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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Novae Grp | LSE:NVA | London | Ordinary Share | GB00B40SF849 | ORD 112.5P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 714.00 | 714.00 | 715.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMNVA 3 August 2016 For immediate release Novae Group plc Interim results for the six months ended 30 June 2016 Novae Group plc ("Novae" or "the Group"), the specialist insurance group, today announces its interim results for the six months ended 30 June 2016. -- Gross written premium of GBP513.1 million (H1 2015: GBP463.1 million) -- Attritional loss ratio of 47.9% (H1 2015: 51.1%) -- Weighted average rates on renewal premium reduced by 3.9% -- Combined ratio of 96.1% (H1 2015: 89.8%) -- Net investment income of GBP28.4 million (H1 2015: GBP3.8 million) -- Profit before tax and foreign exchange of GBP37.9 million (H1 2015: GBP29.0 million) -- Interim dividend of 7.5p per share (H1 2015: 7.3p per share) Matthew Fosh, Chief Executive Officer, today said: "In what was an eventful first half of the year for the industry Novae has shown its growing resilience. Improvements to our underwriting portfolio have delivered an enhanced attritional loss ratio in a softening rating environment. Our balance sheet remains strong. Our investment portfolio successfully withstood a period of heightened volatility and reserving remains prudent. Overall this market requires careful handling, but selective opportunities for profitable growth continue to present themselves." There will be a presentation for analysts only at 11.00 am today at Novae's head office at 21 Lombard Street, London EC3V 9AH. Invitees are requested to go to the Main Entrance of 21 Lombard Street where they will be provided with a pre-prepared pass. For further information: Matthew Fosh/Charles Fry : Novae Group plc 020 7050 9000 David Haggie/Rebecca Young : Haggie Partners 020 7562 4444 Results overview The first half of 2016 has seen some notable loss activity in the industry and heightened economic uncertainty. Novae has continued to navigate this environment successfully and delivered a positive set of results through a period of volatility for the industry affecting both the asset and liability sides of the balance sheet. The Group's disciplined approach to underwriting and risk management combined with strong balance sheet management has delivered profit before tax and foreign exchange of GBP37.9 million for the period (H1 2015: GBP29.0 million). It is pleasing to note that despite the challenging market conditions, this is a record performance for the Group in the first half of the year. The Group's ongoing investment in underwriting has delivered further growth in the business and an improvement in the attritional loss ratio to 47.9% (H1 2015: 51.1%), despite a challenging rating environment. The combined ratio for the period was 96.1% (H1 2015: 89.8%) resulting from a greater prevalence of large and catastrophic losses in the period. Net investment income was GBP28.4 million (H1 2015: GBP3.8 million) as the Group benefitted from the implementation of its new investment strategy in the second half of 2015. Total return on average invested assets was 2.2% (H1 2015: 0.3%). Positive foreign exchange movements on retranslation of the balance sheet of GBP25.9 million (H1 2015: GBP12.1 million adverse), as a consequence of a weaker pound sterling, contributed to an overall increased profit before tax of GBP63.8 million (H1 2015: GBP16.9 million). Return on average shareholders' funds for the six month period was 15.8%. Net tangible asset value per share was 585.6p (December 2015: 551.3p), reflecting profits in the period and the payment of final and special dividends of 20.0p and 22.5p respectively in May this year. Dividend The Board is pleased to declare an interim dividend of 7.5p, an increase of 3% on the 2015 interim dividend. The dividend will be paid on 3 October 2016 to shareholders on the register at the close of business on 2 September 2016. European Union referendum The United Kingdom's decision to leave the European Union ("EU") was a significant event in the first half of the year. As an underwriting business at Lloyd's, Novae has access to the single EU market. Following the referendum, Lloyd's is concentrating on its plans post-EU membership, which are focused on maintaining access to the single market with the regulatory passporting rights under which Lloyd's businesses currently operate. Novae's premium income from EU member states does not represent a significant part of the Group's business and accounts for less than 10 percent of total gross written premium. Expectations are that volatility for investment assets will remain raised for the near future as details emerge around the negotiations of Britain's exit from the EU. Novae's investment strategy includes a dynamic asset allocation overlay, managed by BlackRock, which is designed to enable swift action to be taken in such periods as circumstance dictate. Novae remains confident that a London insurance company outside of the EU will continue to flourish, and the longer-term impact on the Group is not currently anticipated to be significant. Underwriting performance overview Premiums Gross written premium for the first half of the year was GBP513.1 million (H1 2015: GBP463.1 million) an increase of 10.8% (6.4% at constant rates of exchange). Growth was achieved across all underwriting divisions by capitalising on opportunities in classes of business where rates remain adequate and from ongoing investment in new underwriting teams and initiatives. This was offset by premium reductions across a number of poorer performing classes as the Group continues to improve the quality of its underwriting. Gross written premium in the Property division was GBP258.1 million (H1 2015: GBP231.5 million), representing an increase of 7.1% at constant rates of exchange. Growth was strongest in direct property classes, most notably within US property facilities. This unit benefitted particularly from the strategic partnership with Securis Investment Partners LLP, with Special Purpose Syndicate 6129 ("SPS 6129") making a significant contribution to growth in the first half of the year. This growth was in part offset by reductions in a number of classes, notably agriculture reinsurance, which was discontinued following the transfer of the unit in the second half of 2015. The Casualty division achieved growth of 4.8% at constant rates of exchange with gross written premium of GBP107.7 million (H1 2015: GBP100.1 million). Significant growth was achieved in the Cyber unit with the division capitalising on continued strong market demand and a favourable rating environment. The new US XS Casualty unit was also a significant contributor to growth. This offset reductions elsewhere in the division, including from discontinuing the direct motor account in H1 2015 and from the repositioning of the UK General Liability and Professional Indemnity units. The Marine, Aviation & Political Risk ("MAP") division experienced growth of 6.2% at constant rates of exchange with gross written premium of GBP147.3 million (H1 2015: GBP131.5 million). Despite challenging market conditions the division achieved select growth in marine and political risk classes. This was offset by reductions in aviation reinsurance, which was adversely impacted by the consolidation of reinsurance buyers, and the transfer of the division's Credit & Surety Reinsurance unit in the second half of 2015. The Group increased its level of outwards reinsurance purchased, notably from the increased use of proportional reinsurance in business lines such as cyber and from management of the Group's net exposures in peak catastrophe zones. Net earned premium increased to GBP318.4 million (H1 2015: GBP272.6 million). Rating environment Rates on renewal business continued to experience downward pressure and declined by 3.9% across the whole account. The Marine, Aviation & Political Risk division experienced the most significant rating pressure with energy, aviation reinsurance and marine reinsurance lines of business the most severely impacted. Rate increases continued in cyber insurance as the market's pricing adjusts and product demand grows. Rates on smaller commercial property insurance business, written though delegated authorities, avoided some of the more significant decreases in larger commercial and reinsurance business. Claims Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 % % % Attritional claims 47.9 51.1 49.8 Catastrophe claims and large losses 8.9 5.7 6.7 Reserve movements (4.0) (9.0) (8.2) 52.8 47.8 48.3 Net claims incurred were GBP168.0 million (H1 2015: GBP130.2 million) equating to a net claims ratio of 52.8% (H1 2015: 47.8%). The Group's focus on maintaining underwriting discipline in a softening market was evidenced by an improved attritional claims ratio of 47.9% (H1 2015: 51.1%). The improved attritional claims performance was achieved despite the adverse rating environment and is testament to the Group's disciplined approach to underwriting and the work undertaken in recent years to reposition the underwriting portfolio towards more profitable business. The reported attritional loss ratio also benefitted from the increased use of proportional reinsurance. Initial insured market losses from natural catastrophes in the first half of 2016 are estimated at US $30 billion, an increase of 57% on the
same period last year and 54% above the median level from 2000-2015. Notable events included the Canadian Wildfires, Japanese and Ecuadorian earthquakes and storms in Europe and the US. The Group was not immune to these events and experienced an increase in losses from natural catastrophes in the period, most notably from the Alberta Wildfires and the Kumatomo earthquake in Japan. There were also a number of large losses arising in the current accident year, including from the Jubilee oil field, which is estimated to cost the industry US $1 billion. In total, catastrophe claims and large losses contributed 8.9% to the overall loss ratio for the first half of the year (H1 2015: 5.7%). In its assessment of the valuation of insurance liabilities, the Group targets a probability of sufficiency of net reserves of 70 to 80 percent. As at 30 June 2016, the margin held above best estimate was GBP72.0 million (as at 31 December 2015: GBP73.8 million). The probability of sufficiency of reserves continues to be above our target range. Favourable claims experience on previously reserved years contributed 4.0% to the claims ratio (H1 2015: 9.0%), with positive developments across a number of classes in part offset by several notable prior accident year large losses, predominantly arising in the Marine, Aviation & Political Risk division. Acquisition costs Acquisition costs for the half year were GBP92.5 million (H1 2015: GBP72.1 million) producing an acquisition cost ratio of 29.0% (H1 2015: 26.4%). This increase reflects both changes to the business mix, most notably the growth in delegated underwriting arrangements, and the use of proportional reinsurance to support growth and reduce risk within the portfolio. Operating expenses Total operating expenses for the first half of the year were GBP45.6 million (H1 2015: GBP42.4 million). The absolute increase in operating expenses is driven principally by continued investment in the business, including in people, in technology and from the Group's relocation of its head office to Lombard Street. This investment has helped position the business for continued growth while the operating expense ratio has fallen to 14.3% (H1 2015: 15.6%). Divisional performance Total reportable Unallocated Property Casualty MAP(1) segments by segment Total Six months ended 30 June 2016 GBPm GBPm GBPm GBPm GBPm GBPm Gross written premium 258.1 107.7 147.3 513.1 - 513.1 Net earned premium 149.0 71.8 97.6 318.4 - 318.4 Net claims incurred (75.3) (38.6) (54.1) (168.0) - (168.0) Policy acquisition costs (47.0) (17.7) (27.8) (92.5) - (92.5) Operating expenses (14.7) (9.0) (9.0) (32.7) (12.9) (45.6) Underwriting contribution 12.0 6.5 6.7 25.2 (12.9) 12.3 Net investment income 3.6 11.0 5.7 20.3 8.1 28.4 Fees and commission income - - - - 0.9 0.9 Net foreign exchange gain - - - - 25.9 25.9 Financing costs - - - - (3.7) (3.7) Profit before income taxes 15.6 17.5 12.4 45.5 18.3 63.8 Claims ratio 50.6% 53.6% 55.4% 52.8% - 52.8% Expense ratio 41.4% 37.2% 37.8% 39.2% 4.1% 43.3% Combined ratio 92.0% 90.8% 93.2% 92.0% 4.1% 96.1% (1) Marine, Aviation & Political Risk Property division Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Gross written premium 258.1 231.5 362.5 Net earned premium 149.0 113.7 258.3 Net claims incurred (75.3) (47.3) (113.0) Acquisition costs (47.0) (33.4) (76.5) Operating expenses (14.7) (12.0) (24.4) Underwriting contribution 12.0 21.0 44.4 Claims ratio 50.6% 41.6% 43.8% Expense ratio 41.4% 39.9% 39.1% Combined ratio 92.0% 81.5% 82.9% Gross written premium in the Property division grew by 7.1% at constant rates of exchange to GBP258.1 million (H1 2015: GBP231.5 million). The majority of the growth in the division was in US property excess and surplus lines business, which benefited from the successful launch of the ground-breaking special purpose syndicate with Securis Investment Partners LLP ("SPS 6129"). During the period, the division sought to rebalance the property reinsurance portfolio. Growth achieved in property treaty was partly offset by reductions in the property per risk account. The Accident & Health insurance unit established towards the end of 2015 contributed to growth in the period and UK & European facilities unit continues to progress well. The division also established a Construction unit to commence underwriting from the first quarter of 2016. The division cut back in a number of areas, most significantly in agricultural reinsurance as a result of transferring the unit to Ironshore International in the second half of 2015. This unit contributed 13.9% of the division's gross written premium in the first half of 2015. The division also did not renew its participation on a significant direct & facultative arrangement as the business reallocated capital to support growth in the newly established US and International Direct & Facultative units. Property rates were down by 4% on a risk adjusted basis across the division. US property reinsurance rates remain under most pressure with catastrophe excess of loss business down on average 7%. Rates on property insurance business performed better, experiencing lower single digit declines of around 3% on average across the portfolio. The division produced a net claims ratio of 50.6% (H1 2015: 41.6%) in the first half of the year. The attritional loss ratio performed favourably compared to last year, despite the rating pressures, as the division repositioned its portfolio towards more profitable business. The reported attritional loss ratio also benefitted from the increased use of proportional reinsurance as a consequence of SPS 6129. During the first half of the year, the division was impacted by a number of catastrophe events including the Alberta Wildfires and Kumatomo earthquake in Japan. Experience from catastrophe events contributed 9.2% to the reported net loss ratio (H1 2015: 3.6%). The 2015 loss ratio also benefitted from reserve redundancy on claims within international property reinsurance. The reported expense ratio has increased on the same period last year, with acquisition costs increasing as a result of a change in business mix towards insurance and away from reinsurance. The operating expense ratio has decreased marginally as the division benefitted from the investments made over the last two years. Casualty division Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Gross written premium 107.7 100.1 183.3 Net earned premium 71.8 70.9 141.9 Net claims incurred (38.6) (43.3) (82.9) Acquisition costs (17.7) (15.5) (31.8) Operating expenses (9.0) (8.1) (16.2) Underwriting contribution 6.5 4.0 11.0 Claims ratio 53.6% 61.2% 58.4% Expense ratio 37.2% 33.3% 33.8% Combined ratio 90.8% 94.5% 92.2% Gross written premium in the Casualty division of GBP107.7 million (H1 2015: GBP100.1 million) represents an increase of 4.8% at constant rates of exchange. Significant growth was achieved in the division's Cyber unit as market demand for cyber risk cover remained strong. The Group continues to invest heavily in this area to build on its growing reputation in this important and emerging class. The division's new US XS Casualty unit has also made a valuable contribution to growth in its first full year of underwriting with new senior hires complementing the division's existing underwriting capabilities. Growth within these units offset reductions in professional indemnity and UK general liability business as the division continued to reduce exposure to poorer performing risks within these classes. Rating pressure and targeted risk selection contributed to a reduction in general liability reinsurance business. Casualty renewal rates were broadly flat on a risk-adjusted basis across the portfolio. Cyber insurance continues to experience more consistent rate increases as growing demand and the market's pricing for such risk adjusts, particularly for those industry sectors that have seen greater
propensity for and severity of event activity. Motor reinsurance rates continue to move positively in response to increasing claims costs, although rating pressure remains on the general liability reinsurance side. Claims experience in H1 2016 was more favourable than in the same period in 2015, with a reported loss ratio of 53.6% (H1 2015: 61.2%) benefitting from improved attritional claims experience. By repositioning the portfolio over the last 24 months the division has focused on more profitable lines of business. This approach, in addition to the impact of quota share reinsurance, has contributed to the improved attritional loss ratio. Reserve development on prior years was in line with H1 2015 experience. The reported expense ratio for the division of 37.2% (H1 2015: 33.3%) increased following an increase in the level of insurance business written as a proportion of the whole account and the use of quota share reinsurance to support growth. The operational cost ratio for the division increased marginally compared to the same period last year following the investment in new underwriting hires. Marine, Aviation & Political Risk ("MAP") division Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Gross written premium 147.3 131.5 241.2 Net earned premium 97.6 88.0 182.4 Net claims incurred (54.1) (39.6) (85.6) Acquisition costs (27.8) (23.2) (49.2) Operating expenses (9.0) (8.4) (17.4) Underwriting contribution 6.7 16.8 30.2 Claims ratio 55.4% 45.0% 46.9% Expense ratio 37.8% 35.8% 36.5% Combined ratio 93.2% 80.8% 83.4% Gross written premium in the MAP division was GBP147.3 million (H1 2015: GBP131.5 million), an increase of 6.2% at constant rates of exchange. Despite rating pressures across all classes the division continues to invest in underwriting talent to support growth across the division in areas that management believe offer attractive returns. Notable growth was achieved in the Marine Liability unit as a result of significant new business from the P&I clubs. Strong growth was also achieved in political risks as the Group capitalised on its strong reputation in this class. The division also increased its offering in renewable energy and crisis management risks by investing in new underwriting talent. The growth achieved in these classes offset reductions elsewhere, most significantly in aviation reinsurance where cedent retentions increased following consolidation in the direct market and the failure of the market to respond to loss activity in recent years. There was also a scaling back in the energy portfolio, which has seen the most severe rating pressure of any class in the Group. In addition, the division transferred its Credit & Surety reinsurance portfolio to Liberty Specialty Markets in the second half of 2015, a portfolio which contributed 9.0% to the division's gross written premium in the comparative six month period last year. The most significant rating pressure was experienced in the MAP division where rates declined 7% on a risk adjusted basis in the period. Marine lines suffered average rate decreases of around 4% with energy business experiencing reductions of up to 13%. Rates in Political and Credit lines reduced on average by 7%. The division reported a claims ratio of 55.4% (H1 2015: 45.0%), which was affected by a number of large loss notifications in the first half, which contributed an additional 3.9 percentage points to the loss ratio. The most significant of these were from the Jubilee oil field loss, a Latin American political risk loss, two product recall events and a marine liability loss. In all cases, loss estimates from these events are within the division's risk appetite. The reported expense ratio for the MAP division of 37.8% has increased from the 35.8% reported for the same six month period last year. Although the operational cost ratio has reduced, this has been more than offset by an increase in acquisition costs as a result of a reduction in reinsurance classes as a proportion of the overall portfolio. Investments Investment return for the period was GBP28.4 million (H1 2015: GBP3.8 million), equivalent to a total return net of management fees of 2.2% (H1 2015: 0.3%) on average invested assets of GBP1,294.8 million (H1 2015: GBP1,221.3 million). The first half of 2016 has seen strong performance across Novae's investment portfolio with risk remaining within appetite throughout. This performance has been driven by the changes in investment strategy made in 2015, focused on maximising long-term economic value by managing balance sheet assets and liabilities on a more holistic basis. This has put us in a position to enhance our investment return, while maintaining a similar level of risk in the portfolio. In particular, the decisions to lengthen the duration of the investment portfolio and more efficiently to allocate investment risk by including some growth assets, have benefitted the portfolio. Investment risk appetite has not changed over the period. During the start of the year bonds rallied as expectations of rate rises through 2016 started to fade, but these gains were offset to a degree by equities selling off on the back of global growth concerns. Equities then recovered later in the period and bond valuations held firm through to June and in the run up to the EU referendum. Throughout June and following the EU referendum, market volatility has increased markedly. Bond values are higher due to expectations of both rate cuts in the UK and of no further rate rises in the US for the remainder of the year while equities have also recovered their initial losses. As a result, Novae's portfolio performed positively over June and in the week following the referendum. Novae's portfolio has also outperformed its liability benchmark portfolio due to the more efficient allocation of investment risk, including the allocation to growth assets. At 30 June 2016 the average duration across the Group's portfolio was 2.4 years (H1 2015: 1.1 years). The Group anticipates that the return on investment assets for the full year may be 2.4-2.6%, depending on market behaviour. The profile of the Group's investment portfolio at 30 June 2016 was as follows: 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Government 575.2 190.5 516.7 Corporate 307.4 481.2 340.6 Pooled equity fund 73.7 - 81.4 Government agencies 95.7 85.6 64.2 Securitised RMBS / ABS 50.5 55.2 55.0 Emerging Market Mutual Fund 39.8 - 32.8 Covered bonds 30.0 13.9 17.5 Certificate of deposits / floating rate notes 1.4 92.3 6.1 Investment cash 19.4 78.1 3.7 Supranational - 16.2 - Other 3.8 2.0 3.9 1,196.9 1,015.0 1,121.9 The underlying credit quality of the investment portfolio has not changed materially during the period. Foreign exchange Novae reported a gain on foreign exchange of GBP25.9 million (H1 2015: loss of GBP12.1 million), including gains on non-monetary items of GBP14.9 million (H1 2015: losses of GBP8.2 million). The Group's principal trading exposure is to the US dollar with a significant amount of dollar denominated new business written in the first half of the year. US dollar business now represents 59% of gross written premium (H1 2015: 54%). Other significant trading exposures include the euro (6%), Australian dollar (4%) and Canadian dollar (2%). Regulatory funding requirements, principally in respect of the Canadian dollar and a long euro net assets position to hedge the economic sensitivity of the Group's capital requirement, were the principal contributors to a reported gain on monetary items of GBP11.0 million (H1 2015: loss of GBP3.9 million). The Group does not speculate on foreign currency movements and seeks to match foreign currency assets and liabilities, maintaining a broadly neutral position on an economic basis. Tax Novae's tax charge for the period is GBP6.9 million (H1 2015: GBP0.6 million). The effective tax rate for the year to date was 10.8% (H1 2015: 3.7%), in line with the Group's expected ongoing effective tax rate, which reduced following the commencement of operations in Bermuda in 2015. The carrying value of the Group's deferred tax asset is GBP0.3 million (H1 2015: GBP9.8 million), valued at the enacted rate of 18% included in The Finance Act 2015. In 2015, changes to the UK corporation tax rates were announced in the Budget, including a reduction in the main rate of corporation tax to 19% from 1 April 2017 and 18% from 1 April 2020. These changes were substantively enacted on 26 October 2015 and have been reflected in the Group's calculation of current and deferred tax. Capital structure Regulatory capital
The table below sets out the Group's sources and uses of capital: 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Cash and investments at Lloyd's 272.3 223.6 217.4 Free cash and investments at Group 72.9 93.2 77.0 Pipeline profits(1) 65.0 113.3 144.8 Uncollateralised letter of credit 94.0 48.4 85.7 Quota share reinsurer letters of credit 23.4 26.7 21.3 Revolving credit facility (undrawn) 30.0 30.0 30.0 Lloyd's economic capital assessment ("ECA") (404.4) (414.6) (429.7) Headroom(2) 153.2 120.6 146.5 Headroom % 37.9% 29.1% 34.1% 1 Pipeline profits represent the Group's share of undistributed syndicate profits available for Lloyds capital provision 2 Headroom stated is exclusive of any distributions subsequent to the balance sheet date The Group's available capital for 2016 includes letters of credit held as collateral under quota share reinsurance arrangements underwritten by three large international reinsurers. Debt structure 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm 2017 senior notes 49.8 49.7 49.7 2017 subordinated notes 2.5 2.4 2.5 US $ 2034 Dekania notes 26.8 23.0 24.5 US $ letter of credit 94.0 48.4 85.7 173.1 123.5 162.4 As at 30 June 2016 the Group had gross debt of GBP173.1 million (H1 2015: GBP123.5 million). The Group holds a letter of credit facility with Lloyds Banking Group of US $126.0 million (H1 2015: US $76.0 million) until December 2016. The facility is uncollateralised with US $76.0 million drawn at 30 June 2016 (H1 2015: US $76.0 million). In addition, the Group has a revolving credit facility ("RCF") with Lloyds Banking Group of GBP30.0 million (H1 2015: GBP30.0 million) which is available until 31 December 2016. As at 30 June 2016 the RCF was undrawn (H1 2015: undrawn). The Group has secured a new expanded bank financing facility to repay senior and subordinated notes due to mature in 2017, enabling the business to capitalise on future growth opportunities and reduce financing costs. The new facility comprises a multi-option letter of credit ("LoC") and revolving credit facility ("RCF") of GBP170.0 million and a GBP50.0 million term-loan. The Group has also taken the opportunity to increase its bank lending group from one to four banks. The new facility replaces the existing LoC and RCF of US $126.0 million and GBP30.0 million from August 2016. Outlook The challenges currently facing the industry are likely to continue into the second half of the year. The softening rating environment remains a feature, although there are signs that this is beginning to slow, and the prospects of continued low interest rates persist. In such times, maintaining strong underwriting discipline and the preservation of a robust balance sheet are of paramount importance. Novae has demonstrated through a challenging first half of the year that the business continues to be managed in a prudent and conservative manner while delivering for our shareholders. The attritional loss ratio has improved despite rating pressures, Novae has navigated effectively a period of heightened catastrophic activity and its reserves remain strong. In addition, the investment portfolio successfully withstood the impact of the Brexit vote, capital headroom has grown and an enhanced debt facility has been successfully agreed with a strong group of lending banks. Absent any significant market event in the second half of the year, the Group anticipates the full year performance to be in line with expectations, with our investment return offsetting the lower contribution from underwriting experienced in the first half of the year. Responsibility statement of the directors in respect of the interim financial report The directors' confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely: -- an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and -- material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report. The directors of Novae Group plc are listed in the Novae Group plc 2015 Annual Report. A list of current directors is maintained on the Novae Group plc website at www.novae.com. By order of the Board, M K Fosh C A Fry Chief Executive Officer Chief Financial Officer 3 August 2016 3 August 2016 Condensed consolidated income statement for the six months ended 30 June 2016 Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 Note GBPm GBPm GBPm Gross written premium 513.1 463.1 787.0 Outwards reinsurance premium (158.7) (109.0) (148.9) Net written premium 354.4 354.1 638.1 Change in gross provision for unearned premium (113.8) (133.6) (71.3) Reinsurers' share of change in the provision for unearned premium 77.8 52.1 15.8 Net earned premium 318.4 272.6 582.6 Net investment income 4 28.4 3.8 6.8 Fees and commission income 0.9 0.6 1.0 Total revenue (net of premium ceded to reinsurers) 347.7 277.0 590.4 Gross claims incurred 5 (217.0) (157.2) (326.4) Reinsurers' share of claims incurred 5 49.0 27.0 44.9 Net claims incurred (168.0) (130.2) (281.5) Policy acquisition costs (92.5) (72.1) (157.5) Operating expenses 6 (45.6) (42.4) (89.9) Foreign exchange gain/(loss) 8 25.9 (12.1) 0.5 Financing costs 7 (3.7) (3.3) (6.6) Profit before income taxes 63.8 16.9 55.4 Income taxes 9 (6.9) (0.6) (3.9) Profit for the period attributable to shareholders 56.9 16.3 51.5 Earnings per share Basic earnings per share 10 90.4p 25.6p 81.0p Diluted earnings per share 10 88.2p 25.4p 79.2p Condensed consolidated statement of comprehensive income for the six months ended 30 June 2016 Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 Note GBPm GBPm GBPm Profit for the period attributable to shareholders 56.9 16.3 51.5 Items that will not be reclassified to the income statement: Defined benefit pension fund actuarial losses - - (0.1) Items that may be reclassified subsequently to the income statement: Changes in fair value of cash flow hedges 16 (1.3) 0.2 0.1 Tax relating to equity incentive schemes - 0.2 0.4 Other comprehensive income, net of tax (1.3) 0.4 0.4 Total comprehensive income recognised 55.6 16.7 51.9 Condensed consolidated balance sheet as at 30 June 2016 30 June 30 June 31 December 2016 2015 2015
Note GBPm GBPm GBPm Assets Cash and cash equivalents 11 154.6 165.6 137.1 Financial assets 12,17 1,196.9 1,015.0 1,121.9 Reinsurance contracts 13,14 416.9 367.8 313.0 Insurance and other receivables 459.1 376.4 344.3 Deferred acquisition costs 163.8 141.2 135.8 Current tax assets - 0.6 - Deferred tax assets 0.3 9.8 7.0 Property, plant and equipment 9.5 1.8 9.3 Intangible assets 2.9 3.4 3.1 Retirement benefit assets - - 0.2 Total assets 2,404.0 2,081.6 2,071.7 Liabilities Insurance contracts 14 (1,796.1) (1,578.3) (1,558.0) Insurance and other payables 15 (156.6) (104.6) (85.7) Current tax liabilities (1.5) - (1.0) Financial liabilities 16,17 (79.1) (75.1) (76.7) Retirement benefit obligations (0.1) (0.6) - Total liabilities (2,033.4) (1,758.6) (1,721.4) Net assets 370.6 323.0 350.3 Shareholders' equity Share capital 18 72.5 72.5 72.5 Other reserves 18 95.9 95.9 95.9 Retained earnings 202.2 154.6 181.9 Total shareholders' equity 370.6 323.0 350.3 These financial statements were approved by the Board of Directors and authorised for issue on 3 August 2016 and were signed on its behalf by: M K Fosh C A Fry Chief Executive Officer Chief Financial Officer Condensed consolidated statement of changes in equity for the six months ended 30 June 2016 Share Other Retained capital reserves earnings Total Six months ended 30 June 2016 GBPm GBPm GBPm GBPm Total recognised income for the period - - 56.9 56.9 Total recognised in other comprehensive income for the period - - (1.3) (1.3) Total comprehensive income for the period - - 55.6 55.6 Transactions with owners recorded directly in equity - Movement in equity incentive reserves - - (1.7) (1.7) - Movement in own share reserve - - (6.2) (6.2) - Dividends paid - - (27.4) (27.4) Net increase in equity - - 20.3 20.3 As at 31 December 2015 72.5 95.9 181.9 350.3 As at 30 June 2016 72.5 95.9 202.2 370.6 Share Other Retained capital reserves earnings Total Six months ended 30 June 2015 GBPm GBPm GBPm GBPm Total recognised income for the period - - 16.3 16.3 Total recognised in other comprehensive income for the period - - 0.4 0.4 Total comprehensive income for the period - - 16.7 16.7 Transactions with owners recorded directly in equity - Movement in equity incentive reserves - - (3.0) (3.0) - Movement in own share reserve - - (2.4) (2.4) - Dividends paid - - (24.4) (24.4) Net decrease in equity - - (13.1) (13.1) As at 31 December 2014 72.5 95.9 167.7 336.1 As at 30 June 2015 72.5 95.9 154.6 323.0 Share Other Retained capital reserves earnings Total Year ended 31 December 2015 GBPm GBPm GBPm GBPm Total recognised income for the year - - 51.5 51.5 Total recognised in other comprehensive income for the year - - 0.4 0.4 Total comprehensive income for the year - - 51.9 51.9 Transactions with owners recorded directly in equity - Movement in equity incentive reserves - - 2.3 2.3 - Movement in own share reserve - - (10.9) (10.9) - Dividends paid - - (29.1) (29.1) Net increase in equity - - 14.2 14.2 As at 31 December 2014 72.5 95.9 167.7 336.1 As at 31 December 2015 72.5 95.9 181.9 350.3 Condensed consolidated cash flow statement for the six months ended 30 June 2016 Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Profit before tax 63.8 16.9 55.4 Adjustments for: Foreign exchange on financial assets & liabilities (67.4) 18.3 7.9 Financing costs 3.7 3.3 6.6 Amortisation charge 0.2 0.3 0.5 Investment income (28.4) (3.8) (6.8) Depreciation charge 1.0 0.2 0.7 Employee equity incentives charge 4.7 5.0 11.0 Changes in operating assets and liabilities Change in insurance contract liabilities 238.1 71.2 50.9 Change in insurance receivables (114.0) (102.2) (68.7) Change in other receivables (1.3) (0.1) (0.5) Change in deferred acquisition costs (28.0) (31.7) (26.3) Change in reinsurance contract assets (103.9) (23.7) 31.1 Change in insurance payables 98.8 41.6 13.5 Change in other/trade payables (6.2) (6.9) (0.3) Change in market value of financial liabilities 2.4 (0.1) 1.4 Change in market value of financial assets (30.9) 5.5 2.9 Income taxes 0.4 (0.7) (0.6) Cash generated from / (used in) operations 33.0 (6.9) 78.7 Cash flow (used in) / from investing activities: Purchase of tangible fixed assets (1.2) (1.2) (9.4) Interest received 10.8 2.7 5.0 Purchase of financial assets (835.9) (503.1) (1,697.2) Proceeds from sale of financial assets 848.4 512.5 1,612.8 Net cash from / (used in) investing activities 22.1 10.9 (88.8) Cash flow used in financing activities: Interest paid (5.8) (5.6) (8.0) Acquisition of own shares (11.5) (8.6) (17.1) Dividends paid (26.7) (24.4) (29.1) Net cash used in financing activities (44.0) (38.6) (54.2) Net increase / (decrease) in cash and cash equivalents 11.1 (34.6) (64.3) Opening cash and cash equivalents 137.1 202.2 202.2 Effect of exchange rates on cash and cash equivalents 6.4 (2.0) (0.8) Closing cash and cash equivalents 154.6 165.6 137.1 Notes to the interim financial information 1. Significant Accounting Policies Novae Group plc (the "Company") is a company registered in England and Wales. The address of the registered office is 21 Lombard Street, London, EC3V 9AH. The unaudited interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, and on the basis of the accounting policies set out in the annual report of Novae Group plc for the year ended 31 December 2015. The consolidated financial statements include the results of Novae Group plc and all its subsidiary undertakings made up to the same accounting date. The financial information contained in these interim results does not constitute statutory accounts of Novae Group plc within the meaning of
Section 435 of the Companies Act 2006. Statutory accounts for Novae Group plc for the year ended 31 December 2015 have been delivered to the Registrar of Companies. The auditors have reported on the accounts, their report was unqualified and did not constitute a statement under Section 498 (2) or (3) of the Companies Act 2006. Basis of preparation The financial statements are presented in pounds sterling unless otherwise stated. They have been prepared under the historical cost convention, as modified by the revaluation of financial assets at fair value through the income statement. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. The results of these factors allow judgements to be made regarding the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Uncertainties exist where current valuations are dependent on estimates of future cash flows. This applies to the share-based payment charge and financial assets and liabilities held at fair value. The accounting policies have been applied consistently to all periods presented in this report. The Group's greatest area of uncertainty relates to insurance contract liabilities (see note 14). The estimates and 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 only affects that period or in the period of the revision and future periods if the revision affects both current and future periods. Revised and new reporting standards The accounting policies applied in the consolidated interim financial statements are the same as those applied on the Group's consolidated financial statements as at, and for, the year ended 31 December 2015. Any changes in the policies will be reflected in the financial statements as at, and for, the year ending 31 December 2016. The following is a list of standards effective from 1 January 2016 in the EU; -- IAS1: Amendment: Disclosure initiative -- IAS16 and IAS 38 Amendment: Clarification of acceptable methods of depreciation and amortisation -- Annual improvement to IFRSs - 2012 to 2014 cycle These amendments did not result in a material impact on the interim financial statements of the Group and there have been no amendments to the Group's accounting policies as a result of the new standards listed above. Principal risks and uncertainties There are a number of risks and uncertainties which could impact upon the Group's performance over the remaining six months of the financial year and cause actual results to differ materially from current expectations, and from historical results. The Directors consider that the principal risks and uncertainties described on pages 40 to 41 and explained in detail in the risk disclosures note on pages 102 to 117 of the 2015 Annual Report continue to reflect the principal risks and uncertainties of the Group over the remaining six months of the financial year. Novae categorises risks closely to those laid out by the PRA. A summary of each of the Group's principal risks and uncertainties (as described in the Annual Report) is provided below: -- Underwriting risk - Catastrophe: The potential for aggregated losses to arise from catastrophic events. The Group's largest catastrophe exposures are in respect of natural catastrophes, although exposures are also taken to non-natural catastrophe events (e.g. terrorism). -- Underwriting risk - Non-catastrophe: The risk of adverse loss experience arising from small or large individual insurance claims. This includes the risk of mispricing underlying insurance contracts. -- Underwriting risk - Reserving: The risk that claims reserves are materially different from the ultimate costs of settlement. This includes the risks relating to claims inflation and changes in legal interpretations of insurance contracts. -- Investment risk: The risk of economic losses arising from fluctuations in the value of our asset and liability portfolio driven by economic variables. The major investment risks faced by the Group are interest rate risk, currency risk, equity risk and credit spread risk. In addition, there is an element of operational risk that arises from the process of investment management. -- Credit risk: The risk arising from the potential failure of business counterparties to fulfil financial obligations to Novae Group. The Group is exposed to credit risk most materially through its outwards reinsurance coverages, but also through contractual arrangements with policyholders and intermediaries relating to (re)insurance. -- Liquidity risk: The risk of not being able to meet our liabilities as they fall due, or incurring excessive costs to do so. -- Operational risk: The risk arising from inadequate or failed processes/systems, people or external events. -- Strategic risk: The risk that the strategy is not delivered against, not clearly communicated, or not appropriate for the changing business environment. This includes Reputational risk. The United Kingdom's decision to leave the European Union ("EU") has increased uncertainty in the UK business environment. The short-term impact on Novae has been limited, and the Group remains confident that longer term prospects for a London-based insurer are good - however this increased uncertainty does lead to an elevated level of strategic risk in the near term. Under certain conditions, the outcome with respect to one risk category can be expected to influence another. Novae monitors a number of specific interactions and considers the results of stress and scenario testing to ensure that these dependencies are managed. Going concern The directors have a reasonable expectation, given the principal risks and uncertainties above, that the Group has adequate resources to enable it to continue in operational existence for the next 12 months. Thus they continue to adopt the going concern basis of accounting in preparing the condensed consolidated interim financial statements of the Group. 1. Segmental information Segmental information is presented in respect of reportable segments. This is based on the Group's management and internal reporting structure and represents the level at which financial information is reported to the Executive Committee, being the chief operating decision maker as defined by IFRS 8. Segment results, assets and liabilities include items that can be allocated on a reasonable basis. Unallocated items comprise certain employee incentive costs, foreign exchange movements, insurance working capital and the deferred tax asset. 1. Segmental income statement Total reportable Unallocated Property Casualty MAP segments by segment Total Six months ended 30 June 2016 GBPm GBPm GBPm GBPm GBPm GBPm Gross written premium 258.1 107.7 147.3 513.1 - 513.1 Net earned premium 149.0 71.8 97.6 318.4 - 318.4 Net claims incurred (75.3) (38.6) (54.1) (168.0) - (168.0) Policy acquisition costs (47.0) (17.7) (27.8) (92.5) - (92.5) Operating expenses (14.7) (9.0) (9.0) (32.7) (12.9) (45.6) Underwriting contribution 12.0 6.5 6.7 25.2 (12.9) 12.3 Net investment income 3.6 11.0 5.7 20.3 8.1 28.4 Fees and commission income - - - - 0.9 0.9 Net foreign exchange gain - - - - 25.9 25.9 Financing costs - - - - (3.7) (3.7) Profit before income taxes 15.6 17.5 12.4 45.5 18.3 63.8 Claims ratio 50.6% 53.6% 55.4% 52.8% - 52.8% Expense ratio 41.4% 37.2% 37.8% 39.2% 4.1% 43.3% Combined ratio 92.0% 90.8% 93.2% 92.0% 4.1% 96.1% Total reportable Unallocated Property Casualty MAP segments by segment Total Six months ended 30 June 2015 GBPm GBPm GBPm GBPm GBPm GBPm Gross written premium 231.5 100.1 131.5 463.1 - 463.1 Net earned premium 113.7 70.9 88.0 272.6 - 272.6 Net claims incurred (47.3) (43.3) (39.6) (130.2) - (130.2) Policy acquisition costs (33.4) (15.5) (23.2) (72.1) - (72.1) Operating expenses (12.0) (8.1) (8.4) (28.5) (13.9) (42.4) Underwriting contribution 21.0 4.0 16.8 41.8 (13.9) 27.9
Net investment income 0.3 1.9 0.6 2.8 1.0 3.8 Fees and commission income - - - - 0.6 0.6 Net foreign exchange loss - - - - (12.1) (12.1) Financing costs - - - - (3.3) (3.3) Profit before income taxes 21.3 5.9 17.4 44.6 (27.7) 16.9 Claims ratio 41.6% 61.2% 45.0% 47.8% - 47.8% Expense ratio 39.9% 33.3% 35.8% 36.9% 5.1% 42.0% Combined ratio 81.5% 94.5% 80.8% 84.7% 5.1% 89.8% Total reportable Unallocated Property Casualty MAP segments by segment Total Year ended 31 December 2015 GBPm GBPm GBPm GBPm GBPm GBPm Gross written premium 362.5 183.3 241.2 787.0 - 787.0 Net earned premium 258.3 141.9 182.4 582.6 - 582.6 Net claims incurred (113.0) (82.9) (85.6) (281.5) - (281.5) Policy acquisition costs (76.5) (31.8) (49.2) (157.5) - (157.5) Operating expenses (24.4) (16.2) (17.4) (58.0) (31.9) (89.9) Underwriting contribution 44.4 11.0 30.2 85.6 (31.9) 53.7 Net investment income 0.4 3.0 1.1 4.5 2.3 6.8 Fees and commission income - - - - 1.0 1.0 Net foreign exchange gain - - - - 0.5 0.5 Financing costs - - - - (6.6) (6.6) Profit before income taxes 44.8 14.0 31.3 90.1 (34.7) 55.4 Claims ratio 43.8% 58.4% 46.9% 48.3% - 48.3% Expense ratio 39.1% 33.8% 36.5% 37.0% 5.5% 42.5% Combined ratio 82.9% 92.2% 83.4% 85.3% 5.5% 90.8% All revenues are from external customers. b) Segmental balance sheet Total reportable Unallocated Property Casualty MAP segments by segment Total As at 30 June 2016 GBPm GBPm GBPm GBPm GBPm GBPm Total assets 533.0 953.8 875.8 2,362.6 41.4 2,404.0 Total liabilities (321.2) (815.3) (740.4) (1,876.9) (156.5) (2,033.4) Net assets 211.8 138.5 135.4 485.7 (115.1) 370.6 Total reportable Unallocated Property Casualty MAP segments by segment Total As at 30 June 2015 GBPm GBPm GBPm GBPm GBPm GBPm Total assets 483.1 986.2 558.4 2,027.7 53.9 2,081.6 Total liabilities (357.4) (830.0) (477.5) (1,664.9) (93.7) (1,758.6) Net assets 125.7 156.2 80.9 362.8 (39.8) 323.0 Total As at 31 reportable Unallocated December Property Casualty MAP segments by segment Total 2015 GBPm GBPm GBPm GBPm GBPm GBPm Total assets 511.1 933.6 611.6 2,056.3 15.4 2,071.7 Total liabilities (314.9) (812.6) (488.6) (1,616.1) (105.3) (1,721.4) Net assets 196.2 121.0 123.0 440.2 (89.9) 350.3 1. Seasonality of operations Gross written premium is recognised on the inception of insurance contracts. For many classes of business this has historically been weighted towards the first half of the year. Premium revenue is earned separately for each insurance contract in line with the risk exposure profile. Consequently for some catastrophe exposed contracts, for example those exposed to the US hurricane season, the majority of income is recognised in the second half of the year. There may also be a similar seasonal pattern to the incidence of claims, with the Group more likely to experience large catastrophe losses from the US hurricane season, which runs from June to November. This may materially affect the Group's result for the second half of the year. Movements in foreign exchange rates may also affect seasonality. This may be accentuated as the Group's catastrophe exposed units transact business primarily in US dollars. This seasonality can be assessed by reviewing the following performance measures: Gross written premium Net earned premium Claims ratio H1 H2 Total H1 H2 Total H1 H2 Total Calendar year GBPm GBPm GBPm GBPm GBPm GBPm % % % 2013 361.8 228.5 590.3 249.7 252.5 502.2 58.2 46.6 52.4 2014 362.6 275.9 638.5 217.0 266.2 483.2 48.9 49.3 49.1 2015 463.1 323.9 787.0 272.6 310.0 582.6 47.8 48.8 48.3 2016 513.1 n/a n/a 318.4 n/a n/a 52.8 n/a n/a 1. Net investment income Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Interest income on financial investments at fair value through the income statement 10.8 8.3 19.3 Realised gains/(losses) on financial investments at fair value through the income statement 3.2 (0.6) (4.7) Unrealised gains/(losses) on financial investments at fair value through the income statement 14.9 (3.5) (7.0) Investment income from financial investments 28.9 4.2 7.6 Fair value gains on derivative financial instruments 0.1 0.4 0.4 Investment income 29.0 4.6 8.0 Investment management expenses (0.6) (0.8) (1.2) 28.4 3.8 6.8 5. Net claims incurred Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Claims paid 168.1 177.2 333.8 Movement in gross claims provision 48.9 (20.0) (7.4) Gross claims incurred 217.0 157.2 326.4 Reinsurers' share of claims paid (26.5) (27.2) (75.0) Movement in reinsurers' share of claims provision (22.5) 0.2 30.1 Reinsurers' share of claims incurred (49.0) (27.0) (44.9) 168.0 130.2 281.5 1. Operating expenses Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Underwriting expenses 32.7 28.5 58.0 Central expenses 12.9 13.9 31.9 45.6 42.4 89.9 1. Financing costs Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm 2017 Senior notes 1.7 1.7 3.4 2017 subordinated notes 0.1 0.1 0.1 2034 Dekania notes 0.9 0.7 1.4 Letter of credit, fees and other bank charges 1.0 0.8 1.7 3.7 3.3 6.6 1. Foreign exchange Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015
GBPm GBPm GBPm Foreign exchange gain/(loss) on monetary items 11.0 (3.9) (2.0) Foreign exchange gain/(loss) on non-monetary items 14.9 (8.2) 2.5 25.9 (12.1) 0.5 Profit for the period includes a foreign exchange gain of GBP14.9 million (H1 2015: loss of GBP8.2 million; year to 31 December 2015: gain of GBP2.5 million) on non-monetary items; comprising deferred acquisition costs and gross and ceded unearned premium. Principal exchange rates (versus sterling) applied are as follows: Six months ended Six months ended Year ended 30 June 2016 30 June 2015 31 December 2015 Period Period Period Period Year Year average end average end average end US dollar 1.43 1.34 1.52 1.57 1.53 1.47 Euro 1.28 1.21 1.37 1.41 1.38 1.36 Canadian dollar 1.91 1.74 1.88 1.96 1.95 2.05 Australian dollar 1.95 1.80 1.95 2.05 2.04 2.03 1. Income taxes Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Current tax expense: Current year 0.3 0.8 0.7 Adjustments for prior years - - (1.2) Total current tax 0.3 0.8 (0.5) Overseas tax expense: Current year 0.1 0.1 1.6 Total overseas tax 0.1 0.1 1.6 Deferred tax: Current year 7.2 (0.3) 1.3 Impact of rate change (0.7) - 0.6 Prior year adjustments - - 0.9 Total deferred tax 6.5 (0.3) 2.8 Total income tax expense 6.9 0.6 3.9 Reconciliation of effective tax rate: Profit before income taxes 63.8 16.9 55.4 Income tax at the standard UK corporation tax rate (20.0%) 12.8 3.4 11.2 (June & December 2015: 20.25%) Non-deductible or non-taxable items 0.1 (2.8) (0.3) Tax rate differences on foreign subsidiaries (5.3) - (7.3) Prior period adjustments - - (0.3) Impact of rate of change (0.7) - 0.6 6.9 0.6 3.9 The standard rate of corporation tax in the UK was set at 20% on 1 April 2016. The effective tax rate for the period ended 30 June 2016 is 10.8%. There were no amounts debited/credited directly to other comprehensive income during the period (H1 2015: GBP0.2 million credit): Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Deferred tax on defined benefit pension fund actuarial gains/ (losses) - - - Income tax on items that will not be reclassified to profit or loss - - - Current tax on changes in fair value of cash flow hedges - - - Deferred tax charged on other items within the other comprehensive income - (0.2) (0.4) Income tax on items that may be reclassified to profit or loss - (0.2) (0.4) Taxes credited to other comprehensive income - (0.2) (0.4) 10. Earnings and net assets per share a) Basic earnings per share Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 Profit attributable to equity shareholders of the parent company (GBPmillions) 56.9 16.3 51.5 Weighted average number of shares in issue(1) (millions) 62.9 63.8 63.7 Basic earnings per share 90.4p 25.6p 81.0p (1) Net of shares held in the employee benefit trust which are earmarked for the Group's LTIP and deferred bonuses payable in shares b) Diluted earnings per share Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all potentially dilutive shares. Novae's potentially dilutive shares relate to LTIP awards/deferred bonuses payable in shares. The potential number of shares is calculated with reference to the current date as though it were the vesting date, excluding shares held by the employee benefit trust earmarked for these awards. Six months Six months Year ended ended ended 30 June 30 June 31 December 2016 2015 2015 Profit attributable to equity shareholders of the parent company (GBPmillions) 56.9 16.3 51.5 Weighted average number of shares in issue, excluding treasury shares (millions) 62.9 63.8 63.7 Adjustments for LTIPs and deferred bonuses payable in shares (millions) 1.6 0.5 1.4 Weighted average number of shares for diluted earnings per share (millions) 64.5 64.3 65.1 Diluted earnings per share 88.2p 25.4p 79.2p c) Net assets and net tangible assets per share Net assets and net tangible assets per share are calculated on the number of shares in issue (excluding shares held by the employee benefit trust and earmarked for the Group's LTIP and deferred bonuses payable in shares) at 30 June 2016. 30 June 30 June 31 December 2016 2015 2015 Net assets (GBPmillions) 370.6 323.0 350.3 Intangible assets (GBPmillions) (2.9) (3.4) (3.1) Net tangible assets (GBPmillions) 367.7 319.6 347.2 Adjusted number of shares in issue (millions) 62.8 63.9 63.0 Net asset value per share 590.2p 505.5p 556.2p Net tangible asset value per share 585.6p 500.2p 551.3p 1. Cash and cash equivalents 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Cash 70.1 161.7 62.2 Money market deposits 76.1 - 67.5 Fixed and floating rate deposits 8.4 3.9 7.4 154.6 165.6 137.1 1. Financial assets 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Government 575.2 190.5 516.7 Corporate 307.4 481.2 340.6 Pooled equity fund 73.7 - 81.4 Government agencies 95.7 85.6 64.2 Securitised RMBS / ABS 50.5 55.2 55.0 Emerging Market Mutual Fund 39.8 - 32.8 Covered bonds 30.0 13.9 17.5 Certificate of deposits / floating rate notes 1.4 92.3 6.1 Investment cash 19.4 78.1 3.7
Supranational - 16.2 - Other 3.8 2.0 3.9 1,196.9 1,015.0 1,121.9 With the exception of unlisted preference shares, all financial assets are held at fair value through profit or loss and are measured using quoted prices in active markets or direct/indirect inputs based on observable market data. The unlisted preference shares included in other in the above analysis are held at fair value by the Group at 30 June 2016. The fair value of this asset is assessed using a discounted cash flow forecast and reviewed for impairment at least annually. 1. Reinsurance contracts 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Reinsurance contracts 416.9 367.8 313.0 Less: reinsurers' share of provisions for unearned premium (114.6) (71.0) (37.1) Reinsurers' share of claims outstanding 302.3 296.8 275.9 Less: reinsurers' share of provisions for losses incurred but not reported ("IBNR") (106.3) (114.5) (87.8) 196.0 182.3 188.1 Comprising: Recoveries on claims notified not yet due 197.2 184.1 189.8 Provision for bad debt (1.2) (1.8) (1.7) Net recoveries on claims notified not yet due 196.0 182.3 188.1 1. Insurance contracts Gross Reinsurance Net 30 June 2016 GBPm GBPm GBPm IBNR 558.0 (106.3) 451.7 Notified claims 718.7 (196.0) 522.7 Claims reserve 1,276.7 (302.3) 974.4 Unearned premiums 519.4 (114.6) 404.8 Total insurance liabilities 1,796.1 (416.9) 1,379.2 Gross Reinsurance Net 30 June 2015 GBPm GBPm GBPm IBNR 515.7 (114.5) 401.2 Notified claims 603.5 (182.3) 421.2 Claims reserve 1,119.2 (296.8) 822.4 Unearned premiums 459.1 (71.0) 388.1 Total insurance liabilities 1,578.3 (367.8) 1,210.5 Gross Reinsurance Net 31 December 2015 GBPm GBPm GBPm IBNR 507.9 (87.8) 420.1 Notified claims 652.1 (188.1) 464.0 Claims reserve 1,160.0 (275.9) 884.1 Unearned premiums 398.0 (37.1) 360.9 Total insurance liabilities 1,558.0 (313.0) 1,245.0 14. Insurance contracts (continued) Whole account Underwriting year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm Gross claims Estimate of ultimate gross claims: - at end of underwriting year 269.9 345.9 264.1 374.5 438.2 405.8 371.3 434.3 477.3 - one year later 264.5 400.0 264.4 388.8 406.8 370.3 348.5 410.1 - two years later 250.3 418.7 241.3 368.7 407.1 372.4 342.5 - three years later 257.8 454.1 248.4 360.0 404.3 365.2 - four years later 278.5 457.0 238.8 358.7 406.9 - five years later 274.2 522.2 236.3 355.1 - six years later 272.8 513.9 239.8 - seven years later 274.9 484.3 - eight years later 271.3 - position at 30 June 2016 268.2 481.8 237.5 362.3 404.5 368.7 336.8 410.7 474.1 515.3 Gross paid claims position - at end of underwriting year 9.6 22.1 7.8 12.2 33.5 25.6 19.2 29.3 24.6 - one year later 58.2 99.9 69.8 125.4 145.8 141.5 114.8 124.3 - two years later 102.0 152.4 107.2 208.2 222.6 204.9 184.3 - three years later 140.7 196.5 126.0 239.9 275.0 246.3 - four years later 174.0 246.6 149.9 262.3 307.9 - five years later 202.8 292.3 165.4 280.1 - six years later 221.4 306.6 185.3 - seven years later 229.8 331.0 - eight years later 242.6 - position at 30 June 2016 243.3 344.9 191.8 288.3 317.1 258.5 209.4 168.2 76.7 5.9 Gross ultimate claims reserve 24.9 136.9 45.7 74.0 87.4 110.2 127.4 242.5 397.4 509.4 1,755.8 2006 and prior YoA reserve 126.8 Gross unearned portion of ultimate losses (576.2) Third party participation on syndicate (29.7) Gross claims reserve 1,276.7 14. Insurance contracts (continued) Whole account Underwriting year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm Net claims Estimate of ultimate net claims: - at end of underwriting year 208.4 241.8 208.2 329.3 393.9 372.2 343.3 397.8 430.5 - one year later 209.6 268.9 190.9 354.4 370.8 350.8 320.2 375.6 - two years later 193.0 259.6 174.6 341.4 371.8 347.9 313.4 - three years later 187.9 269.5 168.2 332.3 369.9 342.9 - four years later 200.5 275.3 162.7 330.4 368.9 - five years later 196.2 277.3 159.4 322.2 - six years later 198.8 276.5 157.7 - seven years later 200.0 267.3 - eight years later 198.5 - position as at 30 June 2016 196.0 265.7 155.7 325.1 365.3 346.2 309.1 373.4 426.5 397.3 Net paid claims position - at end of underwriting year 6.6 20.7 6.4 12.1 32.8 25.3 18.8 29.3 24.4 - one year later 53.1 80.6 49.6 123.7 141.8 139.6 113.1 123.5 - two years later 92.4 121.8 83.4 198.0 215.0 199.7 176.5 - three years later 112.2 150.4 96.9 228.2 260.7 236.1 - four years later 131.4 171.8 114.1 249.1 285.1 - five years later 151.2 188.2 124.9 265.4 - six years later 166.9 194.2 132.2 - seven years later 171.8 212.9 - eight years later 179.3 - position as at 30 June 2016 180.2 217.6 133.2 272.4 293.6 248.1 199.7 163.1 75.2 5.6 Net ultimate claims reserve 15.8 48.1 22.5 52.7 71.7 98.1 109.4 210.3 351.3 391.7 1,371.6 2006 and prior YoA reserve 85.2 Net unearned portion of ultimate losses (460.9) Third party participation on syndicate (21.5) Net claims reserve 974.4 Claims development tables are shown on an underwriting year basis; these set out the development of claims over time on a gross and net of reinsurance basis (without any adjustment for any impact to projected premiums). These claims are shown on an ultimate basis for each successive development year and at the 100% ownership level. Balances have been translated at exchange rates prevailing at 30 June 2016 in all cases. 1. Insurance and other payables 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Arising from underwriting business 138.4 87.0 58.9 Arising from service companies and other subsidiaries 13.1 12.2 22.2 Interest rate swaps 5.1 5.4 4.6 156.6 104.6 85.7 The carrying value of insurance and other payables is a reasonable approximation of their fair value. 1. Financial liabilities Financial liabilities are initially recognised at fair value and thereafter stated at amortised cost. Transaction costs are amortised on an effective interest rate basis over the expected life of the instrument at initial recognition. At 30 June 2016 the Group had the following loan notes in issue: Interest rate Year of payable per Currency Issue date maturity annum Senior notes GBP March 2012 2017 6.50% Subordinated notes GBP April 2007 2017 LIBOR + 3.13% US $15m Dekania notes USD June 2004 2034 LIBOR + 3.50% US $11m Dekania notes USD June 2004 2034 LIBOR + 4.05% US $10m Dekania notes USD September 2004 2034 LIBOR + 3.50% 30 June 2016 30 June 2015 31 December 2015 Carrying Fair Carrying Fair Carrying Fair amount value amount value amount value GBPm GBPm GBPm GBPm GBPm GBPm
Senior notes 49.8 51.9 49.7 49.9 49.7 53.3 Subordinated notes 2.5 2.5 2.4 2.5 2.5 2.5 US $15m Dekania notes 11.1 11.1 9.6 9.6 10.2 10.2 US $11m Dekania notes 8.2 8.2 7.0 7.0 7.5 7.5 US $10m Dekania notes 7.5 7.5 6.4 6.4 6.8 6.8 Total 79.1 81.2 75.1 75.4 76.7 80.3 Senior and subordinated notes The senior and subordinated notes are listed on the London Stock Exchange with issue costs of GBP0.8 million and GBP0.1 million respectively. Dekania loan notes The notes are listed on the Irish Stock Exchange and are denominated in US dollars with the interest payable linked to the US dollar base rate. Issue costs of GBP0.6 million are fully amortised. Swaps are used to match exposure to fluctuations in interest rates. The swaps, which mature on the same dates as the interest falls due for payment on the loans, have the effect of fixing the interest rate at 6.18% per annum until 15 August 2024. The losses on the hedging instruments, being the interest rate swaps, were GBP1.3 million in the period (six months to 30 June 2015: gains of GBP0.2 million; year to December 2015: gains of GBP0.1 million), which are recognised within other comprehensive income. 1. Financial instruments The table below analyses recurring fair value measurement for financial assets and liabilities. The fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to the valuation techniques used. The different levels are defined as follows: Level 1 - fair values measured using quoted prices (unadjusted) in active markets for identical instruments Level 2 - fair values measured using directly or indirectly observable inputs or other similar valuation techniques for which all significant inputs are based on observable market data Level 3 - fair values measured using valuation techniques for which all significant inputs are not based on observable market data Level 1 Level 2 Level 3 Total 30 June 2016 GBPm GBPm GBPm GBPm Financial assets measured at fair value Government 47.7 527.5 - 575.2 Corporate 14.6 292.8 - 307.4 Pooled equity fund - 73.7 - 73.7 Government agencies - 95.7 - 95.7 Securitised RMBS / ABS 1.1 49.4 - 50.5 Emerging Market Mutual Fund - 39.8 - 39.8 Investment cash - 30.0 - 30.0 Covered bonds - 1.4 - 1.4 Certificate of deposits / floating rate notes 19.4 - - 19.4 Other - - 3.8 3.8 Total financial assets measured at fair value 82.8 1,110.3 3.8 1,196.9 Financial liabilities measured at fair value Forward exchange contracts used for hedging - 3.3 - 3.3 Total financial liabilities carried at fair value - 3.3 - 3.3 Financial liabilities not measured at fair value Senior notes - 49.8 - 49.8 Subordinated notes - 2.5 - 2.5 US $15m Dekania notes - 11.1 - 11.1 US $11m Dekania notes - 8.2 - 8.2 US $10m Dekania notes - 7.5 - 7.5 Total financial liabilities not measured at fair value - 79.1 - 79.1 Level 1 Level 2 Level 3 Total 30 June 2015 GBPm GBPm GBPm GBPm Financial assets measured at fair value Government 15.0 175.5 - 190.5 Corporate 0.1 481.1 - 481.2 Government agencies - 85.6 - 85.6 Securitised RMBS / ABS - 55.2 - 55.2 Covered bonds - 13.9 - 13.9 Certificate of deposits / floating rate notes 39.9 52.4 - 92.3 Investment cash 76.0 2.1 - 78.1 Supranational - 16.2 - 16.2 Other - - 2.0 2.0 Total financial assets measured at fair value 131.0 882.0 2.0 1,015.0 Financial liabilities measured at fair value Forward exchange contracts used for hedging - 5.4 - 5.4 Total financial liabilities carried at fair value - 5.4 - 5.4 Financial liabilities not measured at fair value Senior notes - 49.7 - 49.7 Subordinated notes - 2.4 - 2.4 US $15m Dekania notes - 9.6 - 9.6 US $11m Dekania notes - 7.0 - 7.0 US $10m Dekania notes - 6.4 - 6.4 Total financial liabilities not measured at fair value - 75.1 - 75.1 Level 1 Level 2 Level 3 Total 31 December 2015 GBPm GBPm GBPm GBPm Financial assets measured at fair value Government 37.9 478.8 - 516.7 Corporate 12.1 328.5 - 340.6 Pooled equity fund - 81.4 - 81.4 Government agencies - 64.2 - 64.2 Securitised RMBS / ABS 1.1 53.9 - 55.0 Emerging Market Mutual Fund - 32.8 - 32.8 Covered bonds - 17.5 - 17.5 Certificate of deposits / floating rate notes - 6.1 - 6.1 Investment cash 3.7 - - 3.7 Other - - 3.9 3.9 Total financial assets measured at fair value 54.8 1,063.2 3.9 1,121.9 Financial liabilities measured at fair value Forward exchange contracts used for hedging - 1.9 - 1.9 Total financial liabilities carried at fair value - 1.9 - 1.9 Financial liabilities not measured at fair value Senior notes - 49.7 - 49.7 Subordinated notes - 2.5 - 2.5 US $15m Dekania notes - 10.2 - 10.2 US $11m Dekania notes - 7.5 - 7.5 US $10m Dekania notes - 6.8 - 6.8 Total financial liabilities not measured at fair value - 76.7 - 76.7 The fair value of the Group's financial assets is based on prices provided by investment managers who obtain market data from numerous independent pricing services. The pricing services used by the investment manager obtain actual transaction prices for securities that have quoted prices in active markets. During the period there were no significant transfers in either direction between Level 1 and Level 2 of the fair value hierarchy. Level 3 valuation techniques and significant unobservable inputs In August 2013, the Group invested in an unlisted insurance agency. Equity in the entity is not traded in an active market and as such there is no observable market data. The fair value of this asset is assessed using a discounted cash flow forecast and reviewed for impairment annually. There are several variables on which this forecast is reliant, which include, but are not limited to discount factor and terminal value of the investment. In addition, periodic management accounts are reviewed to mitigate any credit risk in the investment and ensure its ability to pay the coupon rate on the preference shares included in the discounted cash flow forecast. The table below shows a reconciliation between the opening and closing balance of level 3 investments during the year: 30 June 30 June 31 December 2016 2015 2015 GBPm GBPm GBPm Opening balance 3.9 2.0 2.0 Total net gains/(losses) recognised in the Income Statement (0.1) - 1.9 Closing balance 3.8 2.0 3.9
There were no transfers in either direction between levels 1 and 2 and level 3 during the financial period ended 30 June 2016 (2015: none). 1. Capital and reserves Six months ended Six months ended Year ended 30 June 2016 30 June 2015 31 December 2015 No. of No. of No. of shares shares shares Share capital (m) GBPm (m) GBPm (m) GBPm Ordinary shares of GBP1.125 each Issued and fully paid 64.4 72.5 64.4 72.5 64.4 72.5 Balance at start of period 64.4 72.5 64.4 72.5 64.4 72.5 Balance at end of period 64.4 72.5 64.4 72.5 64.4 72.5 During the period, the Group had 64,425,640 ordinary shares in issue of GBP1.125 each. Other reserves A merger reserve of GBP69.6 million was created on 18 May 2006 following the scheme of arrangement whereby Novae Group plc was interposed as the new holding company of the Novae Group and relates to the valuation of the new shares issued in excess of their nominal value. 1. Dividends per share Six months Six months Year ended ended ended 30 June 30 June 31 December Type of Per share Record Payment 2016 2015 2015 dividend amount date date GBPm GBPm GBPm 2014 23 Apr 15 May final 18.2p 2015 2015 - 11.6 11.6 2014 23 Apr 15 May special 20.0p 2015 2015 - 12.8 12.8 2015 04 Sep 01 Oct interim 7.3p 2015 2015 - - 4.7 2015 22 Apr 20 May final 20.0p 2016 2016 12.9 - - 2015 22 Apr 20 May special 22.5p 2016 2016 14.5 - - 27.4 24.4 29.1 A final dividend of 20.0p and a special dividend of 22.5p per ordinary share were paid on 20 May 2016 to shareholders on the register on 22 April 2016. The ex-dividend date was 21 April 2016. An interim dividend of 7.5p per share (H1 2015: 7.3p per share) is payable on 3 October 2016 to shareholders on the register on 2 September 2016. These financial statements do not provide for the interim dividend as a liability. 1. Related party transactions Transactions with related parties during the period are consistent in nature and scope with those disclosed in note 31 of the 2015 Annual Report. 1. Post balance sheet events The Group secured a new expanded bank financing facility to repay senior and subordinate notes due to mature in 2017, enabling the business to capitalise on future growth opportunities and reduce financing costs. The new facility, comprises a multi-option letter of credit ("LoC") and revolving credit facility ("RCF") of GBP170 million and a GBP50 million term-loan. The Group has also taken the opportunity to increase its bank lending group from one to four banks. The new facility replaces the existing LoC and RCF of US $126 million and GBP30.0 million from August 2016. Independent review report to Novae Group plc Report on the interim condensed consolidated financial statements Our conclusion We have reviewed Novae Group plc's interim condensed consolidated financial statements (the "interim financial statements") in the interim report of Novae Group plc for the six month period ended 30 June 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority. What we have reviewed The interim financial statements comprise: -- the condensed consolidated balance sheet as at 30 June 2016; -- the condensed consolidated income statement and condensed consolidated statement of comprehensive income for the period then ended; -- the condensed consolidated cash flow statement for the period then ended; -- the condensed consolidated statement of changes in equity for the period then ended; and -- the explanatory notes to the interim financial statements. The interim financial statements included in the Interim report 2016 have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority. As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Responsibilities for the interim financial statements and the review Our responsibilities and those of the directors The Interim report 2016, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim report 2016 in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority. Our responsibility is to express a conclusion on the interim financial statements in the Interim report 2016 based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. What a review of interim financial statements involves We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. We have read the other information contained in the Interim report 2016 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements. PricewaterhouseCoopers LLP Chartered Accountants London 3 August 2016 1. The maintenance and integrity of the Novae Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website. 2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients. The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Novae Group plc via Globenewswire HUG#2032724 http://www.novae.com/home.aspx
(END) Dow Jones Newswires
August 03, 2016 02:00 ET (06:00 GMT)
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