Final Results

RNS Number : 7340R

Randall & Quilter Inv Hldgs PLC

06 May 2009

 



06 May 2009

Randall & Quilter Investment Holdings plc

('Randall & Quilter' or the 'Company')

Final results for the year ended 31 December 2008

Final results from Randall & Quilter report undiminished growth despite the troubled economy.  In addition to growing assets 8% and paying a total dividend of 7.0p (equivalent to a yield of 5.3%) a number of significant corporate milestones were achieved including an £11m release from a subsidiary, a new RITC syndicate and several acquisitions and strategic developments giving access new markets in the US, Europe and Bermuda.

OPERATIONAL HIGHLIGHTS

• Profit before tax of £8.8m (2007: £7.0m)

• Net assets up 8% to £80.9m (2007: £74.7m)

• Final dividend of 2.2p payable in 2009, bringing total to 7.0p for 2008 

• Acquisition of Quest and KMS groups of companies, enhancing reach and scale of service division 

• First Lloyd's Reinsurance to Close with management contract for Syndicate 3330 in 2009

• Strategic partnership with GLOBAL Re to assist access to European acquisition opportunities

• English court judgement in favour of Cavell USA

• £11m capital release from Chevanstell 

• Undiscounted net asset value per share of 144.6p at 31 December 2008 (2007: 133.6p)

FINANCIAL HIGHLIGHTS

	2008		2007
	£000		£000
Group Results
Operating profit	8,948		8,720
Operating profit (including impairment)	8,847		8,720
Profit on ordinary activities before income taxes	8,763		7,025
Profit after tax	6,017		8,053
Earnings per share (Basic)*	10.8p		29.5p
Total net assets	80,858		74,696

* 2007 earnings per share inflated due to timing of AIM listing on 21 December 2007.

Commenting on today's announcement, Ken Randall, Chairman and Chief Executive Officer of Randall & Quilter, said:

'This is an excellent set of results demonstrating the strength of our business model which has produced growth despite unprecedented turbulence in the capital markets.  Each of our three trading divisions has performed well, generating combined operating profits of £12.7m, up by 26% on 2007.  I expect to report further expansion in all areas in 2009.'

The Chairman's Statement, Business Review and Highlights of Accounts are attached.  The full final results for the year ended 31 December 2007 will be sent to shareholders shortly and will be available on the Company's website at www.rqih.co.uk.

The Company's annual general meeting will be held on Tuesday 23 June 2009 at 12 noon at the offices of Noble & Company Limited, 5th Floor, 120 Old Broad Street, London EC2N 1AR. 

The proposed final dividend will be subject to shareholder approval at the annual general meeting scheduled for 23 June 2009. If the necessary shareholder approval is granted, the dividend will be paid on 26 June 2009 to shareholders on the register at close of play on 29 May 2009. The ex-dividend date will be 27 May 2009.

ENDS

About Randall & Quilter

Randall & Quilter Investment Holdings plc manages, acquires, and realises the surplus assets of solvent non-life insurance companies in run off, and acquires and realises reinsurance receivables in the United Kingdom, the rest of Europe and North America. The company operates in three divisions: Insurance Services, Insurance Company, and Liquidity Management. The Insurance Services division provides services to insurance companies, including syndicates at Lloyd's and has operations in the U.K. and the U.S. The Insurance Company division acquires solvent insurance companies in run-off and seeks to realise surplus assets within such companies and achieves exits through schemes of arrangements, transfer, or sale. The Liquidity Management division acquires reinsurance receivables on recourse and non recourse basis and seeks to realise them for cash. 

The Group has approximately 215 staff in its offices in the UK and the US.

Enquiries:

Randall & Quilter Investment Holdings plc

Ken Randall        Tel: [phone]        Mobile: [phone]

Alan Quilter        Tel: [phone]        Mobile: [phone]

Noble & Company Limited

John Riddell        Tel: [phone]        Mobile: [phone]

Numis Securities Limited

Charlie Farquhar            Tel: [phone]            Mobile: [phone]

Clean Communications

PJ Lewis         Tel: [phone]        [e-mail]

Chairman's Statement and Business Review

For the year ended 31 December 2008

I am pleased to report that the Group has achieved a profit for 2008 of £8.8m before tax (2007: £7.0m).

Total recognised income after tax, including exchange gains on consolidation, was £10.0m (2007: £7.7m). This result was achieved despite incurring costs of £1.4m in relation to the Seaton and Stonewall dispute.

Each of our three operating divisions traded profitably during the year, achieving operating profits of to £12.7m in aggregate (2007: £10.1m)

The Group's net assets at year-end increased by 8% to £80.9m from £74.7m in 2007.

The result for the year was achieved in the face of unprecedented turbulence in global financial markets and after significant expenditure on the three major legal disputes which are discussed below. The result proves the strength of our business model, which combines the relatively predictable cash flows from our Insurance Services Division ('ISD') with the net asset value enhancement and cash extraction from the Insurance Company Division ('ICD').

A final dividend of 2.2 pence per share is proposed, bringing the total dividend in respect of 2008 to 7.0 pence per share.  The Company aims to pay a progressive dividend, rising annually at a rate which reflects the medium term prospects for the Company's earnings. The Company's high level of retained earnings will allow dividends to continue growing even if there are short term fluctuations in profits. The dividend policy will be reviewed if the Board considers that the Company can generate exceptional returns from investment opportunities that require the retention of resources within the business, or if there is a significant deterioration in outlook for the Company's medium term profitability. In future, the Company expects to pay approximately 40% of the expected annual dividend following the interim results with the balance distributed following the announcement of the final results. 

During 2008 we responded to a number of invitations to bid for US and UK domiciled insurers in run-off. Many of these transactions, however, were completed at prices which did not fit our investment criteria. As a result, our focus in 2008 has been on developing new markets and acquiring 'bolt-on' service companies which complement and strengthen our existing service offering. I am pleased to report the following activity during 2008:

• we agreed a strategic partnership with GLOBAL Re for the purchase and management of non-life reinsurers in mainland Europe.

• we acquired the KMS Group of companies in London.

• we acquired the Quest Group of companies in Bermuda.

I deal in more detail with these developments in the Business Review below.

Business Review

The Group comprise three operating divisions; the Insurance Company Division ('ICD'), the Insurance Services Division ('ISD') and the Liquidity Management Division ('LMD').

Insurance Company Division

This division acquires solvent insurance companies in run-off, typically at a discount to net asset value and seeks to manage liabilities to increase surplus capital and release these surpluses once liabilities have been reduced and regulatory approval has been obtained. A good example of achievement of this goal was the release of £11m surplus capital from Chevanstell to the parent company with Financial Services Authority ('FSA') approval during 2008

At 31 December 2008, the portfolio of acquired insurance companies under ownership was as follows:

	Vendor	Country of Incorporation	Acquisition Date
Ludgate Insurance Company Limited ('Ludgate') *	MMI/St Paul	UK	4 August 1992
La Metropole SA ('La Met')	Travelers Group	Belgium	29 November 2000
Transport Insurance Company ('Transport')	American Financial Group	USA	30 November 2004
R&Q Reinsurance Company (UK) Limited ('R&Q Re (UK)')	Ace Group	UK	3 July 2006
R&Q Reinsurance Company (Belgium) ('R&Q Re (Belgium)')	Ace Group	Belgium	3 July 2006
R&Q Reinsurance Company ('R&Q Re (US)')	Ace Group	USA	3 July 2006
Chevanstell Limited ('Chevanstell')	Trygg Forsikring	UK	10 November 2006
Arran Insurance Company Limited ('Arran')	ExxonMobil Group	UK	21 December 2006

* Ludgate was de-authorised as an insurance company by the FSA on 10 July 2007

At 31 December 2008 the total net assets of the owned insurance companies was £64.4m after adjustments for group accounting policies. 

Investment Policy and Returns

The investment return on funds held by our insurance subsidiaries is a key component of the performance of the ICD and despite the extraordinary upheaval in global investment markets, I am pleased to report that the overall investment return for the year was 4.1% generating £11.2m (2007: 5.7% generating £15.8m).

The Group outsources investment management responsibilities to two fund managers:-

BNY Mellon Wealth Management	-    R&Q Re (US)
Epic Investment Partners Limited ('EPIC')	-    R&Q Re (UK) -    R&Q Re (Belgium) -    Arran -    Chevanstell -    Transport

Each of the owned insurance companies invests its funds within guidelines established by its Board of Directors, having regard to applicable insurance regulations and, in the case of R&Q Re (US), the contractual obligations imposed by the surplus maintenance insurance agreement provided by the ACE Group when R&Q Re (US) was acquired.  

The insurance company assets are invested in fixed interest government and agency securities, high grade corporate bonds, cash and a small percentage of equities. In addition, insurance liabilities are broadly matched in original currencies. 

Each fund manager is provided with investment guidelines which allow them to trade from day to day having regard to:-

• our investment objectives, which are aimed at optimising return whilst maintaining the principal value of the investments held.

• our quality criteria, which seek to ensure that funds are invested in high quality government, agency and corporate bonds as well as cash and a small percentage of equities.

• our concentration limits to prevent over exposure to any particular sector or counterparty.

• our average duration which is relatively short in order to provide funds to pay claims as we manage down liabilities through claims settlements and commutations.

The Board of each owned insurance company monitors the performance of the investment managers and their compliance with the investment guidelines.

Going forward, the turmoil in global financial markets and the savage reduction in market returns are obviously a cause for concern in maintaining reasonable returns. In many instances, long-held investment beliefs about security and returns have been dramatically overturned as previously unthinkable events have unfolded.

We continue to work very closely with our investment managers to develop strategies and portfolios to underpin investment returns while maintaining a cautious degree of security, until we see a return to a more stable and 'normal' investment environment.

Within the UK domiciled insurance portfolios the Group has invested in subordinated bank debt known as step-up perpetuals. The total market value of these assets as at 31 December 2008 was £9.74m.  In 2008 the market values of these investments suffered as a general result of the ongoing debt crisis, but at the beginning of 2009 they experienced a marked decline as a result of investor concerns over possible major bank defaults or nationalisations, particularly in relation to the Royal Bank of Scotland and HBOS (now part of Lloyds Banking Group).

Within the investment return for the year ended 31 December 2008 the Group incurred an unrealised loss of £1.86m in relation to these investments. Further unrealised losses arose during the first quarter of 2009 amounting to £3.77m.

The Group's current intention is to hold these investments until maturity. 

Reserving

The Group, unlike some of its major competitors, holds insurance reserves undiscounted, that is we do not reduce the carrying value of future insurance claims to reflect investment returns on funds held to pay those claims. Our cautious accounting approach appears vindicated in light of falling investment returns. Our projections for the investment income of the insurance companies continue to comfortably exceed projected run-off costs.

Generally our claims reserves have held up well during 2008. External actuaries have confirmed that our held reserves are within their range of reasonable estimate and there have been reserve releases for some of our insurance subsidiaries during the year amounting to £8.3m in aggregate.

Our internal actuarial team continues to work closely with our external actuaries to further enhance and refine our knowledge of the profiles of our insurance company liabilities. I remain confident that such further analysis will highlight areas where reserves can be appropriately reduced to the benefit of future years.

The key issues in the main insurance company subsidiaries during the year were as follows:-

R&Q Reinsurance Company (UK) Limited 

As previously reported, the major issue facing R&Q Re (UK) is the dispute with Equitas involving more than 4,000 claims. These claims have been the subject of many arbitration notices served by Equitas and, more recently, attention has been focussed on a more limited number of claims in respect of which litigation has commenced. The trial is scheduled to commence in June this year. The Board of R&Q Re (UK) continues to believe that the majority of claims by value are not payable to Equitas following prior Court of Appeal decisions and market practice and this view is supported by positive legal opinion. It is a regrettable feature of this litigation that Equitas has yet to quantify the total amounts claimed. For this reason it is not possible at this stage to quantify the financial impact on the Group if Equitas were to prevail.

We continue dialogue with cedants and reinsurers with a view to achieving commutations where economically justified.

R&Q Reinsurance Company (US)

Having spent much of 2007 resolving litigation inherited at the time of the acquisition of this company, our focus in 2008 has been a detailed claims analysis and the collection of the company's ceded reinsurance recoveries. We have made good progress on both fronts. Total recoverables reduced by over 70% during the year as a result of the $34.5m collected. This has improved the cash position and allowed us to reduce our provision for bad and doubtful debt. We keep a close watch on all of our key reinsurance relationships, but especially the top 10 reinsurers which represent more than 80% of the company's reinsurance asset.

Our actuarial team is making good progress with the construction of a system to model inwards claims exposures which will enhance our confidence in setting claims reserves and enable us to price commutation deals with greater certainty.

Transport Insurance Company

Transport continues to aggressively collect its reinsurance receivables through a combination of collection activities, offset, arbitration and litigation. By far the largest outstanding balance of $12.3m relates to the Aerojet case being litigated in California. Transport sued two of its reinsurers, Seaton Insurance Company and TIG, under reinsurance agreements covering an environmental claim settled in 1999. Mid-year the case went to trial and the jury returned a verdict in favour of the reinsurers based upon a procedural ruling. Transport has appealed this decision alleging, inter alia, judicial error in the jury instructions. Transport's brief has been submitted to the appeal court and a hearing may be possible before the end of 2009. If our appeal is successful, the case will then be re-heard before another jury on the merits. The full impact of the June 2008 jury decision has been recognised in the Group accounts at 31 December 2008 so that any success on appeal will be for the benefit of future results.

Chevanstell Limited

During the first half of 2008, £11m of surplus capital was released, with FSA approval, from the company. The release was achieved by a share buy-back process and represents a recovery of more than 85% of total acquisition costs within two years of purchase. Good progress is being made with this run-off and there has been favourable claims development in most classes of business, which bodes well for potential further releases of capital.

Remaining Insurance Companies

Our other insurance companies continue to run-off broadly in line with their run-off plans.

Insurance Services Division 

I am pleased to report that the division recorded an operating profit of £5.2m (2007: £4.9m).

ISD provides services to both Group owned insurance companies and third party insurers. A material proportion of ISD income is secured by long-term contracts, is non-cyclical and underpins the Group's cash flows, enabling the payment of regular dividends.  

We strive to improve the depth and breadth of our service offering with the aim of creating recognised centres of excellence and world class service provision. In that context, I am delighted to report that the Group retained the title of Legacy Management Services Provider of the Year 2008 (first won in 2007) awarded by the Association of Run-Off Companies. Furthermore the Group was awarded the title of Legacy Company of the Year 2008 by the same organisation. Recognition by our peers in our industry demonstrates our commitment to maintaining service standards.

I am delighted to report the following acquisitions:-

• KMS Group of companies: The KMS team came to prominence as successful managers of the high profile 'Weavers' run-off portfolio. R&Q and KMS have worked together on a number of projects in the past and this acquisition complements the existing service capabilities of ISD. The acquisition has brought further skills to the Group to bolster its ability to administer liquidated insurance estates and to manage schemes of arrangement. The integration of KMS has further strengthened the senior management team within ISD.  

• Quest Group of Companies: The Quest Group is ranked fourth in Bermuda in terms of number of companies under management and is the second largest of those that are independent.  It also ranked in the top ten captive management companies worldwide by Business Insurance Magazine.

Following on from our approval from the Bermuda Monetary Authority for the registration of a Bermudian reinsurance subsidiary in 2007, the acquisition of the Quest Group is a decisive step forward for us into the Bermudian insurance market. The acquisition provides the Group with a great opportunity to diversify its service provision both geographically and functionally, and provides excellent opportunities for growth and staff development. The acquisition now provides a service platform in each of the key insurance markets of Bermuda, US and UK which will also enable the Group to source run-off and debt acquisition opportunities and provide risk capital solutions to clients who are seeking to restructure their balance sheets across one or more of these markets.

In addition to these acquisitions, I am pleased to report a further new development that has arisen in the early part of 2009 when the open 2001 and 2002 years of account of Advent Syndicate 2 at Lloyd's were 'closed' by Reinsurance to Close into a new Syndicate 3330, the capital for which is wholly provided by the Advent Group. The managing agent for the new Syndicate will be our existing Group owned managing agency, Cavell Managing Agency Limited ('CMAL'). CMAL in turn has outsourced the day-to-day management of the Syndicate to ISD.  

2008 has seen satisfactory development of the replacement claims broking and expert fee collection services, both trading under the RQBS banner, the commencement of which I reported last year.

Broker Replacement Services: 

The focus for claims broking replacement services during 2008 has been the development of the service for Group subsidiaries rather than services to third parties. As a result, RQBS has taken over the broking of reinsurance recoveries for R&Q Re (UK), Chevanstell and Arran. Opportunities to develop third party services will be explored during the forthcoming period.  In the current financial climate, where liquidity management is increasingly significant, this activity takes on even more significance. The recruitment of Colin Johnson and Mike Palmer, formerly of Helix UK Limited, will also boost our market profile.  

Expert Fee Collection Services: 

In response to a perceived demand from 'expert' service providers (such as lawyers and loss adjusters) to the London insurance market, we identified a niche to assist in the efficient recovery of fees from the London subscription market. Our expert fee collection service has been active since July 2008 and to date we have collected more than $2.8m on behalf of our 19 contracted clients. This is encouraging progress in a market which, we believe, has significant growth potential.

Liquidity Management Division

The subsidiary Reinsurance Finance Management Limited ('RFML') made progress in 2008 with further acquisitions of reinsurance debt and the provision of reinsurance collection and commutation services for third party clients.  

The financial climate of 2008 and 2009 has warranted a focused approach to provide liquidity to global creditors of insolvent insurance estates. Some of these creditors are now becoming more willing sellers as their need for immediate and certain liquidity takes preference over an uncertain, slow yielding stream of future dividends.  Consequently, RFML continues to acquire the agreed claims due to such creditors.  RFML also purchased the residual debt of a Middle Eastern reinsurance insolvency in 2008.  Such non-recourse acquisitions continue to yield very satisfactory returns.

An increase in RFML's resource base in 2008 has led to the specialised expertise in Continental European and Middle Eastern markets.  Therefore, RFML has begun to explore debt acquisition opportunities in these territories and service contracts have been agreed with several European clients. RFML's presence in the US was also developed further in 2008 and it is now formally authorised to tender for collection opportunities arising from insurance liquidations in various jurisdictions including New York and California. 

Litigation

Cavell USA acted as run-off managers of US insurers Seaton and Stonewall from 1999/2000 until early 2006.

In early 2006 allegations of mis-management were raised by the owners of Seaton and Stonewall, Dukes Place. Although these allegations were wholly misconceived, a settlement agreement was subsequently entered with Dukes Place. Cavell USA agreed to withdraw from managing run-offs in exchange for a full release of all claims, excluding claims for fraud. The settlement specified the English court would have exclusive jurisdiction over all disputes.

Despite the settlement, Seaton and Stonewall issued New York proceedings against Cavell USA and me in August 2007.

The New York court dismissed these proceedings in May 2008, in favour of the English court taking jurisdiction.  

Cavell USA and I also issued proceedings in the English Commercial Court seeking a declaration confirming the English court's jurisdiction and damages.

After a trial of preliminary issues in October 2008, the English Commercial Court issued its judgment in December 2008. It found that Seaton and Stonewall had breached the settlement agreement by filing the New York proceedings. The Commercial Court agreed to allow Seaton and Stonewall to appeal the Court's definition of the term 'fraud' under English law, but refused permission to appeal on the question of whether the English court has jurisdiction. Seaton and Stonewall are now seeking permission from the Court of Appeal directly to appeal the finding on jurisdiction.

Seaton and Stonewall were ordered to and have now made 'on account' payments of US$1,000,000 and £150,000 into court as security for the damages suffered. They were also ordered to and have now paid legal costs of £275,000 and US$121,000 directly to the Group with the balance to be determined once any appeals have been heard.

The English Commercial Court proceedings continue in respect of calculating the full amount of damages caused by Seaton and Stonewall.

As a matter of commercial prudence no credit has been taken in the financial statements at 31 December 2008. The benefit of all recoveries, which are likely to be substantial, will flow to future years.

Staffing

During 2008, I was pleased to welcome John O'Neill as Chief Operating Officer of our UK Insurance Services Division, Jo Morcom as Human Resources Manager, Mark Langridge, George Clarke, Richard Finney and Paul Corver with the KMS acquisition and Nick Dove, Nick Frost and Larry Turnbull with Quest. In addition, Mike Palmer and Colin Johnson have recently joined the Group to bolster our marketing effort and broker file replacement services respectively. I look forward to working with these new members of our senior management team in moving our business forward. Jerry McArthur who was recruited as CEO of our US and Bermuda operations in the year has recently left the Group.

As a Group, we will continue to seek high quality individuals to develop existing and new business areas. Whilst Alan Quilter and I continue to enjoy the cut and thrust of the business we recognise the importance of succession planning and we are working work closely with the Non Executive Directors in this regard.

During the past year, the staff have continued to make valuable contributions to the success of the Group and I wish to express my gratitude for this. It is inevitable in the current economic environment that staff costs have to be kept under very tight control. This in no way reflects on staff performance but merely the difficult and uncertain times in which we live. We will continue to award staff and management bonuses reflecting the Group's financial performance.

Market and Outlook 

During 2008 inflated prices were paid by some investors for run-off books of business in the UK and the US. I believe the 'high water' mark was reached at year-end when Unionamerica Insurance Company Limited was sold at a premium to Net Asset Value. We have refused to engage in this bidding frenzy. 

Ironically, the global economic and financial turbulence may result in opportunities for the Group. My assessment of the current position is as follows:

Impact of market turbulence on potential buyers of run-off portfolios:-

• Investors who specialise in distressed markets have many other opportunities as a result of the credit crunch.  

• Some investors have, themselves, suffered losses in the capital markets - witness the demise of many hedge funds - and there is less 'hot money' looking for deals.

• Banks have less money to lend.

• Run off portfolios will earn less investment income in the current low interest environment, which may adversely effect those companies who discount reserves 

• There is uncertainty over the extent of 'financial institution' (FI) claims in the pipeline and whether these are adequately reserved in legacy portfolios.

 Factors encouraging potential sellers of run-off portfolios:-

• Capital strain from the need to increase sterling balance sheets to maintain market share of US dollar denominated business, financial losses incurred by insurance groups as a result of the 2008 hurricanes, other claims activity and investment losses.

• Uncertainty over the cost of FI claims for bad advice and alleged fraudulent practices such as Madoff and Stanford.

My conclusions are that the credit crunch will undoubtedly concentrate the minds of non-life insurers on the disposal of discontinued business in order to focus capital into their core activities. At the same time, the reduced availability of credit is likely to bring a dampening effect on the pricing expectations of those organisations making disposals.

Our multi-currency revolving credit facility with the Royal Bank of Scotland and our access to capital markets with our AIM listed status, leave us in a favourable position to address opportunities that may arise.

To date, the Group focus for acquisitions of run-off books has been in the UK and the US. While we continue to believe that substantial opportunities will arise in these markets, the relative lack of activity by European insurers in this area is likely to change as the adverse financial impact of holding discontinued business on Balance Sheets is more fully recognised. There are, of course, cultural, operational and language barriers to moving into the European market and I am therefore delighted to report the commencement during 2008 of a strategic partnership with GLOBAL Re, a group which have established service capabilities within Europe and under the terms of the partnership, GLOBAL Re will actively seek our European acquisition opportunities, assist in the acquisition process and manage the run-off companies acquired. I look forward to reporting developments in this partnership in later reports.

The acquisitions of the KMS and Quest groups in the year are evidence of our desire to develop the breadth and quality of our service offering. There remains a proliferation of service providers and we are in preliminary discussions with a view to acquiring a number of other service providers which will further complement and extend our activities.

Although the development of RFML in terms of the acquisition of reinsurance debt has not been as rapid as hoped, the collection of reinsurance receivables in the current financial climate remains a critical necessity within the insurance industry. We continue to believe that the current environment will provide material opportunities for the development of this business.

In summary, I expect to see further growth in our insurance servicing operations. I also expect that we will return to the market for acquisitions of run-off portfolios when common sense returns and prices come down to meet our investment criteria. We have a good pipeline of acquisition opportunities for review and our strategic partnership with GLOBAL Re has bolstered our potential penetration into mainland Europe. Our greatest challenge is likely to be investment management where, in common with the rest of the financial community, we need to develop strategies and portfolios to maintain the investment returns within our owned insurance subsidiaries.

Overall, the business is in good shape and I am very optimistic about the Group's long-term prospects. 

K E Randall

Chairman and Chief Executive Officer

5 May 2009

  Consolidated Income Statement

For the year ended 31 December 2008

			2008			2007
	Note		£000	£000		£000	£000
Gross premiums written			642			1,460
Reinsurers' share of gross premiums			284			35
Earned premium net of reinsurance				926			1,495
Net investment income	6		12,036			15,941
Other income	7		9,560			9,629
				21,596			25,570
Total income				22,522			27,065
Gross claims paid			(45,263)			(61,722)
Reinsurers' share of gross claims paid			25,718			33,860
Claims paid, net of reinsurance			(19,545)			(27,862)
Movement in gross technical provision			50,367			71,282
Movement in reinsurers' share of technical provisions			(22,565)			(43,204)
Net change in provision for claims			27,802			28,078
Net insurance claims released				8,257			216
Operating expenses	8			(21,831)			(18,561)
Result of operating activities before impairment of intangible assets				8,948			8,720
Impairment of intangible assets				(101)			-
Result of operating activities				8,847			8,720
Finance costs	9			(84)			(1,695)
Profit on ordinary activities before income taxes	10			8,763			7,025
Income tax (expense)/credit	11			(2,746)			1,028
Profit for the year				6,017			8,053
Attributable to equity holders of the parent
Attributable to ordinary shareholders				6,017			7,996
Minority interests				-			57
				6,017			8,053
Earnings per ordinary share for the profit attributable to the ordinary shareholders of the Company:
Basic	12			10.8p			29.5p
Diluted	12			10.5p			28.0p

Consolidated Balance Sheet

as at 31 December 2008

	Note		2008  £000		2007  £000
Assets
Intangible assets	14		17,557		12,215
Property, plant and equipment	15		304		205
Investment properties	16a		1,336		1,108
Financial assets
- Investments	16b		261,612		214,818
- Deposits with ceding undertakings			4,812		3,901
Reinsurers' share of insurance liabilities	22		297,650		239,681
Current tax assets	19		2,845		269
Deferred tax assets	23		3,030		5,320
Insurance and other receivables	17		34,158		37,053
Cash and cash equivalents	18		68,189		57,681
Total assets			691,493		572,251
Liabilities
Insurance contract provisions	22		571,190		466,382
Financial liabilities
- Amounts owed to credit institutions	21		4,613		-
- Deposits received from reinsurers			5,752		4,814
Deferred tax liabilities	23		2,586		4,343
Insurance and other payables	20		26,438		22,016
Current tax liabilities			56		-
Total liabilities			610,635		497,555
Equity
Share capital	24		1,118		1,118
Shares to be issued	25		150		151
Share premium account	25		17,255		17,250
Treasury share reserve	25		(1,197)		-
Retained earnings	25		63,532		56,177
Total equity			80,858		74,696
Total liabilities and equity			691,493		572,251

Consolidated Cash Flow Statement

For the year ended 31 December 2008

	Note		2008  £000		2007  £000
Cash flows from operating activities
Profit before income taxes			8,763		7,025
Finance costs			84		1,695
Depreciation			162		218
Share based payments			-		748
Impairment of intangible assets			101		6
Fair value loss/(gain) on financial assets			3,543		(3,730)
Loss on disposal of property, plant and equipment			3		-
Gain on net assets of pension schemes			(141)		(313)
Decrease/(increase) in receivables			8,750		(4,633)
(Increase)/decrease in deposits with ceding undertakings			(911)		722
Decrease in payables			(1,565)		(28,216)
Decrease in net insurance technical provisions			(27,860)		(28,078)
			(9,071)		(54,556)
Sale of financial assets			15,953		34,675
Purchase of financial assets			(4,632)		(12,323)
Cash generated from operations			2,250		(32,204)
Income taxes paid			(50)		(1,414)
Net cash from/(used in) operating activities			2,200		(33,618)
Cash flows from investing activities
Proceeds from sale of property, plant & equipment			12		-
Purchase of property, plant and equipment			(212)		(132)
Acquisition of subsidiary undertakings (net of cash acquired)			(5,634)		-
Purchase of minority interest in subsidiary undertakings			(33)		-
Net cash used in investing activities			(5,867)		(132)
Cash flows from financing activities
Repayment of borrowings			-		(25,228)
Redemption of preference D shares			-		(580)
New borrowing arrangements			4,613		14,352
Equity dividends paid			(2,684)		(1,400)
Interest and other finance costs paid			(84)		(1,231)
Receipts from issue of shares			4		15,966
Purchase of treasury shares			(1,197)		-
Net cash from financing activities			652		1,879
Net decrease in cash and cash equivalents			(3,015)		(31,871)
Cash and cash equivalents at beginning of year			57,681		90,857
Foreign exchange movement on cash and cash equivalents			13,523		(1,305)
Cash and cash equivalents at end of year	18		68,189		57,681

Consolidated Statement of Recognised Income and Expense

For the year ended 31 December 2008

	Note		2008  £000		2007  £000
Recognised in the financial year:
Exchange gains/(losses) on consolidation			4,163		(49)
Pension scheme actuarial losses			(197)		(447)
Deferred tax on pension scheme actuarial losses			56		134
Net income/(expense) recognised directly in equity			4,022		(362)
Profit for the year			6,017		8,053
Total recognised income for the year			10,039		7,691
Attributable to:
Equity holders of the parent	25		10,039		7,634
Minority interests			-		57
Total recognised in the year			10,039		7,691

Notes to the Consolidated Financial Statements

For the year ended 31 December 2008

1.      Corporate information

Randall & Quilter Investment Holdings plc (the 'Company') is a company domiciled and incorporated in England and Wales. Group companies carry on business in the UK, Europe, United States and Bermuda as owners and managers of insurance companies in run off, as purchasers of reinsurance receivables, as captive managers and as consultants to the insurance market.  The financial statements were approved by the Board of Directors on 5 May 2009.

2.      Accounting policies

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

a.      Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), endorsed by the European Union ('EU'), International Financial Reporting Interpretations Committee ('IFRIC') interpretations and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS.

The Company has elected to prepare its Parent Company Financial Statements in accordance with UK GAAP; these are presented on pages 60 - 65.

The Group Financial Statements have been prepared under the historical cost convention except that financial assets are stated at their fair value. 

The preparation of the consolidated financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year (Note 3).  Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised in the current and future years depending on when the revision is made and the year it affects.

At the date of preparation of these consolidated financial statements a number of standards and other interpretations had been published by the International Accounting Standards Board but were not yet effective and have therefore not been adopted in these consolidated financial statements.  These are:-

• IAS1:                          Presentation and Financial Statements (Revised)

• IAS23:                        Borrowing Costs (Revised)

• IAS1 and IAS32:       Puttable Financial Instruments and Obligations Arising on Liquidation (Amended)    

• IFRS1 and IAS27:    Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (Amended)

• IFRS2:                       Share-based payment (Amended)

• IFRS8:                       Operating Segments

• IFRIC13:                    Customer Loyalty Programmes

• IFRIC16:                     Hedges of a Net Investment in a Foreign Operation

• IFRIC17:                     Distributions of Non-cash Assets to Owners

It is not anticipated that adoption of the above will have a material impact on the consolidated financial statements, except for IAS1 (Revised) and IFRS8 which may result in additional disclosures in the financial statements.

Significant uncertainty in technical provisions

Significant uncertainty exists as to the accuracy of the provisions for claims outstanding and the amounts due from reinsurers established in the insurance company subsidiaries as shown in the consolidated balance sheet.  Further details of the uncertainties inherent in estimating technical reserves are set out in Note 3.  The ultimate costs of claims and the amounts ultimately recovered from reinsurers could vary materially from the amounts established and could therefore have a materially adverse affect on the ability of each insurance company subsidiary to meet its liabilities in full.

Notwithstanding this significant uncertainty, the consolidated financial statements have been prepared and consolidated on a going concern basis since the Directors are of the opinion, based on information currently available, that each of the insurance company subsidiaries will continue in operational existence and be able to meet all their liabilities and obligations for the foreseeable future.

In the event that further information were to become available to the Directors of an insurance company subsidiary which gave rise to material additional liabilities, the going concern basis might no longer be appropriate for that company and adjustments would have to be made to reduce the value of its assets to their realisable amount, and to provide for any further liabilities which might arise.

The Company and its other subsidiaries bear no financial responsibility for any liabilities or obligations of any insurance company subsidiary in run-off, except as referred to in Note 31.  Should any insurance company subsidiary cease to be able to continue as a going concern in the light of further information becoming available, any loss to the Company and its other subsidiaries would thus be restricted to the book value of their investment in and amounts due from that subsidiary and any guarantee liability that may arise.

The book value of the Group's investments in the insurance company subsidiaries at 31 December 2008 was £21.9m (2007: £21.9m).

b.      Selection of accounting policies

The Directors exercise judgement in selecting each Group accounting policy.  The accounting policies of the Group are selected by the Directors to present consolidated financial statements that they consider provide the most relevant information.  For certain accounting policies there are different accounting treatments that could be adopted, each of which would be in compliance with IFRS and would have a significant influence upon the basis on which the consolidated financial statements are presented.  The bases of selection of the accounting policies in accounting for financial assets and for the recognition of actuarial gains and losses related to pension obligations are set out below:

•    The Group accounting policy is to designate all financial assets that meet the necessary conditions as fair value through profit or loss. This designation allows the Group to recognise investment return against the movement in insurance technical provisions. The financial assets will be realised and used to settle the Group's insurance technical provisions as the business is run off.

•    The Group accounting policy is to recognise actuarial gains and losses arising from the recognition and funding of the Group's pension obligations in equity in the year in which they arise. This policy has been adopted as it provides the most relevant basis of recognition of such gains and losses. The amount of any surplus recognised will be restricted as required by IAS19.

c.       Consolidation

The consolidated financial statements incorporate the financial statements of the Company, and entities controlled by the Company (its subsidiaries), for the years ended 31 December 2008 and 2007.  Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefit from its activities.  The financial results of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

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, plus costs directly attributable to the acquisition.

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.  If the cost of an acquisition is less than the fair value of the net assets of the subsidiary acquired the difference is negative goodwill and is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated in preparing the consolidated financial statements.  Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Minority interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the statement of recognised income and expense and within equity in the consolidated balance sheet, separately from parent shareholders' equity.

d.       Premiums

No new business is written by the insurance company subsidiaries as they are in run off. Premium and reinsurance premium adjustments are recognised in the year that they arise.

e.      Claims incurred

Claims incurred comprise claims and related expenses paid in the year and changes in the provisions for outstanding claims, including provisions for claims incurred but not reported and related expenses, together with any other adjustments to claims from previous years.  Where applicable, deductions are made for salvage and other recoveries.

f.       Claims provisions and related reinsurance recoveries

Provisions are made in insurance company subsidiaries for the full estimated costs of claims notified but not settled, including claims handling costs, on the basis of the best information available, taking account of inflation and increasing court awards.  The Directors of the insurance company subsidiaries have established such provisions on the basis of their own investigations and with the assistance of run-off managers and independent actuaries.  Deductions are made for salvage and other recoveries as appropriate.

The provisions for claims incurred but not reported ('IBNR') in insurance company subsidiaries have been based on a number of factors including previous experience in claims and settlement patterns, the nature and amount of business written, inflation, the possibility of non-recovery of reinsurance and the latest available information.

Where all or parts of an insurance company subsidiary's claims are subject to a solvent scheme of arrangement, only claims admitted into the scheme rank as liabilities.  At the balance sheet date all such claims are included at their agreed or determined amount or, where not agreed or determined, at the Directors' best estimate of the amounts which would ultimately be payable to creditors admitted into the Scheme.

A reinsurance asset (reinsurers' share of insurance liabilities) is recognised to reflect the amount estimated to be recoverable under the reinsurance contracts in respect of the outstanding claims reported under insurance liabilities.  The amount recoverable from reinsurers is initially valued on the same basis as the underlying claims provision.  The amount recoverable is reduced when there is an event arising after the initial recognition that provides objective evidence that the Group may not receive all amounts due under the contract and the event has a reliably measurable impact on the expected amount that will be recovered from the reinsurer.

Neither the outstanding claims nor the provisions for IBNR have been discounted.

The uncertainties which are inherent in the process of estimating are such that, in the normal course of events, unforeseen or unexpected future developments may cause the ultimate cost of settling the outstanding liabilities to differ materially from that presently estimated.  Any differences between provisions and subsequent settlements are dealt with in the income statement in the year which they arise.  Having regard to the significant uncertainty inherent in the business of the insurance company subsidiaries as explained in Note 3, and in the light of the information presently available, in the opinion of the Directors the provisions for outstanding claims and IBNR in the consolidated financial statements are fairly stated.

g.       Claims handling costs

Full provision is made for all costs of running off the business of the insurance company subsidiaries to the extent that the provision exceeds the estimated future investment return expected to be earned by those subsidiaries.  Changes in the amount of the estimates of such costs and future investment return are reflected in the year in which the estimates are changed.

When assessing the amount of future investment income to be recognised, the investment return and claims handling and all other costs of all the insurance company subsidiaries are considered in aggregate.

The uncertainty inherent in the process of estimating the period of run off and the payout pattern over that period, the anticipated run off administration costs to be incurred over that period and the level of investment return to be made are such that in the normal course of events unforeseen or unexpected future developments may cause the ultimate costs of settling the outstanding liabilities to differ from that previously estimated.

h.       Structured settlements

Certain insurance company subsidiaries have entered into structured settlements whereby settlements of claims have been effected by the purchase of annuities from third party life insurance companies in favour of the claimants.  Provided that the life insurance company continues to meet the annuity obligations, no further liability will fall on the insurance company subsidiary; however, if the life insurance company fails to meet the annuity obligations the liability for any remaining payments due under the annuity will revert to the relevant subsidiary.  The amounts payable to policyholders are recognised in liabilities. These are offset by the amounts that will be directly payable to policyholders by third party insurance companies.

In the opinion of the Directors, this treatment reflects the substance of the transaction on the basis that the liability of group companies under structured settlements is contingent upon the failure of the relevant third party life insurance companies.

Should the Directors become aware that a third party life insurance company responsible for the payment of an annuity under a structured settlement may not be in a position to meet its annuity obligations in full, provision will be made for any such failure.

Disclosure of the position in relation to structured settlements is shown in Note 20.

i.        Segmental reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from other business segments.  A geographical segment is engaged in providing services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

j.        Foreign currency translation

(i)    Functional and presentational currency

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 consolidated financial statements are presented in thousands of sterling, which is the Group's functional and presentational currency.

 (ii)    Transactions and balances

Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction.  Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date; the resulting foreign exchange gain or loss is recognised in the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are not subsequently restated.

The assets and liabilities of overseas subsidiaries, including associated goodwill, held in functional currencies other than sterling are translated from their functional currency into sterling at the exchange rate at the balance sheet date. Income and expenses are translated at average rates for the period.

Foreign exchange differences arising from retranslation of the opening net assets of each overseas subsidiary and the opening net assets held in currency by each UK insurance company subsidiary are recognised initially in the statement of recognised income and expense and subsequently in the income statement in the year in which the entity is disposed of.

k.       Financial instruments (assets and liabilities)

         (i)       Financial assets held for investment purposes

The Group has classified its investments as financial assets at fair value through profit or loss. The Group's strategy is to manage financial investments held to cover its insurance liabilities on the same basis, being fair value.  As such the Group's investments are classified as fair value through profit or loss at inception.

Investments in listed securities are stated at their quoted bid price at the balance sheet date.   Investments in unlisted securities are valued by the Directors on a prudent basis having regard to their likely realisable value.

Realised and unrealised gains and losses arising from changes in the fair value of financial assets designated as fair value through profit or loss are recognised in the income statement in the year in which they arise.

(ii)      Investment properties

Investment properties, comprising freehold land and buildings, are held for long term rental yields and are not occupied by the Group. 

Investment properties are recorded at fair value, measured by independent professionally qualified valuers, who hold a recognised and relevant professional qualification and have recent experience in the location and category of the investment property being valued, on a triennial basis or more frequently and by internal valuers for interim periods, with reference to current market conditions.  Related unrealised gains and unrealised losses or changes thereof are recognised in net investment income.

 (iii)    Preference shares

Preference A and B shares are classified as equity.

l.        Employee benefit trust

The Group makes contributions to an Employee Benefit Trust ('EBT').  The assets and liabilities of the EBT are held on the balance sheet until such time as the contributions vest unconditionally with identified beneficiaries. The income statement expense reflects the period in which the Company benefits from the employees services.

m.      Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classed as operating leases.  Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

n.       Property, plant and equipment

All assets included within property, plant and equipment ('PPE') are carried at historical cost. Depreciation is calculated to write down the cost less estimated residual value of motor vehicles, office equipment and computer equipment by the straight line method over their expected useful lives.  The principal rates per annum used for this purpose are

	%
Motor vehicles	25
Office equipment/refurbishment	8 - 50
Computer equipment	25 - 33.3
Leasehold improvements	Term of lease

The gain or loss arising on the disposal of an item of PPE is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

o.      Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the fair value of the consideration paid for the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities.  Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.  Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purposes of assessing the fair value of the net assets of insurance companies acquired, the Directors adopt the same accounting policies for determining the amounts of assets and liabilities as are applied in these consolidated financial statements. In particular the provisions for outstanding claims and IBNR are not discounted, future investment returns are recognised only to the extent of provisions for claims handling and all other costs to the conclusion of the run off of the insurance company subsidiary acquired.

When assessing the amount of future investment income to be recognised, the investment returns, the claims handling and all other costs of all the insurance company subsidiaries are considered in aggregate.

p.      Other intangible assets

Intangible assets, other than goodwill, that are acquired separately are stated at cost less accumulated amortisation and impairment.  Amortisation is charged to operating expenses in the income statement on a straight line basis as follows:-

	%
Computer software	20 - 33.3

Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  An impairment loss is recognised in the income statement to reduce the carrying amount to the recoverable amount.

q.       Pensions

The Group makes contributions to defined contribution schemes and a defined benefit scheme.

The pension cost in respect of the defined contribution schemes represents the amounts payable by the Group for the year.  The funds of the schemes are administered by the trustees and are separate from the Group.  The Group's liability is limited to the amount of the contributions.

The defined benefit scheme is funded by contributions from a subsidiary company and its assets are held in a separate Trustee administered fund.  Pension scheme assets are measured at market value, and liabilities are measured using the projected unit method and discounted at the current rate of return on high quality corporate bonds of equivalent term and currency to the liability.

Current service cost, interest cost, the expected return on scheme assets and any curtailments/settlements are charged to the income statement.  Pension liabilities are recognised and disclosed separately in the balance sheet.  Surpluses are only recognised up to the aggregate of any cumulative unrecognised net actuarial gains and past service costs, and the present value of any economic benefits available in the form of any refunds or reductions in future contributions.

Subject to the restrictions relating to the recognition of a pension surplus, all actuarial gains and losses are recognised in full in the statement of recognised income and expense in the period in which they occur.

r.       Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less from the date of acquisition, and bank overdrafts.

s.       Investment income

Investment income comprises interest, dividends, realised and unrealised gains and losses on financial assets held at fair value through profit or loss.

The fair value of unrealised gains and losses is calculated as the difference between the current fair value at the balance sheet date and fair value at date of acquisition adjusted for previously recognised unrealised gains and losses of financial assets disposed of in the year.

Realised gains and losses are calculated as the difference between the net sales proceeds and the fair value at the previous balance sheet date or date of acquisition if in the year.

Dividend income is recognised when the right to receive that income is established.

t.        Finance costs

Finance costs comprise loan and bank interest and redemption costs of preference shares treated as liabilities.  Finance costs are recognised in the income statement on an accruals basis. Arrangement fees in relation to loan facilities are deducted from the relevant financial liability and amortised over the period of the facility. 

u.      Operating expenses

Operating expenses are accounted for on an accruals basis.

v.       Pre-contract costs

Directly attributable pre-contract costs are recognised as an asset when it is virtually certain that a contract will be obtained and the contract is expected to result in future net cash inflows in excess of any amounts recognised as an asset.

Pre-contract costs are charged to the income statement over the shorter of the life of the contract or five years.

w.      Other income

Other income includes the value of management and consultancy fees receivable, income from investment properties, the value of debt collection fees receivable and the proceeds of the sale or recovery of purchased reinsurance receivables and is stated excluding any applicable value added tax.

Management and Consultancy Fees

Management and consultancy fees are from non group customers and are recognised when the right to such fees is established through a contract and to the extent that the services concerned have been performed.

Income from investment properties

Income from investment properties is recognised on an accruals basis.

Debt collection fees

Debt collection fees are recognised when the right to such fees is established through a contract and either the debt has been collected or the services concerned have been performed at the balance sheet date and the Group has received confirmation that the fee will be paid.

Purchased reinsurance receivables

Purchased reinsurance receivables are generally purchased at a discount to their principal amount.   They are recorded at cost.  Such receivables are shown in debtors and stated at the lower of cost and net realisable value.

When receivables are purchased in bulk, the Directors allocate the cost to individual or groups of receivables based on the characteristics and quality of the respective elements.

When purchased reinsurance receivables are realised, the book value of such receivables is charged to the income statement.

Proceeds arising from the sale or recovery of purchased reinsurance receivables are recognised when received.

x.      Share based payments

The Group issues equity share based payments to certain of its employees.

The cost of equity settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is recognised as an expense on a straight line basis over the vesting period. The fair value is measured using the binomial option pricing method, taking into account the terms and conditions on which the awards were granted.

y.       Income taxes

Tax on the profit or loss for the year comprises current and deferred tax.

Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Deferred tax liabilities are 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 consolidated financial statements.  However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination and which, at the time of the transaction, affects neither accounting nor taxable profit or loss, it is not provided for.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which these temporary differences can be utilised.  Deferred tax assets and liabilities are not discounted.

Deferred tax assets and liabilities are determined using tax rates that have been enacted by the balance sheet date or subsequently enacted and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

z.       Share Premium Account

Incremental costs attributable to the issue of equity instruments are deducted from equity as a charge to the share premium account against the proceeds of the issue, net of tax.

3.       Estimation techniques, uncertainties and contingencies

Claims provisions

The Group owns a number of insurance companies in run-off.  The consolidated financial statements include provisions for all outstanding claims and IBNR, for related reinsurance recoveries and for all costs expected to be incurred in the completion of the run-off.

The provision for claims outstanding and IBNR is based upon actuarial and other studies of the ultimate cost of liabilities including exposure based and statistical estimation techniques.  There are significant uncertainties inherent in the estimation of each insurance company subsidiary's insurance liabilities and reinsurance recoveries.  There are many assumptions and estimation techniques that may be applied in assessing the amount of those provisions which individually could have a material impact on the amounts of liabilities, related reinsurance assets and reported shareholders' funds disclosed in the consolidated financial statements.  Actual experience will often vary from these assumptions, and any consequential adjustments to amounts previously reported will be reflected in the results of the year in which they are identified.  Potential adjustments arising in the future could, if adverse in the aggregate, exceed the amount of shareholders' funds of an insurance company subsidiary.

The business written by the insurance company subsidiaries consists in part of long tail liabilities, including asbestos, pollution, health hazard and other US liability insurance.  The claims for this type of business are typically not settled until several years after policies have been written.  Furthermore, much of the business written by these companies is re-insurance and retrocession of other insurance companies, which lengthens the settlement period.

Significant delays occur in the notification and settlement of certain claims and a substantial measure of experience and judgement is involved in making the assumptions necessary for assessing outstanding liabilities, the ultimate cost of which cannot be known with certainty at the balance sheet date.  The gross provisions for claims outstanding and related reinsurance recoveries are estimated on the basis of information currently available. Provisions are calculated gross of any reinsurance recoveries.  A separate estimate is made of the amounts that will be recoverable from reinsurers based upon the gross provisions and having due regard to collectability.

The provision for claims outstanding includes significant amounts in respect of notified and potential IBNR claims for long tail liabilities.  The settlement of most of these claims is not expected to occur for many years, and there is significant uncertainty as to the timing of such settlements and the amounts at which they will be settled.

While many claims are clearly covered and are paid quickly, many other claims are subject to significant disputes, for example over the terms of a policy and the amount of the claim.  The provisions for disputed claims are based on the view of the Directors of each insurance company subsidiary as to the expected outcomes of such disputes.  If the outcome differs substantially from expectation there could be a material impact on the Group's liabilities.  Claim types impacted by such disputes include asbestos, pollution and certain health hazards and retrocessional reinsurance claims arising out of the Exxon Valdez oil spill and the first Gulf War.

Uncertainty is further increased because of the potential for unforeseen changes in the legal, judicial, technological or social environment, which may increase or decrease the cost, frequency or reporting of claims, and because of the potential for new sources or types of claim to emerge.

Asbestos, pollution and health hazard claims

The estimation of the provisions for the ultimate cost of claims for asbestos, pollution and health hazard is subject to a range of uncertainties that is generally greater than those encountered for other classes of insurance business.  As a result it is not possible to determine the future development of asbestos, pollution and health hazard claims with the same degree of reliability as with other types of claims.  Consequently, traditional techniques for estimating claims provisions cannot wholly be relied upon.  The Group employs further techniques which utilise the exposure to these losses by contract to determine the claims provisions.

Insurance run-off expenses

The provision for the cost of handling and settling outstanding claims to extinction and all other costs of managing the run off is based on an analysis of the expected costs to be incurred in run-off activities, incorporating expected savings from the reduction of transaction volumes over time.

The period of the run off may be between 5 and 50 years depending upon the nature of the liabilities within each insurance company subsidiary.  Ultimately, the period of run-off is dependant on the timing and settlement of claims and the collection of reinsurance recoveries; consequently similar uncertainties apply to the assessment of the provision for such costs.

Reinsurance recoveries

Reinsurance recoveries are included in respect of claims outstanding (including IBNR claims) and claims paid after making provision for irrecoverable amounts.

The reinsurance recoveries on IBNR claims are estimated based on the recovery rate experienced on notified and paid claims for each class of business.

The insurance company subsidiaries are exposed to disputes on contracts with their reinsurers and the possibility of default by reinsurers.  In establishing the provision for non-recovery of reinsurance balances the Directors of each insurance company subsidiary consider the financial strength of each reinsurer, its ability to settle their liabilities as they fall due, the history of past settlements with the reinsurer, and the Group's own reserving standards and have regard to legal advice regarding the merits of any dispute.

Defined benefit pension scheme

The pension assets and pension and post retirement liabilities are calculated in accordance with International Accounting Standard 19 ('IAS 19').  The assets, liabilities and income statement charge or credit, calculated in accordance with IAS 19, are sensitive to the assumptions made, including inflation, interest rate, investment return and mortality.  IAS 19 compares, at a given date, the current market value of a pension fund's assets with its long term liabilities, which are calculated using a discount rate in line with yields on 'AA' rated bonds of suitable duration and currency.  As such, the financial position of a pension fund on this basis is highly sensitive to changes in bond rates and equity markets.

Litigation, mediation and arbitration

The Group, in common with the insurance industry in general, is subject to litigation, mediation and arbitration, and regulatory, governmental and other sectoral inquiries in the normal course of its business.  The Directors do not believe that, except as mentioned in The Chairman's Statement and Business Review, any current mediation, arbitration, regulatory, governmental or sectoral inquiries and pending or threatened litigation or dispute will have a material adverse effect on the Group's financial position, although there can be no assurance that losses resulting from any current mediation, arbitration, regulatory, governmental or sectoral inquiries and pending or threatened litigation or dispute will not materially affect the Group's financial position or cash flows for any period.

Changes in foreign exchange rates

The Group's consolidated financial statements are prepared in pounds sterling.  Therefore, fluctuations in exchange rates used to translate other currencies, particularly other European currencies and the US dollar, into pounds sterling will impact the reported consolidated financial position, results of operations and cash flows from year to year.  These fluctuations in exchange rates will also impact the pound sterling value of our investments and the return on our investments.  Income and expenses for each income statement item are translated at average exchange rates.  Balance sheet assets and liabilities are translated at the closing exchange rates at the balance sheet date.

4.    Risk management

The Group's activities expose it to a variety of financial and non-financial risks.  The Board is responsible for managing the Group's exposure to these risks and, where possible, for introducing controls and procedures that mitigate the effects of the exposure to risk.

The following describes the Group's exposure to the more significant risks and the steps management have taken to mitigate their impact from a quantitative and qualitative perspective.

a.       Investment risks (including market risk)

The investment of the Group's financial assets, except certain deposits with ceding undertakings, is managed by external investment managers. The Board monitors the performance of the external investment managers on a regular basis and periodically agrees with them the investment strategy to be adopted to mitigate risks of interest rate fluctuation and credit risks and to provide appropriate liquidity.

The main objective of the investment policy is to maximise return whilst maintaining and protecting the principal value of funds under management.

The investment allocation (including surplus cash) at the year end is shown below:

		2008  £m		2007  £m
Government and government agencies		127.7		113.7
Corporate bonds		124.5		71.8
Equities		1.0		2.2
Cash based investment funds		27.8		27.1
Cash and cash equivalents		48.8		57.7
		329.8		272.5
		%		%
Government and government agencies		38.7		41.7
Corporate bonds		37.8		26.4
Equities		0.3		0.8
Cash based investment funds		8.4		10.0
Cash and cash equivalents		14.8		21.1
		100.0		100.0

Corporate bonds include asset backed mortgage obligations totalling £4.5m (2007: £4.0m)

Based on invested assets at external managers of £280,940,000 as at 31 December 2008 (2007: £214,799,000) a 1 percentage increase/decrease in fair value would result in an increase/decrease in the profit before income taxes for the year to 31 December 2008 of £2,809,400 (2007: £2,147,990).

The following shows the Group's securities maturity dates and interest rate ranges:

As at 31 December 2008
Maturity date or contractual re-pricing date
	Total	Less than one year		After one  year but  less than  two years		After two  years but  less than  three years		After three years but  less than  five years		More than  five years
	£m		£m		£m		£m		£m		£m
Fixed rate	280.0		101.9		87.2		52.7		19.3		18.9
Interest rate ranges (coupon-rates)
		Less than one year		After one  year but  less than  two years		After two  years but  less than  three years		After three years but  less than  five years		More than  five years
			%		%		%		%		%
Fixed rate			0-7.38	1.75 - 8.75		3.375 - 6.35		3.25 - 7		3.88 - 11.5

As at 31 December 2007
Maturity date or contractual re-pricing date
	Total	Less than one year		After one  year but  less than  two years		After two  years but  less than  three years		After three  years but  less  than  five  years		More than  five years
	£m		£m		£m		£m		£m		£m
Fixed rate	212.6		83.3		60.5		37.6		22.0		9.2
Interest rate ranges (coupon-rates)
		Less than one year		After one  year but  less than  two years		After two  years but  less than  three years		After three  years  but  less than  five years		More than  five years
			%		%		%		%		%
Fixed rate		0-6.61		3.25-6.625		3.55-8.75		4.5-7		4.875-11.5

b.    Credit risk

Credit risk arises on all the Group's financial assets, however the most significant area where it arises is where reinsurers fail to meet their obligations in full as they fall due. In addition, the Group is exposed to the risk of disputes on individual claims presented to its reinsurers or in relation to the contracts entered into with its reinsurers.

The ratings used in the below analysis are based upon the published rating of Standard & Poor's or other recognised ratings agency.

As at 31 December 2008
	A rated		B rated	Less than  B		Other*		Exposures of less than £0.2m		Total
	£000		£000		£000		£000		£000		£000
Deposits with ceding undertakings	1,905		-		-		407		2,500		4,812
Reinsurers' share of insurance liabilities	134,725		40,759		1,044		94,421		26,701		297,650
Receivables arising out of reinsurance contracts	6,624		2,012		-		2,552		10,438		21,626

    The average credit period of receivables arising out of reinsurance contracts are as follows:

	0-6 months		6-12 months		12-24 months		> 24 months
	%		%		%		%
Percentage of receivables	21.4		13.4		21.1		44.1

* Other includes reinsurers who currently have no credit rating

As at 31 December 2007
	A rated		B rated	Less  than B		Other*		Exposures of less than £0.2m		Total
	£000		£000		£000		£000		£000		£000
Deposits with ceding undertakings	703		559		-		309		2,330		3,901
Reinsurers' share of insurance liabilities	144,139		18,923		407		38,055		38,157		239,681
Receivables arising out of reinsurance contracts	17,367		2,509		286		3,946		6,589		30,697

    The average credit period of receivables arising out of reinsurance contracts are as follows:

	0-6 months		6-12 months		12-24 months		> 24 months
	%		%		%		%
Percentage of receivables	52.1		10.4		17.2		20.3

* Other includes reinsurers who currently have no credit rating

The reinsurers share of insurance liabilities is based upon a best estimate given the profile of the insurance provisions outstanding and the related IBNR.

c.       Liquidity risk

Liquidity risk is the risk that cash may not be available to pay obligations when due.  The cash position of each of the insurance companies is monitored on a regular basis to ensure that sufficient funds are available to meet liabilities as they fall due.  Funds required to meet immediate and short term needs are invested in short term deposits.  Funds in excess of those required to meet short term needs are managed by external fund managers.  The investment performance of the fund managers is closely monitored throughout the year by each company's investment committee.  This includes a review of performance against agreed benchmarks on a monthly basis.

The cash position of each company within the ISD and the LMD is monitored weekly to ensure that sufficient funds are available to meet liabilities as they fall due.

The management contracts within Cavell Management Services Limited are typically structured such that fees are payable by clients quarterly or annually in advance providing the division with sufficient working capital to support the obligations of all companies within the division.

d.       Currency risk

The Group and in particular the insurance companies are exposed to currency risk generated through regular trading activity denominated in currencies other than their functional currency. The most significant currencies to which the companies are exposed are the US dollar and the euro. Group policy requires that the Directors seek where possible to mitigate the risk by matching the estimated foreign currency denominated liabilities with assets denominated in the same currency. As the Group reports in Sterling, any fluctuations in foreign currency are reflected in the consolidated financial statements. The significant exchange rates at 31 December 2008 were £:US$ 1.46 (2007: 2.00) and £:euro 1.02 (2007: 1.36)The sterling equivalent of monetary assets and liabilities held by the Group designated in US dollars at the year end are as follows:

	2008		2007
		£000		£000
US Dollars
Reinsurance assets		273,463		209,755
Financial investments		224,301		160,430
Insurance receivables		16,026		24,629
Cash and cash equivalents		34,747		26,851
Insurance liabilities including provisions		(518,470)		(414,936)
Other provisions		(4,917)		(4,377)
Trade and other (payables)/receivables		(2,586)		5,313
		22,564		7,665

A 10 per cent increase/decrease in the value of the US Dollar against Sterling would result in an increase/decrease in the net asset value as at 31 December 2008 of £2,256,000 (2007: £766,000).

The sterling equivalent of monetary assets and liabilities held by the Group designated in Euros at the year end are as follows:

	2008		2007
		£000		£000
Euro
Reinsurance assets		1,975		2,325
Financial investments		12,717		1,833
Insurance receivables		516		62
Cash and cash equivalents		2,659		10,093
Insurance liabilities including provisions		(20,731)		(9,588)
Trade and other receivables/(payables)		657		(72)
		(2,207)		4,653

A 10 per cent decrease/increase in the value of the Euro against Sterling would result in a decrease /increase in the net asset value as at 31 December 2008 of £221,000 (2007: increase/decrease of £465,000).

e.       Interest rate risk

The Group's main exposure to fluctuation in interest rates arises in its effect on the value of funds invested in bonds and equities.  In order to mitigate this risk, the investment committees of the insurance companies, together with the external investment managers, attempt to anticipate any future interest rate movement and to take appropriate action to mitigate its effect on the value of investments held.

f.        Insurance risk

None of the Group's insurance subsidiaries are writing new business and all are in run-off; the date at which each entity went into run off together with the date that each was acquired by the Group is summarised below:-

Subsidiary	Date business entered run off	Date acquired by the Group
Ludgate *	1987	4 August 1992
La Metropole SA	1995	29 November 2000
Transport Insurance Company	1996	30 November 2004
R&Q Reinsurance Company	1994	3 July 2006
R&Q Reinsurance (Belgium) Limited	1994	3 July 2006
R&Q Reinsurance (UK) Limited	1990	3 July 2006
Chevanstell Limited	2003	10 November 2006
Arran Insurance Company Limited	1984	21 December 2006

    * Ludgate was de-authorised as an insurance company by the FSA on 10 July 2007.

The very nature of insurance business is that insurers are exposed to the possibility that claims will arise on business written.  The risk attaching to insurance contracts is based on the fortuity that events will occur which will lead to a claim under the contract.  The main insurance risks which affect the insurance companies are:

•    Reinsurance risk - the risk that the reinsurers of the insurance companies will dispute the coverage of losses

•    Claims risk - a series of claims in respect of a latent liability that the insurance industry is not currently aware of

•    Legal risk - changes in statute or legal precedent

•    Reserving risk - the risk that the reserves established by the companies prove to be inadequate.

In order to mitigate reserving risk, the companies use a number of approaches, including actuarial techniques, to project gross and net insurance liabilities.

Claims development information is disclosed in order to illustrate the effect of the uncertainty in the estimation of future claims settlements by the Group.  The tables compare the ultimate claims estimates with the payments made to date.  Details are only presented on an aggregate basis and look at the movements on a gross and net basis, and separately identify the effect of the various acquisitions made by the Group since 1 January 2004.

Analysis of claims development - gross (including claims handling expenses)

	Group   entities at  1 January  2004		Entities  acquired by  the Group  during 2004		Entities  acquired by  the Group  during 2005		Entities  acquired by  the Group  during 2006
		£000		£000		£000		£000
Gross reserves at:
1 January 2004/acquisition		4,914		89,221		-		499,383
First year movement		48		(1,375)		-		(46,472)
Second year movement		(2,385)		14,750		-		(72,066)
Third year movement		(2,482)		(12,098)		-		79,773
Fourth year movement		(4)		(5,052)		-		-
Fifth year movement		30		25,005		-		ߛ
Gross position at 31 December 2008		121		110,451		-		460,618
Estimated gross ultimate claims at:
1 January 2004/acquisition		4,914		89,221		-		499,383
Foreign exchange		(310)		26,525		-		100,923
Payments in the year		(4,694)		(16,402)		-		(116,950)
Gross position at 31 December 2008		(121)		(110,451)		-		(460,618)
(Deficit)/surplus to date		(211)		(11,107)		-		22,738

No insurance operations have been acquired by the Group during 2007 or 2008.

Analysis of claims development - net

	Group   entities at  1 January  2004		Entities  acquired by  the Group  during 2004		Entities  acquired by  the Group  during 2005		Entities  acquired by  the Group  during 2006
		£000		£000		£000		£000
Net reserves at:
1 January 2004/acquisition		4,853		3,603		-		276,958
First year movement		109		(38)		-		(23,490)
Second year movement		(2,385)		1,751		-		(30,099)
Third year movement		(2,482)		(2,048)		-		40,924
Fourth year movement		(4)		(27)		-		-
Fifth year movement		30		5,885		-		-
Net position as at 31 December 2008		121		9,126		-		264,293
Estimated net ultimate claims at:
1 January 2004/acquisition		4,853		3,603		-		276,958
Foreign exchange		(309)		2,106		-		58,517
Net payments in the year		(4,457)		939		-		(55,693)
Net position as at 31 December 2008		(121)		(9,126)		-		(264,293)
(Deficit)/surplus to date		(34)		(2,478)		-		15,489

    No insurance operations have been acquired by the Group during 2007 or 2008.

g.       Regulatory risk

A number of the companies in the Group are regulated by the FSA. A number of overseas subsidiaries are regulated in the countries in which they operate. Failure to comply with applicable regulations could result in a variety of sanctions. The Directors are responsible for ensuring that best practice is applied to a standard which ensures regulatory compliance.

h.       Property Price Risk

The Group is subject to property price risk due to holding investment properties. No derivative contracts have been entered into to mitigate the effects of changing property prices.

i.       Operational Risk

Operational risks arise as a result of inadequately controlled internal processes or systems, human error or external events.

This definition is intended to include all risks to which the Group is exposed, other than the financial risks described previously, and strategic and risks of the Group which are considered elsewhere. It includes risks relating to regulation, financial procedures, information technology, financial crime, business protection, human resources, outsourcing, purchasing, communications and legal.  

j.       Capital Risk Management 

The Directors have overall responsibility for managing the Group's capital base with the principal objectives of maintaining a sufficient capital to satisfy regulatory requirements. The Directors also recognise the need to maintain a strong capital base that provides the necessary protection to policy holders and creditors at the same time generating sufficient returns to create shareholder value. 

5.      Segmental information

The Group has three primary segments:-

•    Insurance companies in run-off

•    Insurance services 

•    Liquidity management

Primary segment information - Segment result for the year ended 31 December 2008

	Insurance companies	Insurance services		Liquidity management			Other corporate	Consolidation adjustments			Total
	£000		£000		£000		£000		£000		£000
Gross premium written	642		-		-		-		-		642
Reinsurers’ share of gross premium	284		-		-		-		-		284
Earned premium net of reinsurance	926		-		-		-		-		926
Net investment income	11,210		606		7		213		-		12,036
Other income	-		22,935		594		-		(13,969)		9,560
	11,210		23,541		601		213		(13,969)		21,596
Total income	12,136		23,541		601		213		(13,969)		22,522
Gross claims paid	(45,263)		-		-		-		-		(45,263)
Reinsurers’ share of gross claims paid	25,718		-		‑		-		-		25,718
Claims paid, net of reinsurance	(19,545)		-		-		-		-		(19,545)
Movement in gross technical     provisions	50,367		-		-		-		-		50,367
Movement in reinsurers’ share of    technical provisions	(22,565)		-		-		-		-		(22,565)
Net change in provision for claims	27,802		-		-		-		-		27,802
Net insurance claims released	8,257		-		-		-		-		8,257
Operating expenses	(13,011)		(18,195)		(468)		(3,964)		13,969		(21,669)
Earnings before interest, tax,    depreciation and amortisation	7,382		5,346		133		(3,751)		-		9,110
Depreciation and impairment	(12)		(150)		-		(101)		-		(263)
Result of operating activities	7,370		5,196		133		(3,852)		-		8,847
Finance costs	-		(1)		-		(83)		-		(84)
Management charges	-		(327)		-		327				-
Profit/(loss) on ordinary activities before income taxes	7,370		4,868		133		(3,608)		-		8,763
Income tax (expense)/credit	(1,254)		(2,269)		-		777		-		(2,746)
Profit/(loss) for the year	6,116		2,599		133		(2,831)		-		6,017
Segment assets	665,658		11,479		885		55,164		(41,693)		691,493
Segment liabilities	601,277		7,321		479		23,244		(21,686)		610,635

Primary segment information - Segment result for the year ended 31 December 2007

	Insurance companies		Insurance services	Liquidity management			Other corporate	Consolidation adjustments			Total
	£000		£000		£000		£000		£000		£000
Gross premium written	1,460		-		-		-		-		1,460
Reinsurers’ share of gross premium	35		-		-		-		-		35
Earned premium net of reinsurance	1,495		-		-		-		-		1,495
Net investment income	15,819		101		2		19		-		15,941
Other income	-		21,655		584		208		(12,818)		9,629
	15,819		21,756		586		227		(12,818)		25,570
Total income	17,314		21,756		586		227		(12,818)		27,065
Gross claims paid	(61,722)		-		-		-		-		(61,722)
Reinsurers’ share of gross claims paid	33,860		-		-		-		-		33,860
Claims paid, net of reinsurance	(27,862)		-		-		-		-		(27,862)
Movement in gross technical    provisions	71,282		-		-		-		-		71,282
Movement in reinsurers’ share of    technical provisions	(43,204)		-		-		-		-		(43,204)
Net change in provision for claims	28,078		-		-		-		-		28,078
Net insurance claims released	216		-		-		-		-		216
Operating expenses	(12,607)		(16,616)		(336)		(1,596)		12,818		(18,337)
Earnings before interest, tax,    depreciation and amortisation	4,923		5,140		250		(1,369)		-		8,944
Depreciation and impairment	(22)		(202)		-		-		-		(224)
Result of operating activities	4,901		4,938		250		(1,369)		-		8,720
Finance costs	-		-		-		(1,695)		-		(1,695)
Management charges	-		(3,226)		-		3,226		-		-
Profit on ordinary activities before        income taxes	4,901		1,712		250		162		-		7,025
Income tax (expense)/credit	(427)		1,459		15		(19)		-		1,028
Profit for the year	4,474		3,171		265		143		-		8,053
Segment assets	569,416		8,824		437		35,144		(41,570)		572,251
Segment liabilities	493,702		3,477		165		12,583		(12,372)		497,555

The Group's Insurance Services Division makes charges to the owned insurance subsidiaries. These amounts, which are eliminated in the consolidated income statement, are charged against the insurance companies claims handling cost provision. The claims handling costs have, as stated in the accounting policies Note 2, been provided only to the extent that they exceed the future investment return expected to be earned by those subsidiaries.

Secondary segment information - geographical analysis

As at 31 December 2008
	UK		United  States and  Bermuda		Europe		Total
		£000		£000		£000		£000
Gross assets		244,604		464,606		23,976		733,186
Intercompany eliminations		(38,426)		(3,263)		(4)		(41,693)
Segment assets		206,178		461,343		23,972		691,493
Gross liabilities		172,149		439,406		20,766		632,321
Intercompany eliminations		(12,697)		(7,512)		(1,477)		(21,686)
Segment liabilities		159,452		431,894		19,289		610,635
Segment income		12,082		9,796		644		22,522

Secondary segment information - geographical analysis

As at 31 December 2007
	UK		United  States and  Bermuda		Europe		Total
		£000		£000		£000		£000
Gross assets		239,818		352,929		21,074		613,821
Intercompany eliminations		(39,633)		(1,937)		-		(41,570)
Segment assets		200,185		350,992		21,074		572,251
Gross liabilities		148,047		340,358		21,522		509,927
Intercompany eliminations		(8,994)		(2,541)		(837)		(12,372)
Segment liabilities		139,053		337,817		20,685		497,555
Segment income		15,971		11,039		55		27,065

Primary segment information - other information

As at 31 December 2008	Insurance  companies  in run-off	Insurance services		Other corporate services		Eliminations		Total
	£000		£000		£000		£000		£000
Assets acquired through   business combination	-		39		-		-		39
Capital expenditure	12		200		-		-		212
Depreciation	12		150		-		-		162

As at 31 December 2007	Insurance  companies  in run-off	Insurance services		Other corporate services		Eliminations		Total
	£000		£000		£000		£000		£000
Assets acquired through   business combination	-		-		-		-		-
Capital expenditure	1		131		-		-		132
Depreciation	35		183		-		-		218

6.    Net investment income

		2008  £000		2007  £000
Investment income		13,514		12,756
Realised gains on financial assets		1,250		305
Unrealised (losses)/gains on financial assets		(2,252)		3,425
Investment management expenses		(476)		(545)
		12,036		15,941

7.    Other income

		2008  £000		2007  £000
Administration of third party insurance companies in run-off		8,713		8,603
Expected return on pension scheme assets		1,463		1,581
Interest on pension scheme liabilities		(1,250)		(1,199)
Purchased reinsurance receivables    (including debt collection fees)		634		644
		9,560		9,629

8.    Operating expenses

		2008  £000		2007  £000
Costs of insurance company subsidiaries		3,617		3,049
Other operating expenses		18,214		15,512
		21,831		18,561

The costs of insurance company subsidiaries exclude group charges.

9.    Finance costs

		2008  £000		2007  £000
Bank loan and overdraft interest		84		951
Other finance costs		-		268
Preference D share dividend and premium on redemption		ߛ		476
		84		1,695

10.    Profit on ordinary activities before income taxes

		2008  £000		2007  £000
Profit on ordinary activities before taxation is stated   after charging/(crediting):
Employee benefits (Note 27)		11,199		10,559
Payment to employee benefit trust (Note 26)		-		40
Total employee benefits expense (Note 27)		11,199		10,599
Depreciation of fixed assets		162		218
Impairment of intangible assets		101		6
Amortisation of pre contract costs		166		166
Operating lease rental expenditure		876		796
Operating lease rental income		(420)		(426)
Auditor Remuneration
Fees payable to the Company's auditor for the audit of the annual accounts		55		35
Fees payable to the Company's auditor and its associates for other services provided to the Company and its subsidiaries:
The audit of the Company' subsidiaries under legislative requirements:
The Company's auditor		203		161
Other auditors		155		151
		358		312
Other services under legislative requirements		30		33
Services relating to corporate finance transactions
Pre-acquisition due diligence and advice		89		-
All other services
Non-regulatory reporting on internal controls and corporate governance matters		44		58
Advice on financial and accountancy matters		5		5

    11.    Income tax

			2008  £000		2007  £000
a.	Analysis of charge in the year
	Current tax - continuing operations
	Current year		(118)		-
	Adjustments in respect of previous years		62		(1,492)
	Foreign tax		(2,101)		(59)
			(2,157)		(1,551)
	Deferred tax		(589)		2,579
	Income tax (charge)/credit		(2,746)		1,028

The tax assessed differs from the standard rate of corporation tax in the United Kingdom. The differences are explained below:

			2008  £000		2007  £000
	Profit on ordinary activities before taxation		8,763		7,025
	Profit on ordinary activities at the standard rate of        corporation tax in the UK of 28.5% (2007: 30%)		2,497		2,107
	Permanent differences		(354)		(236)
	Capital allowances for the year in excess of depreciation		(37)		(25)
	Utilisation of tax losses		(206)		(928)
	Timing differences - pension schemes		(56)		(134)
	Other timing differences		(102)		(2,147)
	Unrelieved losses		2,526		3,678
	Movement on deferred insurance company losses		(1,845)		(4,952)
	Foreign tax rate differences		385		117
	Adjustments to the tax charge in respect of prior years		(62)		1,492
	Income tax charge/(credit) for the year		2,746		(1,028)

Included within the deferred tax credit for 2007 was an amount of £1,300,000 which was recognised for anticipated use of losses within the insurance company subsidiaries in 2008.  This has reversed as part of the 2008 deferred tax charge.

c.    Factors that may affect future tax charges

In addition to the recognised deferred tax asset, the Group has other trading losses of approximately £79.5m (2007: £71.5m) in various group companies available to be carried forward against future trading profits of those companies. The recovery of these losses is uncertain and no deferred tax asset has been provided in respect of these losses. Should it become possible to offset these losses against taxable profits in future years the Group tax charge in those years will be reduced accordingly.

12.    Earnings/net assets per share

a.     Basic earning per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. 

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

		2008  £000		2007  £000
Profit for the year attributable to ordinary shareholders		6,017		7,996
		No. 000's		No. 000's
Shares in issue throughout the year		55,903		25
Bonus issue		-		49,975
Converted to ordinary 2p shares		-		(25,000)
Weighted average number of shares issued in the year		8		2,113
Weight average of shares held as Treasury shares		(18)		-
Weighted average number of ordinary shares		55,893		27,113
Basic earnings per ordinary share		10.8p		29.5p

b.     Diluted earning per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares to assume conversion of all potentially dilutive ordinary shares. The Group's earnings per share is diluted by the effects of outstanding share options. 

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

		2008  £000		2007  £000
Profit for the year attributable to ordinary shareholders		6,017		7,996
Weighted average number of ordinary shares in issue in the year		No.  000's  55,893		No. 000's 27,113
Options		1,507		1,430
		57,400		28,543
Diluted earnings per ordinary share		10.5p		28.0p

c.    Net asset value per share

		2008  £000		2007  £000
Net assets as at 31 December		80,858		74,696
Ordinary shares in issue as at 31 December		No. 000's 55,913		No. 000's 55,903
Net asset value per ordinary share		144.6p		133.6p

13.    Dividends

The amounts recognised as distributions to equity holders in the year are:

		2008  £000		2007  £000
Dividend to ordinary shareholders		2,684		-
Dividend to preference C shareholders		-		1,400
		2,684		1,400

14.    Intangible assets

	Patents		Goodwill		Software		Total
		£000		£000		£000		£000
As at 1 January 2007		1		11,730		16		11,747
Additions		-		474		-		474
Impairments		-		-		(6)		(6)
As at 31 December 2007		1		12,204		10		12,215
Additions		-		5,443		-		5,443
Impairments		-		(101)		-		(101)
As at 31 December 2008		1		17,546		10		17,557

When testing for impairment of goodwill the recoverable amount of each relevant cash generating subsidiary is determined based on cash flow projections. These cash flow projections are based on the financial budgets approved by management covering a five year period. Management also consider the current net asset value and earnings of each cash generating subsidiary. Management does not believe that a change in any of the key assumptions would cause the carrying value of each relevant cash generating subsidiary to materially exceed its recoverable amount. 

The carrying amounts disclosed above for other intangible assets reasonably approximate their fair values at the balance sheet date.

15.          Property, plant and equipment

	Computer equipment	Motor  vehicles		Office  equipment		Leasehold improvements		Total
	£000		£000		£000		£000		£000
Cost
As at 1 January 2007	724		60		576		70		1,430
Exchange adjustments	(24)		-		(1)		-		(25)
Additions	81		-		51		ߛ		132
Disposals	(31)		(21)		(3)		-		(55)
As at 31 December 2007	750		39		623		70		1,482
Exchange adjustments	36		-		16		3		55
Acquisition of subsidiary	22		-		9		8		39
Additions	88		50		74		-		212
Disposals	(36)		(34)		(22)		-		(92)
As at 31 December 2008	860		55		700		81		1,696
Depreciation
As at 1 January 2007	576		36		456		70		1,138
Exchange adjustments	(23)		-		(1)		-		(24)
Charge for the year	106		13		99		-		218
Disposals	(31)		(21)		(3)		-		(55)
As at 31 December 2007	628		28		551		70		1,277
Exchange adjustments	27		-		9		-		36
Charge for the year	89		14		59		-		162
Disposals	(36)		(25)		(22)		-		(83)
As at 31 December 2008	708		17		597		70		1,392
Carrying amount
As at 31 December 2008	152		38		103		11		304
As at 31 December 2007	122		11		72		-		205

The carrying values disclosed above reasonably approximate their fair values at the balance sheet date.

As at 31 December 2008, the Group had no capital commitments (2007: £nil). The depreciation charge for the year is included in administrative expenses.

16.    Financial assets

a.	Investment properties		2008  £000		2007  £000
	As at 31 December		1,336		1,108

    The increase in the valuation of these properties is due to an exchange adjustment of £228,000 (2007: £21,000).

The carrying values disclosed above reasonably approximate their fair values at the balance sheet date.

b.    Financial investment assets at fair value through profit or loss (designated at initial recognition) 

		2008  £000		2007  £000
Equities		827		2,155
Debt securities - fixed interest rate		260,785		212,663
		261,612		214,818

In the normal course of business insurance company subsidiaries have deposited investments in 2008 of £18,285,620 (2007: £19,298,049) in respect of certain contracts in escrow which can only be released or withdrawn with the approval of the appropriate regulatory authority.

The carrying values disclosed above reasonably approximate their fair values at the balance sheet date.    

c.    Shares in subsidiary undertakings and other investments

The Company has interests in the following principal subsidiaries at 31 December 2008, which, except where indicated, are registered in England and Wales:

		% of ordinary shares held:					Overall effective % of share capital held
Principal activity and name of subsidiaries	Country of incorporation /registration	The Company			Subsidiary undertakings
Insurance companies in run-off
Arran Insurance Company Ltd	England		-			100	100
Chevanstell Ltd	England		100			-	100
La Metropole SA	Belgium		100			-	100
Ludgate Insurance Company Ltd	England		-			100	100
R&Q Reinsurance Company	USA		-			100	100
R&Q Reinsurance Company (Belgium)	Belgium		100			-	100
R&Q Reinsurance Company (UK) Ltd	England		100			-	100
Transport Insurance Company	USA		-			100	100
Insurance Services Division
Cavell BCS, Inc.	USA
Cavell Managing Agency Ltd	England		-
Cavell Management Services Ltd	England		100			100	100
Cavell USA, Inc.	USA		100			-	100
Chevanstell Management Ltd	England		-			-	100
EC3 Solutions Ltd	England		-			100	100
Peter Blem Adjusters Ltd	England		100			100	100
Randall & Quilter Consultants Ltd	England		-			-	100
R&Q Broking Services Ltd	England		100			100	100
KMS Insurance Services Ltd	England		100			-	100
KMS Insurance Management Ltd	England		-			-	100
KMS Employment Ltd	England		-			100	100
Quest Management Services Ltd	Bermuda		-			100	100
Quest (SAC) Ltd	Bermuda		-			100	100
Sentry Intermediaries Ltd	Bermuda		-			100	100
Liquidity Management Division			-			100	100
Reinsurance Finance Management Ltd	England					100	100
Investment/Property/Other companies			100
Malling Investments Ltd	England					-	100
Oast Holdings Ltd	England		-
Randall & Quilter France 43 SA	France		100			100	100
Randall & Quilter France 58 SA	France		-			-	100
RedQuince Ltd	England		-			100	100
Intermediate holding companies/others			-			100	100
Randall & Quilter America Holdings Inc (formerly Cavell America Inc)	USA					100	100
Instech Corporation	USA		100
Ken Randall Associates Ltd	England		-			-	100
R&Q No. 1 Ltd	England		100			100	100
R&Q Re (Bermuda) Ltd	Bermuda		100			-	100
Continuum Holdings Ltd	England		100			-	100
R&Q Bermuda Holdings Ltd	Bermuda		100			-	100
			100			-	100
							100

17.    Other receivables, including insurance receivables

		2008  £000		2007  £000
Debtors arising from direct insurance operations		1,693		956
Debtors arising from reinsurance operations		21,626		30,697
Insurance receivables		23,319		31,653
Trade debtors		2,126		487
Other debtors/receivables		1,652		965
Prepayments and accrued income		7,061		3,948
		10,839		5,400
		34,158		37,053
Due within 12 months		33,892		36,624
Due after 12 months		266		429
		34,158		37,053

Pre-payments and accrued income includes £265,814 (2007: £429,343) in respect of pre contract costs which will be expensed after more than one year.  

The carrying values disclosed above reasonably approximate their fair values at the balance sheet date.

18.    Cash and cash equivalents

		2008  £000		2007  £000
Cash at bank and in hand		68,189		57,681

Included in cash and cash equivalents is £460,331 (2007: £375,000) being funds held in escrow accounts in respect of guarantees provided to the Institute of London Underwriters ('ILU').  This increase is due to exchange movements.  See Note 31.

In addition a further amount of £250,000 (2007: £250,000) is held in escrow in respect of an ongoing dispute. In the normal course of business insurance company subsidiaries will have deposited funds in respect of certain contracts which can only be released with the approval of the appropriate regulatory authority. The carrying values disclosed above reasonably approximate their fair values at the balance sheet date.

19.    Current income tax

		2008  £000		2007  £000
Current tax assets		2,845		269

20.    Trade and other payables

		2008  £000		2007  £000
Structured liabilities		403,534		294,000
Structured settlements		(403,534)		(294,000)
		-		-
Creditors arising from reinsurance operations		16,083		11,753
Creditors arising from direct insurance operations		1,990		3,797
Insurance payables		18,073		15,550
Trade creditors		1,064		2,548
Other taxation and social security		406		399
Other creditors		3,058		163
Accruals and deferred income		3,837		3,356
		26,438		22,016
Due within 12 months		26,438		22,016
Due after 12 months		-		-
		26,438		22,016

No new structured settlement arrangements have been entered into during the year. The increase in these structured liabilities is due to exchange movements.

The carrying values disclosed above reasonably approximate their fair values at the balance sheet date.

The Group has purchased annuities from third party life insurance companies for the benefit of certain claimants. In the event that any of these life insurance companies were unable to meet their obligations to these annuitants, any remaining liability would fall upon the respective insurance company subsidiaries. The Directors believe that, having regard to the quality of the security of the life insurance companies, the possibility of a material liability arising in this way is very unlikely. The life companies will settle the liability directly with the claimants and no cash will flow through the group. Accordingly, these assets and liabilities have been offset to reflect the substance of the transactions and to ensure that the disclosure of the balances does not detract from the users' ability to understand the Group's future cash flows.

In respect of the Quest group, the assets, liabilities of the segregated cells and the profits and losses of each cell are not available for use by the group, nor the Group, and as such these balances are not included in the consolidated balance sheet.  The amounts held on behalf of the segregated cells as at 31 December 2008 amount to £44,488,000.

21.    Financial liabilities

    Total financial liabilities

		2008  £000		2007  £000
Amounts owed to credit institutions		4,613		-
Amounts due to credit institutions are payable as follows:
		2008  £000		2007  £000
Less than one year		536		-
Between one to five years		4,077		-
More than five years		-		-
		4,613		-

The carrying values disclosed above reasonably approximate their fair values at the balance sheet date.

As outlined in Note 33 the amounts owed to credit institutions are secured by debentures over the assets of the Company, Randall & Quilter Consultants Limited and Cavell Management Services Limited.

22.    Insurance contract provisions and reinsurance balances

Gross		2008  £000		2007  £000
Claims outstanding at 1 January		466,382		543,504
Claims paid		(45,263)		(61,722)
Release of reserves		(5,104)		(9,560)
Net exchange differences		155,175		(5,840)
As at 31 December		571,190		466,382

Reinsurance		2008  £000		2007  £000
Reinsurers share of claims outstanding at 1 January		239,681		286,673
Reinsurers share of gross claims paid		(25,718)		(33,860)
Strengthening/(release) of reserves		3,153		(9,344)
Net exchange differences		80,534		(3,788)
As at 31 December		297,650		239,681

Net		2008  £000		2007  £000
Net claims outstanding at 1 January		226,701		256,831
Net claims paid		(19,545)		(27,862)
Release of reserves		(8,257)		(216)
Net exchange differences		74,641		(2,052)
As at 31 December		273,540		226,701

The carrying values disclosed above reasonably approximate their fair values at the balance sheet date.

Assumptions, changes in assumptions and sensitivity

The assumptions used in the estimation of reserves relating to insurance contracts are intended to result in provisions which are sufficient to settle the net liabilities from insurance contracts.

Provision is made at the balance sheet date for the estimated ultimate cost of settling all claims incurred in respect of events and developments up to that date, whether reported or not. The source of data used as inputs for the assumptions is primarily internal.

As detailed in Note 3 significant uncertainty exists as to the likely outcome of any particular claim and the ultimate costs of completing the run off of the Group's insurance operations.

The reserves carried by the Group insurance companies are calculated using a variety of actuarial techniques. The reserves are calculated and reviewed by the Group's internal actuarial team; in addition the Group periodically commissions independent external actuarial reviews. The use of external advisors provides management with additional comfort that the Groups internally produced statistics and trends are consistent with observable market information and other published data.

As detailed in Note 2 when preparing these consolidated financial statements full provision is made for all costs of running off the business of the insurance subsidiaries to the extent that the provision exceeds the estimated future investment return expected to be earned by those subsidiaries. The quantum of the costs of running off the business and the future investment income has been determined through the preparation of cash flow forecasts over the anticipated period of the run offs using internally prepared budgets and forecasts of expenditure, investment income and actuarially assessed settlement patterns for the gross reserves. The gross costs of running off the business are estimated to be fully covered by investment income.

Provisions for outstanding claims and IBNR are initially estimated at a gross level and a separate calculation is carried out to estimate the size of reinsurance recoveries. Insurance companies within the Group are covered by a variety of treaty, excess of loss and stop loss reinsurance programmes.

The reserves disclosed in the consolidated financial statements are sensitive to a variety of factors including:

•    Settlement and commutation activity of third party lead reinsurers

•    Development in the status of settlement and commutation negotiations being entered into by the Group

•    The financial strength of the Group's reinsurers and the risk that these entities could, in time, become insolvent or could otherwise default on payments

•    Future cost inflation of legal and other advisors who assist the Group with the settlement of claims

•    Changes in statute and legal precedent which could particularly impact reserves for asbestos, pollution and other latent exposures

•    Arbitration awards and other legal precedents which could particularly impact upon the presentation of both inwards and outwards claims on the Group's exposure to major catastrophe losses

The assumptions that have the greatest effect on the measurement of the insurance contract provisions include those relating to reinsurance recoveries. A 1 per cent reduction in reinsurers share of technical provisions would decrease net assets by £2,976,497 (2007: £2,396,840).

23.    Deferred tax

Deferred tax is calculated in full on temporary differences under the liability method using tax rates of 28 percent for the UK (2007: 28.5 percent) and 35 percent for the US (2007: 35 percent).

Deferred tax assets and liabilities

Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets where it is probable that these assets will be recovered.

The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12) during the year are shown below.

Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.

				Deferred tax   assets		Deferred tax  liabilities		Total
					£000		£000	£000
As at 1 January 2007					3,082		(4,888)	(1,806)
Credit for the year					2,238		545	2,783
As at 31 December 2007					5,320		(4,343)	977
(Charge)/credit for the year					(2,290)		1,757	(533)
As at 31 December 2008					3,030		(2,586)	444

    The deferred tax assets are not wholly recoverable within 12 months.

The movement on the deferred tax account is shown below:

Accelerated  capital    allowances		Trading   losses		Pension  scheme  surplus/  (deficit)		Other timing  differences		Total
	£000		£000		£000		£000		£000
As at 1 January 2007	48		-		(70)		(1,784)		(1,806)
Movement in year	1		-		70		2,712		2,783
As at 31 December 2007	49		-		-		928		977
Movement in year	4		-		-		(537)		(533)
As at 31 December 2008	53		-		-		391		444

Movements in the provisions for deferred taxation are disclosed in the financial statements as follows:

On acquisition  of subsidiary		Exchange  adjustment		Deferred tax   in income  statement		Deferred tax   in statement   of recognised  income and  expense		Total
	£000		£000		£000		£000		£000
Movement in 2007	-		-		2,579		204		2,783
Movement in 2008	-		(172)		(417)		56		(533)

24.    Share capital

	2008  £		2007  £
Authorised
63,000,000 Ordinary Shares of 2p each	1,260,000		1,260,000
1 Preference A Share of £1	1		1
1 Preference B Share of £1	1		1
	1,260,002		1,260,002
Allotted, called up and fully paid
55,913,000 Ordinary Shares of 2p each   (2007: 55,902,500 Ordinary shares of 2p each)	1,118,260		1,118,050
1 Preference A Share of £1	1		1
1 Preference B Share of £1	1		1
	1,118,262		1,118,052
Included in:
Equity
55,913,000 Ordinary Shares of 2p each   (2007: 55,902,500 Ordinary shares of 2p each)	1,118,260		1,118,050
1 Preference A Share of £1	1		1
1 Preference B Share of £1	1		1
	1,118,262		1,118,052

Treasury Shares

The Group's Employee Benefit Trust ('EBT') purchased 921,000 ordinary shares during the year. The total amount paid was £1,197,000 and deducted from shareholders' equity as shown in note 25.

Cumulative Redeemable Preference Shares

Preference A and B Shares have rights, inter alia, to receive distributions in priority to Ordinary shareholders of distributable profits of the Company derived from certain subsidiaries:-

•    Preference A Share, one half of all distributions arising from the Company's investment in R&Q Reinsurance Company up to a maximum of $5m.

•    Preference B Share, one half of all distributions arising from the Company's investment in R&Q Reinsurance Company (UK) Ltd up to a maximum of $10m.

The Preference A and Preference B Shares have been classified as equity on the basis that redemption dates are not prescribed in the Memorandum and Articles of Association and as such there is no contractual obligation to deliver cash.

The following options were in place during the year:-

	Brought forward	Exercised	Granted*	Carried forward
Number of options	1,430,000	(10,500)	640,000	2,059,500

* Of the 640,000 options granted during the year, 500,000 were granted to J McArthur, a director of certain subsidiary companies, at an exercise price of 2p.

25.    Reconciliation of movement in capital and reserves

Attributable to equity holders of the parent

Share   capital		Shares    to be  issued		Share  premium  account		Capital  redemption  reserve		Treasury share reserve	Retained  profit	Total
	£000		£000		£000		£000	£000	£000		£000
2008
As at 1 January	1,118		151		17,250		-	-	56,177		74,696
Issue of shares	-		(1)		5		-	-	-		4
Treasury shares	-		-		-		-	(1,197)	-		(1,197)
Total recognised income and expense	-		-		-		-	-	10,039		10,039
Dividends	-		-		-		-	-	(2,684)		(2,684)
As at 31 December	1,118		150		17,255		-	(1,197)	63,532		80,858
2007
As at 1 January	-		-		1,022		134	-	50,059		51,215
Redemption of Preference D shares	-		-		-		116	-	(116)		-
Issue of shares	618		-		20,544		-	-	-		21,162
Bonus issue of shares	500		-		(250)		(250)	-	-		-
Expenses of share issue	-		-		(4,066)		-	-	-		(4,066)
Share based payments	-		151		-		-	-	-		151
Total recognised income and expense	-		-		-		-	-	7,634		7,634
Dividends	-		-		-		-	-	(1,400)		(1,400)
As at 31 December	1,118		151		17,250		-	-	56,177		74,696

26.    Employee Benefit Trust

		2008  £000		2007  £000
Balance as at 1 January		-		-
Payment to EBT		1,500		40
Allocated to employees		-		(40)
Balance as at 31 December		1,500		-

The EBT has purchased 921,000 Ordinary shares held in Treasury during the year.  The value at the year end was £1,197,000.  These will be used to meet the future exercise of employee options.

27.    Employees and Directors

Employee benefit expense for the Group during the year

		2008  £000		2007  £000
Wages and salaries		9,007		8,386
Social security costs		1,240		1,106
Pension costs		952		956
Share based payment charge		-		748
		11,199		11,196

Pension costs are recognised in operating expenses in the income statement and include £859,000 (2007: £866,000) in respect payments to defined contribution schemes and £97,000 (2007: £505,000, of which £461,000 relates to past service costs) in respect of defined benefit schemes.

Average number of employees		2008  Number		2007  Number
Group investment activities		12		12
Insurance services		170		154
		182		166

Remuneration of the Directors and key management

		2008  £000		2007  £000
Aggregate Director emoluments		676		488
Aggregate key management emoluments		1,018		923
Share based payments - key management		-		480
Director pension contributions		82		22
Key management pension contributions		95		60
		1,871		1,973
Highest paid Director
Aggregate emoluments		323		243
		323		243

Two Directors have retirement benefits accruing under money purchase pension schemes (2007: One). No Director has been granted any share options in respect of qualifying services under a long term incentive plan.

28.    Pension commitments

The defined benefit scheme is fully funded, with assets held in separate trustee administered funds. The pension cost was assessed by an independent qualified actuary. In his valuation the actuary used the projected unit method as the scheme is closed to new employees. A full valuation of the scheme was carried out as at 1 January 2006 by a qualified independent actuary. The next valuation is due in mid 2009; in view of the extreme turbulence in capital markets it is to be expected that these valuations may have an impact on these figures.

On 2 December 2003 the scheme was closed to future accruals although the scheme continues to remain in full force and effect for members at that date.

The assets and liabilities in respect to the group's defined benefit scheme on an IAS 19 valuation basis are as follows:

		2008  £000		2007  £000
Total market value of scheme assets		21,495		25,136
Present value of scheme liabilities		(19,536)		(21,200)
Gross defined benefit asset		1,959		3,936

As required by IAS 19, the amount of any pension asset is restricted by reference to any cumulative unrecognised net actuarial losses and past service costs and the present value of any economic benefits in the form of refunds from the scheme, or reduction in future contributions in the scheme. Therefore no pension asset is recognised in respect of 2008.

All actuarial losses are recognised in full in the statement of recognised income and expense in the period in which they occur.

The main financial assumptions used to calculate the scheme assets and liabilities are:

		2008		2007
Inflation rate		2.7%		3.4%
Projected return on assets		6.4%		6.8%
Pension increase		2.7%		3.4%
Deferred pension increases		2.7%		3.4%
Discount rate		6.5%		5.9%
Mortality table used:-
Pre-retirement mortality		PA92(C=2020)-4		PA92(C=2020)-4
Post retirement mortality		PA92(C=2020)-2		PA92(C=2020)-2

    The amounts recognised in the income statement in respect of the defined benefit scheme are as follows:

		2008  £000		2007  £000
Current service cost (operating expense)		(63)		(97)
Past service cost (operating expense)		-		-
Interest cost (other income)		(1,250)		(1,199)
Expected return on plan assets (other income)		1,463		1,581
		150		285

The expected return on assets is calculated using the assets, market conditions and long term expected rate of interest set at the start of the accounting period. This amount is then adjusted to take account of interest on contributions paid up or benefits paid out over the accounting period.

The amounts (charged)/credited directly to equity are:

		2008  £000		2007  £000
Actual return less expected return on assets		(4,542)		561
Experience losses arising on obligations		(249)		(279)
Changes in assumptions		2,617		2,975
Amount not recognised due to restriction on recovery   (as required by IAS19)		1,977		(3,704)
Total actuarial losses charged in the statement of recognised income and expense		(197)		(447)

Movements in the present value of the defined benefit obligation are as follows:

		2008  £000		2007  £000
Surplus in the scheme as at 1 January		3,936		232
Current service costs		(63)		(97)
Past service costs		-		-
Contributions by employer		47		162
Actuarial (loss)/gain		(2,174)		3,257
Other financial income		213		382
Surplus in the scheme as at 31 December		1,959		3,936

The major categories of assets as a percentage of the total plan assets are as follows:

		2008		2007
Equity securities		49.3%		50.4%
Debt securities		41.3%		36.4%
Property		5.3%		5.9%
Cash		4.1%		7.3%

29.    Related party transactions

• The following directors received dividends during the year as follows:-

	2008	2007
	£	£
K E Randall	1,046,592	911,400
A K Quilter	233,544	350,000
K P McNamara	1,344	-

• Mr and Mrs Randall received £25,000 (2007: £25,000) for rent due for property used by the Group.
• RCP Incubation Services Limited a company of which Mr Randall has an indirect interest, was charged £35,750 for rent, rates and service charges for use of group owned property.
• Jo Welman, a Director, is also a Director of EPIC Investment Partners and its subsidiary EPIC Asset Management Ltd which provides investment management services to various group subsidiaries.  In total, fees paid to EPIC by the group amounted to £111,578 (2007: £86,000).
• At the year end the Group held an investment of 1,500,000 (2007: 1,500,000)  Capital  Shares in the  Equity Partnership Investment Company Plc with a current market value of approximately £450,000.

30.    Operating lease commitments

The total future minimum lease payments payable over the remaining terms of non-cancellable operating leases are:

		2008  £000		2007  £000
Land and buildings
Expiring within one year		61		-
Expiring within two and five years		1,797		2,422
Expiring after five years		-		-
Other
Expiring within one year		9		-
Expiring within two and five years		56		100
Expiring after five years		-		-

The Group leases a number of premises under operating leases. The Group has entered into a number of sublease arrangements with third parties. Sublease arrangements in force as at 31 December 2008 are due to expire within one to five years of the balance sheet date.

It is anticipated that sublease income of £599,000 (2007: £1,900,000) will be earned over the lease term.

31.    Contingent liabilities

As a condition of the acquisition of R&Q Re (UK), the Company entered into an assignment, assumption and indemnity agreement to counter-indemnify the ACE Group in respect of two guarantees given by ACE in favour of the Institute of London Underwriters for certain policies written by R&Q Re (UK). This counter-indemnity is unlimited in amount.

As a condition of the acquisition of Chevanstell, the Company entered into a deed of indemnity with Tryg Forsikring A/S to counter-indemnify it for four guarantees given in respect of certain policies written by Chevanstell. The aggregate limit of this counter-indemnity is £9,000,000.

The Directors believe that it is very unlikely that either of these counter-indemnities will be called upon.

32.    Business Combinations

On 16 September 2008 the Group purchased the entire issued share capital of Continuum Holdings Limited, a company incorporated in England and its wholly owned subsidiaries KMS Insurance Management Limited, KMS Insurance Services Limited, KMS Employment Limited and RedQuince Limited.

The acquisition has been accounted for using the acquisition method of accounting. After the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition, the fair value of net assets acquired was £1,298,000. Positive goodwill of £578,000 arose.  The reasoning behind this acquisition is detailed in the Chairman's statement.

The following table explains the fair value adjustments made to the book values of the major 

categories of assets and liabilities included in the consolidated financial statements at the date of acquisition.  

						Fair value
						£000
	Other debtors					257
	Cash					1,494
	Fixed Assets					7
	Other creditors					(460)
	Net assets acquired					1,298
	Satisfied by
	Acquisition costs paid					(1,876)
	Positive goodwill (see note 14)					(578)

Post acquisition revenue amounted to £1,745,000 and post-acquisition profits before tax amounted to £447,000. If the Group had purchased the company at the start of year the its contribution to the Group revenue would have been £2,647,000 and to profit before tax would have been £431,000.

    On 31 December 2008 the Group purchased the entire issued share capital of Quest Management Services Limited, Quest (SAC) Limited and Sentry Intermediaries Limited. These companies are 100% subsidiaries of Randall & Quilter Bermuda Holdings Limited, itself a wholly owned subsidiary of Randall & Quilter Investment Holdings plc.

The acquisition has been accounted for using the acquisition method of accounting. After the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition, the fair value of net assets acquired was £506,000. Positive goodwill of £4,764,000 arose.  The reasoning behind this acquisition is detailed in the Chairman's statement.

    The following table explains the fair value adjustments made to the book values of the major 

Categories of assets and liabilities included in the consolidated financial statements at the date of acquisition.  

						Fair value
						£000
	Other debtors					448
	Cash					118
	Fixed Assets					43
	Other creditors					(103)
	Net assets acquired					506
	Satisfied by
	Acquisition costs paid					(4,387)
	Contingent Consideration					(883)
	Positive goodwill (see note 14)					(4,764)

Post acquisition revenue amounted to £nil and post-acquisition profits before tax amounted to £nil. If the Group had purchased the company at the start of year the its contribution to the Group revenue would have been £2,288,000 and to profit before tax would have been £552,000.

33.    Inter-company guarantee and debenture

The Company has entered into a guarantee agreement and debenture arrangement with its bankers, along with its subsidiaries, Randall & Quilter Consultants Limited and Cavell Management Services Limited, in respect of the Group overdraft and term loan facilities. The total liability to the bank of these companies at 31 December 2008 is £4,613,932 (2007: £nil).

 

END

 

 

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