Interim Results 2012

RNS Number : 6123L

Randall & Quilter Inv Hldgs PLC

06 September 2012

 



Randall & Quilter Investment Holdings plc

("Randall & Quilter" or the "Group")

Interim results for the six months ended 30 June 2012

6 September 2012

The Board of Randall & Quilter (AIM: RQIH), the specialist non-life insurance investor, service provider and underwriting manager, is pleased to announce its Group interim results for the six months ended 30 June 2012. 

FINANCIAL HIGHLIGHTS

·      Total Group income up 34% at £25.3m (2011: £18.8m)

·      Profit before tax up  56% at £4.6m* (2011: £3.0m)

·      Basic earnings per share up 53% at 8.9p (2011: 5.8p)

·      6% increase in cash distribution to  3.4p per share (2011: 3.2p) through proposed J/K share scheme

·      Undiscounted net tangible asset value per share of 106.7p (31 Dec 2011: 107.3p)

DIVISIONAL PERFORMANCE

·       Strong performance in the Insurance Investments Division with an operating profit of £6.4m* (2011: £3.2m), driven by the run-off syndicate results and an H1 investment return of 2.7% (2011: 2.5%)

·       Improved operating profits in the Insurance Services and Captive divisions of £2.3m and £0.5m respectively (2011: £2.0m and £0.1m**)

·       A positive underlying operating result in the Underwriting Management Division (excluding the losses from the discontinued Canadian MGA)

·       Further potential expansion into the live market following 'in principle' approval from Lloyd's for the launch of our own 'first party' R&Q syndicate from January 2013

·       Agreement in principle reached with the  Ace Group to resolve all outstanding legal disputes in relation to R&Q Re (US)

*   After deduction of minority interest relating to syndicate 3330

** Excludes goodwill impairment

Commenting on the results, Ken Randall, Chairman and Chief Executive Officer said:

"This is a pleasing set of interim results during a period when the Group also achieved a number of significant operational milestones. Our Lloyd's and non-USA run-off businesses continue to deliver good results.  The claims run-off within our US subsidiaries has tended to be more volatile but the agreement reached with the Ace group as to a framework for the resolution of all outstanding legal disputes removes this source of uncertainty for the Group. The Group has made a number of attractive portfolio and insurance debt acquisitions and the deal pipeline remains very active.

Randall & Quilter has made significant progress in fulfilling its ambition to become a growing force in the active insurance market by successfully expanding its managing general agent and 'live' servicing operations, and receiving an 'in-principle' approval from Lloyd's for the establishment of the Group's 'first party' syndicate for the 2013 underwriting year.

Regulatory changes and the low yields available on fixed income investments continue to affect the Group but are being effectively managed. The Group's traditional run-off core remains in good shape and the newer Underwriting Management and Captives divisions offer significant growth potential. We look forward to the future with confidence."

Enquiries:

Company:                                              Randall & Quilter Investment Holdings plc

Tom Booth                                                             Tel: [phone]

Nominated Advisor                             Numis Securities Limited

& Joint Broker:                                     Stuart Skinner (Nominated Advisor)                Tel: [phone]        

                Charlie Farquhar (Broker)                                 Tel: [phone]             

Joint Broker:                                         Shore Capital Stockbrokers Ltd

Dru Danford                                                         Tel: [phone]

Stephane Auton                                                    Tel: [phone]

Corporate & Financial PR: FTI

Neil Doyle/Ed Berry                                             Tel: [phone]

The Chairman's Statement, Business Review and Highlights of Accounts are attached.  The full interim results for the six months ended 30 June 2012 will be sent to shareholders shortly and will be available on the Company's website at www.rqih.com.

Notes to Editors:

Since formation, Randall & Quilter has pursued a buy and build strategy to create a comprehensive range of investment activities and services in the global non-life insurance market and is focused on the following four core areas:

-              Insurance Investments;

-              Insurance Services;

-              Underwriting Management; and

-              Captives.

The Group currently:

-              has a portfolio of ten insurance companies in run-off (from the UK, US and Europe) with net assets of c.£85.9m as at 30 June 2012;

-              acquires and manages a portfolio of insurance receivables, with a carrying cost of c. £8.1m as at 30 June 2012;

-              has wide service capability in both the 'live' and 'run-off' markets;

-              has a team of approximately 400 insurance professionals based in the UK, USA, Bermuda, Canada and Gibraltar; and

-              provides 'turnkey' management services to Lloyd's syndicate 1897, manages two RITC ('run-off') syndicates and owns and operates four MGAs.

The Group was founded by Ken Randall, Executive Chairman and Chief Executive, and Alan Quilter, Chief Operating Officer, who both have extensive experience in the industry including as Head of Regulation of Lloyd's and as Head of the Market Financial Services Group respectively.

Chairman's Statement and Business Review

For the six months ended 30 June 2012

Summary of Results

	6 months ended 30 June 2012	6 months ended 30 June 2011	Year ended 31 December 2011
	£000	£000	£000
Group Results
Operating profit	4,863*	3,193	7,851
Profit on ordinary activities before income taxes	4,637*	2,975	8,801**
Profit/(loss) after tax	4,404	3,112	(488)
Earnings Per Share (Basic)	8.9p	5.8p	(0.9)p
Net Tangible Assets per Share	106.7p	105.9p	107.3p
I

Divisional Performance

Insurance Investments Division Operating Profit                                                                                                                                 Operating profit	6,466*		3,229		8,317**
Insurance Services Division Operating Profit Profit on ordinary activities before income taxes	2,311		1,951		5,646
Captives Division Operating Profit Profit after tax	497**		93**		277**
Underwriting Management Division Operating Loss Earnings Per Share (Basic)	(979)		(1,532)		(1,113)

* After deduction of Minority Interests relating to Syndicate 3330

** Prior to goodwill write-off

Chairman's Statement

The Group delivered a strong pre-tax profit of £4.6m* for the half year, significantly higher than H1 2011 (£3.0m). Whilst in large part this was due to the excellent result in the Insurance Investments Division ('IID'), there was improved performance across all four divisions.

The Group's tax charge was very low at £0.2m as a substantial part of the Group's profits in the period were generated in R&Q Re Bermuda and other IID companies with accumulated tax losses. Basic earnings per share were 8.9p (2011: 5.8p).

In line with our progressive distribution policy, we are pleased to announce a proposed 3.4p per share return of cash, representing a 6% increase on the prior year (see note 1 below).

Net tangible assets per share of 106.7p were higher than at 30 June 2011 (105.9p) but slightly lower than at the year end, as a result of: (i) the final 2011 distribution of 4.9p (paid to shareholders on 11 June); (ii) the net liabilities assumed in the acquisitions of two MGA businesses during the period; and (iii) an actuarial loss arising from lower discount rates and improvements in life expectancy in the Group's closed defined benefit pension scheme.

Note 1: Further details of the proposed J/K share scheme are outlined in a circular posted to shareholders today with payment due on or around 7 November, 2012 to those shareholders on the register as at 11 October, 2012.  

Insurance Investments Division

In terms of divisional performance, IID delivered an outstanding result due primarily to very strong contributions from the two managed run-off syndicates at Lloyd's. The higher than anticipated six months' investment return of 2.7% in the Group's owned insurance companies was also a contributing factor.  The agreement of a framework (subject to detailed terms being finalised) for the resolution of all legal disputes with the Ace Group as regards R&Q Re (US) moreover removes a source of uncertainty for the Group .

The extraction of an aggregate £6m of capital from three of our owned insurance companies during the period; Chevanstell, La Licorne and R&Q Insurance (Guernsey) is proof of our continued focus on releasing cash from our owned insurance companies for reinvestment.

We are also expecting to announce further activity from our acquisition pipeline during the coming months.

Insurance Services Division

The Insurance Services Division ('ISD') produced an operating profit of over £2.3m during the first six months, an 18.5% improvement on 2011, despite further restructuring charges during the period as we continued to rebalance staffing levels in both the US and UK.  As reported this time last year, operating expenses are typically higher in the first half of the year, reflecting the timing of annual bonus payments. Furthermore, a number of the service companies, especially those providing broker services have an income bias to the second half of the year. A number of new business cross-selling initiatives across the ISD have been successful, especially with the larger UK insurance groups and the benefit of these will also be weighted towards the second half of the year.

Captives Division

The operating performance of the Captives Division of £0.5m was considerably stronger than in 2011 (£0.1m).  This is proof of the return on our recent geographical expansion and the successes of the captive formation and acquisition initiatives, which bring revenue to the division from the provision of structuring and management services.

Underwriting Management Division

The Underwriting Management Division ('UMD') produced a reduced operating loss of under £1.0m during the period (2011: loss of £1.5m). After adjusting for the operating losses and closure costs relating to the Canadian MGA, which totalled £1.1m, the underlying result was positive, helped by a strong result from our Lloyd's Managing Agency operations. Our continuing MGA platform is however also making good progress, especially R&Q Marine Services, the newly acquired specialist yacht and associated trades MGA. 

Whilst the costs and operational strain which the industry has experienced as a result of Solvency II continue, Lloyd's implementation project is nearing a conclusion  and we believe that maintaining the necessary controls and systems (so called "business as usual") will be less resource intensive than the initial documentation and implementation exercise.

The recent approval in principle from Lloyd's for the launch of the Group's 'first party' syndicate from 1 January 2013 is an exciting development and further consolidates our growing position in the live insurance market.

Other Corporate

Central corporate costs of just under £2m in the first half year were in line with expectations but higher than in 2011 which benefited from a recovery of legal costs and damages following the resolution of the Seaton & Stonewall litigation.

Regulatory change and compliance with the new solvency standards being introduced continue to affect the Group. In order to alleviate the cost and management burden and to maximise capital diversification credits, we are accelerating plans to consolidate our owned insurance companies. New proposed group supervision rules have led us to consider the most appropriate structure and domicile for the Group overall, balancing operational and capital efficiency as well as regulatory access. As our plans become more advanced, we will provide further updates but we are hopeful that any restructuring will provide the Group with an effective, sustainable and competitive platform.

Outlook

Overall, the outlook remains promising.  We anticipate a good second half performance across the four divisions and expect that the full year result will meet management's expectations.

Further detail on the financial and operating performance of the divisions is provided below:

Insurance Investments Division

	6 months ended 30 June 2012	6 months ended 30 June 2011	Year ended 31 December 2011
	£000	£000	£000
Net Investment Income**	5,643	5,411	6,239
Debt Purchase ('RQLM')  Income	1,000	95	803
Other Income	134	39	(157)
Net Insurance claims released**	4,149	3,061	11,531
Operating Expenses	(10,076)	(6,754)	(13,335)
Goodwill on bargain purchase	298	-	1,541
Operating result (excluding impairment)	1,148	1,852	6,622
Syndicates' operating result	5,318*	1,377	1,695
TOTAL OPERATING RESULT	6,466*	3,229	8,317

* After deduction of Minority Interests relating to Syndicate 3330

** Insurance companies only

The Insurance Investment Division's performance was extremely strong in the period, producing an operating profit of £6.5m* (2011: £3.2m).

Investment income of £5.6m for the insurance companies represented a 2.7% return (2011: £5.4m, 2.5%). A more detailed analysis of performance and holdings is provided below.

RQLM's income, which is mostly related to the acquisition and management of claims against insolvent insurance companies, was significantly higher in the period as a result of some significant dividends on our existing insurance debt portfolio. The carrying value at the period end was virtually unchanged at £8.1m, following a number of additional claims purchases. The pipeline for new acquisitions continues to look positive.

Reserve releases from the owned insurance companies of £4.1m (2011: £3.1m) were once again strong as a result of a combination of commutation activity and successful subrogation recoveries, especially in R&Q Re (UK), Chevanstell and R&Q Re (Belgium). The resolution of the various disputes with the Ace group in respect of R&Q Re (US) is a constructive solution requiring concessions on both sides. The settlement, the detailed terms for which are in the process of being finalised, will eliminate an area of uncertainty for the Group.  Our active claims management in this company continued with the settlement of over $22m of claims during the period. We have also begun to make good progress on the reinsurance collections following the significant claims activity in the latter part of 2011.

As is customary, we are hopeful that further commutation and settlement activity, particularly in our UK portfolios, will produce further releases by the year end. Even after the extraction of c.£6m (£5.3m net of the acquisition cost of Northern Foods Insurance), the net assets of the Group's ten owned insurance companies at 30 June 2012 was £85.9m, a small rise on the 2011 year end value. 

Operating expenses rose to £10.1m (2011: £6.8m) as a result of: (i) the fact that the acquisition costs relating to dividends received from the insurance debt portfolio are treated as an operating expense and were significantly higher than in 2011; (ii) the establishment of the new intermediate holding company and the transfer into the division of the costs of the acquisition team, including their annual bonuses; (iii) additional expenses relating to special claims projects in certain of the owned insurance companies; (iv) legal costs relating to the Ace dispute; (v) acquisition related costs, including in respect of the reinsurance to close of Syndicate 1208; and (vi) the impact of a full period of the running costs of  Principle Insurance, which was acquired at the end of 2011.

There was a small amount of 'goodwill on bargain purchase' of £298k in the period arising from the acquisition of Northern Foods Insurance at a discount to book value. Northern Foods Insurance has subsequently been amalgamated into R&Q Insurance (Guernsey). 

The results from our three syndicate participations were excellent, generating operating profits of over £5.3m (2011: £1.4m). Our 55% net participation on run-off Syndicate 3330 (which reinsured the open years of the former 1208 syndicate earlier this year) was especially strong following the release of the risk premium as well as specific reserve savings. There was also a good contribution from our 20% share on run-off Syndicate 102, mostly relating to recoveries we were pursuing through the US legal system on certain viatical claims. Our 8% share of turnkey Syndicate 1897 produced a modest loss as the syndicate had a small number of significant marine and energy losses and a subdued level of earned premium during the period. 

Investment Income

Investment income of £5.6m (2.7%) from the Group's owned insurance companies was very pleasing. During the period we also implemented investment strategies to reduce duration significantly and increase asset diversification.

Investment markets were once again turbulent during the first half of 2012 as the Euro crisis and continued economic weakness dominated sentiment. Overall however it was a good period for fixed income investors as yields continued to fall and credit spreads narrowed as investors sought to increase returns.

The Group's return also benefited from the realisation of a substantial portion of its portfolio of bank perpetual securities at prices above 2011 year end values.

The investment allocation for the Group's owned insurance companies by asset class at 30 June 2012 was as follows:

Asset Class	Share of Total Portfolio
ABS *	26%
US Municipals	15%
Corporate Bonds	14%
Group Loans	14%
Cash	11%
US Treasuries	6%
Equities	5%
High Yield funds	5%
Bank Perpetuals	2%
Money Market Funds	1%
Other	1%

*almost exclusively Residential Mortgage Backed Securities

Invested funds as at 30 June 2012 were £208m equivalent, comprising of $233m, £47m, €12m and A$ 5m. The non-Sterling assets closely matched the currencies of the non-Sterling net insurance liabilities.

The credit ratings of the debt securities held by the Group at 30 June 2012 were as follows:

	Share of Total Portfolio
AAA	30%
AA	33%
A	26%
BB	11%

Overall the duration of the investment portfolio is now under one year given that a significant portion of the assets are invested in floating rate securities.

During July and August, we sold over half of the remaining bank perpetuals at above 30 June 2012 prices and intend to have no residual investment in these securities by year end. In mid-July we also sold $50m of the Group's longer dated US Municipal securities and we invested the proceeds in a portfolio of AAA and AA US Collateralised Loan Obligations, thereby completing our investment repositioning to floating rate securities with excellent credit ratings yet attractive yields.

Q3 investment performance to date has been strong and the Group's running investment yield remains just under 3%. Whilst we have mitigated interest rate risk substantially through the recent portfolio restructuring, we are of course still exposed to the on-going risk-on/risk-off volatility affecting credit spreads. We have however kept maturities short and increased asset diversification to lessen the potential mark-to-market impact of this volatility.

Insurance Services Division

	6 months ended 30 June 2012	6 months ended 30 June 2011	Year ended 31 December 2011
	£000	£000	£000
UK Claims & Reinsurance Management Services
Internal portfolio management fees	5,106	4,656	10,415
Third party income	4,044	4,563	9,258
Total income	9,150	9,219	19,673
Operating Profit	2,311	1,027	3,570
UK Broker Services
Total income	2,348	2,414	4,983
Operating Profit	354	384	1,050
UK Liquidity Management
Total income	1,229	1,053	2,079
Operating Loss	(121)	(101)	(164)
US Services
Internal portfolio management fees	2,067	-	2,902
Third party income	2,238	2,585	5,611
Total income	4,305	2,585	8,513
Operating (Loss) / Profit	(233)	641	1,190
TOTAL INCOME	17,032	15,271	35,248
TOTAL OPERATING PROFIT	2,311	1,951	5,646

The ISD operating profit of £2.3m was in line with expectations and above H1 2011 (£2.0m).

Total income increased to £17.0m (2011: £15.3m), primarily as a result of higher income in the US services operations where the owned US insurance company service revenue is now recognised. 

UK Broker Services revenue was broadly flat. Commission income on reinsurance collections and new business is however weighted towards the second half of the year and the outlook looks promising. The broker run-offs we have acquired continue to perform well and we now have considerable scale and efficiency in this area. We are also creating new solutions to support the recent FSA regulations on broker solvency, which should bring additional income opportunities.

In UK Claims and Reinsurance Management Services, allowing for the substantial profit commission on the now discontinued Advent syndicate run-off contract which benefited the 2011 figures, there was an underlying increase in revenue. This increase was attributable to the success we have had with the larger UK based insurance groups, which are increasingly focused on reducing costs by outsourcing specialist work. Traditional run-off portfolio management contracts remain scarce however due to the fact that the vast majority of run-off portfolios are being acquired by specialist groups with in-house resource and due to the prevalence of solvent schemes. This reduction in available run-off contracts further supports our decision to diversify into the 'live' market.

UK Liquidity Management revenue rose by over 15% in the period to £1.2m on the back of new credit control service contracts.

The share of external income overall remained high at close to 60% despite the absence of profit commission on the Advent run-off syndicate and higher internal revenue arising from the inclusion of the servicing of our own US insurance companies. The share from 'live' servicing was also strong and we continue to focus on subscription market business, especially Lloyd's, where our services offer a highly cost effective alternative to internal resourcing by individual syndicate managers.

The operating profit of £2.3m in the core UK Claims and Reinsurance Management Services operations was considerably higher than 2011 (£1.0m) and represented a 25% operating margin. This shows the clear benefit of recent cost reduction measures. Operating profits in UK Broker Services were broadly unchanged in the period as were the small operating losses in the UK Liquidity Management operations, which were partially due to further cost reduction measures.

The US Services operations produced a small operating loss of £0.2m as a result of anticipated lower income on certain existing contracts and delayed new business income, as well as restructuring costs. We are continuing to work towards improving the sustainability of revenue by securing multi-year assignments and building on our expertise in workers' compensation loss mitigation and medical malpractice portfolio management. The 2011 operating results in the US are not comparable given that they benefited from a write-back of legal costs and damage awards in relation to the Seaton & Stonewall case against Cavell USA.

Overall, our scale and expertise in niches such as broker run-off and liquidity management, and in the US, in medical malpractice and workers' compensation claims, position us well for future growth in the ISD. We continue however to focus on the consolidation and re-engineering of the division's operations and cost control. We look forward to a good second half, particularly from the UK Broker Services and Liquidity Management operations as the contribution from new business income increases.

Captives Division

	6 months ended 30 June 2012	6 months ended 30 June 2011	Year ended 31 December 2011
	£000	£000	£000
Bermuda Income	1,753	1,475	2,883
Norway Income	673	-	647
Gibraltar Income	320	265	562
US Income	229	-	18
Other Income	197	(180)*	610
TOTAL INCOME	3,172	1,560	4,720
TOTAL OPERATING PROFIT (PRIOR TO IMPAIRMENT OF GOODWILL) GGOODWILL)	497	93	277

* Net cost of captive development

The Captives division performed well during the period with operating profits of £0.5m (2011: £0.1m) and income of £3.2m (2011: £1.6m). Much of the revenue increase came from the newly acquired operations in Norway and the US but there was also good organic growth in Bermuda and Gibraltar.

There was a strong operating performance from the Bermuda based operations at R&Q Quest due to revenue from management and structuring of the newly acquired captives as well as new client wins. The Norwegian business also had a good first half and Gibraltar benefited from new assignments coming on stream.

The US business is performing in line with expectations and we remain hopeful of securing the management of medical related risk retention groups which could produce significant additional income. The US is also generating opportunities for our Bermudian operations, in particular through the US farming cooperative initiative which uses our Bermudian cell infrastructure.

The Nordic joint venture, which we have previously announced was to be discontinued incurred costs of £0.1m in the period, primarily relating to severance payments.

The outlook for the remainder of the year and beyond looks positive and we are pleased that we are beginning to see the impact of recent investment coming through in the various operational platforms. We continue to capitalise on the successful joint marketing initiative with the IID to late stage captives seeking an exit and to assess the potential benefits of further geographical expansion.

Underwriting Division

	6 months ended 30 June 2012	6 months ended 30 June 2011	Year ended 31 December 2011
	£000	£000	£000
Lloyd's Managing Agency operations
Fee income	3,065	1,186	3,632
Profit Commissions	578	-	1,032
Operating Profit/(Loss)	1,597	(527)	1,746
MGAs
Premium Income	14,358	947	2,402
Commission income	2,028	154	710
Operating Loss	(1,275)	(1,005)	(1,932)
Underwriting Management Holdings
Income	202	-	19
Operating Loss	(1,301)	-	(927)
TOTAL INCOME	5,873	1,340	5,391
TOTAL OPERATING LOSS	(979)	(1,532)	(1,113)

The UMD generated an operating loss of just under £1.0m on revenue of £5.9m (2011: (£1.5m), £1.3m). Adjusting for the operating losses and closure costs of the Canadian MGA, the division made a small operating profit.   

The Group's Lloyd's Managing Agency operations had a good start to the year with strong fee income from the three managed syndicates and a profit commission of £0.6m on the two run-off syndicates. This resulted in income of £3.6m and an operating profit of £1.6m (2011: £1.2m, (£0.5m) respectively). 

The MGA commission income was significantly higher than in previous periods at over £2.0m (2011: £0.2m) on premium income of £14.3m (2011: £0.9m) as a result primarily of the addition of R&Q Marine Services, the new Yachts and Marine Trades MGA. Income also grew in the other MGAs as capacity and distribution were improved. Excluding Canada, the operating result was impacted by the anticipated losses at Synergy where cost and capacity issues have now been addressed following its acquisition by the Group earlier in the year. We look forward to the remainder of 2012 with confidence now that Canada has been discontinued and as capacity improvements and scale in the other MGAs bring improved financial performance.

As has already been commented on, the division was impacted once again by on-going costs associated with compliance with Solvency II but we should soon be into maintenance, or 'business as usual' rather than implementation phase. The expected increase in the scale of our operations should also alleviate the future burden and residual costs retained by the managing agency.

The recent 'in principle' approval from Lloyd's for the launch of a new R&Q 'first party' syndicate is an exciting development not just for the UMD but for the entire Group. The proposed underwriting team has an excellent track record and its focused and specialist approach to delegated authority selection and management represents an attractive proposition. A significant amount of energy and resource is currently being expended in ensuring the syndicate is approved and fully operational for a 1 January 2013 start.

Return of Cash via a J/K Share Scheme

The Return of Value, details of which are outlined in a circular posted to shareholders today, will give shareholders the option of receiving their payment as capital or income and provides a more flexible and efficient mechanism of returning capital. The payment of 3.4p per share is anticipated to be made through the scheme on or around 7 November 2012 to those shareholders on the register at 5.00 p.m. on 11 October 2012.

The proposed return of cash to shareholders through a J/K share scheme comes in a period when the Group successfully managed to release capital from three of its insurance investments.

The proposed Return of Value is in place of the interim dividend for the 2012 year but the Group may choose to make future returns of value in addition or instead of ordinary dividend payments, whilst maintaining its stated policy to grow total distributions to shareholders by at least 5% per annum from the revised base level of 7.4p per share in 2009.

Litigation

During the period, we reached an agreement in principle to resolve all of our outstanding legal cases with various companies of the ACE Group ('ACE') including litigation that the Group filed against various ACE subsidiaries in May 2012 in the Supreme Court of New York. The settlement will resolve all of ACE's various legal disputes against the Group. The issues are complex and they arise from the accumulation of a number of separate disputes. We continue to work through the detail with ACE and anticipate finalising the agreement in the near future.

Outlook

Overall, the outlook remains promising.  We anticipate a good second half performance across the four divisions and that the full year result will meet management's expectations.

We expect that the Insurance Investments Division will benefit from more commutation activity in the second half as well as completion of further run-off acquisitions from our active pipeline. The global fixed income investment markets however remain challenging and though recent portfolio restructuring has resulted in a running yield close to 3% with very low duration, we are not immune from future credit market volatility. We expect a stronger second half in the Insurance Services Division and continuation of the improved trading in the Captives and Underwriting Management divisions.

Meanwhile, we retain our focus on managing costs and improving the quality of earnings in our service operations, realising cash from our insurance investments, building income in our MGA businesses and successfully launching the new R&Q syndicate for a January 2013 start.

K E Randall

Chairman and Chief Executive Officer

05 September 2012

Condensed Consolidated Income Statement

For the six months ended 30 June 2012

			6 months  ended 30 June  2012		6 months   ended 30 June  2011		Year ended  31 December  2011
			(Unaudited)		(Unaudited)		(Audited)
	Note		£000		£000		£000
Gross premiums written			3,479		1,031		2,290
Reinsurers' share of gross premiums			(213)		(549)		(1,080)
Premiums written, net of reinsurance			3,266		482		1,210
Change in gross provision for unearned premiums			(1,363)		(638)		(871)
Change in provision for unearned premiums, reinsurers' share			243		93		-
Net change in provision for unearned premiums			(1,120)		(545)		(871)
Earned premiums net of reinsurance			2,146		(63)		339
Net investment income	4		5,513		5,618		6,358
Other income			17,611		13,241		30,096
			23,124		18,859		36,454
Total income	3		25,270		18,796		36,793
Gross claims paid			(28,517)		(26,243)		(80,777)
Reinsurers' share of gross claims paid			17,936		17,828		51,278
Claims paid, net of reinsurance			(10,581)		(8,415)		(29,499)
Movement in gross technical provision			35,497		31,037		94,000
Movement in reinsurers' share of technical provisions			(13,483)		(17,765)		(51,135)
Net change in provision for claims			22,014		13,272		42,865
Net insurance claims released			11,433		4,857		13,366
Operating expenses			(28,196)		(20,288)		(42,308)
Result of operating activities before goodwill on bargain purchase and impairment of intangible assets	3		8,507		3,365		7,851
Goodwill on bargain purchase			298		-		1,541
Impairment of intangible assets			(28)		(172)		(13,458)
Result of operating activities			8,777		3,193		(4,066)
Finance costs			(226)		(218)		(591)
Profit /(loss) on ordinary activities before income taxes			8,551		2,975		(4,657)
Income tax (charge)/credit	5		(233)		137		4,169
Profit /(loss) for the period	3		8,318		3,112		(488)
Attributable to equity holders of the parent
Attributable to ordinary shareholders			4,404		3,112		(488)
Non-controlling interests			3,914		-		-
			8,318		3,112		(488)
Earnings per ordinary share for the profit attributable to the ordinary shareholders of the Company:-
Basic	7		8.9p		5.8p		(0.9p)
Diluted			8.7p		5.7p		(0.9p)

Condensed Consolidated Statement of Financial Position

As at 30 June 2012

Company number 03671097

	Note		30 June 2012		30 June 2011	31 December 2011
			(Unaudited)		(Unaudited)		(Audited)
			£000		£000		£000
Assets
Intangible assets			15,977		26,130		14,510
Property, plant and equipment			1,865		1,231		1,717
Investment properties			985		1,083		1,022
Financial assets			186,821		228,803		201,778
Reinsurers' share of insurance liabilities	6		153,859		195,679		166,745
Current tax assets			3,881		1,668		2,769
Deferred tax asset			6,506		2,734		5,358
Insurance and other receivables			73,314		46,751		76,198
Cash and cash equivalents			62,411		40,623		37,183
Total assets			505,619		544,702		507,280
Liabilities
Insurance contract provisions	6		354,864		411,440		362,229
Financial liabilities			23,957		22,239		25,515
Deferred tax liabilities			1,372		212		470
Insurance and other payables	8		47,695		32,122		43,392
Current tax liabilities			1,160		2,066		601
Pension scheme obligations			3,971		-		2,641
Total liabilities			433,019		468,079		434,848
Equity
Share capital			1,118		1,138		1,118
Other reserves			6,003		12,092		13,282
Retained earnings			61,565		63,393		58,032
Attributable to equity holders of the parent			68,686		76,623		72,432
Non-controlling interests			3,914		-		-
Total equity			72,600		76,623		72,432
Total liabilities and equity			505,619		544,702		507,280

Approved by the Board on 05 September 2012

K E Randall                                                                                           T A Booth

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2012

			6 months   ended 30 June  2012		6 months   ended 30 June  2011		Year ended 31 December 2011
			(Unaudited)		(Unaudited)		(Audited)
			£000		£000		£000
Net cash from/(used in) operating activities			(996)		(16,148)		(12,744)
Purchase of property, plant and equipment			(453)		(632)		(1,405)
Group share of Syndicate cash			-		2,688		-
Acquisition of subsidiary undertakings (net of cash acquired) including RITC of S3330			30,802		-		(2,379)
Cash injected by minority interest in subsidiary			12		-		-
Net cash from/(used in) investing activities			30,361		2,056		(3,784)
Repayment of borrowings			(1,227)		(1,965)		(23,362)
New borrowing arrangements			123		2,329		26,940
Equity dividends paid			(726)		(613)		(1,172)
Interest and other finance costs paid			(226)		(218)		(591)
Receipts from issue of shares			-		60		33
Cancellation of shares			(1,730)		(1,837)		(2,816)
Purchase of treasury shares			-		(2,597)		(6,166)
Sale of treasury shares			16		560		686
Net cash used in financing activities			(3,770)		(4,281)		(6,448)
Net increase/(decrease) in cash and cash equivalents			25,595		(18,373)		(22,976)
Cash and cash equivalents at beginning of period			37,183		60,109		60,109
Foreign exchange movement on cash and cash equivalents			(367)		(1,113)		50
Cash and cash equivalents at end of period			62,411		40,623		37,183
Share of Syndicates' cash restricted funds			16,096		3,401		1,547
Unrestricted funds			46,315		37,222		35,636
Cash and cash equivalents at end of period			62,411		40,623		37,183

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2012

			6 months ended 30 June 2012		6 months ended 30 June 2011	Year ended 31 December  2011
			(Unaudited)		(Unaudited)		(Audited)
			£000		£000		£000
Recognised in the financial period:-
Exchange gains/(losses) on consolidation			152		(1,557)		(31)
Pension scheme actuarial losses			(1,367)		(109)		(2,851)
Deferred tax on pension scheme actuarial losses			342		29		713
Net expense recognised directly in equity			(873)		(1,637)		(2,169)
Profit/(loss) for the period			8,318		3,112		(488)
Total comprehensive income for the period			7,445		1,475		(2,657)
Attributable to:-
Equity holders of the parent			3,531		1,475		(2,657)
Non-controlling interests			3,914		-		-
Total recognised in the period			7,445		1,475		(2,657)

Consolidated Statement of Changes in Equity

For the six months ended 30 June 2012

	Attributable to owners of the parent
	Share capital	Shares to be issued	Share premium	Capital redemption reserve	Treasury shares	Retained profit	Total	Non-controlling interest	Total
Period ended 30 June 2012
At beginning of period	1,118	254	12,096	1,636	(704)	58,032	72,432	-	72,432
Total comprehensive income for the period
Profit for the period	-	-	-	-	-	4,404	4,404	3,914	8,318
Other comprehensive income
Exchange gains on consolidation	-	-	-	-	-	152	152	-	152
Pension scheme actuarial losses	-	-	-	-	-	(1,367)	(1,367)	-	(1,367)
Deferred tax on pension scheme actuarial losses	-	-	-	-	-	342	342	-	342
Total other comprehensive income for the period	-	-	-	-	-	(873)	(873)	-	(873)
Total comprehensive income for the period	-	-	-	-	-	3,531	3,531	3,914	7,445
Transactions with owners
Purchase of own shares	-	-	(4,900)	-	-	-	(4,900)	-	(4,900)
Issue of G-H shares	2,456	-	(2,456)	-	-	-	-	-	-
Cancellation of G Shares	(726)	-	-	-	-	726	-	-	-
Cancellation of H shares	(1,730)	-	-	-	-	-	(1,730)	-	(1,730)
Treasury shares	-	(9)	-	-	86	2	79	-	79
Dividends	-	-	-	-	-	(726)	(726)	-	(726)
At end of period	1,118	245	4,740	1,636	(618)	61,565	68,686	3,914	72,600

	Attributable to owners of the parent
	Share capital	Shares to be issued	Share premium	Capital redemption reserve	Treasury shares	Retained profit	Total	Non-controlling interest	Total
Period ended 30 June 2011
At beginning of period	1,135	250	16,029	1,614	(1,334)	61,855	79,549	(164)	79,385
Total comprehensive income for the period
Profit for the period	-	-	-	-	-	3,112	3,112	171	3,283
Other comprehensive income
Exchange losses on consolidation	-	-	-	-	-	(1,557)	(1,557)	(7)	(1,564)
Pension scheme actuarial losses	-	-	-	-	-	(109)	(109)	-	(109)
Deferred tax on pension scheme actuarial losses	-	‑	-	-	-	29	29	-	29
Total other comprehensive income for the period	-	-	-	-	-	(1,637)	(1,637)	(7)	(1,644)
Total comprehensive income for the period	-	-	-	-	-	1,475	1,475	164	1,639
Transactions with owners
Issues of shares/ shares to be issued	3	14	69	-	-	-	86	-	86
Issue of C-D shares	2,450	-	(2,450)	-	-	-	-	-	-
Cancellation of C Shares	(1,837)	-	-	-	-	-	(1,837)	-	(1,837)
Cancellation of D shares	(613)	-	-	-	-	613	-	-	-
Treasury shares	-	-	-	-	(2,100)	63	(2,037)	-	(2,037)
Dividends	-	-	-	-	-	(613)	(613)	-	(613)
At end of period	1,138	264	13,648	1,614	(3,434)	63,393	76,623	-	76,623

	Attributable to owners of the parent
	Share capital	Shares to be issued	Share premium	Capital redemption reserve	Treasury shares	Retained profit	Total	Non-controlling interest	Total
Year ended 31 December 2011
At beginning of year	1,135	250	16,029	1,614	(1,334)	61,855	79,549	(164)	79,385
Total comprehensive income for the year
(Loss)/Profit for the year	-	-	-	-	-	(488)	(488)	171	(317)
Other comprehensive income
Exchange losses on consolidation	-	-	-	-	-	(31)	(31)	(7)	(38)
Pension scheme actuarial losses	-	-	-	-	-	(2,851)	(2,851)	-	(2,851)
Deferred tax on pension scheme actuarial losses	-	‑	-	-	-	713	713	-	713
Total other comprehensive income for the year	-	-	-	-	-	(2,169)	(2,169)	(7)	(2,176)
Total comprehensive income for the year	-	-	-	-	-	(2,657)	(2,657)	164	(2,493)
Transactions with owners
Issues of shares	5	(20)	99	-	-	-	84	-	84
Issue of C-F shares	4,032	-	(4,032)	-	-	-	-	-	-
Redemption of ordinary shares	(22)	-	-	22	-	(1,266)	(1,266)	-	(1,266)
Cancellation of C&E Shares	(2,816)	-	-	-	-	-	(2,816)	-	(2,816)
Cancellation of D&F shares	(1,216)	-	-	-	-	1,216	-	-	-
Share based payments	-	51	-	-	-	-	51	-	51
Treasury shares	-	(27)	-	-	630	56	659		659
Dividends	-	-	-	-	-	(1,172)	(1,172)	-	(1,172)
At end of year	1,118	254	12,096	1,636	(704)	58,032	72,432	-	72,432

Notes to the Interim Financial Statements

For the six months ended 30 June 2012

1.         Basis of preparation

The condensed interim financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting.

The condensed interim financial statements for the 2012 and 2011 half years are unaudited, but have been subject to review by the Company's auditors. 

The comparative figures for the year ended 31 December 2011 are based upon the consolidated Group financial statements.  These accounts have been reported on by the Company's auditors and have been delivered to the Registrar of Companies on 30 June 2012.

2.         Significant accounting policies

The condensed interim financial statements have been prepared under the historical cost convention, except that financial assets are stated at their fair value.

The accounting policies adopted in the preparation of the interim condensed interim financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2011.  There have been no amendments to accounting policies as a result of new standards or interpretations that have become effective during 2012.

3.         Segmental information

The Group's segments represent the level at which financial information is reported to the Board, being the chief operating decision maker as defined in IFRS 8.  The reportable segments have been identified as follows:-

•           Insurance Investments, which acquires legacy portfolios and insurance debt and provides capital support to the Group's managed Lloyd's Syndicates

•           Insurance Services, which provides insurance related services to both internal and external clients in the insurance market

•           Captives, which manages captive and insurance company operations

•           Underwriting Management, which provides management to Lloyd's syndicates and operates other underwriting entities

•           Other corporate activities, which primarily includes the Group holding company and other minor subsidiaries which fall outside of the segments above

Segment result for the six months ended 30 June 2012

Insurance Investments			Insurance services	Captives		Underwriting Management		Other corporate			Consolidation adjustments		Total
	£000		£000		£000		£000		£000		£000		£000
Earned premium net of reinsurance	2,146		-		-		-		-		-		2,146
Net investment income	6,101		403		34		80		325		(1,430)		5,513
Other external income	1,000		9,337		2,975		4,299		-		-		17,611
Other internal income	306		7,292		163		1,494		-		(9,255)		-
Total income	9,553		17,032		3,172		5,873		325		(10,685)		25,270
Claims paid, net of reinsurance	(10,581)		-		-		-		-		-		(10,581)
Net change in provision for claims	22,014		-		-		-		-		-		22,014
Net insurance claims released	11,433		-		-		-		-		-		11,433
Operating expenses	(10,904)		(14,721)		(2,675)		(6,852)		(2,299)		9,255		(28,196)
Result of operating activities before goodwill on bargain purchase and impairment of intangible assets	10,082		2,311		497		(979)		(1,974)		(1,430)		8,507
Goodwill on bargain purchase	298		-		-		-		-		-		298
Impairment of intangible assets	-		-		(28)		-		-		-		(28)
Result of operating activities	10,380		2,311		469		(979)		(1,974)		(1,430)		8,777
Finance costs	(346)		(417)		(204)		(87)		(602)		1,430		(226)
Profit/(loss) on ordinary activities before income taxes	10,034		1,894		265		(1,066)		(2,576)		-		8,551
Income tax (charge)/credit	(881)		58		77		(78)		591		-		(233)
Profit/(loss) for the period	9,153		1,952		342		(1,144)		(1,985)		-		8,318
Segment assets	529,232		95,779		19,851		15,801		(5,638)		(149,406)		505,619
Segment liabilities	423,304		83,301		13,530		18,384		56,176		(161,676)		433,019

Internal income includes fees payable by the insurance companies to the Insurance Services Division in the period, which are contractually committed on an arm's length basis.

External income contains no clients which generate more than 10% of the total external income.

             Segment result for the six months ended 30 June 2011

Insurance Investments			Insurance services	Captives		Underwriting Management		Other corporate			Consolidation adjustments		Total
	£000		£000		£000		£000		£000		£000		£000
Earned premium net of reinsurance	(63)		-		-		-		-		-		(63)
Net investment income	5,443		167		-		2		6		-		5,618
Other external income	95		10,310		1,560		1,276		-		-		13,241
Other internal income	-		4,794		-		62		-		(4,856)		-
Total income	5,475		15,271		1,560		1,340		6		(4,856)		18,796
Claims paid, net of reinsurance	(8,415)		-		-		-		-		-		(8,415)
Net change in provision for claims	13,272		-		-		-		-		-		13,272
Net insurance claims released	4,857		-		-		-		-		-		4,857
Operating expenses	(7,103)		(13,320)		(1,467)		(2,872)		(382)		4,856		(20,288)
Result of operating activities before goodwill on bargain purchase and impairment of intangible assets	3,229		1,951		93		(1,532)		(376)		-		3,365
Impairment of intangible assets	-		-		(172)		-		-		-		(172)
Result of operating activities	3,229		1,951		(79)		(1,532)		(376)		-		3,193
Finance costs	(12)		(1)		-		-		(205)		-		(218)
Management charges	-		(1,225)		(93)		-		1,318		-		-
Profit/(loss) on ordinary activities before income taxes	3,217		725		(172)		(1,532)		737		-		2,975
Income tax (charge)/credit	(413)		277		-		32		241		-		137
Profit/(loss) for the period	2,804		1,002		(172)		(1,500)		978		-		3,112
Segment assets	522,304		40,291		6,593		2,974		22,648		(50,108)		544,702
Segment liabilities	435,124		26,237		1,187		4,323		51,316		(50,108)		468,079

Internal income includes fees payable by the insurance companies to the Insurance Services Division in the period, which are contractually committed on an arm's length basis.

External income contains no clients which generate more than 10% of the total external income.

             Segment result for the year ended 31 December 2011

Insurance Investments			Insurance services	Captives		Underwriting Management		Other corporate			Consolidation adjustments		Total
	£000		£000		£000		£000		£000		£000		£000
Earned premium net of reinsurance	339		-		-		-		-		-		339
Net investment income	6,306		1,058		22		34		621		(1,683)		6,358
Other external income	803		20,593		4,301		4,399		-		-		30,096
Other internal income	-		13,597		397		958		-		(14,952)		-
Total income	7,448		35,248		4,720		5,391		621		(16,635)		36,793
Claims paid, net of reinsurance	(29,499)		-		-		-		-		-		(29,499)
Net change in provision for claims	42,865		-		-		-		-		-		42,865
Net insurance claims released	13,366		-		-		-		-		-		13,366
Operating expenses	(14,038)		(29,602)		(4,443)		(6,504)		(2,673)		14,952		(42,308)
Result of operating activities before goodwill on bargain purchase and impairment of intangible assets	6,776		5,646		277		(1,113)		(2,052)		(1,683)		7,851
Goodwill on bargain purchase	1,541		-		-		-		-		-		1,541
Impairment of intangible assets	(13,286)		-		(172)		-		-		-		(13,458)
Result of operating activities	(4,969)		5,646		105		(1,113)		(2,052)		(1,683)		(4,066)
Finance costs	(262)		(353)		(58)		(56)		(1,545)		1,683		(591)
Management charges	-		(1,408)		(139)		-		1,547				-
Profit/(loss) on ordinary activities before income taxes	(5,231)		3,885		(92)		(1,169)		(2,050)		-		(4,657)
Income tax (charge)/credit	3,666		(304)		146		(23)		684		-		4,169
Profit/(loss) for the period	(1,565)		3,581		54		(1,192)		(1,366)		-		(488)
Segment assets	503,902		89,560		18,863		7,675		(4,617)		(108,103)		507,280
Segment liabilities	408,061		75,913		13,013		8,707		48,096		(118,942)		434,848

Internal income includes fees payable by the insurance companies to the Insurance Services Division in the period, which are contractually committed on an arm's length basis.

No income from any one client included within the external income generated more than 10% of the total external income.

Geographical analysis

As at 30 June 2012
	UK		North America		Europe		Total
		£000		£000		£000		£000
Gross assets		317,271		331,695		18,327		667,293
Intercompany eliminations		(118,187)		(32,757)		(10,730)		(161,674)
Segment assets		199,084		298,938		7,597		505,619
Gross liabilities		278,448		303,887		12,601		594,936
Intercompany eliminations		(124,843)		(35,951)		(1,123)		(161,917)
Segment liabilities		153,605		267,936		11,478		433,019
Segmental income		18,309		6,254		707		25,270

As at 30 June 2011
	UK		North America		Europe		Total
		£000		£000		£000		£000
Gross assets		193,177		376,870		24,763		594,810
Intercompany eliminations		(31,291)		(6,484)		(12,333)		(50,108)
Segment assets		161,886		370,386		12,430		544,702
Gross liabilities		161,317		337,595		19,054		517,966
Intercompany eliminations		(35,881)		(13,521)		(485)		(49,887)
Segment liabilities		125,436		324,074		18,569		468,079
Segmental income		10,949		7,789		58		18,796

As at 31 December 2011
	UK		North America		Europe		Total
		£000		£000		£000		£000
Gross assets		254,944		350,413		20,865		626,222
Intercompany eliminations		(74,913)		(32,545)		(11,484)		(118,942)
Segment assets		180,031		317,868		9,381		507,280
Gross liabilities		215,591		323,341		14,839		553,771
Intercompany eliminations		(84,615)		(33,850)		(458)		(118,923)
Segment liabilities		130,976		289,491		14,381		434,848
Segmental income		23,392		12,767		634		36,793

Other information

As at 30 June 2012
Insurance Investments			Insurance services	Other corporate			Eliminations		Total
	£000		£000		£000		£000		£000
Capital expenditure	-		453		-		-		453
Depreciation	-		334		-		-		334

As at 30 June 2011
Insurance Investments			Insurance services	Other corporate			Eliminations		Total
	£000		£000		£000		£000		£000
Capital expenditure	-		632		-		-		632
Depreciation	2		208		-		-		210

As at 31 December 2011
Insurance Investments			Insurance services	Other corporate			Eliminations		Total
	£000		£000		£000		£000		£000
Capital expenditure	-		1,405		-		-		1,405
Depreciation	-		513		-		-		513

4.         Investment return

		6 months  ended 30 June  2012		6 months  ended 30 June  2011	Year ended  31 December   2011
		£000		£000		£000
Interest income		3,456		3,724		7,442
Realised gains on investments		830		776		690
Unrealised gains/(losses) on investments		1,479		1,331		(1,369)
Investment management expenses		(252)		(213)		(405)
		5,513		5,618		6,358

5.         Income tax

		6 months ended 30 June  2012		6 months 30 ended  June  2011	Year ended  31 December  2011
		£000		£000		£000
Current tax		(136)		(479)		1,861
Deferred tax		(97)		616		2,308
Tax (charge)/credit		(233)		137		4,169

6.     Technical provisions

Gross		6 months ended  30 June 2012		6 months  ended 30 June  2011	Year ended  31 December  2011
		£000		£000		£000
Claims outstanding at 1 January		362,229		440,095		440,095
Claims paid		(28,517)		(26,243)		(80,777)
Increase arising from acquisition of subsidiary and RITC of Syndicates		29,439		-		16,599
Release of reserves		(6,980)		(4,794)		(13,223)
Net exchange differences		(1,307)		2,382		(465)
As at period end		354,864		411,440		362,229

Reinsurance		6 months ended 30 June  2012		6 months ended 30 June  2011	Year ended  31 December  2011
		£000		£000		£000
Reinsurers share of claims outstanding at 1 January		166,745		216,607		216,607
Reinsurers share of gross claims paid		(17,936)		(17,828)		(51,278)
Increase arising from acquisition of subsidiary and RITC of Syndicates		2,647		-		4,102
Strengthening of reserves		4,453		63		143
Net exchange differences		(2,050)		(3,163)		(2,829)
As at period end		153,859		195,679		166,745
Net		6 months ended 30 June  2012		6 months ended 30 June  2011	Year ended  31 December  2011
		£000		£000		£000
Net claims outstanding at 1 January		195,484		223,488		223,488
Net claims paid		(10,581)		(8,415)		(29,499)
Increase arising from acquisition of subsidiary and RITC of Syndicates		26,792		-		12,497
Release of reserves		(11,433)		(4,857)		(13,366)
Net exchange differences		743		5,545		2,364
As at period end		201,005		215,761		195,485

The assumptions used in the estimation of provisions 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.

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 owned insurance operations.

The Group owns a number of insurance companies in run-off. Significant uncertainty arises in the quantification of technical provisions for all insurance entities under the Group's control due to the long tail nature of the business underwritten by those entities.  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.

The provisions carried by the Group's owned insurance companies are calculated using a variety of actuarial techniques. The provisions 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 Group's internally produced statistics and trends are consistent with observable market information and other published data.

When preparing these 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.  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.

7.     Earnings per share

		6 months   ended 30 June  2012		6 months   ended 30 June  2011	Year ended  31 December  2011
		£000		£000		£000
Profit/(loss) for the period attributable to Ordinary shareholders		4,404		3,112		(488)
		No. 000's		No. 000's		No. 000's
Weighted average number of Ordinary shares		49,420		53,629		51,525
Effect of dilutive share options		1,015		1,095		1,015
Weighted average number of Ordinary shares for the purposes of diluted earnings per share		50,435		54,724		52,540
Basic earnings per share		8.9p		5.8p		(0.9p)
Diluted earnings per share		8.7p		5.7p		(0.9p)

8.     Insurance and other payables

		6 months ended 30 June 2012		6 months ended 30 June 2011	Year ended 31 December 2011
		£000		£000		£000
Structured liabilities		367,410		356,654		370,340
Structured settlements		(367,410)		(356,654)		(370,340)
		-		-		-
Other creditors		47,695		32,122		43,392
		47,695		32,122		43,392

Structured Settlements

No new structured settlement arrangements have been entered into during the year.  The movement in these structured liabilities during the period is primarily due to exchange movements.  The Group has paid for 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 subsidiary retains the credit risk in the unlikely event that the life insurance company defaults on its obligations to pay the annuity amounts.  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. These have been shown as reducing the insurance companies' liabilities 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.

Quest - Segregated Cells

In respect of the Quest group, the assets and liabilities of the segregated cells and the profits and losses of each cell are not available for use by Quest, nor the Group, and as such these balances are not included in the consolidated statement of financial position.  The amounts held on behalf of the segregated cells as at 30 June 2012 amounted to £60,274,000 (31 December 2011: £59,097,000).

Client monies

The Group holds regulated funds on behalf of clients and as these are not available for use by the Group, they are not included in the consolidated statement of financial position.  The amounts held as at 30 June 2012 amounted to £10,884,000 (31 December 2011: £10,369,000).

9. Borrowings

The Company has entered into a guarantee agreement and debenture arrangement with its bankers, along with various of its subsidiaries in respect of the Group's overdraft and term loan facilities. The total liability to the bank at 30 June 2012 is £22,246,000 (2011: £23,244,000).

10. Issued share capital

Issued share capital as at 30 June 2012 amounted to £1,117,526 (31 December 2011: £1,117,526).

11. Contingencies and commitments

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 unlikely that either of these counter-indemnities will be called upon.

12. Goodwill

When testing for impairment of goodwill, the recoverable amount of each relevant cash generating unit is determined based on cash flow projections. These cash flow projections are based on the financial forecasts approved by management covering a five year period.  Management also consider the current net asset value and earnings of each cash generating unit.

No changes to the underlying assumptions have been made in the interim review.

The Group considers the relationship between its market capitalisation and its book value, among other factors, when reviewing for indicators of impairment.

13. Litigation

Details of litigation are included in the Chairman's statement.

14. Related party transactions

The following Officers and connected parties received distributions during the period as follows:-

	2012	2011
	£	£
K E Randall and family	1,090,226	1,062,649
A K Quilter	212,976	209,605
K P McNamara	6,816	6,190
M G Smith	1,225	1,113
J M P Welman	4,900	4,550

·          Mr and Mrs K E Randall received £12,500 (2011: £12,500) for rent for property used by the Group.

·          During the period the Group recharged expenses totalling £2,034,000 (2011: £2,707,000) to Lloyd's Syndicates 102, 1897 and 3330, which are managed by the Group.

15. Business combinations

During the period the Group acquired the Marine insurance MGA business from Talbot Group, Synergy Insurance Services (UK) Limited, Northern Foods Insurance Limited and Trimac Exit Insurance Limited.  None of these acquisitions were significant in terms of cost or fair value additions to the Group.

16. Non-controlling interests

Details of the non-controlling interest are included in the Chairman's statement.

 

END

 

 

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