Final Results

Helios Underwriting Plc
26 May 2023
 

Helios Underwriting plc

("Helios" or the "Company")

 

Final results for the year ended 31 December 2022

Increased Retained Capacity Provides Strong Platform for Growth

Helios, the investment vehicle which builds shareholder value through exposure to Lloyd's, is pleased to announce its audited final results for the year ended 31 December 2022. Performance has been robust against the backdrop of another challenging year for the global Lloyd's market and Helios is well positioned to maximise the opportunities on offer in this disciplined market.

Highlights

·      Gross written premium increased by 131% to £244m (2021: £106m) reflecting the increase in the capacity portfolio

·      Retained capacity for 2023 open underwriting year increased by 34% to £238.0m (2022 year of account: £171.9m)

·      Net tangible asset value of £1.52 per share (2021: £1.57 per share)

·      Total comprehensive loss for the year of £1.3m (2021: +£4.9m)

·      117% growth in net earned premium (2021: 42%)

·      Final dividend of 3p per share is being recommended (2021: 3p)

·      Pro forma combined ratio of 93%

·      Cumulative rate increases since 1 January 2017 in excess of 50% for the Helios portfolio

·      Board augmented and strengthened with additional experience and expertise

o  Martin Reith appointed Chief Executive

o  Nigel Hanbury will continue to provide guidance as Executive Deputy Chairman

o  Michael Wade nominated Chairman Designate to be appointed following the AGM

 

Helios Group Summary Profits

2022

£'000

2021

£'000

Gross written premium

244,614

106,058

Underwriting profits

116

3,401

Total other income

1,242

2,700

Total costs

(6,527)

(6,746)

Revaluation of syndicate capacity

2,670

8,132

Tax

1,184

(2,555)

Total comprehensive income

(1,315)

4,932

Earnings per share

 

 

Basic

(4.87)p

(0.75)p

Diluted

(4.87)p

(0.75)p

 

Martin Reith, Chief Executive, commented:

 

"We have successfully steered the Company through another challenging year with 2022 proving to be one of the most difficult in recent memory following a string of unforeseen events, including interest rate hikes, natural disasters and Russia's invasion of Ukraine.

 

"Whilst the headline results show a pre-tax loss, that should not obscure the underlying achievements during the period. Our retained capacity grew by 34% in 2022 to £238m, during an active year of acquiring blue-chip syndicates across the volatility spectrum, which we expect will yield attractive underwriting returns in the years to come.

"Despite the wider macro-economic conditions, we remain confident that Helios is well positioned to capitalise on the current hard market and deliver significant returns for shareholders, thanks to the improving reinsurance market conditions, our enhanced positioning and the increasingly positive landscape for underwriting."

 

For further information, please contact:

 

Helios Underwriting plc

 

Martin Reith - CEO

 

Nigel Hanbury - Executive Deputy Chairman

 

Arthur Manners - Chief Financial Officer

+44 (0)7720 292 505

 

+44 (0)7787 530 404

 

+44 (0)7754 965 917

 

 

 

Numis (Nomad and Broker)

 

Giles Rolls / Charles Farquhar

 

+44 (0)20 7260 1000

 

 

 

Buchanan (PR)

 

Helen Tarbet / George Beale

+44 (0)207 466 5000

 

 

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 £297m of capacity for the 2023 account. The portfolio provides a good spread of business being concentrated in specialty insurance and reinsurance. For further information please visit www.huwplc.com.

 

 

Chairman's statement

 

Total comprehensive loss of £1.2m (2021 profit: £4.9m)

Net tangible asset value at £1.52 per share (2021: £1.57)

A final dividend of 3p per share is being recommended (2021: 3p)

 

In summary

•     Gross premium written increased by 131%

•     Total comprehensive loss of £(1.3)m (2021: profit of £4.9m)

•     Net tangible asset value at £1.52 per share (2021: £1.57)

•     Pro forma combined ratio of 93%

•     A final dividend of 3p per share is being recommended (2021: 3p)

•     Cumulative rate increases since 1 January 2017 in excess of 50% for the Helios portfolio

The results for the year ended 31 December 2022 show a total comprehensive loss for the year of £1.3m (2021: a profit of £4.9m), and the net tangible asset value of the Group is £1.52 per share (2021: £1.57). Although these results show a pre-tax loss, they do not reflect the successful trading that has taken place over the last few years. Moreover, the results have been skewed by the steps Helios has taken to position our portfolio to yield significant returns from our retained capacity in this exciting and disciplined market.

Our retained capacity grew substantially into 2022 and also into 2023; however, only a proportion of these premiums are earned in the first 12 months and the expected profits are earned in the succeeding years. Add in the impact of the macro-economic environment, interest rate hikes and the mark to market accounting principles, natural catastrophe losses including Hurricane Ian and Russia's invasion of Ukraine - which have all served to dampen our returns. Nevertheless, the Board believes that we are at the point of the underwriting cycle where the prospects for underwriting profitability are much improved and the better overall landscape for underwriting is likely to be extended following the change in the reinsurance market conditions at the end of last year and continued market discipline.

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 impacted by the growth of the Helios share of the capacity portfolio in 2022, which is showing a loss at 12 months. This loss on the larger portfolio has distorted overall results as the contribution from the profits recognised in the 2020 and 2021 underwriting years have been overshadowed.

Lloyd's has announced a combined ratio of 91% and is expecting better results in the next few years, particularly as the prospective investment returns are expected to make a significant contribution in the future. The Helios portfolio pro forma combined ratio of 93% has broadly matched the performance of Lloyd's.

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 £172m to £238m.

Approximately half 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. The small reduction in overall auction prices last year has reduced the benefit of the incremental value of the pre-emption rights.

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 have also been able 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 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, and in addition, we have to contemplate the ravages of climate change, a pandemic and the Russian invasion of Ukraine.

Summary financial information

Year to 31 December

 

2022

£'000

2021

£'000

Gross written premium

244,614

106,058

Net earned premium

150,393

69,406

Underwriting profits

116

3,401

Other income

1,242

2,700

Total costs

(6,527)

(6,746)

Revaluation of syndicate capacity

2,670

8,132

Tax

1,184

(2,555)

Total comprehensive income

(1,315)

4,932

NTAV - £ per share

1.52

1.57

 

 

A further capital raising was completed last year to raise £12m largely from a new institutional investor. These funds have been used to fund the growth of the capacity fund.

Dividend

The Board recommends a 3p dividend in line with the existing policy.

There will be the option to take new ordinary shares in lieu of the dividend.

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 uncorrelated 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 2023 (or £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 third 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 that engulfs the world at this time.

Board changes

I am delighted in the changes to the leadership roles at Helios.

I welcome the appointment of Martin Reith as Chief Executive as his extensive experience in the Lloyd's market in building successful businesses will be invaluable to Helios in the future.

I am delighted that Nigel Hanbury has agreed to become Executive Deputy Chairman and would like to thank him for his contribution to the business as Chief Executive since 2012. He built the capacity fund to £297m during the soft market, taking advantage of the improved market so that Helios now has the opportunity to deliver excellent growth in shareholder value. We expect to be able to benefit from Nigel's extensive experience in the management of third party capital at Lloyd's in the future.

I have been a Board member since Helios was founded in 2007 when it was listed on AIM and have latterly served as Chairman. It is the appropriate time for me to retire and I am delighted that Michael Wade has agreed to become a Director and take over as Chairman at the end of the Annual General Meeting in June.

Michael Wade has enjoyed a long career at Lloyd's including forming one of the first Lloyd's corporate capital vehicles in 1993 (CLM Insurance Fund plc) and later acted for UK pension funds via Rostrum Group investing in listed Lloyd's firms. He has served on the Council and Committee of Lloyd's. Currently, Michael is also non-executive chairman of Howden Tiger Capital Markets UK and a senior advisor to Mitsui Sumitomo Insurance. I am sure that Michael's wealth of experience in the insurance world will benefit the Company in the future.

I 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.

Future prospects

We envisage further growth over 2023 and into 2024 and will position the portfolio accordingly. We expect the majority of the syndicates we support to pre-empt in order to benefit from the attractive rating environment and market discipline. In addition, we are in discussions with a number of new opportunities for Helios that will give us further diversification.

It is likely we shall seek support from third party capital to allow us to maximise these opportunities for appropriate fees and commissions. We believe this will help us to continue to deliver superior returns and generate repeatable income while managing volatility.

Michael Cunningham

Non-executive Chairman

25 May 2023

 

Chief Executive Officer's review

 

Net tangible asset value £1.52 (2021: £1.57)

Rate increases since 2017 in excess of 55%

117% growth in net earned premium (2021: 42%)

93% pro forma combined ratio for the overall portfolio is in line with the overall Lloyd's market combined ratio of 91.9%

 

Helios is perfectly positioned to maximise the opportunities available in the market and Lloyd's remains well positioned to deliver profits:

•     Lloyd's financial position, with a solid capital base and robust risk management framework has never been better. This enables the market to manage risks effectively and respond to unexpected events

•     Lloyd's reputation for innovation and adaptability means that it is quick to embrace new technologies such as the use of data analytics and machine learning to assess risk and provide more accurate pricing and enriched decision making

•     Lloyd's global reach is unparalleled with a presence in more than 200 countries and territories allowing access to a wide range of customers and markets

A constant focus from Lloyd's over the past 18 months or so has been the requirement for syndicates to ensure risk adjusted rate change keeps apace with inflation. As a consequence, price increases rather than a major drive for exposure growth have been a particularly strong driver of recent premium growth.

Across the market, a high proportion of syndicates reported a year on year deterioration in profitability and results at individual syndicate level for some were more volatile in a year marked by significant cat events. Historically we have seen reserve redundancy and subsequent releases as losses have perfected over time. We are confident we shall see similar trends.

Helios remains a highly efficient and unique business that offers investors exposure to a diversified portfolio of top performing syndicates.

 

Helios is delighted that Martin Reith has been appointed as Chief Executive Officer ('CEO'). Nigel Hanbury will remain on the Board as Executive Deputy Chairman, so that the Board can continue to benefit from his leadership and his extensive knowledge of Lloyd's.

Q&A with new CEO Martin Reith

Plans for the company over the next year and beyond:

Helios has been positioned to maximise the opportunities this market has to offer. Our portfolio in 2023 has a larger retained capacity (up 38% from 2022), across a well balanced volatility managed portfolio. We are witnessing market discipline and pricing adequacy that should yield some attractive underwriting returns. Beyond this year, we intend to grow our capacity over both freehold and relationship syndicates always with an eye to backing the the best syndicates we can access. We shall also look at ways to shift the quality of our earnings as we increase the fees and commissions we can generate from our tenancy positions.

What experiences do you bring to Helios:

I started my career at Lloyd's in 1984 and have had significant experience across underwriting, management and leadership. In 2001, I founded and was the CEO of Ascot Underwriting which continues to be a force in the market today. I have had experience raising capital, I have sat on the Group Holding's Board of AmWINS Group Inc, a major US wholesale broker, I have also been involved with an ILS fund. I believe I therefore bring a broad range of skills and experience to the role. In fact I feel it is a rather suitable evolution. I may not longer be at the coal face assessing and pricing risk, rather I am seeking to support those that I believe do an outstanding job in this area.

What do I feel are Helios' biggest achievements for this year:

Under Nigel's leadership, we have curated an outstanding portfolio in the most capital efficient manner. We have increased our retained capacity in order to benefit from the exceptional market conditions. We have also sought to broaden the syndicates we support and in turn the lines of business we are exposed to such that we now participate on risks that haven't naturally gravitated to Lloyds. Across the majority of our key metrics, we are showing we are receiving more premium but for less exposure. Risk adjusted rate change is key to ensure we keep apace with inflation in addition to the pricing correction.

How has the outlook for (re)insurers changed because of the recent macroeconomic environment:

There are two key aspects: inflation and interest rates. It is vital the impact of inflation is not underestimated and that appropriate steps are taken to ensure pricing keeps ahead of inflation. Across our portfolio we have sought to understand how each syndicate is dealing with this issue. In addition, reserves need to be checked and claims settled quickly to ensure inflation does not undervalue the held reserves.

To help dampen inflation, we have seen the increase of interest rates. This is most welcome to allow improvement in the returns on the assets held by syndicates and by Helios. Now we are hopeful that we shall see underwriting profits and investment returns generate shareholder value.

What are the biggest opportunities for Helios:

Helios has a unique position in the market. It is a highly regarded business that has access to an extraordinary portfolio. Through management's curation, we have historically outperformed the market. We are ideally positioned to maximise the rewards of this market - our efficient capital ratio, our volatility management, our wish to increase repeatable non-risk fee income and that we are often sought out to validate and seed fund new syndicate starts, sets us aside. We are also the only publicly listed consolidator of private capital in Lloyd's and we shall continue to build on our access in this way.

As we enjoy the opportunities of a hard market, it should be no surprise that our portfolio is at the cutting edge of shaping and driving market discipline. That is how we have positioned Helios.

Closing remarks:

I am very excited to be leading Helios and my thanks to Nigel Hanbury and Arthur Manners for their support. They have built a fabulous business and I am honoured to help write the next chapter. I am delighted that Nigel has agreed to take up the role of Executive Deputy Chairman. He and I will work very closely over the coming months. Arthur remains as CFO and I look forward to working in lock-step with him.

Strategy

The building of a portfolio of participations on leading Lloyd's syndicates remains the strategic objective of the Group. During 2022, the key developments were:

•     building the portfolio of capacity to £297m for 2023, taking up freehold capacity offered for nil cost by way of pre-emptions amounting to £21.7m 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;

•     providing a cost-efficient platform for participation at Lloyd's, benefiting from no profit commission potentially payable to Lloyd's members' agent and taking advantage of increased scale and, therefore, cost efficiencies;

•     improving shareholder returns by use of excess of loss reinsurance funds at Lloyd's arrangements; and

•     growth of the capacity fund to be funded by third party capital for 2024.

Quality of portfolio

The portfolio has been positioned to maximise underwriting returns and the favourable market conditions we are enjoying in 2023 and beyond. There has been increased focus and curation from the 2022 to 2023 portfolio with an emphasis on:

•     reducing exposure to natural catastrophe;

•     growth into specialty lines;

•     targeting risks and classes that diversify the portfolio;

•     building relationships with syndicates that attract non-correlating exposure; and

•           identifying new relationship capacity with excellent growth prospects.

As a consequence, we can report favourable development across all our key exposure metrics with an increase in our direct insurance premium and a reduction in the reinsurance portfolio. While we continue to work with our reinsurers to manage the volatility ofour portfolio, the amount we have decided to retain is up some 38%, and our overall capacity into 2023 up by 25%, to just shy of £300m.

We have created new relationships with syndicates that accept risks that don't naturally gravitate to the London market and, in turn, this has allowed us to develop greater ESG awareness and opportunity.

The Lloyd's market is in robust shape with discipline and pricing shaping an impressive performance. While a few lines have reported a slowing in price correction, the drive to implement risk adjusted rate change and simple pricing correction remains strong. As a consequence, price increases, rather than a major drive for exposure growth, have led the substantial premium growth the market has witnessed.

Add "uncertainty" into the mix and the demand and desire for buyers to buy comprehensive cover in a market exercising judicious capacity deployment, all of this leads to increased demand.

Helios' portfolio consists of some of the top-performing and market-leading syndicates that help shape and drive demand. We are ideally and deliberately positioned to maximise the returns this market has to offer.

We continue to focus ruthlessly on the best syndicates. The portfolio now comprises an even split between syndicates where we have "freehold rights" - rights to participate pro-rata on the future growth of the syndicate and "tenancy rights" where we are offered participation on an annual basis.

FREEHOLD CAPACITY

Managing agent

Syndicate

Freehold

£'000

Beazley

623

27.5

Tokio Marine

510

27.1

ERS

218

17.6

Atrium

609

17.1

Hiscox

33

14.4

MAP

2791

11.4

Blenheim

5886

9.1

Cathedral

2010

7.0

QBE

386

2.9

Chaucer - Nuclear

1176

2.9

S.A. Meacock

727

2.6

Other syndicates

 

7.7

Total capacity

 

147.3

 

TENANCY CAPACITY

Managing agent

Syndicate

Freehold

£'000

Dale Partners (Asta)

1729

20.0

Blenheim

5886

17.7

Beazley

5623

17.6

Flux - Accrisure

1985

16.9

CFC

1988

15.0

Arch

1955

12.5

MCI SIAB

1902

10.7

Beat (Asta)

4242

10.6

Apollo

1971

10.0

Apollo

1969

10.0

MIC Global

5183

5.0

Other syndicates

 

3.4

Total capacity

 

149.4

Total portfolio

 

296.7

 

Freehold syndicates - Participations in syndicates managed by these managing agents represent shares in the well-established and better-managed businesses at Lloyd's. We strive to acquire LLVs with portfolios that comprise these quality syndicates, thereby having to pay the average auction prices to get access. This proportion of the portfolio provides diversified exposure to syndicates that have experienced underwriting teams, well-established portfolios where each management team allocates capital to the business areas with the better risk adjusted returns.

Tenancy syndicates - We have a mix of longstanding relationship capacity and those syndicates where we are supporting for the first time. In reality, while we hope to have secured capacity over the long term, this is opportunistic capacity that we have identified and that adds to our overall portfolio construction.

Curation of the portfolio

The table shows the movement in the portfolio to the opening position for the 2023 year of account. The portfolio has been actively managed during the year to achieve the following:

 

Freehold

Tenancy

Total Capacity

Start 1 January 2022 YOA

144.8

87.9

232.7

Pre-emptions

21.7

14.8

36.6

New syndicates

-

49.4

49.4

Auction - sales

(31.6)

-

(31.6)

Auction - buy

14.8

-

14.8

Increase in tenancy

-

22.4

22.4

Acquisitions

4.9

0.8

5.7

Discarded capacity

(7.5)

(25.4)

(32.8)

Start 1 January 2023 YOA

147.3

149.4

296.7

% increase

2%

70%

27%

 

Pre-emptions - £37m - the syndicates' supported grew their businesses on average by 16% for the 2023 year of account and we took up these pre-emptions for no cost.

New syndicates - £49m - new participations on four syndicates for 2023: Arch, Flux, CFC, MIC Global.

Auction sales - £32m - sold capacity on Beazley 623 and Tokio Marine 510 to get better balance in the portfolio and to raise some cash. In addition, we decided to reduce our exposure on syndicate Cathedral 2010, to reduce the catastrophe exposure and come off Argenta syndicate 2121 entirely.

Auction - buy - £15m - we again took advantage of lower-than-expected prices on syndicates to purchase £10m of capacity on the motor syndicate 218 - which will benefit from the improved investment returns in the future.

Increase in tenancy - £22m - increased participations on syndicates Beazley 5623, Apollo 1971, Apollo 1960 and Dale 1729.

Acquisitions - £5m - the capacity acquired supplemented the existing freehold capacity participations.

Discarded capacity - £33m - to reduce the catastrophe exposure, we came off most of the SPA Cat syndicates (6104, 6107, 6117) and reduced our participations on syndicates with higher-than-average exposure.

Portfolio underwriting result

The portfolio achieved a pro forma combined ratio of 93% in comparison with the combined ratio for the Lloyd's market of 91.9%. The combined ratio has been calculated by applying the 2022 Helios capacity to the 2022 combined ratios of syndicates supported to estimate a pro forma Helios combined ratio. This removes the distortion of the significant growth in the portfolio to demonstrate the underlying quality of the portfolio.

The chart shows quartile ranking of the Helios supported syndicates within the universe of all syndicates at Lloyd's. It shows that over 50% of the Helios portfolio is ranked in the first and second quartile of Lloyd's syndicates.

Quartile 1 - 22%

Quartile 2 - 36%

Quartile 3 - 16%

Quartile 4 - 26%

The calendar year underwriting profit from the Helios retained capacity for 2022 has been generated from the portfolio of syndicate results from the 2020 to 2022 underwriting years as follows:

Portfolio underwriting result          

 

2020

2021

2022

Total

Portfolio capacity by underwriting year £m

121.2

150.8

238.4


Gross underwriting result £m

7.2

7.9

(9.5)

5.6

Investment income £m

(2.5)

(1.0)

-

(3.5)

Portfolio result by underwriting year £m

4.7

6.9

(9.5)

2.1

Helios retained %

59%

66%

75%


Helios share of the portfolio result £m

2.8

4.5

(7.1)

0.21

 

The strategy to take advantage of the excellent underwriting conditions, to grow the capacity portfolio and to increase the Helios share of the capacity portfolio has impacted the overall result for 2022 for two reasons:

a)    The growth in the capacity portfolio to £238m for 2022, a 97% increase from the 2020 portfolio has resulted in the 2022 underwriting year loss at the 12-month stage having a disproportionate impact on the Helios share of the result.

b)    Helios' increased share of the portfolio, increasing to 75% for the 2022 underwriting year, has also had a negative impact on the overall result for calendar year 2022.

The 2022 underwriting year result at 12 months represents an accounting loss of 4.1% (2021: loss of 3.9%) on the retained capacity of £178m (2021: £99m). The Lloyd's market incurred major losses of 12.7% (2021: 11.2%) of net earned premium so a further year of significant major losses for the market. Major claims in 2022 for the insurance industry is estimated to amount to $130m and include natural catastrophe losses such as Hurricane Ian, Hurricane Fiona and Australian Floods, as well as non-natural catastrophe losses such as those arising from the conflict in Ukraine. Two supported syndicates had material exposure to the natural catastrophes during the year and these losses have been fully recognised in the year.

The negative investment returns on the assets managed by the syndicates have arisen from mark-to-market accounting rules requiring them to mark the value of assets down to reflect prevailing market conditions - in this case, rising interest rates. However, this loss is expected to reverse out in 2023 as higher interest rates lead to greater investment returns on the syndicate assets.

During 2022, the 2020 underwriting year mid-point profit improved to a profit of 3.1% (2021: profit of 1.0%), outperforming the average of the Lloyd's market by 2.2%. Given that losses from COVID-19 of 10% of capacity for the Helios portfolio have predominantly fallen on the 2020 underwriting year, the overall profit is encouraging. The mid-point estimate for the 2021 underwriting year at 31 December 2022 is a profit of 2.4% (2021: profit of 1.9%).

We would expect the GAAP earnings in 2023 from the 2022 and 2021 underwriting years to make a significant contribution to Helios' earnings both from the profitability in the underlying portfolios and as positive investment returns are recognised.

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:

 

2022

£'000

2021

£'000

Fees from reinsurers

562

616

Corporate reinsurance recoveries

33

(372)

Gain on bargain purchases

-

1,219

Investment income

647

1,237

Total other income

1,242

2,700

 

The investment returns on the assets managed by the supported syndicates are included in the overall portfolio underwriting result.

Financial investments

£'000

Investment

return

 £'000

Yield

Syndicate investment assets

152,242

(3,423)

(2.2%)

Group investment assets

73,771

647

0.1%

 

226,013

(2,776)

(1.2%)

 

Helios' share of the syndicate investments incurred a loss in the year of 2.2% as interest rates increased and this has masked the improvement in underwriting margins. Group investment funds remained in cash and targeted investments were made, which made a small positive return. These funds have now been fully invested in a short duration bond portfolio. The Group's share of the syndicate investments is expected to continue to increase to reflect the growth of the capacity portfolio.

Fees from the quota share reinsurers reflect the fee payable on the funds at Lloyd's provided and profit commission relating to the 2020 and 2021 year of account has been accrued.

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.

 

2022

£'000

2021

£'000

Pre-acquisition

46

1,271

Reinsurance costs

1,261

 1,871

Operating costs

5,220

3,604

Total costs

6,527

 6,746

 

The reinsurance costs include the stop loss premiums and the cost of the excess of loss funds at Lloyd's facilities that are expected to improve the returns generated by Helios' shareholders. The stop loss costs incurred in 2022 have been partially deferred to reflect the exposure of the portfolio that extends over two years. £22.7m of additional underwriting capital was sourced in 2023 through a reinsurance contract at a cost of £2.0m.

The operating costs include the transaction costs of a material acquisition that did not proceed. The internal infrastructure of the business will be expanded in 2023 given the overall growth of the fund.

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.

 

2022

£'000

2021

£'000

Net tangible assets

55,743

46,856

Fair value and capacity (WAV)

59,967

59,796

 

115,710

106,652

Shares in issue (Note 21)

76,218

67,786

Net tangible asset value per share (£)

1.52

1.57

 

The capital employed per share, the assets used to generate earnings which exclude the deferred tax liability on capacity value is as follows:

 

2022

£'000

Net assets

115,710

Deferred tax provision on capacity value

14,139

Capital employed

129,849

Shares in issue (Note 21)

76,218

Capital employed per share (£)

1.70

 

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 18p (2021: 22p) 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.

 

2022

£m

2021

£m

Freehold capacity with value

147.3

144.8

Relationship capacity

149.4

87.9

 

296.7

232.7

Value of portfolio

60.0

59.9

Value per £ of freehold capacity

41p

41p

 

The average price per £ of freehold capacity has remained at 41p per £ of capacity as the pre-emptions offered increased the value of the portfolio while the decline in average prices partially offset this increase. 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.

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:

 

Capacity

value

Revised

NTAV

per share

Current value - £m

60.0

1.52

Decrease of 10%

54.0

1.46

Increase of 10%

66.0

1.58

 

Each 10% reduction in the capacity values at the 2023 auctions will reduce the NAV by approx. 6p per share (2021: 7p 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.

Acquisition strategy

Helios acquired three LLVs in 2022 (2021: 28) a reduction in the activity of the previous year following the uncertainty created by the war in Ukraine. We will continue to approach the owners of LLVs directly, which has the advantage of:

•     raising the profile of Helios as a potential purchaser of LLVs;

•     allowing owners of LLVs 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 ongoing exercise to offer owners of LLVs an alternative to investing at Lloyd's by taking Helios shares as part of the consideration.

The ongoing conflict in Ukraine has created material uncertainties in establishing fair value of an LLV, and, therefore, £0.5m of the agreed consideration has been deferred pending the final 2021 year of account result of syndicates within the portfolio acquired that could have material exposure to events in Ukraine.

During 2022, a further three LLV's were acquired.

 

Summary of acquisitions

 

Goodwill

 

Total

 consideration

£m

Capacity

£m

Humphrey

value

£m

Discount to

 Humphrey

 

Negative

Positive

2022

5.7

5.7

6.3

10%



374

2021

27.3

34.8

28.9

6%


1,219

319

2020

10.2

10.9

13.2

23%

 

1,260

-

 

The three (2021: 28) acquisitions in 2022 were purchased for a total consideration of £5.7m (2021: £27.3m), of which £2.6m (2021: £18m) was attributed to the value of capacity acquired. The marginal result for 2022 for Lloyd's has delayed the recognition of profits in the LLVs and consequently 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.

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 again reduced the proportion of the capacity portfolio ceded for the 2023 year of account.

We expect to increase the participation of third party capital to support the growth of the capacity fund in 2024.

 

2020

2021

2022

2023

Total capacity ceded - £m

49.1

51.5

60.8

58.3

Current total capacity - £m

121.2

150.8

238.4

296.7

Helios' share of total capacity

59%

66%

75%

80%

 

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 were generally under-priced and hence the syndicate managers have been reducing their catastrophe exposures. The broad reinsurance market correction is a fundamental shift in risk versus return metrics presenting opportunities to pivot the portfolio in the future.

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 the 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 80% (2022 YOA: 75%) 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:

Expected loss as % of capacity


Impact on net asset value

 

2023

2022

 

2023

2022

AEP 1 in 30 - whole world natural catastrophe

14.3%

18.6%


11.4%

10.3%

AEP 1 in 30 US/GOM windstorm

10.2%

12.8%


11.4%

9.0%

Terrorism

8.4%

11.4%


11.4%

9.0%

Cyber - cloud cascade

8.3%

8.3%

 

11.4%

9.0%

 

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. Notwithstanding the reduction in the natural catastrophe exposure in the 2023 portfolio, the impact on net assets has increased as the retained capacity has increased. The similarity on the impact on the net assets from a loss arises as the expected loss will result in only a net retention from the stop loss of 7.5% of capacity.

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:

Underwriting capital on underwriting year

2023

£m

2022

£m

Quota share reinsurance panel

27.8

26.1

Excess of loss funds at Lloyd's

41.2

20.0

Helios' own funds

58.3

43.3

Total

127.3

89.4

Capacity as at 1 January

296.6

232.7

Economic capital requirement

125.7

90.9

Solvency and other adjustments

0.7

(1.5)

 

126.4

89.4

Capital ratio

43%

38%

 

Environmental, social and governance responsibility

On 23 March 2023, the Board approved an environmental, social and governance (ESG) policy statement. Helios offers investors exposure to a diversified portfolio of syndicates at Lloyd's of London. As a consequence, Helios is inexorably aligned to the approach Lloyd's takes with regard to the society as a whole in addition to those adopted by the various managing agencies.

As we construct our portfolio each year, considerable emphasis is given to understanding individual syndicate actions with regard to ESG. This includes an understanding of the risks contemplated as well as the ESG initiatives adopted within the respective businesses and their management teams.

We support the ESG strategy of Lloyd's, who has outlined their ambition to integrate sustainability into all of Lloyd's business activities. Lloyd's has stated that embedding ESG across the market and corporation is a top priority and is interwoven with their purpose of creating a better world. Helios fully supports Lloyd's approach and oversight of the market. More information can be found at: https://www.lloyds.com/about-lloyds/responsible-business/esgreport2021.

Helios is committed to diversity and maintaining an inclusive workplace culture where everyone of any background is able to contribute in full to the success of our business. Helios believes that a commitment to protecting diversity is not only morally imperative but an excellent business strategy. While Helios' workforce is very small, we actively engage with our outsource partners, ensuring our ESG principles are maintained. In addition, Helios is expecting to be a signature to the UN Principles For Responsible Investment (www.unpri.org) and we strive to adopt the six key principles for responsible investment.

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.

Martin Reith

Chief Executive Officer

25 May 2023

 

 

Lloyd's Advisers' report - Hampden Agencies

 

Hard insurance market conditions persist - reinsurance now a genuinely hard market for the first time since 2006

The hard insurance pricing environment continued in 2022 in most classes with Lloyd's reporting rate increases for 20 consecutive quarters, which have compounded over this period by 44.5%. At 1 January 2023, the reinsurance renewals were the most challenging for buyers in a generation against a backdrop of 2022 being the second year in succession suffering insured losses from natural catastrophes of well above $100bn, while rising bond yields during 2022 curtailed reinsurers' risk appetite owing to mark to market losses on their investment portfolios.

The cycle in insurance and reinsurance is a classic supply led cycle with pricing driven more by changes in supply than demand. The impact of inflation increased demand from insurers for risk transfer to reinsurers with additional limit required of up to $30bn. Combined with a change in the supply of capital, which was reduced by up to $50bn, the supply/demand imbalance at 1 January 2023 was estimated at $50bn to $80bn by US insurance analyst Dowling & Partners.

The impact of the supply/demand imbalance led to a hard reset of the property catastrophe reinsurance market with several years' worth of re-underwriting being achieved in a single renewal at 1 January 2023. A re-acceleration of property insurance rate rises has followed with insurers having to bear not only higher reinsurance rates but tighter terms and conditions. US property insurance rates have risen by 17% in Q1 2023 compared with 11% the previous quarter according to Marsh, the world's largest broker.

Helios gross written premium growth

Helios reports strong profitable growth in gross written premium to £244.6m for 2022 (£106.1m in 2021). In a period of strong underwriting conditions, Helios' growth in gross written premium was 130.6% compared with Lloyd's growth in the same period of 19.0%. During 2022, in addition to rate increases, growth benefited from premium increases owing to inflation particularly in the property classes as well as foreign exchange movements with the US dollar gaining by 11.1% against pound sterling ending the year at $1.20:£1.

In common with other suppliers of third party capital, Helios has the agility to optimise its returns over the insurance cycle by growing strongly in the current hardening market conditions through acquisitions of corporate members, negotiating leasehold participations on syndicates and acquiring capacity at Lloyd's annual capacity auctions with portfolio allocation decisions being taken in house by Helios' management team. Helios' growth has been significantly above the industry average, seeking to maximise premium volume when rates are rising. Since the bottom of the soft market in 2017, Helios' gross written premium has grown by just over seven fold.

Over the past five years, Helios' calendar year net combined ratio (before corporate costs) has outperformed Lloyd's by three percentage points a year, with an average combined ratio of 97.5% compared with 100.5% for the overall Lloyd's market. The chart below shows the combined ratio of the Helios portfolio compared with Lloyd's from 2018 to 2022.

However, for the second year running, Helios underperformed Lloyd's net combined ratio, which was 91.9% in 2022 (93.5% in 2021), the best year since 2015, owing to the new business expense strain of increasing gross written premiums which were not fully earned in 2022. Helios' net combined ratio was 96.4% in 2022 (93.9% in 2021). The growth in the capacity portfolio in 2022 has had a disproportionate impact in the combined ratio.

Helios' combined ratio compares favourably with both insurance and reinsurance peer groups. A preliminary estimate of United States property/casualty insurers by AM Best was a combined ratio of 102.7% in 2022, while a basket of 19 reinsurance companies in reinsurance brokers Aon's Reinsurance Aggregate reported an average combined ratio of 96.2% in 2022.

2020 account closed year

With the closure of the 2020 account at 31 December 2022 the Helios portfolio has outperformed Lloyd's for the 12th successive three-year account result, reporting a profit of 3.1% on capacity compared with the Lloyd's market average result which was a profit of 0.9% on capacity.

Covid-19 claims for Helios cost 3% of capacity. Covid-19 claim estimates overall were stable over 12 months, though property reinsurance losses from Covid-19 deteriorated. Lloyd's maintains strong reserves with a market aggregate IBNR of £0.7bn (22% of net ultimate loss of £3.2bn).

The improvement in the final 12 months was lower than in previous years, owing to a deterioration in the investment return largely from unrealised mark to market losses in syndicates' bond portfolios.

2020 was another year of above average catastrophe claims. A very active hurricane season with a record number of named storms only caused moderate insured losses of USD 20bn, including Hurricanes Sally and Laura. The year was also hit by Covid-19 claims, a $7bn mid-west Derecho and the Texas freeze, Uri, which occurred in February 2021 with losses going back to the 2020 Account. Swiss Re reported that global insured losses from natural catastrophes were $81bn in 2020 with an additional $8bn from man-made disasters. Total insured losses of $89bn made 2020 the sixth highest on record with 70% of the natural catastrophe insured losses resulting mostly from severe convective storms and wildfires. These events, known as secondary perils, have increased in frequency and are associated with the effect of climate change.

2021 account open year

The 2021 open year estimate is a profit of 2.4% of capacity at Q8 (Lloyd's market average is a profit of 4.2% of capacity) and includes estimates from the 28 acquisitions made by Helios during 2021.

2021 was another year when catastrophe events were above average. Swiss Re reported insured losses totalling $119bn, the fifth highest on record, with the rise in insured losses maintaining a long-term trend based on ten year moving averages of 5% to 7% growth annually.

Secondary perils, including floods, were at the forefront, accounting for more than 70% of all insured losses with the European flood Bernd in July causing insured losses above $10bn, the same as Winter Storm Uri in February in the US. The main loss event of 2021 was Hurricane Ida, a category four hurricane which was the second most damaging hurricane to make landfall in Louisiana on record behind Hurricane Katrina in 2005, with insured losses estimated at $30bn-$32bn. There were 21 named storms in the 2021 hurricane season, less than the record 30 in 2020.

The 2021 account will also be affected by insured claims from the conflict in Ukraine, which began in February 2022, most of which we expect to fall into the 2021 account. Exposed classes include aviation, marine, political violence, political risk and trade credit. Lloyd's increased reserves at the 2022 year end to £1.4bn, but 90% is IBNR, in particular from aviation business.

2022 account so far

The first set of estimates for the 2022 account are released at the end of May 2023.

At $125bn, global insured losses from natural catastrophes in 2022 were the fourth highest on record. Each region of the world suffered a major event. Hurricane Ian, which made landfall in Florida on 28 September 2022 (insured losses estimated in a range of $50bn to $65bn by Swiss Re), was the year's biggest loss event, and ranks as the second-costliest insurance natural catastrophe loss ever on record after Hurricane Katrina.

Lloyd's estimates net Hurricane Ian losses at £2bn (compared with Lloyd's December 2022 guidance in the range of $2.3bn to $3bn) which is within its range of modelled outcomes and is equivalent to a market share of the total industry loss of between 3% and 5%. This estimate is lower than the average market share of major recent North American hurricanes since 2017 of 6.5%. As well as Hurricane Ian, major claims included Hurricane Fiona, Australian floods as well as losses from the war in Ukraine.

Today, average annual industry losses from natural catastrophes of more than $100bn are standard. Last year's outcome continued a run of elevated global insured losses since 2017 after a benign 2012-2016 period, reaffirming an average annual growth rate of 5-7% in losses in place since 1992. This trend is expected to continue, driven by growing loss severity on account of rising property and values-at-risk exposures, continued urban sprawl, economic growth and a backdrop of hazard intensification owing to climate change effects.

Guy Carpenter reported that reinsurance market conditions began to harden more materially in 2022 with property capacity becoming constricted since 1 January 2022 and inflation became a significant factor in renewal discussions. Its US Property Catastrophe Rate On Line Index increased by 15% for January through July renewals, the most significant change since 2006, bringing rates back to 2009 levels, while its Global Rate On Line Index increased by 10.8%.

Market conditions in 2023

Insurers and reinsurers are now seeing annual industry losses of $100bn or more as standard with this level having been reached in five years since 1970 and in three of the past five years (2017, 2021 and 2022). Growth in insured values from inflation has boosted demand for cover while supply has been constrained owing to a reduction in risk appetite on the part of capital providers. In addition, interest rate increases to combat inflation have increased the cost of capital and reduced the value of financial assets, further limiting supply. Against this backdrop, at 1 January 2023 property catastrophe reinsurance rates rose to close to 20 year highs.

Primary insurance rate increases have continued so far in 2023 with the Marsh Global Insurance Market Index up 4% in Q1 2023, the same as in Q4 2022. US property rate increases re-accelerated for the second quarter running to 17%, up from 11% the previous quarter. Casualty pricing was up by 2% and financial and professional lines liability insurance rates continued to fall by 13% compared with 10% in Q4 2022.

The pace of rate increases continued to slow for cyber insurance due to increased competition with rates up by 11% compared with 28% in the previous quarter. Lloyd's mandated a new cyber war exclusion, effective from 31 March 2023, in order to manage potential systemic loss. The most competitive area of the market is now Directors and Officers' liability business with more capacity-chasing premium following multiple years of price increases until 2022. Aon's D&O Pricing Index was down 24.9% in Q1 2023.

Marsh's Global Insurance Market Index shows the annual change in rate over the previous four quarters. The compounded rate change since Q1 2017 is now up 59% at Q1 2023.

Guy Carpenter reported that the 1 January 2023 property reinsurance renewals were one of the most challenging for buyers with reinsurers focusing on both attachment points and coverage as well as rate. Its US Property Catastrophe Rate On Line Index increased by 30.1% for January, a new all-time high, while its Global Property Catastrophe Reinsurance Rate On Line Index rose by 27.5%, shown in the chart below, which now brings the index to a similar level to 2006. We also show the compounded rate increase since 2017, which is 65%.

Reinsurance market conditions remained challenging for buyers at the 1 April renewals. Risk appetite for property catastrophe reinsurance remains constrained. Reinsurers continue to push for structural changes and tightened terms and conditions. Limited new capital has entered the market to support property catastrophe risks. In Japan, property cat rates were up 15% to 25%. The impact of rate increases on ceded premiums was mitigated by higher retentions.

At 1 April the supply/demand imbalance remains. Gallagher Re noted "capital supply remained constrained with few signs of fresh capital entering the market and existing reinsurers being impacted by mark to market losses. The hopes of some buyers that new capacity might enter the market at this renewal along with signs of amelioration in hardening Terms and Conditions would emerge were unfulfilled".

With 1 April reinsurance renewals now complete, attention now turns to the mid-year renewals and specifically Florida for 1 July where a very challenging renewal is anticipated for the specialist homeowners writers, particularly in light of the opportunities elsewhere in the market.

Market Outlook

Our view at Hampden is that the supply of capital is the critical factor in the rating environment which drives underwriting margins. The market is not without challenges. Inflation, rising bond yields, climate change, cyber threats, liability reserves, economic uncertainty, sovereign debt, bank deposits and the impact of Ukraine are key concerns, but all these factors contribute to restricted risk appetite which is a favourable backdrop. Premiums overall and across most classes continue to rise relative to exposure enabling catastrophe losses to be absorbed and still make an underwriting profit. We remain positive in our market outlook for favourable market conditions to continue throughout 2023.

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 financial information provided by each syndicate.

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

 

2022

£'000

2021

£'000

Underwriting profit

116

639

Other income:



- fees from reinsurers

562

616

- corporate reinsurance policies

33

(372)

- goodwill on bargain purchase

-

1,219

- investment income

647

1,237

Total other income

1,242

2,700

Costs:



- pre-acquisition

(46)

(1,271)

- stop loss costs

(1,261)

(1,871)

- operating costs

(5,220)

(3,604)

Total costs

(6,527)

(6,746)

Operating profit before impairments of goodwill and capacity

(5,169)

(645)

Tax

1,852

211

Revaluation of syndicate capacity

2,670

8,132

Income tax relating to the components of other comprehensive income

(668)

(2,766)

Comprehensive income

(1,315)

4,932

 

Year to 31 December 2022

Underwriting year

Helios

retained

 capacity at

 31 December

2022

£m

Portfolio

midpoint

forecasts

Helios

profits

£'000

2020

72.0

3.1%

2,647

2021

99.3

2.4%

4,546

2022

177.6

N/A

(7,077)

 

 

 

116

 

Year to 31 December 2021

Underwriting year

Helios

retained

 capacity at

 31 December

2021

£m

Portfolio

midpoint

forecasts

Helios

profits

£'000

2019

67.4

2.7%

4,092

2020

66.6

0.97%

2,915

2021

93.6

N/A

(3,606)

 

 

 

3,401

 

Summary balance sheet (excluding assets and liabilities held by syndicates)

See Note 28 for further information.

 

2022

£'000

2021

£'000

Intangible assets

61,434

60,889

Funds at Lloyd's

73,771

43,589

Other cash

10,254

16,178

Other assets

6,909

5,517

Total assets

152,368

126,173

Deferred tax

11,228

11,887

Borrowings

15,000

-

Other liabilities

3,839

3,052

Total liabilities

30,067

14,939

Total syndicate equity

(5,123)

(3,488)

Total equity

117,178

107,746

 

Cash flow

Year to 31 December

Analysis of free working capital

2022

£'000

2021

£'000

Opening balance (free cash)

16,178

4,961

Income



Cash acquired on acquisition

123

1,939

Distribution of profits (net of tax retentions)

2,736

475

Transfers from funds at Lloyd's

4,772

336

Other income

280

95

Proceeds from the sale of capacity

5,372

-

Proceeds from the issue of shares

12,421

53,231

Borrowings

15,000

-

Cancelled reinsurance policy refunds

1,628

6,964

Expenditure



Operating costs

(4,099)

(3,702)

Reinsurance costs

(5,005)

-

Purchase of capacity

(321)

(2,663)

Acquisition of LLVs

(4,877)

(26,529)

Transfers to funds at Lloyd's

(31,578)

(12,270)

Tax

(342)

(641)

Dividends paid

(2,034)

(2,018)

Repayment of borrowings

-

(4,000)

Closing balance

10,254

16,178

 

Year to 31 December

Net tangible assets

2022

£'000

2021

£'000

Net assets less intangible assets

57,211

46,856

Fair value of capacity (WAV)

59,967

59,796

 

117,178

106,652

Shares in issue - on the market (Note 21)

76,218

67,786

Shares in issue - total of on the market and JSOP shares (Note 21)

77,318

68,886

Net tangible asset value per share £ - on the market

1.54

1.57

Net tangible asset value per share £ - on the market and JSOP shares

1.52

1.55

 

Combined ratio summary of Helios Portfolio (see Note 6)

 

2022

2021

Net premiums earned


156,606

92,692

Net insurance claims


(96,796)

(54,086)

Operating expenses included in underwriting result

 

(54,210)

(32,921)

Insurance result

 

5,600

5,685

Combined ratio

 

96.4%

93.9%

 

Change in Accounting Policy to UK GAAP

Helios is currently required to prepare its financial statements using International Financial Reporting Standards (IFRS) The implementation of the IFRS 17: Insurance Contracts standard came into force for accounting periods commencing on 1 January 2023 for listed insurance companies in the UK. For Helios it will not be possible to adopt IFRS 17 as Lloyd's has yet to mandate that all syndicates prepare their financial information using IFRS 17 and as Helios relies on the syndicates supported to provide the necessary financial information, Helios is considering adopting an alternative accounting framework.

For illustration purposes the table below presents the changes that would be necessary if the Group were to adopt UK GAAP. The single most significant change is to the approach of recognising income is in respect of the treatment of Negative Goodwill. Negative Goodwill arises on the acquisition of LLV's when the consideration paid is less than the fair value of the LLV acquired. Under UK GAAP the negative goodwill will not be recognised in full immediately but will be amortised over three years in the future.

The table below shows the potential impact on the 2022 and 2021 financial statements of adopting UK GAAP.

Impact of UK GAAP on Amortisation of Negative Goodwill

Year to 31 December

 

2022

£'000

2021

£'000

Underwriting profit

116

639

Other income:



- fees from reinsurers

562

616

- corporate reinsurance policies

33

(372)

- goodwill on bargain purchase

-

1,219

- investment income

647

1,237

Total other income

1,242

2,700

Costs:



- pre-acquisition

(46)

(1,271)

- stop loss costs

(1,261)

(1,871)

- operating costs

(5,220)

(3,604)

Total costs

(6,527)

(6,746)

Operating profit before impairments of goodwill and capacity

(5,169)

(645)

Tax

1,852

211

Revaluation of syndicate capacity

2,670

8,132

Income tax relating to the components of other comprehensive income

(668)

(2,766)

Comprehensive income

(1,315)

4,932

Add back goodwill on bargain purchase

-

(1,219)

Charge goodwill amortisation

1,278

1,062

Adjusted comprehensive (loss)/income

(37)

4,775

Basic - weighted average number of shares in issue

68,168,599

58,058,164

Diluted weighted average number of shares in issue

69,292,082

58,783,369




IFRS EPS



Basic (loss)/earnings per share (p)

(4.87)

(0.75)

Diluted (loss)/earnings per share (p)

(4.87)

(0.75)




UK GAAP EPS



Basic (loss)/earnings per share (p)

(2.99)

(1.02)

Diluted (loss)/earnings per share (p)

(2.99)

(1.02)

 

Further information will be provided when the new accounting policy is adopted.

 

Consolidated statement of comprehensive income - Year ended 31 December 2022

 

 

Note

Year ended

31 December

2022

£'000

Year ended

31 December

2021

£'000

Gross premium written

6

244,615

106,058

Reinsurance premium ceded

6

(56,977)

(26,935)

Net premium written

6

187,638

79,123

Change in unearned gross premium provision

7

(45,723)

(11,201)

Change in unearned reinsurance premium provision

7

8,478

1,484

Net change in unearned premium and reinsurance provision

7

(37,245)

(9,717)

Net earned premium

5,6

150,393

69,406

Net investment income

8

(2,776)

568

Other underwriting income


1,127

723

Gain on bargain purchase

22

-

1,219

Other income

 

(399)

(82)

Revenue

 

148,345

71,834

Gross claims paid


(66,652)

(46,478)

Reinsurers' share of gross claims paid

 

15,832

11,328

Claims paid, net of reinsurance

 

(50,820)

(35,150)

Change in provision for gross claims

7

(63,339)

(15,796)

Reinsurers' share of change in provision for gross claims

7

18,320

6,204

Net change in provision for claims

7

(45,019)

(9,592)

Net insurance claims incurred and loss adjustment expenses

6

(95,839)

(44,742)

Expenses incurred in insurance activities


(53,828)

(25,407)

Other operating expenses

 

(3,847)

(2,330)

Total expenses

9

(57,675)

(27,737)

Operating profit before impairments of goodwill and capacity

6

(5,169)

(645)

Income tax credit

10

1,852

211

Loss for the year

 

(4,262)

(434)

Other comprehensive income




Revaluation of syndicate capacity


2,670

8,132

Deferred tax relating to the components of other comprehensive income

 

(668)

(2,766)

Other comprehensive income for the year, net of tax

 

2,002

5,366

Total comprehensive (loss)/income for the year

 

(1,315)

4,932

Loss for the year attributable to owners of the Parent

 

(3,317)

(434)

Total comprehensive (loss)/income for the year attributable to owners of the Parent

 

(1,315)

4,932

Loss per share attributable to owners of the Parent




Basic

11

(4.87)p

(0.75)p

Diluted

11

(4.87)p

(0.74)p

 

The loss attributable to owners of the Parent, the total comprehensive income and the earnings per share set out above are in respect of continuing operations.

The notes are an integral part of these Financial Statements.

 

 

 

Consolidated statement of financial position - At 31 December 2022

Company number: 05892671

 

 Note

31 December

2022

£'000

31 December

2021

£'000

Assets




Intangible assets

13

61,434

60,889

Financial assets at fair value through profit or loss

15

226,013

153,844

Reinsurance assets:




- reinsurers' share of claims outstanding

7

80,726

53,433

- reinsurers' share of unearned premium

7

21,333

10,538

Other receivables, including insurance and reinsurance receivables

16

147,676

87,859

Deferred acquisition costs

17

24,991

13,615

Prepayments and accrued income


5,076

799

Cash and cash equivalents

 

25,300

24,624

Total assets

 

592,549

405,601

Liabilities




Insurance liabilities:




- claims outstanding

7

272,015

186,653

- unearned premium

7

114,663

59,611

Deferred income tax liabilities

18

11,312

11,965

Borrowings

19

15,000

-

Other payables, including insurance and reinsurance payables

20

54,893

34,927

Accruals and deferred income

 

7,488

4,699

Total liabilities

 

475,371

297,855

Equity




Equity attributable to owners of the Parent:




Share capital

21

7,774

6,931

Share premium

21

98,268

86,330

Revaluation reserve


11,350

9,348

Other reserves - treasury shares (JSOP)


(110)

(110)

Retained earnings

 

(104)

5,247

Total equity

 

117,178

107,746

Total liabilities and equity

 

592,549

405,601

 

The Financial Statements were approved and authorised for issue by the Board of Directors on 25 May 2023, and were signed on its behalf by:

Martin Reith

Chief Executive Officer

25 May 2023

The notes are an integral part of these Financial Statements.

 

Parent Company statement of financial position - At 31 December 2022

Company number: 05892671

 

Note

31 December

2022

£'000

31 December

2021

£'000

Assets




Investments in subsidiaries

14

65,546

71,362

Financial assets at fair value through profit or loss

15

731

285

Other receivables

16

74,783

38,496

Cash and cash equivalents

 

9,348

14,094

Total assets

 

150,408

124,237

Liabilities




Borrowings

19

15,000

-

Other payables

20

5,130

3,864

Total liabilities

 

20,130

3,864

Equity




Equity attributable to owners of the Parent:




Share capital

21

7,774

6,931

Share premium

21

98,268

86,330

 

 

106,042

93,261

Retained earnings:




At 1 January


27,112

19,325

(Loss)profit for the year attributable to owners of the Parent


(842)

9,805

Other changes in retained earnings

 

(2,034)

(2,018)

At 31 December

 

24,236

27,112

Total equity

 

130,278

120,373

Total liabilities and equity

 

150,408

124,237

 

The Financial Statements were approved and authorised for issue by the Board of Directors on 25 May 2023, and were signed on its behalf by:

Martin Reith

Chief Executive Officer

25 May 2023

The notes are an integral part of these Financial Statements.

 

 

Consolidated statement of changes in equity - Year ended 31 December 2022

 


Attributable to owners of the Parent


 

Note

Share

capital

£'000

 Share

premium

£'000

Revaluation

reserve

Other

reserves

(JSOP)

£'000

Retained

earnings

£'000

Total

equity

£'000

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

(100)

5,247

107,746

At 1 January 2022

 

6,931

86,330

9,348

(110)

5,247

107,746

Total comprehensive income for the year:








Loss for the year


-

-

-

-

(3,317)

(3,317)

Other comprehensive income, net of tax

 

-

-

2,002

-

-

2,947

Total comprehensive income for the year

 

-

-

2,002

-

(3,317)

(1,315)

Transactions with owners:








Dividends paid

12

-

-

-

-

(2,034)

(2,034)

Company buyback of ordinary shares

21, 23

-

-

-

-

-

-

Share issue, net of transaction cost

21

843

11,938

-

-

-

12,781

Other comprehensive income, net of tax

 

-

-

-

-

-

-

Total transactions with owners

 

843

11,938

-

-

(2,034)

10,747

At 31 December 2022

 

7,774

98,268

11,350

(110)

(104)

117,178

 

The notes are an integral part of these Financial Statements.

 

 

Parent Company statement of changes in equity -
Year ended 31 December 2022

 

 

Note

Share

capital

£'000

Share

premium

£'000

Retained

earnings

£'000

Total

equity

£'000

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

At 1 January 2022

 

6,931

86,330

27,112

120,373

Total comprehensive income for the year:






Loss for the year


-

-

(842)

(842)

Other comprehensive income, net of tax

 

-

-

-

-

Total comprehensive income for the year

 

-

-

(842)

(842)

Transactions with owners:






Dividends paid

12

-

-

(2,034)

(2,034)

Company buyback of ordinary shares

21, 23

-

-

-

-

Share issue, net of transaction costs

 

843

11,938

-

12,781

Total transactions with owners

 

843

11,938

(2,034)

10,747

At 31 December 2022

 

7,774

98,268

24,236

130,278

 

The notes are an integral part of these Financial Statements.

 

 

Consolidated statement of cash flows - Year ended 31 December 2022

 

 

Note

Year ended

31 December

2022

£'000

Year ended

31 December

2021

£'000

Cash flows from operating activities




Loss before tax


(5,169)

(645)

Adjustments for:




- interest received

8

(520)

(17)

- investment income

8

(2,350)

(1,549)

- gain on bargain purchase

22

-

(1,219)

- profit on sale of intangible assets


(262)

(12)

Changes in working capital:




- change in fair value of financial assets held at fair value through profit or loss

8

4,490

1,316

- increase in financial assets at fair value through profit or loss


(66,153)

(31,436)

- Increase/(decrease) in other receivables


(65,566)

1,162

- Increase/(decrease) in other payables


15,600

(3,800)

- net increase in technical provisions

 

92,262

18,285

Cash used in operations

 

(27,668)

(17,915)

Income tax paid

 

(166)

(675)

Net cash used in operating activities

 

(27,834)

(18,590)

Cash flows from investing activities




Interest received

8

520

17

Investment income

8

2,350

1,549

Purchase of intangible assets

13

(696)

(2,984)

Proceeds from disposal of intangible assets


5,373

1,809

Acquisition of subsidiaries, net of cash acquired

 

(4,784)

(13,255)

Net cash from investing activities

 

2,763

(12,864)

Cash flows from financing activities




Net proceeds from issue of ordinary share capital


12,781

53,601

Proceeds from borrowings

19

15,000

-

Repayment of borrowings

19

-

(4,000)

Dividends paid to owners of the Parent

12

(2,034)

(2,018)

Net cash from financing activities

 

25,747

47,583

Net increase in cash and cash equivalents


676

16,129

Cash and cash equivalents at beginning of year

 

24,624

8,495

Cash and cash equivalents at end of year

 

25,300

24,624

 

Cash held within the syndicates' accounts is £15,046,000 (2021: £8,446,000) of the total cash and cash equivalents held at the year end of £25,300,000 (2021: £24,624,000). 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 2022

 

 

Note

Year ended

31 December

2022

£'000

Year ended

31 December

2021

£'000

Cash flows from operating activities




(Loss)/profit before tax


(842)

9,222

Adjustments for:




- investment income


108

262

- dividends received


-

-

- impairment of investment in subsidiaries

14

7,218

(11,192)

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


(446)

(285)

- (decrease)/increase in other receivables


(241)

66

- increase/(decrease) in other payables

 

918

(28)

Net cash from operating activities

 

6,715

(1,955)

Cash flows from investing activities




Investment income


(108)

(263)

Dividends received


-

-

Acquisition of subsidiaries

14, 22

(5,352)

(22,523)

Amounts owed by subsidiaries

25

(31,748)

(12,854)

Net cash used in investing activities

 

(37,208)

(35,640)

Cash flows from financing activities




Net proceeds from the issue of ordinary share capital


12,781

53,601

Payment for Company buyback of shares

24

-

-

Proceeds from borrowings

19

15,000

-

Repayment of borrowings

19

-

(4,000)

Dividends paid to owners of the Parent

12

(2,034)

(2,018)

Net cash from financing activities

 

25,747

47,583

Net (decrease)/increase in cash and cash equivalents


(4,746)

9,988

Cash and cash equivalents at beginning of year

 

14,094

4,106

Cash and cash equivalents at end of year

 

9,348

14,094

 

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 2022

 

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 UK adopted IAS 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 £117,178,000 and £130,278,000 respectively.

The Company's subsidiaries participate as underwriting members at Lloyd's on the 2020, 2021 and 2022 years of account, as well as any prior run-off years, and they have continued this participation since the year end of the 2023 year of account. This underwriting is supported by funds at Lloyd's totalling £99,840,000 (2021: £48,913,000), letters of credit provided through the Group's reinsurance agreements totalling £27,818,000 (2021: £37,032,000) and solvency credits issued by Lloyd's totalling £1,331,000 (2021: £239,000).

The Directors have a reasonable expectation that the Group and the Company have adequate resources to meet their underwriting and other operational obligations for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the annual Financial Statements.

International Financial Reporting Standards

Adoption of new and revised standards

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 2022.

Amendments to IFRS 3 "Business Combinations" - Reference to the Conceptual Framework. IFRS 3 is updated so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework. They also add to IFRS 3 a requirement that, for transactions and other events within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 to identify the liabilities it has assumed in a business combination. Lastly, they add to IFRS 3 an explicit statement that an acquirer does not recognise contingent assets acquired in a business combination.

Amendments to IAS 16 "Property, Plant and Equipment". The changes introduced amend the standard to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss.

Amendments to IAS 37 "Provisions Contingent Liabilities and Contingent Assets". The changes specify that the "cost of fulfilling" a contract comprises the "costs that relate directly to the contract". Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts.

Annual Improvements to IFRS Standards 2018-2020 Cycle. The pronouncement contains amendments to four International Financial Reporting Standards (IFRS 1, IFRS 9, IFRS 16 and IAS 41) as result of the IASB's annual improvements project.

There is no material impact on the accounts  from adopting the above for the  year ended 31 December 2022.

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).

IAS 1 "Presentation of Financial Statements" - classification of liabilities as current or non-current (IASB effective date 1 January 2023).

IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors" (IASB effective date 1 January 2023).

IAS 12 "Income Taxes" - deferred tax related to assets and liabilities arising from a single transaction (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.

IFRS 17 "Insurance Contracts" (IASB effective date 1 January 2023) - This replaces IFRS 4 and requires an IFRS reporter to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts. It also requires that profits are recognised as insurance services are delivered (rather than when premiums are received) and for the IFRS reporter to provide information about insurance contract profits the company expects to recognise in the future.

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 2022 under UK GAAP. Consolidation adjustments are made to convert the subsidiary Financial Statements prepared under UK GAAP to IFRS so as to align accounting policies and treatments.

No income statement is presented for Helios Underwriting plc as permitted by Section 408 of the Companies Act 2006. The loss after tax for the year of the Parent Company was £842,000 (2021: profit £9,805,000).

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 this 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 makers. The chief operating decision makers, who are responsible for allocating resources and assessing performance of the operating segments, have been identified as Nigel Hanbury and Martin Reith.

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 statement of comprehensive income.

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, 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 statement of comprehensive income of the year and amounts receivable from the reinsurers are included within "reinsurers' share of gross claims paid" in the consolidated statement of comprehensive income 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 other 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 £0.10 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.

Long Term Incentive Plan ("LTIP")

In 2022, the Company operated the Helios Underwriting Plc Long Term Incentive Plan ("LTIP"). On 16 December 2022, the Company granted 571,427 (see note 23) awards under the LTIP in the form of a nil-cost options.

The awards for the Executive Directors totalled 571,427. The vesting period for the awards is three years subject to continued service and the achievement of specific performance conditions. If the options remain unexercised after a period of ten years from the date of grant, the options expire.

The awards' performance conditions set threshold (30%) to stretch (60%) targets in respect of the Company's total shareholder return ("TSR") over the three year period following the grant of the awards. No portion of the awards shall vest unless the Company's TSR at the end of the performance period reaches the threshold target, for which one quarter of the awards would vest, rising on a straight line basis to full vesting of the awards for the Company's TSR over the performance period being equal to the stretch target or better. In the case of Executive Directors, any vested shares will be subject to a two-year holding period.

The fair value of the LTIP awards is calculated using a Monte Carlo (Stochastic) model taking into account the terms and conditions of the awards granted.

No options were exercised during the year. The weighted average remaining life of the options is 9.96 years.

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 syndicate's 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 2020 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:

2022

No stated

maturity

£'000

0-1 year

£'000

1-3 years

£'000

3-5 years

£'000

>5 years

£'000

 

Total

£'000

Claims outstanding

-

98,332

95,723

39,265

38,695

272,015

 

2021

No stated

maturity

£'000

0-1 year

£'000

1-3 years

£'000

3-5 years

£'000

>5 years

£'000

Total

£'000

Claims outstanding

3

64,445

66,161

27,329

28,715

186,653

(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:

2022

AAA

£'000

AA

£'000

A

£'000

BBB or lower

£'000

Not rated

£'000

Total

£'000

Financial investments

38,125

42,837

45,204

17,617

8,126

151,909

Deposits with ceding undertakings

-

-

300

-

33

333

Reinsurers' share of claims outstanding

3,478

25,787

47,259

171

3,989

80,684

Reinsurance debtors

756

674

1,957

19

226

3,632

Cash at bank and in hand

1,374

419

13,148

1

104

15,046

 

43,733

69,717

107,868

17,808

12,478

251,603

 

2021

AAA

£'000

AA

£'000

A

£'000

BBB or lower

£'000

Not rated

£'000

Total

£'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

 

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

2022

Neither

past due

nor impaired

£'000

Less than

6 months

£'000

Between

6 months

and 1 year

£'000

Greater

than 1 year

£'000

Impaired

£'000

Total

£'000

Financial investments

151,909

-

-

-

-

151,909

Deposits with ceding undertakings

333

-

-

-

-

333

Reinsurers' share of claims outstanding

80,684

-

-

-

(18)

80,666

Reinsurance debtors

3,632

4,162

56

23

-

7,873

Cash at bank and in hand

15,046

-

-

-

-

15,046

Insurance and other debtors

88,144

5,625

1,494

717

(10)

171,774

 

415,551

9,787

1,550

740

(28)

427,600

 

Past due but not impaired

2021

Neither

past due

nor impaired

£'000

Less than

6 months

£'000

Between

6 months

and 1 year

£'000

Greater

than 1 year

£'000

Impaired

£'000

Total

£'000

Financial investments

109,635

-

-

-

-

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

(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:

2022

GBP

£'000

converted

USD

£'000

converted

EUR

£'000

converted

CAD

£'000

converted

Other

£'000

converted

Total

£'000

converted

Total assets

60,777

317,487

13,921

35,008

12,988

440,181

Total liabilities

(68,185)

(324,039)

(18,413)

(27,310)

(7,557)

(445,504)

(Deficiency)/surplus of assets

(7,408)

(6,552)

(4,492)

7,698

5,631

(5,123)

 

2021

GBP

£'000

converted

USD

£'000

converted

EUR

£'000

converted

CAD

£'000

converted

Other

£'000

converted

Total

£'000

converted

Total assets

45,145

191,697

9,537

24,446

8,603

279,428

Total liabilities

(52,934)

(194,965)

(12,655)

(18,028)

(4,334)

(282,916)

(Deficiency)/surplus of assets

(7,789)

(3,268)

(3,118)

6,418

4,269

(3,488)

 

The impact of a 5% change in exchange rates between GBP and other currencies would be £114,000 on shareholders' funds (2021: £209,000).

(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 2020, 2021 and 2022 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 2022 is £90.9m (2021: £65.3m), 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 £27.8m (2021: £37.0m) letter of credit ("LOC") acceptable to Lloyd's, on behalf of XL Re Limited 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 on pages 34 and 35.

At 31 December 2022, the corporate member subsidiaries had an agreed Economic Capital Assessment ("ECA") requirement of £125.7m (2021: £90.9m) to support their underwriting on the 2023 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 2022, the agreed ECA requirements for the Group were 43% (2021: 38%) of the capacity for the following year of account.

5. Segmental information

Nigel Hanbury and Martin Reith are the Group's chief operating decision makers. 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.

Year ended 31 December 2022

Syndicate

participation

£'000

Investment

management

£'000

Other

corporate

activities

£'000

Total

£'000

Net earned premium

150,393

-

-

150,393

Net investment income

(3,928)

1,152

-

(2,776)

Other income

533

-

195

728

Net insurance claims and loss adjustment expenses

(93,876)

-

(1,963)

(95,839)

Expenses incurred in insurance activities

(52,507)

-

(1,321)

(53,828)

Other operating expenses

(126)

-

(3,721)

(3,847)

Gain on bargain purchase (Note 22)

-

-

-

-

Impairment of goodwill

-

-

-

-

Impairment of syndicate capacity (see Note 13)

-

-

-

-

Loss before tax

489

1,152

(6,810)

(5,169)

 

Year ended 31 December 2021

Syndicate

participation

£'000

Investment

management

£'000

Other

corporate

activities

£'000

Total

£'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)

 

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 2022 other corporate activities totalling £1,964,000 (2021: £2,319,000 - 2019, 2020 and 2021 years of account) represents the 2020, 2021 and 2022 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 statement of comprehensive income of the year.

6. Operating (loss)/profit before impairments of goodwill and capacity

Underwriting year of account*

Pre-

acquisition **

£'000

Corporate

reinsurance

£'000

Other

corporate

£'000

Total

£'000

Year ended 31 December 2022

2020

and prior

£'000

2021

£'000

2022

£'000

Sub-total

£'000

 

 

 

 

Gross premium written

1,138

15,099

234,712

250,949

(6,334)

-

-

244,615

Reinsurance ceded

589

(2,994)

(54,594)

(56,999)

1,283

-

(1,261)

(56,977)

Net premium written

1,727

12,105

180,118

193,950

(5,051)

-

(1,261)

187,638

Net earned premium

5,911

56,042

94,653

156,606

(4,952)

-

(1,261)

150,393

Other income

(2,496)

(1,046)

22

(3,520)

263

562

647

(2,048)

Net insurance claims incurred and loss adjustment expenses

3,804

(30,920)

(69,680)

(96,796)

2,887

(1,964)

33

(95,839)

Operating expenses

(2,523)

(17,172)

(34,515)

(54,210)

1,756

-

(5,220)

(57,675)

Operating (loss)/profit before impairments of goodwill and capacity

4,696

6,904

(9,520)

2,080

(46)

(1,401)

(5,802)

(5,169)

Quota share adjustment

(2,049)

(2,358)

2,443

(1,964)

-

1,964

-

-

Operating (loss)/profit before impairments of goodwill and capacity, after quota share adjustment

2,647

4,546

(7,077)

116

(46)

562

(5,801)

(5,169)

Included within operating expenses of £5,220 are one off aborted acquisition fees of £700,000 and bank loan finance costs used to support the groups underwriting of £891,000.

*     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-

acquisition **

£'000

Corporate

reinsurance

£'000

Other

corporate

£'000

Total

£'000

Year ended 31 December 2021

2019

and prior

£'000

2020

£'000

2021

£'000

Sub-total

£'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.

 

7. Insurance liabilities and reinsurance balances

Movement in claims outstanding

 

Gross

£'000

Reinsurance

£'000

Net

£'000

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

At 1 January 2022

186,653

53,433

133,220

Increase in reserves arising from acquisition of subsidiary undertakings

10,888

3,177

7,711

Movement of reserves

63,339

18,320

45,019

Other movements

11,135

5,796

5,339

At 31 December 2022

272,015

80,726

191,289

 

Included within other movements are the 2019 and prior years' claims reserves reinsured into the 2020 year of account on which the Group does not participate and currency exchange differences.

Movement in unearned premium

 

Gross

£'000

Reinsurance

£'000

Net

£'000

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

At 1 January 2022

59,611

10,538

49,073

Increase in reserves arising from acquisition of subsidiary undertakings

2,846

493

2,352

Movement of reserves

45,723

8,478

37,245

Other movements

6,483

1,824

4,660

At 31 December 2022

114,663

21,333

93,330

 

Included within other movements are the 2018 and prior years' claims reserves reinsured into the 2019 year of account on which the Group does not participate and currency exchange differences.

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 2022.

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 £27,202,000 (2021: £18,665,000);

•     a 10% increase/decrease in the managing agents' calculation of net claims reserves will decrease/increase the Group's pre-tax profits by £19,129,000 (2021: £13,322,000); and

•     a 10% increase/decrease in the run-off year net claims reserves will decrease/increase the Group's pre-tax profits by £22,000 (2021: £43,000).

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

£m

 

 

 

 

 

 

 

 

 

 

 

Underwriting pure year*

After

one year

After

two

years

After

three

years

After

four

years

After

five

years

After

six

years

After

seven

years

After

eight

years

After

nine

years

After

ten

years

Profit

on RITC

received

2013

23

41

41

40

40

39

38

38

37

37

4

2014

22

38

40

40

40

39

39

39

38


6

2015

20

39

42

41

40

40

40

40



6

2016

24

51

52

51

50

50

50




4

2017

52

75

78

77

76

76





3

2018

42

71

75

72

71






5

2019

39

74

72

69







4

2020

52

90

90









2021

60

101










2022

97

 

 

 

 

 

 

 

 

 

 

 

Claims development - net

£m

 

 

 

 

 

 

 

 

 

 

 

Underwriting pure year*

 

After

one year

After

two

years

After

three

years

After

four

years

After

five

years

After

six

years

After

seven

years

After

eight

years

After

nine

years

After

ten

years

Profit

on RITC

received

2013

20

36

35

34

34

34

33

33

33

33

5

2014

19

33

34

34

34

33

33

33

33


5

2015

17

33

36

35

35

34

34

34



4

2016

19

41

41

41

40

40

39




4

2017

34

53

55

54

53

53





3

2018

30

52

54

53

52






4

2019

28

55

54

52







6

2020

39

67

67









2021

42

73










2022

70

 

 

 

 

 

 

 

 

 

 

 

*     Including the new acquisitions during 2022.

 

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

31 December

2022

£'000

Year ended

31 December

2021

£'000

Investment income

2,350

1,549

Realised (losses)/profits on financial assets at fair value through profit or loss

(1,021)

392

Unrealised losses on financial assets at fair value through profit or loss

(4,490)

(1,316)

Investment management expenses

(134)

(74)

Bank interest

519

17

Net investment income

(2,776)

568

 

9. Operating expenses (excluding goodwill and capacity impairment)

 

Year ended

31 December

2022

£'000

Year ended

31 December

2021

£'000

Expenses incurred in insurance activities:



Acquisition costs

47,897

20,299

Change in deferred acquisition costs

(10,163)

(2,358)

Administrative expenses

15,287

7,466

Other

807

-

 

53,828

25,407

Other operating expenses:



- exchange differences

(644)

32

- Directors' remuneration

718

582

- Staff costs

196

-

- acquisition costs in connection with the new subsidiaries acquired in the year

422

319

- Bank charges

292

56

- loan interest and charges

891

74

- professional fees

1,662

967

- administration and other expenses

166

187

Auditors' remuneration:



- audit of the Parent Company and Group Financial Statements

55

54

- audit of subsidiary company Financial Statements

42

49

- underprovision of prior year audit fee

-

-

- audit related assurance services

46

-

 

3,846

2,329

Operating expenses

57,674

27,737

 

The Group has three employees other than the Directors of the Company.

Details of the Directors' remuneration are disclosed below:

Directors' remuneration

Year ended

31 December

2022

£

Year ended

31 December

2021

£

Arthur Manners

182,000

212,000

Edward William Fitzalan-Howard

30,000

26,000

Jeremy Evans (resigned 6 February 2021)

-

2,000

Michael Cunningham

40,000

34,000

Andrew Christie

33,000

28,000

Nigel Hanbury

208,000

246,000

Martin Reith (appointed 21 April 2021)

200,000

17,000

Tom Libassi (appointed 21 April 2021)

25,000

17,000

Total

718,000

582,000

 

The Deputy Chairman, Nigel Hanbury, and the Finance Director, Arthur Manners, had a bonus incentive scheme during 2022 in addition to their basic remuneration. The above figures for Nigel Hanbury and Arthur Manners include an accrual for the year of £48,000 and £42,000 respectively (2021: £139,000 for Nigel Hanbury and £119,000 Arthur Manners) in respect of this scheme.

No other Directors derive other benefits, pension contributions or incentives from the Group. Nigel Hanbury and Arthur Manners have share interests in the Joint Share Ownership Plan and the Long Term Incentive Plan (see note 23).

Included in the above were fees of £175,000 for Martin Reith, prior to his appointment as Chief Executive Officer.

 

10. Income tax charge

(a) Analysis of tax credit in the year

 

Year ended

31 December

2022

£'000

Year ended

31 December

2021

£'000

Current tax:



- current year

(84)

340

- prior year

(53)

(35)

- foreign tax paid

5

61

Total current tax

(132)

366

Deferred tax:



- current year

(1,564)

(577)

- prior year

(156)

-

Total deferred tax

(1,720)

(577)

Income tax credit

(1,852)

(211)

 

(b) Factors affecting the tax credit for the year

Tax for the year is the same as (2021: the same as) the standard rate of corporation tax in the UK of 19% (2021: 19%).

The differences are explained below:

 

Year ended

31 December

2022

£'000

Year ended

31 December

2021

£'000

Loss before tax

(5,169)

(645)

Tax calculated as loss before tax multiplied by the standard rate of corporation tax in the UK of 19% (2021: 19%)

(982)

(123)

Tax effects of:



- prior year adjustments

(209)

(35)

- rate change and other adjustments

(502)

(299)

- permanent disallowances

(164)

184

- foreign taxes

5

61

- other

-

-

Tax credit for the year

(1,852)

(211)

 

The results of the Group's participation on the 2020, 2021 and 2022 years of account and the calendar year movement on 2019 and prior run-offs will not be assessed for tax until the years ended 2023, 2024 and 2025 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 1 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 FAS 12.

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

31 December

2022

Year ended

31 December

2021

Loss for the year after tax attributable to ordinary equity holders of the Parent

£(4,262,000)

£(434,000)

Basic - weighted average number of ordinary shares*

68,168,599

58,058,164

Adjustments for calculating the diluted earnings per share:



Treasury shares (JSOP scheme), Note 21

1,100,000

1,100,000

Long term incentive plan (LTIP)

571,427

-

Diluted - weighted average number of ordinary shares*

69,292,082

58,783,369

Basic loss per share

(4.87)p

(0.75)p

Diluted loss per share

(4.87)p

(0.75)p

 

*     Used as the denominator in calculating the basic earnings per share, and diluted earnings per share, respectively.

**    Diluted loss per share is not permitted to be reduced from the basic loss per share.

 

12. Dividends paid or proposed

A dividend of £2,034,000 was paid during the year (2021: £2,018,000).

A final dividend of 3p is being proposed in respect of the financial year ended 31 December 2022.

Event

Date

Ex-Dividend Date

8 June 2023

Record Date

9 June 2023

Payment Date

13 July 2023

 

13. Intangible assets

 

Goodwill

£'000

Syndicate

capacity

£'000

Total

£'000

Cost




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

At 1 January 2022

1,094

59,795

60,889

Additions

374

322

696

Disposals

-

(5,635)

(5,635)

Acquired with subsidiary undertakings

-

2,814

2,814

Revaluation

-

2,670

2,670

At 31 December 2022

1,468

59,966

61,434

 

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

2022

£'000

31 December

2021

£'000

Total

65,546

71,362

 

During 2022 an impairment charge of £7,218,000 was recognised on the cost of investments in subsidiaries and included in the Parent income statement.

In addition the company acquired three new subsidiaries for a total consideration of £1,402,000.

At 31 December 2022, 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.

Company or partnership

Direct/indirect

interest

2022

ownership

2021

ownership

Principal activity

Nameco (No. 917) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Devon Underwriting Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nameco (No. 346) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Pooks Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Charmac Underwriting Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

RBC CEES Trustee Limited(ii)

Direct

100%

100%

Joint Share Ownership Plan

Nottus (No 51) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Chapman Underwriting Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Llewellyn House Underwriting Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Advantage DCP Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Romsey Underwriting Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Helios UTG Partner Limited(i)

Direct

100%

100%

Corporate partner

Salviscount LLP

Indirect

100%

100%

Lloyd's of London corporate vehicle

Inversanda LLP

Indirect

100%

100%

Lloyd's of London corporate vehicle

Fyshe Underwriting LLP

Indirect

100%

100%

Lloyd's of London corporate vehicle

Nomina No 505 LLP

Indirect

100%

100%

Lloyd's of London corporate vehicle

Nomina No 321 LLP

Indirect

100%

100%

Lloyd's of London corporate vehicle

Nameco (No. 409) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nameco (No. 1113) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Catbang 926 Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Whittle Martin Underwriting

Direct

100%

100%

Lloyd's of London corporate vehicle

Nameco (No 408) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nomina No 084 LLP

Indirect

100%

100%

Lloyd's of London corporate vehicle

Nameco (No 510) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nameco (No 544) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

N J Hanbury Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nameco (No 1011) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nameco (No 1111) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nomina No 533 LLP

Indirect

100%

100%

Corporate partner

North Breache Underwriting Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

G T C Underwriting Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Hillnameco Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nameco (No 2012) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nameco (No 1095) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

New Filcom Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Kemah Lime Street Capital

Direct

100%

100%

Lloyd's of London corporate vehicle

Nameco (No 1130) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nomina No 070 LLP

Indirect

100%

100%

Corporate partner

Nameco (No 389) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nomina No 469 LLP

Indirect

100%

100%

Corporate partner

Nomina No 536 LLP

Indirect

100%

100%

Corporate partner

Nameco (No 301) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nameco (No 1232) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Shaw Lodge Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Queensberry Underwriting

Direct

100%

100%

Lloyd's of London corporate vehicle

Nomina No 472 LLP

Indirect

100%

100%

Corporate partner

Nomina No 110 LLP

Indirect

100%

100%

Corporate partner

Chanterelle Underwriting Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Kunduz LLP

Indirect

100%

100%

Corporate partner

Exalt Underwriting Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nameco (No 1110) Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Clifton 2011 Limited

Direct

100%

100%

Lloyd's of London corporate vehicle

Nomina No 378 LLP

Indirect

100%

100%

Corporate partner

Gould Scottish Limited Partnership

Indirect

100%

100%

Corporate partner

Harris Family UTG Limited

Direct

100%

-

Lloyd's of London corporate vehicle

Whitehouse Underwriting Limited

Direct

100%

-

Lloyd's of London corporate vehicle

Risk Capital UTG Limited

Direct

100%

-

Lloyd's of London corporate vehicle

 

For details of all new acquisitions made during the year 2022, 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.

(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:

Group

Total

2022

£'000

Level 1

£'000

Level 2

£'000

Level 3

£'000

Shares and other variable yield securities and units in unit trusts

18,750

3,794

12,913

2,043

Debt securities and other fixed income securities

132,032

39,187

92,845

-

Participation in investment pools

598

112

463

23

Loans and deposits with credit institutions

263

73

-

190

Derivatives

267

146

121

-

Other investments

1,063

1,063

-

-

Funds at Lloyd's

73,040

73,040

-

-

Total - fair value

226,013

117,415

106,342

2,256

 

Group

Total

2021

£'000

Level 1

£'000

Level 2

£'000

Level 3

£'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

 

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 £nil (2021: £1,481,000) 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

2022

£'000

31 December

2021

£'000

Holdings in collective investment schemes - Level 2

731

285

Total - market value

731

285

 

16. Other receivables

Group

31 December

2022

£'000

31 December

2021

£'000

Arising out of direct insurance operations

64,852

32,566

Arising out of reinsurance operations

59,714

37,128

Other debtors

23,110

18,165

Total

147,676

87,859

 

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 £nil (2021: £nil) which are not expected to be wholly recovered within one year.

Company

31 December

2022

£'000

31 December

2021

£'000

Receivables from subsidiaries (Note 25)

73,505

37,290

Other debtors

1,278

1,206

Prepayments

-

-

Total

74,783

38,496

 

Included within receivables are amounts totalling £100,000 (2021: £100,000), which are not expected to be recoverable within one year.

 

17. Deferred acquisition costs

 

31 December

2022

£'000

31 December

2021

£'000

At 1 January

13,615

7,726

Increase arising from acquisition of subsidiary undertakings (Note 22)

664

3,966

Movement in deferred acquisition costs

10,163

2,358

Other movements

549

(435)

At 31 December

24,991

13,615

 

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 (2021: 25% on deferred tax assets and deferred tax liabilities). The movement on the deferred tax liability account is shown below:

Deferred tax liabilities

Valuation of

capacity

£'000

Timing

differences on

underwriting

results

£'000

Total

£'000

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

At 1 January 2022

13,340

(1,375)

11,965

On acquisition of subsidiary undertakings

686

(287)

399

Revaluation of capacity

668

-

668

Prior period adjustment

(156)

-

(156)

Credit for the year

(401)

(1,163)

1,564

At 31 December 2022

14,137

(2,825)

11,312

 

Company

The Company had no deferred tax assets or liabilities (2021: £nil), as disclosed in Note 10.

 

19. Borrowings

Group and Company

31 December

2022

£'000

31 December

2021

£'000

Secured - at amortised cost

-

-

Bank revolving credit facility

15,000

-

 

15,000

-

Current

15,000

-

Non-current

-

-

 

15,000

-

 

Bank loan

(a) Revolving credit/loan facility

On 21 December 2021, a new sterling revolving loan facility ("RLF") was agreed with Barclays Bank Plc to the value of £15m. The interest is 4.2% per annum. On 21 March 2022, the full £15m was drawn down. Reconciliation of movements of liabilities to cash flows arising from financing activities: The facility is secured over the assets of the Company

Liabilities


Equity


 Group

Other

loans and

borrowings

£'000

 

Share capital/

premium

£'000

Other

reserves

£'000

Retained

earnings

£'000

Total

£'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.

 

 

Liabilities


Equity


Group

Other

loans and

borrowings

£'000

 

Share capital/

premium

£'000

Other

reserves

£'000

Retained

earnings

£'000

Total

£'000

Balance at 1 January 2022

-

 

93,261

(110)

14,595

107,746

Changes from financing cash flows







Proceeds from issue of share capital (Note 21)

-


12,781

-

-

12,781

Proceeds from loans and borrowings

15,000


-

-

-

15,000

Payments for Company buyback of ordinary shares (Note 24)

-


-

-

-

-

Repayment of borrowings

-


-

-

-

-

Dividend paid

-

 

-

-

(2,034)

(2,034)

Total changes from financing cash flows

15,000

 

12,781

-

(2,034)

25,747

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*

-

 

-

-

(1,315)

(1,315)

Balance at 31 December 2022

15,000

 

106,042

(110)

11,246

132,178

 

*     The equity related other changes relate to the consolidated profit for the year 2022.

 

Liabilities


Equity


Company

Other

loans and

borrowings

£'000

 

Share capital/

premium

£'000

Other

reserves

£'000

Retained

earnings

£'000

Total

£'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.

 

Liabilities


Equity


Company

Other

loans and

borrowings

£'000

 

Share capital/

premium

£'000

Other

reserves

£'000

Retained

earnings

£'000

Total

£'000

Balance at 1 January 2022

-

 

93,261

-

27,112

120,373

Changes from financing cash flows







Proceeds from issue of share capital (Note 21)

-


12,781

-

-

12,781

Proceeds from loans and borrowings

15,000


-

-

-

15,000

Payments for Company buyback of ordinary shares (Note 24)

-


-

-

-

-

Repayment of borrowings

-


-

-

-

-

Dividend paid

-

 

-

-

(2,034)

(2,034)

Total changes from financing cash flows

15,000

 

12,781

-

(2,034)

25,747

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*

-

 

-

-

(842)

(842)

Balance at 31 December 2022

15,000

 

106,042

-

24,236

145,278

 

*     The equity related other changes relate to the Company's profit for the year 2022.

 

20. Other payables

Group

31 December

2022

£'000

31 December

2021

£'000

Arising out of direct insurance operations

3,509

2,606

Arising out of reinsurance operations

42,700

23,957

Corporation tax payable

-

185

Other creditors

8,684

8,179

 

54,893

34,927

 

The Group has no analysis of other payables held directly by the syndicates on the Group's behalf (see Note 27).

Company

31 December

2022

£'000

31 December

2021

£'000

Payable to subsidiaries

3,128

2,959

Accruals and deferred income

2,002

904

 

5,130

3,863

 

All payables above are due within one year.

 

21. Share capital and share premium

 

Number of

shares (i)

Ordinary share

capital

£'000

Partly

paid ordinary

share capital

£'000

Share

premium

£'000

Total

£'000

Ordinary shares of 10p each and share premium at 31 December 2021

69,305,381

6,821

110

86,330

93,261

Ordinary shares of 10p each and share premium at 31 December 2022

77,737,372

7,664

110

98,268

106,042

 

During the year, the Company issued a further 8,431,991 shares.

(i) Number of shares

 

2022

2021

Allotted, called up and fully paid ordinary shares:



- on the market

76,218,203

67,786,212

- Company buyback of ordinary shares held in treasury (Note 24)

419,169

419,169


76,637,372

68,205,381

Uncalled and partly paid ordinary shares under the JSOP scheme (ii) (Note 23)

1,100,000

1,100,000

 

77,737,372

69,305,381

 

(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) 2022 acquisitions

In 2022 the Company acquired three Limited Liability vehicles, all of which are incorporate in England and Wales and are corporate members of Lloyd's.

 

 

 

 

 

Harris Family UTG Limited

£'000

Whitehouse Underwriting Limited

£'000

Risk Capital UTG Limited

£'000

Total

£'000

2022 acquisition date

 

 

 

 

6 Dec

29 Dec

31 Dec

 

Intangible assets





23

1

46

70

Uplift to fair value

 

 

 

 

216

503

2,025

2,744

 

 

 

 

 

239

504

2,071

2,814

Financial investments





501

1,212

4,303

6,016

Deferred income tax asset





-

-

-

-

Reinsurers' share of insurance liabilities:









- reinsurers' share of outstanding claims





367

617

2,192

3,176

- reinsurers' share of unearned premium





50

103

340

493

Other receivables, including insurance receivables





992

845

7,349

9,186

Deferred acquisition costs





70

125

470

665

Prepayments and accrued income





6

6

41

53

Cash and cash equivalents





66

57

445

568

Insurance liabilities:









- claims outstanding





(1,020)

(1,938)

(7,929)

(10,887)

- unearned premiums





(281)

(528)

(2,037)

(2,846)

Deferred income tax liabilities





(54)

(126)

(509)

(689)

Other payables, including insurance payables





(993)

(505)

(5,817)

(7,315)

Accruals and deferred income

 

 

 

 

(32)

(54)

(119)

(205)

Total fair value acquired

 

 

 

 

(89)

318

800

1,029

Net consideration

 

 

 

 

-

427

976

1,403

Positive goodwill on acquisition





89

109

176

374

Negative goodwill on acquisition

 

 

 

 

-

-

-

-










Capacity acquired

 

 

 

 

 

 

 

 

2020 underwriting year

 

 

 

 

504

899

4,156

5,559

2021 underwriting year

 

 

 

 

518

902

4,360

5,780

2022 underwriting year

 

 

 

 

540

952

4,185

5,677

 

Had the Limited Liability Vehicles been consolidated from 1 January 2022, the consolidated statement of comprehensive income would show net earned premium of £155,345,000 and a loss after tax of £4,275,000.

Costs incurred in connection with the three acquisitions totalling £38,000 (2021: £447,000) have been recognised in the consolidated statement of comprehensive income.

(b) 2021 acquisitions

In 2021 the Company acquired 28 Limited Liability vehicles, all of which are incorporate in England and Wales and are corporate members of Lloyd's.

 

Nameco (No 1011) Limited

Nameco (No 1111) Limited

Nomina

No 533 LLP

North Breach UW Limited

GTC UW Limited

Hill

Nameco

Limited

Nameco (No 2012) Limited

Nameco (No 1095) Limited

New Filcom Limited

Kemah Lime Street 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

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'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)


- 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 £90,820,000 and a profit after tax of £819,000.

Costs incurred in connection with the twenty eight acquisitions totalling £447,000 (2020: £114,000) have been recognised in the consolidated income statement.

 

 

Brought forward

Nameco (No 1130) Limited

Nomina No 070 LLP

Nameco (No 389) Limited

Nomina No 469 LLP

Nomina No 536 LLP

Queens-

berry UW

Nameco (No 301) Limited

Nameco (No 1232) Limited

Shaw Lodge Limited

Total

2021 acquisition date

 

30 Sept

30 Sept

05 Oct

06 Oct

06 Oct

09 Oct

13 Oct

13 Oct

15 Oct

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'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

 

 

Brought forward

Nomina No 472 LLP

Nomina No 110 LLP

Chant-
erelle UW

Kunduz LLP

Exalt UW Limited

Nameco (No 1110) Limited

Clifton 2011 Limited

Nomina No 348 LLP

Gould Scottish Limited

Total

2021 acquisition date

 

19 Nov

23 Nov

26 Nov

15 Dec

20 Dec

21 Dec

22 Dec

24 Dec

31 Dec

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'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

 

23. Share option plans

(i) 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 are as follows:

2022

 

2021

Director

Interests

in jointly

owned ordinary

shares issued

under JSOP

Other

interests in

 ordinary

shares

Total

shareholding

 

Interests

in jointly

owned ordinary

shares issued

under JSOP

Other

interests in

 ordinary

shares

Total

shareholding

Arthur Manners

477,500

720,009

1,197,509


477,500

709,868

1,187,368

Nigel Hanbury

622,500

8,939,858

9,562,358

 

622,500

8,927,294

9,549,794

 

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 (three 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.

(ii) Share based payments

In 2022, the Company operated the Helios Underwriting Plc Long Term Incentive Plan ("LTIP"). On 16 December 2022, the Company granted 571,427 awards under the LTIP in the form of a nil-cost options.

The awards for the Executive Directors are as follows:

Director

Awards granted during 2022

Forfeited

Vested/

exercised

Outstanding at

31 December 2022

Exercisable at

31 December 2022

Arthur Manners

266,666

-

-

266,666

-

Nigel Hanbury

304,761

-

-

304,761

-

 

The vesting period for the awards is three years, subject to continued service and the achievement of specific performance conditions. If the options remain unexercised after a period of ten years from the date of grant, the options expire. The awards' performance conditions set threshold (30%) to stretch (60%) targets in respect of the Company's total shareholder return ("TSR") over the three-year period following the grant of the awards. No portion of the awards shall vest unless the Company's TSR at the end of the performance period reaches the threshold target, for which one quarter of the awards would vest, rising on a straight line basis to full vesting of the awards for the Company's TSR over the performance period being equal to the stretch target or better. In the case of Executive Directors, any vested shares will be subject to a two-year holding period.

The fair value of the LTIP awards is calculated using a Monte Carlo (Stochastic) model taking into account the terms and conditions of the awards granted. The inputs into the model are:

•     Share price at date of grant: 157.5p

•     Exercise price: 0p

•     Risk free rate of interest: 3.3%

•     Expected dividend yield: 0%

•     Expected volatility: 30.78%

•     Expected life: three years

The resulting fair value of 65.44p includes the impact of the holding period.

No options were exercised during the year. The weighted average remaining life of the options is 9.96 years.

No charge has been recognised in the Company's income statement as the amount is immaterial.

24. Treasury shares: purchase of own shares

The Company has in previous years bought back some of its own ordinary shares on the market and these are held in treasury. No shares were bought back during 2022.

The retained earnings have been reduced by £527,000, 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 2022, the 419,169 own shares bought back represent 0.55% of the total allotted, called up and fully paid ordinary shares of the Company of 76,637,372 (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 £1,000,000 as at 31 December are set out below:

Company

31 December

2022

£'000

31 December

2021

£'000

Nameco (No. 917) Limited

12,116

9,338

Helios UTG Partner Limited

8,276

7,930

Chapman Underwriting Limited

13,458

2,554

Romsey Underwriting Limited

8,790

6,412

Advantage DCP Limited

(1,659)

(1,623)

Catbang 926 Limited

7,466

1,546

N J Hanbury Limited

2,789

-

Queensberry Underwriting Limited

2,870

-

Chanterelle Underwriting Limited

1,838

-

Clifton 2011 Limited

1,175

-

Exalt Underwriting Limited

1,268

-

North Breache Underwriting Limited

1,119

-

Risk Capital UTG Limited

3,624

-

Subsidiaries below £1,000,000

7,247

8,174

Net amount

70,377

34,331




Receivable from subsidiaries

73,505

37,290

Payable from subsidiaries

(3,128)

(2,959)

 

70,377

34,331

 

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 £224,000 (2021: £150,000).

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 6 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 2022 are £315,000 (2021: £478,000). Following acquisition into the Group, no profit commission is payable on future underwriting years.

The Group entered into quota share reinsurance contracts for the 2020, 2021, 2022 and 2023 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

2021

2022

2023

Nameco (No. 917) Limited

70%

59%

44%

36%

Nameco (No. 346) Limited

70%

60%

65%

38%

Chapman Underwriting Limited

70%

68%

11%

9%

Advantage DCP Limited

70%

54%

-

-

Romsey Underwriting Limited

70%

48%

37%

29%

Nomina No 321 LLP

70%

35%

-

-

Nameco (No. 409) Limited

70%

44%

-

-

Nameco (No. 1113) Limited

70%

46%

-

-

Catbang 926 Limited

70%

60%

21%

16%

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 £1,921,000 (2021: £2,703,000) 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 £100,000 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 £3,680,000.

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 £2,036,000.

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 £657,000.

During 2022, the following Directors received dividends, in line with their shareholdings held:

Director

Shareholding

at date

dividend

declared

29 June 2022

Dividend

received

19 July 2022

£

Nigel Hanbury (either personally or has an interest in)

9,549,794

267,819

Andrew Christie

34,317

1,030

Arthur Manners (either personally or has an interest in)

1,187,368

21,296

Edward Fitzalan-Howard

382,864

11,486

Michael Cunningham

86,848

2,605

Tom Libassi (has an interest in)

13,407,000

402,210

Martin Reith

130,161

3,905

 

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
number

Managing or members' agent

2023

£

2022

£

2021 *

£

2019 *

£

33

Hiscox Syndicates Limited

14,422,161

14,422,161

14,422,175

14,799,583

218

IQUW Syndicate Management Limited

17,566,674

7,358,070

7,358,077

6,801,863

318

Cincinnati Global Underwriting Agency Limited

862,407

992,637

992,635

404,687

386

QBE Underwriting Limited

2,918,248

2,850,542

2,591,419

2,537,132

510

Tokio Marine Kiln Syndicates Limited

27,057,292

33,081,528

23,374,379

20,297,450

557

Tokio Marine Kiln Syndicates Limited

-

3,458,576

3,458,576

3,329,195

609

Atrium Underwriters Limited

17,095,778

12,732,280

12,248,230

11,123,662

623

Beazley Furlonge Limited

27,510,398

22,303,493

19,550,842

16,670,372

727

S A Meacock & Company Limited

2,648,580

2,170,966

2,107,738

3,161,831

1176

Chaucer Syndicates Limited

2,854,340

2,854,339

2,854,347

2,883,166

1200

Argo Managing Agency Limited

54,999

10,050,000

-

160,714

1729

Asta Managing Agency Limited

19,999,999

10,148,838

131,123

252,810

1902

Asta Managing Agency Limited

10,688,300

10,000,002

-

-

1955

Arch Managing Agency Limited

12,500,000

-

-

-

1969

Apollo Syndicate Management Limited

12,170,742

5,675,170

459,001

50,000

1971

Apollo Syndicate Management Limited

10,000,001

6,467,147

-

-

1985

Astra Managing Agency Limited

16,874,190

-

-

-

1988

Asta Managing Agency Limited

15,000,000

-

-

-

1991

Coverys Managing Agency Limited

-

-

-

-

2010

Lancashire Syndicates Limited

6,978,171

10,331,172

9,730,661

4,321,089

2014

Pembroke Managing Agency Limited

-

-

-

-

2121

Argenta Syndicate Management Limited

60,000

10,068,894

5,517,177

2,517,014

2288

Astra Managing Agency Limited

-

-

-

21,860

2525

Asta Managing Agency Limited

1,967,576

1,580,905

1,471,414

1,406,777

2689

Asta Managing Agency Limited

2,600,000

10,025,276

438,655

518,866

2791

Managing Agency Partners Limited

11,402,951

9,618,495

9,618,499

10,703,768

4242

Asta Managing Agency Limited

10,586,722

12,786,684

8,783,066

663,592

4444

Canopius Managing Agents Limited

21,176

20,000

182,189

326,110

5183

Asta Managing Agency Limited

5,000,000

-

-

-

5623

Beazley Furlonge Limited

17,631,646

6,894,032

4,769,792

2,898,292

5886

Asta Managing Agency Limited

26,805,639

22,875,383

12,375,473

7,504,557

6103

Managing Agency Partners Limited

3,197,178

3,389,701

3,015,443

2,321,087

6104

Hiscox Syndicates Limited

-

1,758,333

1,758,333

1,808,317

6107

Beazley Furlonge Limited

103,807

1,621,127

1,620,822

1,865,002

6117

Argo Managing Agency Limited

100,000

2,841,022

1,997,453

1,788,301

6133

Apollo Syndicate Management Limited

-

-

-

14,400

Total

 

296,678,975

232,700,472

145,101,772

115,745,332

 

*     Including the new acquisitions in 2022.

 

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 2022

 

31 December 2021

 

Group

£'000

Syndicate

£'000

Total

£'000

 

Group

£'000

Syndicate

£'000

Total

£'000

Assets








Intangible assets

61,434

-

61,434


60,889

-

60,889

Financial assets at fair value through profit or loss

73,771

152,242

226,013


43,589

110,255

153,844

Deferred income tax asset

-

-

-


-

-

-

Reinsurance assets:








- reinsurers' share of claims outstanding

60

80,666

80,726


60

53,373

53,433

- reinsurers' share of unearned premium

-

21,333

21,333


-

10,538

10,538

Other receivables, including insurance and reinsurance receivables

3,103

144,573

147,676


5,457

82,402

87,859

Deferred acquisition costs

-

24,991

24,991


-

13,615

13,615

Prepayments and accrued income

3,746

1,330

5,076


-

799

799

Cash and cash equivalents

10,254

15,046

25,300

 

16,178

8,446

24,624

Total assets

152,368

440,181

592,549

 

126,173

279,428

405,601

Liabilities








Insurance liabilities:








- claims outstanding

-

272,015

272,015


-

186,653

186,653

- unearned premium

-

114,663

114,663


-

59,611

59,611

Deferred income tax liabilities

11,228

84

11,312


11,887

78

11,965

Borrowings

15,000

-

15,000


-

-

-

Other payables, including insurance and reinsurance payables

157

54,736

54,893


445

34,482

34,927

Accruals and deferred income

3,682

3,806

7,488

 

2,607

2,092

4,699

Total liabilities

30,067

445,304

475,371

 

14,939

282,916

279,855

Equity attributable to owners of the Parent








Share capital

7,774

-

7,774


6,931

-

6,931

Share premium

98,268

-

98,268


86,330

-

86,330

Revaluation reserve

12,295

-

12,295


9,348

-

9,348

Other reserves

(110)

-

(110)


(110)

-

(110)

Retained earnings

4,074

(5,123)

(1,049)

 

8,735

(3,488)

5,247

Total equity

122,301

(5,123)

117,178

 

111,234

(3,488)

107,746

Total liabilities and equity

152,368

440,181

592,549

 

126,173

279,428

405,601

 

Below is an analysis of the free working capital available to the Group:

Group

31 December

2022

£'000

31 December

2021

£'000

Funds at Lloyd's supplied by:



Reinsurers

27,818

37,032

Other third party

26,421

5,609

Group owned*

73,040

43,304

Total funds at Lloyd's supplied (excluding solvency credits)

127,279

85,945

Group funds available:



Financial assets

73,771

43,589

Cash

10,254

16,178

Total funds

84,025

59,767

Less Group funds at Lloyd's

(73,040)

(43,304)

Free working capital

10,985

16,463

 

*     Included in 31 December 2022 Group owned funds is the proceeds from the Barclays £15m facility.

29. Events after the financial reporting period

Dividend

In respect of the year ended 31 December 2022, a final dividend of 3p per fully paid ordinary share (see Note 21) amounting to a total dividend of £2,287,000, is to be proposed at the Annual General Meeting on 29 June 2023. These Financial Statements do not reflect this dividend payable.

 

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