
GBP'000 GBP'000
---------------------------------------------------- ----------- -----------
Holdings in collective investment schemes - Level 1 285 -
---------------------------------------------------- ----------- -----------
Total - market value 285 -
---------------------------------------------------- ----------- -----------
16. Other receivables
31 December 31 December
2021 2020
Group GBP'000 GBP'000
------------------------------------------- ----------- -----------
Arising out of direct insurance operations 32,566 15,280
Arising out of reinsurance operations 37,128 27,306
Other debtors 18,165 15,762
------------------------------------------- ----------- -----------
Total 87,859 58,348
------------------------------------------- ----------- -----------
The Group has no analysis of other receivables held directly by the syndicates on the Group's behalf (see Note 27). None of the Group's other receivables are past their due date and all are classified as fully performing.
Included within the above receivables are amounts totalling GBPNil (2020: GBP7,001,000) which are not expected to be wholly recovered within one year.
31 December 31 December
2021 2020
Company GBP'000 GBP'000
---------------------------------------- ----------- -----------
Receivables from subsidiaries (Note 25) 37,290 20,473
Other debtors 1,206 323
Prepayments - -
---------------------------------------- ----------- -----------
Total 38,496 20,796
---------------------------------------- ----------- -----------
Included within receivables are amounts totalling GBP100,000 (2020: GBP100,000), which are not expected to be recoverable within one year.
17. Deferred acquisition costs
31 December 31 December
2021 2020
GBP'000 GBP'000
------------------------------------------------------------- ----------- -----------
At 1 January 7,726 6,641
Increase arising from acquisition of subsidiary undertakings
(Note 22) 3,966 1,018
Movement in deferred acquisition costs 2,358 387
Other movements (435) (320)
------------------------------------------------------------- ----------- -----------
At 31 December 13,615 7,726
------------------------------------------------------------- ----------- -----------
18. Deferred tax
Group
Deferred tax is calculated in full on temporary differences using a tax rate of 25% on deferred tax assets and deferred tax liabilities (2020: 19% on deferred tax assets and deferred tax liabilities). The movement on the deferred tax liability account is shown below:
Timing
differences
Valuation on
of underwriting
capacity results Total
Deferred tax liabilities GBP'000 GBP'000 GBP'000
------------------------------------------ --------- ------------- --------
At 1 January 2020 4,132 (840) 3,292
On acquisition of subsidiary undertakings 1,427 1,662 3,089
Revaluation of capacity 292 1,330 1,622
Prior period adjustment (77) - (77)
Credit for the year 77 126 203
------------------------------------------ --------- ------------- --------
At 31 December 2020 5,891 616 6,507
------------------------------------------ --------- ------------- --------
At 1 January 2021 5,891 616 6,507
On acquisition of subsidiary undertakings 4,683 (1,414) 3,269
Revaluation of capacity 2,766 - 2,766
Prior period adjustment (489) - (489)
Credit for the year 489 (577) (88)
------------------------------------------ --------- ------------- --------
At 31 December 2021 13,340 (1,375) 11,965
------------------------------------------ --------- ------------- --------
Company
The Company had no deferred tax assets or liabilities (2020: GBPnil), as disclosed in Note 10.
19. Borrowings
31 December 31 December
2021 2020
Group and Company GBP'000 GBP'000
------------------------------- ----------- -----------
Secured - at amortised cost
Bank revolving credit facility - 4,000
------------------------------- ----------- -----------
- 4,000
------------------------------- ----------- -----------
Current - 4,000
Non-current - -
------------------------------- ----------- -----------
- 4,000
------------------------------- ----------- -----------
Bank loan
(a) Revolving credit/loan facility
A sterling revolving loan facility ("RLF") was agreed with Barclays Bank Plc during the year ended 31 December 2019 to the value of GBP4m, of which GBP2m was available for general corporate purposes and acquisitions and the remaining GBP2m was available for use only in a large loss scenario, secured against all of the assets of Helios Underwriting plc.
On 19 December 2019, GBP2,000,000 was drawn down on the RLF. The maturity of the RLF was three months from the initial date of the drawdown, being 19 March 2020. On 19 March 2020, the RLF was extended by three months to 19 June 2020. On 29 July 2020, a further GBP2,000,000 was drawn down on the RLF. The RLF incurs interest at the following rates:
-- drawn amounts: 3% per annum over LIBOR; and -- undrawn amount: 1% fixed per annum.
Total arrangement fees of GBP15,000 were paid to Barclays Bank Plc during 2020 for the creation of the RLF.
On 23 April 2021, a total of GBP4,000,000 was repaid to Barclays in full settlement of the RLF draw down.
On 21 December 2021, a new sterling revolving loan facility ("RLF") was agreed with Barclays Bank Plc to the value of GBP15m. The interest is 4.2% per annum. On 21 March 2022 the full GBP15m was drawn down (see note 29).
Reconciliation of movements of liabilities to cash flows arising from financing activities:
Group Liabilities Equity
----------------------------------------- ----------- -------------------------------
Other
loans Share
and capital/ Other Retained
borrowings premium reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- ----------- --------- --------- --------- --------
Balance at 1 January 2020 2,000 20,777 (50) 7,421 30,148
----------------------------------------- ----------- --------- --------- --------- --------
Changes from financing cash flows
Proceeds from issue of share capital
(Note 21) - 18,141 - - 18,141
Proceeds from loans and borrowings 2,000 - - - 2,000
Payments for Company buyback of ordinary
shares (Note 24) - - - (23) (23)
Repayment of borrowings - - - - -
Dividend paid - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Total changes from financing cash
flows 2,000 18,141 - (23) 20,118
----------------------------------------- ----------- --------- --------- --------- --------
Effect of changes in foreign exchange
rates - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Changes in fair value - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Other changes:
Liability related - - - - -
Other expense - - - - -
Interest expense - - - - -
Interest paid - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Total liability related other changes - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Total equity related other changes* - - - 4,283 4,283
----------------------------------------- ----------- --------- --------- --------- --------
Balance at 31 December 2020 4,000 38,918 (50) 11,681 54,549
----------------------------------------- ----------- --------- --------- --------- --------
* The equity related other changes relate to the consolidated profit for the year 2020.
Group Liabilities Equity
----------------------------------------- ----------- -------------------------------
Other
loans Share
and capital/ Other Retained
borrowings premium reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- ----------- --------- --------- --------- --------
Balance at 1 January 2021 4,000 38,918 (50) 11,681 54,549
----------------------------------------- ----------- --------- --------- --------- --------
Changes from financing cash flows
Proceeds from issue of share capital
(Note 21) - - - - -
Proceeds from loans and borrowings - 54,343 (60) - 54,283
Payments for Company buyback of ordinary
shares (Note 24) - - - - -
Repayment of borrowings (4,000) - - - (4,000)
Dividend paid - - - (2,018) (2,018)
----------------------------------------- ----------- --------- --------- --------- --------
Total changes from financing cash
flows (4,000) 54,343 (60) (2,018) (48,265)
----------------------------------------- ----------- --------- --------- --------- --------
Effect of changes in foreign exchange
rates - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Changes in fair value - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Other changes:
Liability related - - - - -
Other expense - - - - -
Interest expense - - - - -
Interest paid - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Total liability related other changes - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Total equity related other changes* - - - 4,932 4,932
----------------------------------------- ----------- --------- --------- --------- --------
Balance at 31 December 2021 - 93,261 (110) 14,595 107,746
----------------------------------------- ----------- --------- --------- --------- --------
* The equity related other changes relate to the consolidated profit for the year 2021.
Company Liabilities Equity
----------------------------------------- ----------- -------------------------------
Other
loans Share
and capital/ Other Retained
borrowings premium reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- ----------- --------- --------- --------- --------
Balance at 1 January 2020 2,000 20,777 - 16,712 39,489
----------------------------------------- ----------- --------- --------- --------- --------
Changes from financing cash flows
Proceeds from issue of share capital
(Note 21) - 18,141 - - 18,141
Proceeds from loans and borrowings 2,000 - - - 2,000
Payments for Company buyback of ordinary
shares (Note 24) - - - (23) (23)
Repayment of borrowings - - - - -
Dividend paid - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Total changes from financing cash
flows 2,000 18,141 - (23) 20,118
----------------------------------------- ----------- --------- --------- --------- --------
Effect of changes in foreign exchange
rates - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Changes in fair value - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Other changes: - - - - -
Liability related - - - - -
Other expense - - - - -
Interest expense - - - - -
Interest paid - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Total liability related other changes - - - 2,636 2,636
----------------------------------------- ----------- --------- --------- --------- --------
Total equity related other changes* - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Balance at 31 December 2020 4,000 38,918 - 19,325 62,243
----------------------------------------- ----------- --------- --------- --------- --------
* The equity related other changes relate to the Company's profit for the year 2020.
Company Liabilities Equity
----------------------------------------- ----------- -------------------------------
Other
loans Share
and capital/ Other Retained
borrowings premium reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- ----------- --------- --------- --------- --------
Balance at 1 January 2021 4,000 38,918 - 19,325 62,243
----------------------------------------- ----------- --------- --------- --------- --------
Changes from financing cash flows
Proceeds from issue of share capital
(Note 21) - 54,343 - - 54,343
Proceeds from loans and borrowings - - - - -
Payments for Company buyback of ordinary
shares (Note 24) - - - - -
Repayment of borrowings (4,000) - - - (4,000)
Dividend paid - - - (2,018) (2,018)
----------------------------------------- ----------- --------- --------- --------- --------
Total changes from financing cash
flows (4,000) 54,343 - (2,018) 48,325
----------------------------------------- ----------- --------- --------- --------- --------
Effect of changes in foreign exchange
rates - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Changes in fair value - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Other changes: - - - - -
Liability related - - - - -
Other expense - - - - -
Interest expense - - - - -
Interest paid - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Total liability related other changes - - - - -
----------------------------------------- ----------- --------- --------- --------- --------
Total equity related other changes* - - - 9,805 9,805
----------------------------------------- ----------- --------- --------- --------- --------
Balance at 31 December 2021 - 93,261 - 27,112 120,373
----------------------------------------- ----------- --------- --------- --------- --------
* The equity related other changes relate to the Company's profit for the year 2021.
20. Other payables
31 December 31 December
2021 2020
Group GBP'000 GBP'000
------------------------------------------- ----------- -----------
Arising out of direct insurance operations 2,606 2,752
Arising out of reinsurance operations 23,957 12,348
Corporation tax payable 185 288
Other creditors 8,179 3,968
------------------------------------------- ----------- -----------
34,927 19,356
------------------------------------------- ----------- -----------
The Group has no analysis of other payables held directly by the syndicates on the Group's behalf (see Note 27).
31 December 31 December
2021 2020
Company GBP'000 GBP'000
----------------------------- ----------- -----------
Payable to subsidiaries 2,959 3,328
Accruals and deferred income 904 564
----------------------------- ----------- -----------
3,863 3,892
----------------------------- ----------- -----------
All payables above are due within one year.
21. Share capital and share premium
Partly
Number Ordinary paid ordinary
of share share Share
shares capital capital premium Total
(i) GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ---------- -------- -------------- -------- --------
Ordinary shares of 10p each and share
premium
at 31 December 2020 33,931,345 3,343 50 35,525 38,918
-------------------------------------- ---------- -------- -------------- -------- --------
Ordinary shares of 10p each and share
premium
at 31 December 2021 69,305,381 6,821 110 86,330 93,261
-------------------------------------- ---------- -------- -------------- -------- --------
During the year, the Company issued a further 35,374,036 shares.
(i) Number of shares
2021 2020
------------------------------------------------------ ---------- ----------
Allotted, called up and fully paid ordinary shares:
- on the market 67,786,212 33,012,176
- Company buyback of ordinary shares held in treasury
(Note 24) 419,169 419,169
------------------------------------------------------ ---------- ----------
68,205,381 33,431,345
Uncalled and partly paid ordinary shares under the
JSOP scheme (ii) (Note 23) 1,100,000 500,000
------------------------------------------------------ ---------- ----------
69,305,381 33,931,345
------------------------------------------------------ ---------- ----------
(ii) The partly paid ordinary shares are not entitled to dividend distribution rights during the year.
22. Acquisition of Limited Liability Vehicles
Acquisitions of Limited Liability Vehicles are accounted for using the acquisition method of accounting.
Where the comparison of the consideration paid to the fair value of net assets acquired gives rise to a negative goodwill this is recognised in the revenue in the consolidated income statement as a gain on bargain purchase (negative goodwill). The below table shows the summary of the gain on bargain purchase and the impairment of goodwill as follows:
(a) 2021 acquisitions
In 2021 the Company acquired twenty eight Limited Liability vehicle, all of which are incorporate in England and Wales and are corporate members of Lloyd's.
Nameco Nameco North Nameco Nameco Kemah
(No (No Nomina Breach GTC Hill (No (No New Lime
1011) 1111) No 533 UW UW Nameco 2012) 1095) Filcom Street
Limited Limited LLP Limited Limited Limited Limited Limited Limited Capital Total
-------------- ------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
2021
acquisition
date 21 Sept 21 Sept 21 Sept 21 Sept 22 Sept 22 Sept 23 Sept 24 Sept 29 Sept 30 Sept
-------------- ------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
Intangible
assets - 2 199 5 68 10 - 251 - 1 536
Uplift to fair
value 602 213 225 1,814 532 467 490 1,167 227 226 5,963
-------------- ------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
602 215 424 1,819 600 477 490 1,418 227 227 6,499
-------------- ------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
Financial
investments 1,014 390 683 3,499 1,224 966 1,349 1,957 1,349 508 12,939
Deferred
income tax
asset - - - - - - - - - - -
Reinsurers'
share
of insurance
liabilities:
- reinsurers'
share
of
outstanding
claims 425 251 292 1,431 504 478 639 974 658 339 5,991
- reinsurers'
share
of unearned
premium 72 46 58 274 103 96 112 187 156 63 1,167
Other
receivables,
including
insurance
receivables 1,152 425 354 5,933 847 728 771 3,095 677 304 14,286
Deferred
acquisition
costs 101 55 74 380 145 126 137 252 160 67 1,497
Prepayments
and accrued
income 9 4 4 37 9 9 8 17 7 9 113
Cash and cash
equivalents 191 69 89 455 539 259 258 388 637 428 3,313
Insurance
liabilities:
- claims
outstanding (1,705) (791) (1,105) (6,502) (1,904) (1,686) (2,251) (3,307) (2,004) (996) (22,251)
- unearned
premiums (417) (219) (283) (1,643) (554) (493) (528) (991) (587) (264) (5,979)
Deferred
income tax
liabilities (151) (53) (57) (516) (170) (117) (123) (335) (57) (57) (1,636)
Other
payables,
including
insurance
payables (297) (397) (160) (1,071) (562) (658) (430) (1,486) (448) (472) (5,981)
Accruals and
deferred
income (43) (23) (29) (118) (43) (43) (49) (71) (85) (39) (543)
-------------- ------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
Total fair
value
acquired 953 (28) 344 3,978 738 142 383 2,098 690 117 9,415
-------------- ------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
Consideration 891 - 280 3,857 696 100 360 2,024 651 145 9,004
-------------- ------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
Positive
goodwill
on
acquisition - 28 - - - - - - - 28 56
Negative
goodwill
on
acquisition (62) - (64) (121) (42) (42) (23) (74) (39) - (467)
-------------- ------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
Capacity
acquired
2019
underwriting
year 1,027 481 562 4,235 1,262 1,091 1,457 2,019 1,108 649 13,891
-------------- ------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
2020
underwriting
year 968 495 609 3,890 1,225 1,139 1,181 2,185 1,183 504 13,380
-------------- ------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
2021
underwriting
year 949 556 682 3,935 820 1,006 618 2,914 364 502 12,347
-------------- ------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
Had the Limited Liability Vehicles been consolidated from 1 January 2020, the consolidated statement of comprehensive income would show net earned premium of GBP90,820,000 and a profit after tax of GBP819,000.
Costs incurred in connection with the twenty eight acquisitions totalling GBP447,000 (2020: GBP114,000) have been recognised in the consolidated income statement.
Nameco Nameco Nameco Nameco
(No Nomina (No Nomina Nomina Queens- (No (No Shaw
Brought 1130) No 070 389) No 469 No 536 berry 301) 1232) Lodge
forward Limited LLP Limited LLP LLP UW Limited Limited Limited Total
-------------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
2021
acquisition
date 30 Sept 30 Sept 05 Oct 06 Oct 06 Oct 09 Oct 13 Oct 13 Oct 15 Oct
-------------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Intangible
assets 536 - 456 4 159 430 29 15 1 - 1,630
Uplift to fair
value 5,963 311 100 1,017 149 405 1,048 771 381 23 10,168
-------------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
6,499 311 556 1,021 308 835 1,077 786 382 23 11,798
-------------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Financial
investments 12,939 661 957 1,780 639 1,573 1,690 1,394 679 495 22,807
Deferred
income tax
asset - - - - - - - - - - -
Reinsurers'
share
of insurance
liabilities:
- reinsurers'
share
of
outstanding
claims 5,991 370 409 847 343 873 876 655 358 134 10,858
- reinsurers'
share
of unearned
premium 1,167 76 75 169 63 141 200 120 66 45 2,122
Other
receivables,
including
insurance
receivables 14,286 1,075 780 2,266 323 896 1,145 1,503 640 180 23,094
Deferred
acquisition
costs 1,497 96 109 205 71 168 232 145 78 51 2,653
Prepayments
and accrued
income 113 7 9 13 4 14 11 10 6 1 188
Cash and cash
equivalents 3,313 189 181 271 93 298 279 164 102 131 5,021
Insurance
liabilities:
- claims
outstanding (22,251) (1,286) (1,561) (2,984) (1,081) (2,958) (2,935) (2,330) (1,138) (418) (38,942)
- unearned
premiums (5,979) (364) (470) (824) (288) (651) (903) (580) (315) (164) (10,538)
Deferred
income tax
liabilities (1,636) (78) (56) (319) (37) (101) (262) (241) (118) (6) (2,854)
Other
payables,
including
insurance
payables (5,979) (950) (262) (500) (163) (446) (674) (757) (531) (158) (10,422)
Accruals and
deferred
income (543) (34) (40) (70) (31) (59) (79) (55) (34) (30) (975)
-------------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total fair
value
acquired 9,415 73 687 1,875 244 585 657 814 175 284 14,809
-------------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Consideration 9,004 31 645 1,829 223 543 674 818 195 209 14,171
-------------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Positive
goodwill
on
acquisition 56 - - - - - 17 4 20 - 97
Negative
goodwill
on
acquisition (467) (42) (42) (46) (21) (42) - - - (75) (735)
-------------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Capacity
acquired
2019
underwriting
year 13,891 784 990 1,637 620 1,922 1,860 1,343 699 267 24,014
-------------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
2020
underwriting
year 13,380 835 1,048 1,795 648 1,412 2,054 1,261 713 296 23,411
-------------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
2021
underwriting
year 12,347 653 1,044 2,005 494 1,512 2,211 1,364 683 355 22,668
-------------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Nameco
Nomina Nomina Chant- Exalt (No Clifton Nomina Gould
Brought No 472 No 110 erelle Kunduz UW 1110) 2011 No 348 Scottish
forward LLP LLP UW LLP Limited Limited Limited LLP Limited Total
-------------- -------- ------- ------- ------- ------- ------- -------- -------- ------- -------- --------
2021
acquisition
date 19 Nov 23 Nov 26 Nov 15 Dec 20 Dec 21 Dec 22 Dec 24 Dec 31 Dec
-------------- -------- ------- ------- ------- ------- ------- -------- -------- ------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- -------- ------- ------- ------- ------- ------- -------- -------- ------- -------- --------
Intangible
assets 1,630 169 436 - 171 21 - 22 744 358 3,551
Uplift to fair
value 10,168 100 100 1,473 150 418 1,530 684 - - 14,623
-------------- -------- ------- ------- ------- ------- ------- -------- -------- ------- -------- --------
11,798 269 536 1,473 321 439 1,530 706 744 358 18,174
-------------- -------- ------- ------- ------- ------- ------- -------- -------- ------- -------- --------
Financial
investments 22,807 478 1,156 4,471 740 893 2,733 1,087 1,462 - 35,827
Deferred
income tax
asset - - - - - - - - - - -
Reinsurers'
share
of insurance
liabilities:
- reinsurers'
share
of
outstanding
claims 10,858 268 526 638 351 505 918 727 613 - 15,404
- reinsurers'
share
of unearned
premium 2,122 48 99 231 56 96 188 154 104 - 3,098
Other
receivables,
including
insurance
receivables 23,094 245 677 2,598 365 585 2,499 741 1,023 116 31,943
Deferred
acquisition
costs 2,652 57 123 318 82 146 281 166 140 - 3,965
Prepayments
and accrued
income 188 3 10 31 4 9 16 8 9 - 278
Cash and cash
equivalents 5,021 81 270 1,406 110 573 831 687 221 6 9,206
Insurance
liabilities:
- claims
outstanding (38,942) (839) (1,850) (5,175) (1,173) (1,765) (3,798) (2,132) (2,269) - (57,943)
- unearned
premiums (10,538) (220) (487) (1,285) (299) (544) (1,037) (671) (569) - (15,650)
Deferred
income tax
liabilities (2,854) (25) (44) (368) (38) (105) (388) (171) (74) - (4,067)
Other
payables,
including
insurance
payables (10,422) (116) (334) (1,440) (184) (419) (622) (1,076) (318) (1) (14,932)
Accruals and
deferred
income (975) (25) (47) (91) (45) (65) (77) (79) (44) (16) (1,464)
-------------- -------- ------- ------- ------- ------- ------- -------- -------- ------- -------- --------
Total fair
value
acquired 14,809 224 635 2,807 290 348 3,074 147 1,042 463 23,839
-------------- -------- ------- ------- ------- ------- ------- -------- -------- ------- -------- --------
Consideration 14,171 190 560 2,662 220 410 3,083 298 910 435 22,939
-------------- -------- ------- ------- ------- ------- ------- -------- -------- ------- -------- --------
Positive
goodwill
on
acquisition 97 - - - - 62 9 151 - - 319
Negative
goodwill
on
acquisition (735) (34) (75) (145) (70) - - - (132) (28) (1,219)
-------------- -------- ------- ------- ------- ------- ------- -------- -------- ------- -------- -------- Capacity acquired 2019 underwriting year 24,014 470 1,126 3,212 714 1,207 2,057 1,378 1,238 672 36,086 -------------- -------- ------- ------- ------- ------- ------- -------- -------- ------- -------- -------- 2020 underwriting year 23,411 495 1,099 3,081 655 1,207 2,398 1,492 1,256 711 35,736 -------------- -------- ------- ------- ------- ------- ------- -------- -------- ------- -------- -------- 2021 underwriting year 22,668 475 773 3,108 640 1,186 2,300 1,558 1,308 766 34,784 -------------- -------- ------- ------- ------- ------- ------- -------- -------- ------- -------- --------
(b) 2020 acquisitions
Nameco Nameco Nameco Nomina
(No 408) (No 510) (No 544) No 084 N J Hanbury
Limited Limited Limited LLP Limited Total
------------------------------------ --------- --------- --------- ------- ----------- --------
2020 acquisition date 28 Jan 27 Nov 27 Nov 27 Nov 27 Nov
------------------------------------ --------- --------- --------- ------- ----------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ --------- --------- --------- ------- ----------- --------
Intangible assets - - 1 1,371 10 1,382
Uplift to fair value 477 662 680 - 1,791 3,610
------------------------------------ --------- --------- --------- ------- ----------- --------
477 662 681 1,371 1,801 4,992
------------------------------------ --------- --------- --------- ------- ----------- --------
Financial investments 1,172 2,067 2,437 1,855 2,957 10,488
Deferred income tax asset - - - - -
Reinsurers' share of insurance
liabilities:
- reinsurers' share of outstanding
claims 504 818 1,282 510 478 3,592
- reinsurers' share of unearned
premium 92 179 221 83 38 613
Other receivables, including
insurance receivables 1,417 1,769 3,902 2,435 6,305 15,828
Deferred acquisition costs 137 278 304 129 170 1,018
Prepayments and accrued income 10 15 25 15 31 96
Cash and cash equivalents 390 232 606 256 359 1,843
Insurance liabilities:
- claims outstanding (2,035) (3,541) (5,351) (2,602) (4,208) (17,737)
- unearned premiums (532) (1,145) (1,343) (679) (983) (4,682)
Deferred income tax liabilities (91) (126) (174) (239) (967) (1,597)
Other payables, including insurance
payables (325) (449) (780) (486) (682) (2,722)
Accruals and deferred income (42) (61) (80) (67) (71) (321)
------------------------------------ --------- --------- --------- ------- ----------- --------
Total fair value acquired 1,174 698 1,729 2,581 5,228 11,410
------------------------------------ --------- --------- --------- ------- ----------- --------
Consideration 1,007 628 1,602 2,207 4,706 10,150
------------------------------------ --------- --------- --------- ------- ----------- --------
Positive goodwill on acquisition - - - - - -
Negative goodwill on acquisition (167) (70) (127) (374) (522) (1,260)
------------------------------------ --------- --------- --------- ------- ----------- --------
Capacity acquired
2019 underwriting year 1,304 1,024 1,691 2,206 3,583 9,808
------------------------------------ --------- --------- --------- ------- ----------- --------
2020 underwriting year 1,143 982 1,683 1,936 3,443 9,187
------------------------------------ --------- --------- --------- ------- ----------- --------
2021 underwriting year 1,086 1,088 1,412 3,308 3,982 10,876
------------------------------------ --------- --------- --------- ------- ----------- --------
23. Joint Share Ownership Plan ("JSOP")
500,000 shares have been vested as at 31 December 2021.
On 16 August 2021 a further 600,000 shares were issued.
Effect of the transactions
The beneficial interests of the Executives following the transaction will be as follows:
2021 2020
-------------------------------------- --------------------------------------
Interests Interests
in jointly in jointly
owned owned
ordinary Other ordinary Other
shares interests shares interests
issued in issued in
under ordinary Total under ordinary Total
Director JSOP shares shareholding JSOP shares shareholding
--------------- ----------- ---------- ------------- ----------- ---------- -------------
Arthur Manners 477,500 709,868 1,187,368 200,000 162,292 909,868
Nigel Hanbury 622,500 8,927,294 9,549,794 300,000 4,027,640 9,227,294
--------------- ----------- ---------- ------------- ----------- ---------- -------------
The new ordinary shares will rank pari passu with the Company's existing issued ordinary shares. The Company's issued share capital following Admission will comprise 68,205,381 ordinary shares with voting rights and no restrictions on transfer and this figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company under the Disclosure Guidance and Transparency Rules.
The JSOP is to be accounted for as if it were a premium priced option, and therefore Black Scholes mathematics have been applied to determine the fair value. As the performance condition will eventually be trued up, a calculation of the fair value based on an algebraic Black Scholes calculation of the value of the "as if" option discounted for the risk of forfeiture or non-vesting is reasonable. The discount factors are for the risk that an employee leaves and forfeits the award or the failure to meet the performance condition with the result the JSOP awards do not vest in full or at all.
The basic Black Scholes calculation for the new awards is based on the following six basic assumptions:
(a) market value of a share at the date of grant (155p); (b) expected premium or threshold price of a share (174.8p); (c) expected life of the JSOP award (3 years); (d) risk-free rate of capital (1%); (e) expected dividend yield (1.9%); and (f) expected future volatility of a Helios share (20%).
The gives a total fair value is to be charged as an expense and spread over three years, being the years 2022 to 2024.
24. Treasury shares: purchase of own shares
The Company bought back some of its own ordinary shares on the market and these are held in treasury. No shares were bought back during 2021.
The retained earnings have been reduced by GBP527,000, being the consideration paid on the market for these shares, as shown in the consolidated and Parent Company statements of changes in equity.
The Company cannot exercise any rights over these bought back and held in treasury shares, and has no voting rights. No dividend or other distribution of the Company's assets can be paid to the Company in respect of the treasury shares that it holds.
As at 31 December 2021, the 419,169 own shares bought back represent 0.61% of the total allotted, called up and fully paid ordinary shares of the Company of 69,305,381 (Note 21).
25. Related party transactions
Helios Underwriting plc has inter-company loans with its subsidiaries which are repayable on three months' notice provided it does not jeopardise each company's ability to meet its liabilities as they fall due. All inter-company loans are therefore classed as falling due within one year. The amounts from/(to) subsidiaries exceeding GBP750,00 as at 31 December are set out below:
31 December 31 December
2021 2020
Company GBP'000 GBP'000
------------------------------ ----------- -----------
Nameco (No. 917) Limited 9,338 6,589
Helios UTG Partner Limited 7,930 3,784
Chapman Underwriting Limited 2,554 -
Romsey Underwriting Limited 6,412 5,082
Advantage DCP Limited (1,623) (1,555)
Catbang 926 Limited 1,546 766
Hillnameco Limited 879 -
Clifton 2011 Limited 845 -
Subsidiaries below GBP750,000 6,450 2,479
------------------------------ ----------- -----------
Net amount 34,331 17,145
------------------------------ ----------- -----------
Receivable from subsidiaries 37,290 20,473
Payable from subsidiaries (2,959) (3,328)
------------------------------ ----------- -----------
34,331 17,145
------------------------------ ----------- -----------
Helios Underwriting plc and its subsidiaries have entered into a management agreement with Nomina plc. Jeremy Evans, who resigned as a Director of the Company on 6 February 2021, is a director of Nomina plc. Under the agreement, Nomina plc provides management and administration, financial, tax and accounting services to the Group for an annual fee of GBP150,000 (2020: GBP145,000).
The Limited Liability Vehicles have entered into a members' agent agreement with Hampden Agencies Limited. Jeremy Evans, who resigned as a Director of Helios Underwriting plc on 7 February 2021, is a director of the Company's subsidiary companies and is also a director of Hampden Capital plc, which controls Hampden Agencies Limited. Under the agreement the Limited Liability Vehicles will pay Hampden Agencies Limited a fee based on a fixed amount, which will vary depending upon the number of syndicates the Limited Liability Vehicles underwrite on a bespoke basis, and a variable amount depending on the level of underwriting through the members' agent pooling arrangements. In addition, the Limited Liability Vehicles will pay profit commission on a sliding scale from 1% of the net profit up to a maximum of 10%. The total fees payable for 2021 are GBP478,000 (2020: GBP193,000). Following acquisition into the Group, no profit commission is payable on future underwriting years.
The Group entered into quota share reinsurance contracts for the 2019, 2020, 2021 and 2022 years of account with HIPCC Limited. The Limited Liability Vehicles' underwriting year of account quota share participations are set out below:
Company or partnership 2019 2020 2021 2022 ----------------------------- ---- ---- ---- ---- Nameco (No. 917) Limited 70% 70% 59% 44% Nameco (No. 346) Limited 70% 70% 60% 65% Chapman Underwriting Limited 70% 70% 68% 11% Advantage DCP Limited 70% 70% 54% - Romsey Underwriting Limited 70% 70% 48% 37% Nomina No 321 LLP 70% 70% 35% - Nameco (No. 409) Limited 70% 70% 44% - Nameco (No. 1113) Limited 70% 70% 46% - Catbang 926 Limited - 70% 60% 21% Whittle Martin Underwriting - 70% 48% - Nameco (No. 408) Limited - - 53% - ----------------------------- ---- ---- ---- ----
Nigel Hanbury, a Director of Helios Underwriting plc and its subsidiary companies, is also a director and majority shareholder in HIPCC Limited. Hampden Capital, a substantial shareholder in Helios Underwriting plc, is also a substantial shareholder in HIPCC Limited - Cell 6. Under the agreement, the Group accrued a net reinsurance premium recovery of GBP2,703,000 (2020: GBP4,741,000) during the year.
In addition, HIPCC provides stop loss, portfolio stop loss and HASP reinforce policies for the Company.
HIPCC Limited acts as an intermediary for the reinsurance products purchased by Helios. An arrangement has been put in place so that 51% of the profits generated by HIPCC in respect of the business relating to Helios will be repaid to Helios for the business transacted for the 2020 and subsequent underwriting years. The consideration paid to Nigel Hanbury of GBP100,000 reflects the HIPCC income that he is expected to forgo.
Nigel Hanbury was the majority shareholder of Upperton Holdings Limited, which in turn was the sole shareholder of N J Hanbury Limited, which was acquired by the Company on 27 November 2020 in exchange for 3,066,752 shares in the Company, a total consideration of GBP3,680,000 (see Note 22).
Nigel Hanbury was 40% owner of Nomina No 084 LLP, which was acquired by the Helios UTG Partner Limited (a subsidiary of the Company) on 27 November 2020 in exchange for 1,025,786 shares in the Company, a total consideration of GBP2,036,000 (see note 22).
Arthur Manners was the sole shareholder of Nameco (No 510) Limited, which was acquired by the Company on 27 November 2020 in exchange for 547,576 shares in the company, a total consideration of GBP657,000 (see note 22).
During 2021, the following Directors received dividends, in line with their shareholdings held:
Shareholding
at date Dividend
dividend received
declared 19 July
29 June 2021
Director 2021 GBP
---------------------------------------------------- ------------ ---------
Nigel Hanbury (either personally or has an interest
in) 9,227,294 276,818
Andrew Christie 34,317 1,029
Arthur Manners 909,868 27,296
Edward Fitzalan-Howard (appointed 1 January 2018) 382,864 11,485
Michael Cunningham 86,848 2,605
Tom Libassi (appointed 20 April 2021) 13,000,000 390,000
Martin Reith (appointed 20 April 2021) 130,161 3,904
---------------------------------------------------- ------------ ---------
26. Ultimate controlling party
The Directors consider that the Group has no ultimate controlling party.
27. Syndicate participations
The syndicates in which the Company's subsidiaries participate as corporate members of Lloyd's are as follows:
Allocated capacity per year
of account
--------------------------------------------------
Syndicate 2022 2021 2020 * 2019 *
number Managing or members' agent GBP GBP GBP GBP
--------- ------------------------------------ ----------- ----------- ----------- -----------
33 Hiscox Syndicates Limited 13,830,779 13,830,793 14,193,201 11,926,480
218 IQUW Syndicate Management Limited 7,070,046 7,070,053 6,558,839 6,968,088
Cincinnati Global Underwriting
318 Agency Limited 992,637 992,635 404,687 1,185,937
386 QBE Underwriting Limited 2,543,190 2,312,008 2,249,975 2,256,356
510 Tokio Marine Kiln Syndicates Limited 32,301,169 22,594,020 19,595,324 17,893,591
557 Tokio Marine Kiln Syndicates Limited 3,458,576 3,458,576 3,236,695 2,348,475
609 Atrium Underwriters Limited 12,071,789 11,612,849 10,545,464 9,333,876
623 Beazley Furlonge Limited 21,576,129 18,913,248 16,129,766 14,170,533
727 S A Meacock & Company Limited 2,059,162 1,999,191 3,053,284 3,151,336
1176 Chaucer Syndicates Limited 2,784,204 2,784,212 2,813,031 2,844,303
1200 Argo Managing Agency Limited 10,050,000 - 160,714 280,675
1729 Asta Managing Agency Limited 10,148,838 131,123 295,476 440,727
1902 Asta Managing Agency Limited 10,000,002 - - -
1969 Apollo Syndicate Management Limited 5,610,170 400,001 - -
1971 Apollo Syndicate Management Limited 6,467,147 - - -
1991 Coverys Managing Agency Limited - - 53,345 123,345
2010 Lancashire Syndicates Limited 10,137,041 9,547,814 4,188,754 4,209,871
2014 Pembroke Managing Agency Limited - - - 649,038
2121 Argenta Syndicate Management Limited 10,019,394 5,472,177 2,473,682 1,836,835
2288 Astra Managing Agency Limited - - 8,139 -
2525 Asta Managing Agency Limited 1,281,801 1,193,027 1,149,189 954,916
2689 Asta Managing Agency Limited 10,025,276 438,655 518,866 1,011,739
2791 Managing Agency Partners Limited 9,217,847 9,217,851 10,303,120 10,457,746 2988 Brit Syndicates Limited - - - 639,126 4242 Asta Managing Agency Limited 12,561,664 8,483,065 423,592 841,866 4444 Canopius Managing Agents Limited - 162,189 281,110 291,535 5623 Beazley Furlonge Limited 6,894,032 4,769,792 2,883,293 50,002 5886 Asta Managing Agency Limited 22,520,345 12,054,953 7,277,465 1,570,433 6103 Managing Agency Partners Limited 3,073,952 2,704,446 2,076,669 1,944,856 6104 Hiscox Syndicates Limited 1,702,213 1,695,393 1,738,097 1,985,770 6107 Beazley Furlonge Limited 1,562,047 1,548,102 1,562,779 1,771,471 6117 Argo Managing Agency Limited 2,741,022 1,715,599 1,556,376 5,068,808 6123 Asta Managing Agency Limited - - - 152,550 6133 Apollo Syndicate Management Limited - - 14,400 12,000 --------- ------------------------------------ ----------- ----------- ----------- ----------- Total 232,700,472 145,101,772 115,745,332 106,372,284 --------- ------------------------------------ ----------- ----------- ----------- ----------- * Including the new acquisitions in 2021.
28. Group-owned net assets
The Group statement of financial position includes the following assets and liabilities held by the syndicates on which the Group participates. These assets are subject to trust deeds for the benefit of the relevant syndicates' insurance creditors. The table below shows the split of the statement of financial position between Group and syndicate assets and liabilities:
31 December 2021 31 December 2020
----------------------------- -----------------------------
Group Syndicate Total Group Syndicate Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------- --------- -------- -------- --------- --------
Assets
Intangible assets 60,889 - 60,889 31,601 - 31,601
Financial assets at fair value
through profit or loss 43,589 110,255 153,844 19,713 65,564 85,277
Deferred income tax asset - - - - - -
Reinsurance assets:
- reinsurers' share of claims
outstanding 60 53,373 53,433 61 30,720 30,781
- reinsurers' share of unearned
premium - 10,538 10,538 - 6,028 6,028
Other receivables, including
insurance and reinsurance receivables 5,457 82,402 87,859 12,008 46,340 58,348
Deferred acquisition costs - 13,615 13,615 - 7,726 7,726
Prepayments and accrued income - 799 799 662 514 1,176
Cash and cash equivalents 16,178 8,446 24,624 4,961 3,534 8,495
--------------------------------------- -------- --------- -------- -------- --------- --------
Total assets 126,173 279,428 405,601 69,006 160,426 229,432
--------------------------------------- -------- --------- -------- -------- --------- --------
Liabilities
Insurance liabilities:
- claims outstanding - 186,653 186,653 - 113,371 113,371
- unearned premium - 59,611 59,611 - 32,356 32,356
Deferred income tax liabilities 11,887 78 11,965 6,492 15 6,507
Borrowings - - - 4,000 - 4,000
Other payables, including insurance
and reinsurance payables 445 34,482 34,927 364 18,992 19,356
Accruals and deferred income 2,607 2,092 4,699 1,858 1,435 3,293
--------------------------------------- -------- --------- -------- -------- --------- --------
Total liabilities 14,939 282,916 279,855 12,714 166,169 178,883
--------------------------------------- -------- --------- -------- -------- --------- --------
Equity attributable to owners
of the Parent
Share capital 6,931 - 6,931 3,393 - 3,393
Share premium 86,330 - 86,330 35,525 - 35,525
Other reserves (110) - (110) (50) - (50)
Retained earnings 18,083 (3,488) 14,595 17,424 (5,743) 11,681
--------------------------------------- -------- --------- -------- -------- --------- --------
Total equity 111,234 (3,488) 107,746 56,292 (5,743) 50,549
--------------------------------------- -------- --------- -------- -------- --------- --------
Total liabilities and equity 126,173 279,428 405,601 69,006 160,426 229,432
--------------------------------------- -------- --------- -------- -------- --------- --------
Below is an analysis of the free working capital available to the Group:
31 December 31 December
2021 2020
Group GBP'000 GBP'000
---------------------------------------------------- ----------- -----------
Funds at Lloyd's supplied by:
Reinsurers 37,032 39,536
Other third party 5,609 6,971
Group owned 43,304 19,469
---------------------------------------------------- ----------- -----------
Total funds at Lloyd's supplied (excluding solvency
credits) 85,945 65,976
---------------------------------------------------- ----------- -----------
Group funds available:
Financial assets 43,589 19,713
Cash 16,178 4,961
---------------------------------------------------- ----------- -----------
Total funds 59,767 24,674
---------------------------------------------------- ----------- -----------
Less Group funds at Lloyd's (43,304) (19,469)
---------------------------------------------------- ----------- -----------
Free working capital 16,463 5,205
---------------------------------------------------- ----------- -----------
29. Events after the financial reporting period
Dividend
In respect of the year ended 31 December 2021 a final dividend of 3p per fully paid ordinary share (note 21) amounting to a total dividend of GBP2,034,000, is to be proposed at the Annual General Meeting on 29 June 2022. These Financial Statements do not reflect this dividend payable.
Bank loan
On 21 March 2022 the Company drew down on a GBP15,000,000 loan facility from Barclays Bank Plc for 15 month term expected to be renewed annually at a rate of interest of 3.5% over base rate
30. Finan cial 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.
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END
FR BKABNCBKDPPB
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May 27, 2022 02:01 ET (06:01 GMT)
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